Startup funding drops 73% in 2023, plummeting India to global 5th position

India’s startup space felt the headwinds of a funding slowdown significantly this year and dropped from the 4th place to the 5th among the highest-funded geographies globally, as per a report by startup data firm Tracxn. The year till date saw startup funding plummet 72% to just $7 billion, compared to $25 billion in the previous year, making it the lowest-funded year in the last five years.

Till now, Q4 2023 recorded the lowest funding of $957 million to date, becoming the lowest-funded quarter since Q3 2016.

Funding for the startup economy dropped across different rounds of investments, but late-stage funding took the biggest hit after it fell by over 73% to $4.2 billion in 2023 from $15.6 billion in 2022. Early-stage and seed-stage funding also saw similar declines of 70% and 60%, respectively.

Additionally, the country’s tech ecosystem saw only 17 rounds worth over $100 million in 2023 till date as compared to 55 in the same period last year, recording a 69% drop. Only two unicorns, which are companies with a valuation of over $1 billion, were created in 2023 till now, including fintech firm Incred and hyper local delivery service Zepto. This is compared to 23 unicorns created in 2022.

However, companies went public at a similar pace as last year, and the year till now has seen 18 initial public offerings (IPOs) from startups, just one shy of the 19 recorded last year.

Lenskart, PhonePe, Perfios, and Zepto were some of the top funded companies in India in 2023, highlighting fintech and retail companies’ as successful outliers in the current funding winter. Fintech was the highest funded sector in the current year till date, receiving $2.8 billion in funding, which is still a huge drop from $5.8 billion last year.

A huge contribution of 38% to this was made by PhonePe, which secured a total of $750 million in four series D rounds this year. Perfios, Insurancedekho, and Kreditbee, were some of the other top-funded companies in the sector this year.

Retail tech saw funding of $1.9 billion in 2023, a 67% drop compared to last year. Lenskart, with $600 million raised in two Series J rounds, emerged as the top-funded company in the sector this year.

All is not lost, however, as some new sectors have emerged as promising to investors. Space tech, whose growth has been propelled by its privatisation by the government, saw a 6% increase with $122 million raised so far in 2023, while environment tech received $1.2 billion in funding.

"While the funding slowdown in 2023 presents challenges for the Indian tech startup ecosystem, we remain optimistic about the future. With favourable government policies and a fast-growing economy, we believe India is well-positioned for success in the years to come,” Neha Singh, co-founder, Tracxn said.