Between January and March 15 this year, India’s tech startup funding faced a “funding winter,” dropping by 51% to $1.6 billion, as reported by Tracxn. Compared to last year, when $3.2 billion was injected into the ecosystem during the same period, this marks a significant decline.
Tracxn also noted a 48% reduction in funding rounds, with only 222 rounds recorded this year compared to 432 in the previous year’s first quarter. Despite this downturn, Indian tech startups received 4% of the total global funding ($37 billion) in Q1 2024, while US tech startups secured $19.5 billion during the same period.
Tech Startup Funding Trends Q1 2024 Overview
During the first three months of this year, several tech startups received significant funding, with KYC software leading the pack at $107 million, followed closely by hyperlocal delivery apps at $100 million. The fintech startup funding grew substantially, reaching $429 million, a 48% increase from the previous quarter’s $289 million. This surge in fintech startup funding is attributed to the widespread adoption of smartphones, driving the shift towards a cashless economy and favorable regulatory policies attracting consistent investor interest.
Key Highlights:
- Top Funding Sectors: KYC software and hyperlocal delivery apps secured the highest funding.
- Fintech Growth: The fintech sector experienced notable growth, reaching $429 million in funding.
- Influencing Factors: Increased smartphone penetration and supportive regulatory policies contributed to investor interest in fintech.
- Major Funded Startups: Perfios and Shadowfax were the only two startups to receive $100 million each during this period.
- Unicorn Emergence: Two new unicorns emerged—Perfios and Ola Krutrim—during Q1 2024, in contrast to 20 globally.
- IPO Surge: Eight tech companies went public, including Exicom, WTI, DocMode, Brisk, LawSikho, Medi Assist, IBL Finance, and HRHNext, indicating a surge in IPO activity.
Bengaluru Leads India’s Tech Startups
In the first quarter of 2024, Bengaluru emerged as the frontrunner in total funds raised, securing $752 million, followed by Mumbai with $166 million and Noida with $105 million. Delhi’s tech startups received $96.8 million in funding, while Gurugram raised $97.7 million during the same period.
Despite the funding slowdown and economic fluctuations, India’s tech startup ecosystem continues to thrive as one of the top-performing globally. Neha Singh, Co-Founder of Tracxn, expressed optimism about a quick bounce-back, citing government initiatives and the country’s vast consumer base, which includes the world’s largest young population.
Understanding Challenges and Shifts of India’s Funding Winter
The funding winter in India’s tech startup ecosystem was prolonged due to a convergence of domestic and global factors, including stubborn inflation, heightened investor performance expectations, and persistent higher interest rates. Additionally, softening global consumption and ongoing geopolitical uncertainties further hindered startups from demonstrating necessary performance levels.
These challenges resulted in a decline in both deal volume and average deal size. Deal volume decreased by approximately 45%, falling from 1,611 deals to 880 over the period of 2022–23, while the average deal value decreased by about 30%, dropping from $16 million to $11 million during the same period. Moreover, the share of seed deals rose from approximately 60% to 70%.
In terms of deal flow shifts, the number of mega rounds plummeted by almost 70%, from 48 to 15 over the period of 2022–23. Additionally, the emergence of unicorns experienced substantial declines, reaching pre-2019 levels. However, small and medium deals (less than $50 million) witnessed milder compression, declining by about 45% from 1,501 to 852 over the period of 2022–23. This indicates investor confidence in India’s medium-to-long-term prospects despite the challenges faced in the funding landscape.
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