Funding in Indian Tech Startups Rebounds in H1 2024, But Fintech Fast Losing Its Mojo!

Although the total funding in Indian tech startups dropped by a notable 14.6% compared to H1 2023, it showed a 3.5% increase from the latter half of 2023. Interestingly, Investors are now placing bets only on startups with proven track records, making it difficult for early-stage startups.

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Funding in Indian startups is showing signs of revival, albeit cautiously optimistic. After a funding winter of more than two years, Indian tech startups received $4.15 billion in funding across an impressive 540 deals during the first half of 2024, according to the latest report by Tracxn.

This positive trend comes at a time when China’s tech sector faces challenges due to geopolitical tensions, causing a pullback in Western investment. The number of funding rounds (540) seen by Indian tech startups has surpassed the 327 rounds worth $6.2 billion seen by Chinese tech startups during the same period.

However, a closer look at investment figures reveals interesting trends. Although the total funding in Indian tech startups dropped by a notable 14.6% compared to H1 2023, it showed a 3.5% increase from the latter half of 2023.

H1 2024 was the first sequential rise in tech startup funding in India since H2 2021. However, a continued decline in the number of funding rounds, indicating ongoing market adjustments, tempered this rise.

Despite these fluctuations, India maintains its position as the fourth-highest funded country globally in the tech startup ecosystem. Leading the global charge are the United States, the UK, and China, reaffirming India’s pivotal role in the international innovation landscape.

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Now, the question arises: What factors contributed to the sequential increase in funding for Indian tech startups in H1 2024?

Sector-Wise Funding in Indian Tech Startups

In H1 2024, the top three sectors that contributed the most to the amount raised by Indian tech startups were retail, enterprise applications, and fintech.

Interestingly, Retail startups witnessed a remarkable 32.5% increase in funding, securing $1.63 billion in H1 2024, compared to $1.23 billion during the same period last year. This is followed by the Enterprise applications sector, which raised $933 million during the first half of 2024, albeit a 10.3% drop from $1.04 billion during the year-ago period.

Surprisingly, Indian Fintech startups witnessed a strong 50% decline in fundraising amount, from $1.45 billion in H1 2023 to $726 million in H1 2024. This decline can be attributed to challenges faced by companies like Paytm which is currently struggling to sustain growth after RBI’s restrictions on its payment operations.

As the regulatory bodies continue to tighten the noose around fintech startups in India, investors have apparently gone into safe mode by distancing themselves from them. Besides, Regulatory uncertainties and other industry-specific challenges have further led investors to question their confidence in fintech companies within India’s rapidly evolving sector.

Seed Funding and Early-Stage Growth

Seed-stage funding in India’s tech startups totalled $455 million in H1 2024, an impressive sequential increase of 6.5% from H2 2023. However, it is a notable 17.3% decline compared to H1 2023, indicating fluctuating investor confidence and evolving market conditions for early-stage ventures.

Funding in early-stage startups in India totalled $1.3 billion in H1 2024, a 28% decline from H1 2023.

Similarly, late-stage tech startups raised $2.4 billion in H1 2024, a decline of 1.3% from H1 2023. However, there’s a sequential increase of 3.8% from H2 2023.

The above data indicates that Investors are increasingly placing bets only on startups with proven track records. They have more confidence in startups that have been surviving and thriving in the market for a long, as they allocate their capital more towards late-stage startups rather than seed and early stages. This is mainly due to the fact that late-stage companies typically have a clearer path to profitability and market dominance, which mitigates some of the risks associated with earlier-stage ventures.

Among the notable funding rounds exceeding $100 million in H1 2024 were Flipkart’s $350 million Series J round, led by Google, Apollo 24|7’s $297 million private equity round, and Meesho’s $275 million Series F round.

Despite facing fundraising challenges, India saw the emergence of three unicorns in H1 2024, marking a significant increase from none in H1 2023. Moreover, the number of startup IPOs increased to 17 in H1 2024, a substantial rise from 6 in H1 2023 and 12 in H2 2023, indicating increasing confidence and market readiness among Indian startups to access public capital markets.

The H1 2024 offers a cautiously optimistic outlook for Indian tech startups. The funding landscape shows signs of recovery, fueled by factors like a capital shift away from China and investor confidence in established players. However, questions remain about the long-term sustainability of smaller startups seeking seed and early-stage funding. The decline in funding raised by fintech startups requires close attention.

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