The Indian startup ecosystem faced a significant downturn in funding during the first quarter of 2023, attributed to prevailing macroeconomic challenges impacting investor sentiment. According to the Tracxn Geo Quarterly Report: India Tech – Q1 2023, startups in India secured a total funding of $2.8 billion, marking a staggering 75% decline from the corresponding period in the previous year ($11.9 billion).
Factors such as rising inflation and interest rates are cited as key contributors to the decline in investment activity, affecting investor confidence and appetite for risk.
Funding Trends by Stage
Early-stage startup funding witnessed a marginal 4% decrease to $844 million in Q1 2023 compared to the preceding quarter. Similarly, seed funding experienced a 16% decline to $153 million from the previous quarter.
In contrast, late-stage funding rounds in Q1 2023 recorded a substantial 79% drop to $1.8 billion compared to the same period last year.
Unicorn Creation and Month-on-Month Comparison
Notably, no new unicorns emerged during January to March 2023, in contrast to the creation of 14 unicorns in the corresponding period of the previous year. However, there is a positive month-on-month comparison, with a notable 54% increase in funding in March 2023, totaling $1.2 billion, compared to $777 million in February.
India’s Position in Global Funding Landscape
Despite the decline, India retains its position as the second highest-funded geography after the US in Q1 2023. However, the overall funding trend in India is downward, with a 21% decrease compared to Q4 2022 and a significant 75% decline from Q1 2022. The number of funding rounds also experienced declines of 10% and 63% compared to Q4 2022 and Q1 2022, respectively.
Sectoral Analysis and Regional Distribution
Key deals in the January-March quarter involved companies such as PhonePe, Lenskart, Mintify, Insurance Dekho, FreshtoHome Foods, TI Clean Mobility, and KreditBee. Bangalore emerged as the top city in terms of total funds raised during the March quarter, followed by Delhi and Mumbai.
Fintech, retail, and enterprise applications were the leading sectors in terms of funding during Q1 2023. Particularly, the fintech segment observed a remarkable 150% growth compared to Q4 2022, although it experienced a 51% decline compared to Q1 2022.
