The Indian startup ecosystem experienced a significant downturn in funding activity throughout 2023 as conditions across both public and private markets deteriorated sharply. According to data from research firm Tracxn, total equity investment into Indian startups fell a massive 73% year-on-year to just $7 billion.
This happened because things got harder:
- Interest rates went up around the world to slow down cost rises (called inflation). This made investors more scared to take big risks.
- Problems between countries like Russia and Ukraine made the future more unclear.
- Costs for things like food and fuel jumped a lot in India too. This worried people about more price hikes ahead.
- Share prices crashed so it was tougher for startups to attract cash.
Late stage deals took big hit
The impact was worst for big funding rounds in large startups. Only 2 startups became “unicorns” (valued over $1 billion), much less than last year. Startups needing new cash after some time (called growth stage) struggled a lot.
Between July to November, funding fell to lowest in years. This was really bad for startups relying only on outside money.
ZestMoney failed as an example – it shut down as it couldn’t get more funding in this climate. Early startups with less spending survived better, but all had to change plans.
Focus shifted to saving cash
To continue operating in these tough times, startups had no choice but to cut costs a lot:
- Using online cloud tools more helped save office and equipment costs.
- Growing was less important than making profit or at least breaking even.
- Saving every penny mattered more than getting users quickly.
- Some merged to pool resources as solo survival got hard.
Some sectors stayed stronger
However, not all was doom and gloom. Certain industries continued attracting interest from specialized funds with a long investment horizon. Fintech, enterprise SaaS, and consumer retail saw relatively better deal activity due to strong fundamentals and vertical-specific tailwinds. Occasional large transactions also occurred in these segments from deep-pocketed investors with a contrarian view. Regulated or profit-generating models received more attention in current market conditions.
Areas like fintech (financial tech), software for companies, and online shopping saw relatively better activity. Large investors ignored short term risks for these.
Funding outlook less grim
Although next year also looks weak, well-funded startups may buy struggling peers at fair prices. A few risk-ready funds may back select larger startups focusing only on India.
In summary, 2023 stressed on smart strategies for startups to prepare for future ups and downs. The ones adapting best will be best placed long-term.
