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The year 2023 saw a 53% decline in venture capital inflow into Indian startups when compared to 2022, as funding winter continued to have a firm grip on the ecosystem. This was the lowest amount raised by Indian startups in the last seven years.

The total venture capital funding raised by Indian startups in 2023 was $10.8 billion as compared to $23 billion in 2022. Even the number of deals was lower by 34%.

The funding winter, which began in the second half of 2022, continued right through 2023, and this was very noticeable on the funding trends on a monthly basis. In 2023, monthly VC funding crossed $1 billion only five times for the entire year. This had a bearing on the overall amount raised by the Indian startup ecosystem.

Indian startups witnessed a drop in funding across every stage—early, growth, and late. However, there was one stage which actually saw an increase in funding between 2022 and 2023—debt category.

In the debt category, Indian startups raised $1.2 billion in 2023 as compared to $800 million in 2022. This could be attributed to two reasons: one, fund raising through the equity route was becoming more difficult for startups. Secondly, founders were unwilling to raise money at lowered valuation through the equity route and preferred the debt route to maintain their valuation.

In 2023, there were only three startups—PhonePe, Lenskart, and Ola Electric—which crossed $500 million in total funding. In the total 1060 deals during the year, only 18 startups crossed the threshold of raising $100 million.

This decline in funding was also reflected in the various segments of the ecosystem. Except for the electric vehicle (EV) segment, every other sector saw a decline in funding for the year.

In fact, the only segment which raised more than one billion dollars in 2023 was fintech, while the others like edtech, SaaS, D2C, healthtech, logistics, ecommerce, etc., raised less than $1 billion during the year.

The decline was very pronounced in segments like edtech and SaaS, which saw a 79% and 75% fall in funding, respectively in 2023 when compared to 2022.

The trend was also reflected in key startup hubs in the country like Bengaluru, Delhi-NCR, and Mumbai, which also saw a fall in the funding amount in 2023 when compared to 2022.

The most pronounced effect of the funding winter environment was on the unicorn segment, that is those private companies which are valued at $1 billion and above. In 2023, only two unicorns emerged—Zepto and InCred—as compared to 23 in 2022. This number has been on a decline since 2021.

Now, the only question remains is how will 2024 play out for the Indian startup ecosystem. Will the current trend continue this year or will there be a revival of sorts.

“I believe we are past both the macro cycle for interest rate hikes, as well as the bottoming of the startup fundraising markets, at least in India. There is plenty of dry powder in venture capital that will get invested in 2024-25,” says Nitin Sharma, Partner, Antler India, an early-stage VC firm.

“We will not go back to the unhealthy bubbles of 2020-21, so fundraising timelines and valuation multiples will likely remain challenged, but there is no dearth of capital for strong founders building with good fundamentals,” he adds.

(Graphics by Sharath Ravishankar)