Although Indian start-ups have grown 300 times in the last nine years, funding has significantly declined.
Despite 300 times growth in the number of Start-ups there has been a 75 percent year-on-year (YoY) decline in start-up funding in India. Indian Tech Start-up Funding Report Q1 2023 states, Indian start-ups have raised $3 billion in Q1 of 2023 compared to the $12 billion raised in the Q1 of 2022.
Vinod Abrol, Co-founder of Lemme Be – a wellness and fitness start-up based in Hyderabad, said, “Raising capital was much easier in 2022 as compared to the current year.” He added that the major impact of decline in funding is decrease in marketing spending. “The decrease in funding also results in putting a hold on hiring process required for expanding the company, and optimization of the existing manpower cost,” he said.
The Inc42 report states that the start-up funding patterns were ranging from $4.1 billion to $12 billion during Q1 of 2021 and Q1- 2022. However, the Q1 of 2023 showed that the funding patterns are returning to the pre-pandemic levels. The reasons stated by the report included a drop in mega deals in 2022—five that year as against 30 mega deals in 2019. Apart from a decrease in mega deals, there was a 77 percent YoY decline in late-stage funding. There was also a drop in growth stage funding by 76 percent in 2023, and decline in seed funding by 81 percent in 2023 from 2022.
The newly emerging business start-ups get affected the most due to the YoY decline in start-up funding. Vijay Kumar Shrotryia, Senior Professor, faculty of Commerce and Business Studies at University of Delhi said, “The decline in start-up funding will affect the people who are starting their series A funding – it is the first round of venture money a firm raises after seed and angel investors.” He added that lower investment often demotivates people who have just started their businesses.
Vinod said, “I think the particular reason for downfall in funding is the focus on unit economics being instilled down to the level of founders and investors.” He added that the focus on the company’s overall growth often makes start-ups more dependent on investments. “The corporate governance issues raised on some start-ups recently have resulted in an elongated and detailed due diligence hence, the time consumed in this has been affecting the time needed by start-ups to raise the capital,” Vinod said.
The decline in start-up funding will even have a significant impact on overall economy as well, said Vijay Kumar. However, he added “This impact will not be big; instead it will take our economy to a mature side as we are integrated with the rest of the world.”
Start-ups that have been affected are planning to come up with measures to stabilize themselves and come up with solutions to reduce loss. Vinod said, “To get funding in this environment, we are planning to focus on month-based improvement in unit economics, rather than just focusing on growth. The bottom line becomes critical so that investment can be done to fuel the growth instead of for the sake of making the company survive.” He added that better unit economics can help in providing a stable growth.
Dr Jitendra Singh, Union Minister of Science and Technology said in a press release that there has been a significant increase in the number of space and biotech start-ups in India. “The start-up ecosystem has been on the rise since 2016, however 2022 has seen a significant decline in the growth rate of start-ups with a considerable impact on them,” said Vijay Kumar.
