Indian startups are demonstrating remarkable resilience amid global economic uncertainties, with a notable surge in venture capital funding. Despite a challenging global landscape, India’s venture capital activities have surged, signaling renewed confidence in its startup ecosystem. As India emerges as a key player in the global venture scene, the question persists: is the funding winter truly over, or are we witnessing a selective rebound?
The global startup ecosystem has been navigating through turbulent times, with funding levels experiencing sharp declines over the past year. What was once flourishing for venture capital-backed innovations now faces a challenging phase, often referred to as the “startup funding winter.” This period of caution among investors has led to tighter capital flows and more selective investment strategies. In 2023, global startup funding crashed, after years of record-breaking performance, hitting a six-year low of US$ 248.4 billion, a huge 42% decline YoY.
The first quarter of 2024 saw global startup funding amount to US$ 66 billion, positioning it as the second-lowest quarter for venture capital investment since early 2018, reflecting a modest 6% increase compared to the previous quarter, indicating some rebound or stabilization after a downturn. However, despite this quarter-over-quarter improvement, the funding levels remained significantly lower, down 20% compared to the same period last year.
Data source: Crunchbase
Despite a global slowdown in funding growth, India is experiencing a significant rise in venture capital activity. From January to July 2024, Indian deal volume and value accounted for 7% and 4.3% of the global venture capital landscape, respectively.
According to recent data from analytics firm GlobalData, Indian startups experienced a notable 42% increase in venture capital funding from January to July 2024, with 672 deals raising a total of US$ 6.3 billion, compared to 664 deals worth US$ 4.4 billion last year for the same period.
“Despite global economic uncertainties, India remains a pivotal market for VC activity, driven by a robust pipeline of promising startups that continue to attract significant capital. This trend reinforces India’s position as a critical player in the global venture ecosystem, demonstrating resilience and growth even amid cautious investment sentiment,” said Aurojyoti Bose, Lead Analyst at GlobalData.
According to the India Tech Semi-Annual Funding Report by Tracxn, India was the 4th highest funded country in the global tech startup ecosystem in H1 2024, with the U.S. leading in total funding. India also ranks as the fourth-highest funded country overall in tech startup history.
Retail, Enterprise Applications, and FinTech were the leading sectors in H1 2024. Retail funding rose by 32% to US$ 1.63 billion, up from US$ 1.23 billion in H1 2023. Enterprise Applications raised US$ 933 million, a 10% decrease from US$ 1.04 billion in H1 2023. FinTech funding fell by 50%, dropping from US$ 1.45 billion in H1 2023 to US$ 726 million in H1 2024.
There is a large discrepancy seen in the growth of 42% in total funding value compared to a modest rise of 1.2% in total deal volume. As per Nikhil Parmar, Angel investor and founder of Impactful Pitch:
“One of the reasons of a high growth of total funding value compared to deal volume, is the noticeable increase in the size of individual funding rounds. Other reason is the soaring investor confidence, which have made them comfortable investing US$ 15 million in a startup, when just a year ago they wouldn’t have gone above US$ 10 million.”
Some notable deals that took place include US$ 665 million for quick commerce startup Zepto (quick commerce), US$ 300 million for Meesho (e-commerce), US$ 216 million for PharmEasy (healthtech), US$ 150 million for Radiance (energy), US$ 148 million for Kogta Financial (finance), and US$ 120 million for Rapido (transportation).
The Indian startup IPO market has shown remarkable resilience and growth in 2024, with a notable surge in activity on Dalal Street. According to Nikhil, “The IPO landscape for startups in India has demonstrated significant growth and resilience this year.” In the first half of 2024 alone, 15 startups went public, raising approximately $3.5 billion— a substantial increase from the $2.1 billion raised by 10 startups during the same period in 2023. Notable IPOs include Go Digit, which raised $500 million, and FirstCry, which secured $700 million.
This upswing in IPO activity is attributed to improved market conditions, supportive regulatory measures, and a heightened interest in innovative, technology-driven businesses. The total number of IPOs surged to 17 in the first half of 2024, up from just 6 in H1 2023 and 12 in H2 2023. Additionally, three new unicorns emerged during this period, compared to none in H1 2023.
Accel, Blume Ventures, Peak XV Partners, and Venture Catalysts were among the top investors in the Indian tech ecosystem in H1 2024. Prof. M. Venkateshwarlu of IIM Mumbai notes, “After a period of stagnation over the past two years, more than 40 startups are preparing to go public or become IPO-ready by FY 2025.” Despite the domestic IPO market’s buoyant performance, challenges remain. Overvaluation has often led to investor disappointment, highlighting that while many startups have succeeded, some IPOs have encountered significant hurdles.
Funding Stage Performance
In H1 2024, seed-stage startups in India raised US$ 455 million, marking a 6.5% increase from the US$ 428 million in H2 2023. However, this is still a 17.3% decline compared to H1 2023, indicating that while seed funding shows some recovery, it remains below last year’s levels.
Early-stage startups raised US$ 1.3 billion in H1 2024, consistent with the second half of 2023 but a significant 28% drop from the US$ 1.8 billion in H1 2023. This decline reflects a more cautious investment approach, influenced by global economic factors and shifting investor sentiment.
In contrast, late-stage funding performed strongest, reaching US$ 2.4 billion in H1 2024. This represents a 3.8% increase from US$ 2.3 billion in H2 2023 and a slight 1.3% drop from H1 2023. As Nikhil points out, “Late-stage startups have proven business models and steady revenue streams, reducing risk compared to early-stage ventures.” Their strong market positions and potential for lucrative exits like IPOs or acquisitions are key drivers of this growth.
India’s startup ecosystem is demonstrating remarkable resilience amid the global funding winter. According to reports from GlobalData and Tracxn, India appears to be in a favorable position with a notable uptick in venture capital activity. However, as Prof. M. Venkateshwarlu observes, “Completing a few large deals suggests a resurgence of investor confidence and increased funding activity, but it may be premature to declare that the funding winter is definitively over. While the recent large deals are a positive sign, a more comprehensive assessment of the funding landscape is needed.”
Nikhil highlights that while funding is indeed rising, it is largely driven by a few significant deals and concentrated in specific sectors like B2C eCommerce and SaaS. The overall environment remains subdued compared to the boom years of 2021 and 2022. He notes that although the increase in venture capital is encouraging, the funding remain uneven.
Opportunities are emerging for some startups, while others continue to face challenges. In this cautious environment, it’s crucial for startups to stay flexible and innovative, adapting to the evolving investor sentiment and navigating the complex funding arena with agility and precision.
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