The startup funding winter in India is expected to continue for another six to twelve months, according to an investor survey by Redseer Strategy Consulting.
The survey revealed that 50% of investors were optimistic about the resurgence of funding opportunities within the next 6 to 12 months, while 17% believed this revival might happen even sooner. The remaining respondents held the view that it would take 12 to 18 months or more for the funding slowdown to recede.
Following a year of record funding in 2021, private market valuations plunged as several macro factors including the inflationary environment, the Russia-Ukraine conflict, and the stock market crash led to a consistent decline in funding.
In July, investments by private equity and venture capital firms in India hit a three-year low at $564 million, per proprietary data compiled by DealStreetAsia. This marked a nearly 36% year-on-year drop from last year’s figure of $885 million. Likewise, the number of deals also fell by the same percentage, from 119 transactions in July 2022.
Redseer predicts that Indian startups will continue to face a similar funding situation for the next year. However, the funding scenario is anticipated to improve in the longer term.
Based on funding patterns to date, there’s an expectation that 2023 will revert to long-term trends observed in the years 2017 to 2020, with funding ranging from $12-15 billion. Beyond that, it is projected to become more optimistic in 2024, reaching between $15 billion and $20 billion. Deal volume, which witnessed a decline early in 2023 to 700-900 deals from 1,519 in 2022, is also expected to bounce back in 2024 to 1,000-1,200 transactions, according to the report.
Over the past four years, the number of registered startups has grown ninefold, from approximately 10,000 in 2018 to around 90,000 in 2022. Concurrently, the count of active investors has doubled, increasing from 400 investors in 2018 to approximately 900 investors as of fiscal year 2022.
Apart from the surge in domestic investors, international funding sources have also diversified. Collectively, the US, the EU, the UAE, and Japan constitute the largest sources of funding for Indian startups, contributing 5% to total global funding and 20% to total APAC funding.
Amid shifting investor preferences from prioritising “growth over profitability” to “profitability at all costs,” Indian startups are streamlining operations, reducing expenses, trimming their workforce, and diversifying revenue streams to combat the prolonged funding crunch.
Market experts view this shift in focus as a necessary equilibrium for a market that attracted $46 billion in funding in 2021. This recalibration is projected to drive 55 Indian unicorns toward profitability by 2027, up from 30 in 2022, as outlined in another report by Redseer Strategy Consulting.