After rough ride in 2024, Indian startups look for a promising new year

New Delhi: The Indian startup ecosystem experienced a rollercoaster ride in 2024, characterised by a slight-yet-concerning decline in funding activity and a shift in investor sentiment, alongside a silver lining with several startups achieving unicorn status.

Despite facing global economic challenges, India's startups showcased remarkable resilience, adeptly navigating changing market conditions, while continuing to attract investments.

According to data from Tracxn, Indian startups raised a total of USD 30.4 billion in funding throughout 2024, a 6.5 per cent decline from the USD 32.5 billion secured in 2023.

Despite this dip, the Indian startup ecosystem demonstrated resilience, with several companies achieving unicorn status this year. Noteworthy entrants to the unicorn club include Rapido, Ather, Perfios, Porter, and Money View, highlighting ongoing innovation and investment interest in the sector.

The overall funding trend reflects a cautious-yet-optimistic approach from investors, as they navigate a more selective funding environment, while still recognising the potential of high-growth startups in India.

A slight shift towards early-stage investments was evident during the year, with seed and Series A rounds gaining traction, as investors sought to back innovative ideas with long-term potential.

Businesses that could demonstrate robust underlying unit economics found greater favour this year, Dushyant Singh, Managing Partner at Playbook Partners, noted.

Gig economy, retail, and enterprise applications stood out as top-performing sectors, according to Traxcn.

Quick commerce emerged as a high-growth sector, with 40 active companies, including unicorns Zepto, Blinkit, and Swiggy Instamart, and promising newcomers Dunzo, Swish, and Farmako.

In July, the government announced the abolishment of the angel tax on investments in startups to provide a more conducive environment for growth.

"By eliminating this tax, the government has provided a much-needed boost to investors and entrepreneurs, enabling greater liquidity and more flexible funding options for startups. However, fewer funding rounds, high operational costs, and infrastructure challenges remain ongoing factors that need attention," said Jeenendra Bhandari, Chairman, JITO Incubation and Innovation Foundation (JIIF).

There was an encouraging rise in women entrepreneurs and founders from Tier 2 and 3 towns. Ninad Karpe from 100X.VC said the entrepreneurial culture has transcended its traditional boundaries.

"The entrepreneurial culture has transcended its traditional boundaries, seeping into colleges, schools, and even Tier 2 and 3 towns. Founders from these regions are bringing fresh perspectives, solving hyperlocal problems, and creating opportunities that were previously untapped.

"There's a noticeable rise in women entrepreneurs, signalling a positive shift in inclusivity and diversity within the startup ecosystem," he said.

According to official data, India has more than 73,000 startups with at least one woman director that have been recognised under the Startup India Initiative.

Despite the positive trends, challenges persist.

Global economic uncertainties have a direct impact on investor sentiment and funding availability.

"While the number of deals has seen a quarterly increase of 10-20 per cent... deal values have declined significantly. This reflects a cautious investment climate, with most funding rounds being either follow-ons by existing investors or bridge rounds aimed at extending the runway rather than driving growth. The focus has shifted from valuation-driven funding to sustainability and profitability," FAAD Capital CEO Aditya Arora said.

The growth in venture capital this year was mainly driven by increase in mid and late-stage investment, Singh seconded.

Startups continue to grapple with rising operational costs, which can strain their financial sustainability. Several Indian startups have gained fame and achieved unicorn status despite not being profitable.

Many startups still face challenges related to inadequate physical infrastructure, particularly in Tier 2 and Tier 3 cities. This can hugely affect logistics, supply chain management, and overall operational efficiency.

Moreover, navigating compliance requirements can be cumbersome for new businesses, diverting resources away from innovation and growth.

A fitting saying for the current situation of the Indian startup ecosystem could be: "In the midst of adversity, hope is the seed from which resilience grows." Despite a rough patch in recent years, the Indian startup landscape has shown remarkable buoyancy.

The increasing trend of Indians returning from abroad to establish businesses is also expected to invigorate the ecosystem with global expertise, Bhandari believes.

Cautious optimism in 2024 is expected to continue into 2025, broader market recovery may still be two years away, with significant improvements anticipated by 2026, Arora said.

"In the interim, the ecosystem is expected to witness an increase in SME IPOs, unlocking real value for investors and startups alike," he said.

The rise of artificial intelligence, machine learning, and blockchain technologies is expected to attract significant investment. Startups leveraging these technologies will likely be at the forefront of funding conversations.

Deloitte's Chirag Agrawal said AI is enabling efficient operations and supporting data-driven decision-making.

AI-focused startups are attracting significant investments, particularly in high-impact areas such as healthcare, finance, and sustainability, he said.

"For 2025, India's entrepreneurial ecosystem is poised for continued growth, driven by technological advancements, government reforms, and a favourable macroeconomic environment.

"Emerging trends include significant investments in Deep Tech, Electric Vehicles, Clean Tech, Defence Tech, and Space Tech. These sectors are expected to attract substantial funding, particularly in AI, sustainable technologies, and space commercialization, positioning India as a global leader in these high-potential areas," he said.