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India’s technology start-up ecosystem faced a funding slowdown in 2023, totaling US $7 billion by December 6, according to a Tracxn report. This marked a significant decline of 72% from the previous year’s US $25 billion, representing the lowest funding in the last five years. Despite this setback, the sector remains optimistic due to favorable government policies and a rapidly growing local economy.

The last quarter of 2023 witnessed a meager total funding of US $957 million, the lowest in the past seven years since September 2016. Late-stage funding plummeted by over 73% to US $4.2 billion in 2023 from $15.6 billion in 2022. Additionally, early-stage funding experienced a 70% drop to $2.2 billion from $7.3 billion in the same period of 2022. Similarly, seed-stage funding decreased by 60% to $678 million from $1.7 billion in 2022.

In 2023, only 17 investments exceeding $100 million were made in the country’s tech ecosystem, marking a 69% decrease from the previous year’s 55 investments. Noteworthy companies receiving funding included Lenskart, PhonePe, Perfios, and Zepto, with LetsVenture, Accel, and Blume Ventures emerging as the top investors. Despite being the top-performing sectors, fintech, retail, and enterprise applications witnessed significant drops in funding. Consequently, India slid from the fourth to the fifth position in global funding rankings in 2023. Only two companies, Incred and Zepto, joined the Indian Unicorn Club during the year.

The liberalized policies introduced by the government provided a boost to the space tech sector, resulting in a 6% increase in funding in 2023 compared to the previous year. Google’s investment in Pixxel, a satellite-based imaging company, played a significant role in this positive trend. However, other sectors experienced downturns, with retail start-ups receiving $1.9 billion (a 67% decrease from 2022) and enterprise applications securing $1.56 billion (a 78% decline from 2022). Fintech retained its status as the top-funded sector, benefitting from increased smartphone penetration and the government’s push towards a cashless economy. Despite these challenges, Indian start-ups have shown resilience. In the first nine months of 2023, they laid off 28,000 employees, a notable increase from the 4,080 and 20,000 layoffs in 2021 and 2022, respectively. Byju’s, an education start-up, accounted for the largest number of layoffs, letting go of 2,500 employees. Analysts attribute these challenges to global factors such as high interest rates and inflation impacting tech firms worldwide.

However, historical patterns indicate that ups and downs are inherent to the start-up ecosystem. A similar slowdown occurred in 2015, leading to the closure of numerous start-ups and extensive layoffs. In 2023, the start-up landscape in India is more robust, instilling hope among industry insiders for a positive turnaround.

The Indian government has implemented various schemes to support start-ups, including the Fund of Funds for Start-ups (FFS) scheme, Start-up India Seed Fund Scheme (SISFS), and Credit Guarantee Scheme for Start-ups (CGSS). In the 2023-24 budget, Finance Minister Nirmala Sitharaman extended the period for income tax benefits to eligible start-ups until March 31, 2024, and allowed the carry-forward of losses from 7 years to 10 years. The recent announcement to establish centers of excellence for artificial intelligence in major universities aims to bolster technology start-ups in the country. The start-up sector is eagerly anticipating favorable government schemes in the 2024 budget to stimulate revival.