Domestic startups battle to raise funds as funding declines by 77% YoY in H1 2023

Indian startup ecosystem continued to face woes of prolonged funding winter in the first half of 2023. Despite being the third largest geographies after the US and the UK, the funding in the domestic startup ecosystem mirrored the global declining trend. The startup funding plunged by 77% year-on-year (YoY) to $5.5 billion in H1 of 2023, as against $19.7 billion in the same period last year, according to the latest report by Tracxn, a SaaS-based market intelligence platform. The startup funding also witnessed a significant drop of 24% as compared to the $7.3 billion funds raised in H2 of 2022.

The report attributes depreciation of the domestic currency, inflation and global macroeconomic headwinds to be among the major contributors behind this decline. During the period under review, the funding rounds also witnessed a substantial decrease. The number of funding rounds in H1 of 2023 stood at 536, thus witnessing a decline of 66% YoY, as compared to 1,586 funding rounds in H1 of 2022.

The first and second quarters of 2023 witnessed the same amount of funding at $2.8 billion and $2.7 billion, respectively. However, the decline in startup funding was more prominent in Q1 of 2023 by 76% year-on-year. The startup funding in Q2 of 2023 plunged by 65% year-on-year.

"India continues to be one of the fastest-growing major economies. India's startup ecosystem ranked third in terms of funding in 2022, and it moved up to second in Q1 2023, and there is a tremendous amount of growth potential," says Neha Singh, co-founder, Tracxn.

Notably, the environment tech startups were amongst the leading performers in the first half of 2023, bolstered by the growing adoption of electric vehicles in the country. The funding in the segment surged 7% as compared to H2 of 2023 but declined by 25% YoY as compared to H1 2022. This was followed by fintech, retail and e-commerce segments.

Meanwhile, acquisitions by domestic startups more than halved in H1 of 2023. The period under review witnessed 74 startup acquisitions, registering a significant decline of 52% YoY as against 163 acquisitions in the same period last year. In the first half of 2023, only 14 funding rounds surpassed the $100 million mark, led by Byju’s, Lenskart, PhonePe and Ola Electric.

Earlier this week, data from research firm Venture Intelligence revealed that private equity-venture capital (PE-VC) investments declined by 50% to $15.5 billion as against 31 billion in the same period last year. Of this, the investment in the quarter-ended June declined by 33% YoY to $9.85 billion as against $14.6 billion in the same period last year.