India to see rebound in startup funding landscape, says Redseer

09 August 2023 Consultancy.in 3 min. read
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Around half of investors in Indian startups expect funding to make a comeback over the next year, picking up from the current lull in the investing panorama. That is according to a study conducted by management consulting firm Redseer that looked at how much funding is expected in the short to midterm.

Setting the context for the current state of the environment, Redseer noted that the number of funding rounds has nearly halved as compared to 2022.

“2023 has so far been a frigid period for startups, characterized by tightened investor budgets and a visible slowdown in the fervor that was once the hallmark of the sector,” said Kanishka Mohan, partner at Redseer.

Foreign investment in Indian startups has reportedly fallen by as much as 72% in the first seven months of the year.

India to see rebound in startup funding landscape, says Redseer

“However, beneath the icy exterior, a subtle yet steadfast undercurrent of optimism remains. The belief is that this downturn is just a temporary phase, laying the foundation for a forthcoming period of renewed growth and opportunity,” Mohan added.

As far as what is expected for the rest of 2023, the study found that startup investments should hover between $12 billion and $15 billion, while that number is expected to grow in 2024 and could reach up to $20 billion.

Indian startups receive an average of 5% of global startup funding and 20% of the funding destined for the Asia Pacific region, according to the report. Notable sectors that may see new unicorns emerge include the beauty and personal care sector, health and wellness, diagnostics and clinics, and gaming and app studios, among others. India is currently home to just over 100 unicorns.

India to see rebound in startup funding landscape, says Redseer

Funding for Indian startups has come from a diverse set of sources, including the US, Japan, China, and Europe, and increasingly from the UAE. Since 2017, the US and UAE have largely supplanted China in the amount of investments made in Indian startups.

India’s startup ecosystem has rapidly matured over the past five years, with registered startups increasing by nine times, from approximately 10,000 in 2018 to 90,000 in 2022. The number of active investors also grew significantly, from 400 to around 900 within the same time frame.

India to see rebound in startup funding landscape, says Redseer

“I think it will probably be 9 to 12 months before the market environment stabilizes. I believe that growth investing will pick up then as there is a lot of capital available to be invested,” said Hemant Tanjea, CEO of US-based venture capital firm General Catalyst. “Indeed, venture capital firms today have more dry powder than ever,” Mohan added.

India’s tech startup scene has seen some star players rise to the top. A previous report dived into the top 10 players in that industry, highlighting a diverse set of companies in fintech, artificial intelligence, and IT, among other industries.