The Indian startup ecosystem continues to grapple with long-lasting funding winter, and there are no signs of thawing. Following a surge in tech funding in Q4 2022, tech startups have experienced a consistent decline in investment in all three quarters of 2023. Q3 2023, in particular, stands out as the least funded quarter in the last five years, with a notable 30% drop from the previous quarter and a significant 54% decrease compared to the same period in 2022. According to the data from Tracxn, only $1.5 billion was raised during this frosty third quarter.
The number of tech funding rounds also declined a sharp 71% YoY, from 592 in Q3 2022 to 166 in Q3 2023.
However, despite the overall funding decline, the month-on-month funding trend in India’s tech startup ecosystem tells a slightly different story. The ecosystem reported a whopping 91% increase in funding value, from $376 million in August 2023 to $720 million in September 2023.
What’s even more intriguing is that India’s tech landscape, though facing a funding decline, has managed to maintain its position among the top five countries in terms of total funding for 2023. India ranked fifth in total funding in Q3 2023 and fourth in the year-to-date (YTD) funding standings for the year.
Seed-Stage and Early-Stage Woes
When we dive deeper into the funding distribution, it becomes clear that both seed-stage and early-stage startups are facing their share of challenges.
Early-stage rounds, on the other hand, have been hit hard. In Q3 2023, these startups raised $416 million, with a massive 74% decrease from the $1.6 billion secured during Q3 2022, and a 26% drop from the $560 million raised in Q2 of 2023. It’s like early-stage startups are struggling to find their footing in this funding winter.
Even in the seed-stage rounds, the story isn’t any brighter. In Q3 2023, Indian startups managed to secure $84.3 million in funding in seed rounds, which marks a significant 75% drop from the $332 million raised during the same period in 2022 and a 65% decrease from the $245 million raised in Q2 of 2023. It’s akin to the initial spark struggling to ignite the fire.
In Q3 of 2023, late-stage rounds managed to secure a respectable $1 billion in funding. However, this figure represents a noticeable 33% decline from the $1.5 billion raised in Q3 2022 and a 23% drop from the $1.3 billion secured in Q2 of 2023.
The above numbers highlight the challenges faced by Indian startups at different stages of their growth journey, painting a picture of a more challenging funding environment across the board.
Rising Stars: 100M+ Funding Rounds
Q3 2023 witnessed an impressive five funding rounds that exceeded the $100 million mark. Companies like Perfios ($229 million), Zepto ($200 million), Ola Electric ($140 million), Ather Energy ($109 million), and Zyber 365 ($100 million) were successful in raising substantial funds during the quarter.
Due to the impressive funding above $100 million, two startups, namely Zepto and Zyber 365, earned “unicorn” status in Q3 2023.
However, it’s worth noting that the overall number of unicorns born in India’s startup ecosystem declined 50% YoY, from four in Q3 of 2022 to just two in Q3 of 2023.
In terms of total funds raised by Indian cities, Bengaluru emerged as the frontrunner, attracting an impressive $709 million during Q3 of 2023. Mumbai followed closely with $449 million, and Noida secured $127 million in tech investments by investors and VC firms. These regional hubs continue to be vibrant hotspots of innovation and investment in India’s tech startup landscape, proving that the spirit of entrepreneurship and innovation is alive and thriving in various corners of the country.
Despite the funding winter in Q3 2023, India’s tech startup ecosystem showcases its resilience and determination to drive innovation and attract investments. The future holds the promise of more unicorns and success stories, making India’s tech startup scene an exciting space to watch.
