The year 2023 threw up several challenges in front of the Indian Startup ecosystem mainly in the form of corporate governance issues, financial misreporting, unsustainable business models leading to massive layoffs, and lack of profitability. While the continuation of funding winter made it difficult for many ventures to raise funds, the ones that were ready to adapt and embrace technology besides demonstrating a commitment to sustainability were able to attract investors. The ecosystem is expected to mature with an enhanced focus on setting up businesses that aim to resolve important problems by offering innovative solutions using advanced technology. The challenges have made entrepreneurs realize that the business mantra has to shift away from “growth at all costs” to profitability.
| Challenges Facing Indian Startups | Opportunities to Grow |
| Continuation of the funding winter With the Investors focusing on sustainable business models. | Significant Dry Powder lying with the investors and the same is likely to be deployed this year. |
| Fewer Unicorns | More Focus on Profitability Rather than Growth at Any Cost |
| Bangalore, NCR, and Mumbai Remain at the top but Low Tier Cities Also Witnessing Startups | Deeptech, Environment-tech, and other segments utilizing tech to resolve problems gaining Investor Interest. |
| Corporate governance issues and financial irregularities at several top unicorns. | Consolidation with over 100 mergers and acquisitions announced. |
| Startups like Mobikwik, Groww and Meesho turning profitable. | Tier 2 and 3 cities are also becoming active with many new startups with unique business ideas coming up. |
| Massive Layoffs and Downsizing by many top startups. Many Gaming Startups had to shut shop due to regulatory and tax issues. | IPO route became attractive after Mamaearth performed well. |
Key Features of the Indian Startup Ecosystem in 2023
India Remained a Major Player – The global startup landscape continued to witness hectic activity in 2023 with the top three ecosystems (New York, London, and Silicon Valley) maintaining their positions from 2020, a report by Startup Genome has revealed. The Indian ecosystems remained in the limelight with Bengaluru and Delhi moving up two places each to 20 and 24 number positions respectively. Mumbai, the financial capital of India moved up five places to stand at 31 positions.
Reduced Funding– While the number of startups continued to grow and crossed the one lakh mark, the amount of funding that the ecosystem could raise during 2023 registered a sharp fall owing to growing geopolitical tensions and their impact on the global economic scenario. Indian startups could raise only $10-$11 billion in 2023 compared to the $25 billion raised in 2022. The dismal funding raise is attributable to an over 60% decline in late-stage funding as well as early-stage funding. Seed-stage funding has also declined by over 50% during 2023 indicating the continuation of the funding winter and the caution exercised by investors.
Segment-wise Investor Interest – Investors looking for stable ventures with high growth potential invested in healthcare, deep-tech, climate tech, and space tech. While fintech, retail, and enterprise applications, registered a sharp decline in fundraises, environment tech and space tech attracted more investor interest and were able to raise more funds in 2023 than in 2022. Fintech ventures like PhonePe raised a good amount of funds during the year.
Lesser Number of Unicorns – The Indian startup ecosystem saw the entry of two new unicorns (Zepto and InCred) in 2023 compared to 23 in 2022. Also, many unicorns witnessed a significant decline in their valuation (Bjyu’s valuation falling from $22 billion to just $3 billion) leading to a fall in the number of unicorns by end-2023.
Celebrities Turned Investors – Several celebrities from the film and sports fields invested their money into health, food, and beauty startups. Prominent investors include Kareena Kapoor Khan, Bhumi Pednekar, Kriti Sanon, Akshay Kumar, Ranbir Singh, Sunil Shetty and many more.
Massive Layoffs – 2022 was the year of layoffs and shutdowns with over 15,000-20,000 employees laid off by startups like Byju’s, Dunzo, Udaan, Unacademy, Spartan Poker, MPL, and Simpilearn. Many ventures in the tech and food-tech segment had to close shop for a paucity of funds while the new GST and regulatory norms for gaming businesses made many ventures unviable. Some prominent startups that shut operations during 2023 include ZestMOney, Quizy, Striker, and Fantok.
City-Wise Fund Raising – While Bangalore continued to lead the pack by taking 55% of the total funds raised during the year, Delhi-NCR came in at the second position. Startups based in Mumbai, Chennai and Pune were also among the prominent fundraisers.
Consolidation – Consolidation at the startup segment also continued this year with over 100 mergers and acquisitions announced.
IPOs – Several IPOs came in 2023 with MamaEarth doing extremely well. The current year is expected to see an increased number of startups aiming for IPOs and in the process opting for reverse flips which means shifting their base back to India. Oyo, Ola Electric, Pine Labs, and Swiggy are some of the startups planning IPOs in 2024.
Adoption of sustainable business models that focus on performance and profitability, adherence to corporate governance standards, and the building up of effective investor relations are expected to rule the Indian startup landscape in the future. Also, the closure of unviable ventures and consolidation of many others will likely continue.
Venture capitalists and other investors who have accumulated a lot of dry powder ($20 billion) in the last two years are on the lookout for promising ventures and ready to invest. Going ahead, startups in the deeptech, environment-tech area are expected garner investor interest.
