The Indian start-up ecosystem, especially in the tech sector, faced substantial difficulties in 2023. The total funding for the year stood at a meager $7 billion as of December 6, representing a drastic 72 per cent decline from the $25 billion recorded in 2022. This marked the lowest funding level in the past five years.    

The Decline in Funding and Unicorn Creation   

In 2023, only two new unicorns emerged in India — InCred and Zepto, both based in Mumbai. This was a significant drop from the 23 unicorns in 2022, indicating a 91 per cent decrease. Furthermore, the ecosystem witnessed just 17 investments exceeding $100 million, a 69 per cent reduction from the previous year. Among the top-funded companies were Lenskart, PhonePe, Perfios, and Zepto. 

Growth Amidst Adversity 

Despite these setbacks, some start-ups showcased impressive growth. Noteworthy examples include Zepto (1,338.7 per cent growth), Ather Energy (336.6 per cent), BookMyShow (252 per cent), CRED (255.9 per cent), Dunzo (317.3 per cent), Groww (264.1 per cent), Jupiter (1,675 per cent), and Tata 1mg (159.5 per cent). Additionally, 80 new-age tech companies reported a combined operating revenue of INR 1.92 Lakh Crore in FY23, though 53 of these incurred losses. 

Layoffs as a Response to Economic Pressure   

The funding challenges led to significant layoffs, with over 28,000 employees losing their jobs in 2023, a stark increase from 20,000 in 2022 and 4,080 in 2021 

Projections for 2024: A Transformational Phase   

Looking ahead, 2024 is expected to be a transformative year for Indian startups. The global funding slowdown necessitates a shift towards pragmatic innovation, sustainability, and financial prudence. Start-ups will need to focus on real market needs, make data-driven decisions, optimise resources, and foster a resilient culture.   

Key strategies include: 

• Pragmatic Innovation: Focusing on purposeful innovation that addresses market gaps. 
• Sustainability Strategy: Demonstrating growth while maintaining financial wisdom. 
• Data-Driven Decisions: Relying on data for strategic planning. 
• Lean Operations: Maximising impact with efficient resource use. 
• Resilient Culture: Building a team aligned with the start-up's mission and adaptable to changes.  

Further advice for start-ups encompasses: 

• Clear value proposition definition. 
• Prioritizing profitable growth. 
• Creating a data-driven team culture. 
• Remaining agile in response to market dynamics. 
• Investing in talent that supports growth and can navigate a dynamic environment.   

The Broader Indian Opportunity  

Despite the challenges, India remains a robust economy, projected to grow at 6.3 per cent in 2023–24, with the potential for similar or higher growth rates in subsequent years. The government's support since the Start-up India initiative in 2016 has bolstered the start-up ecosystem. With the IMF predicting India to become the world's third-largest economy by 2027, the country's large consumer base and rising urban incomes present vast growth opportunities.   

• India’s $400 Bn Ecommerce Opportunity: A significant growth area, with the potential to redefine retail and consumer behaviors. 
• 500 Mn+ Online Shoppers by 2030: This increase in digital consumers presents a vast market for e-commerce and related services. 
• Fintech $2.1 trillion+ Total Market Opportunity by 2030: Fintech continues to be a major player, offering substantial opportunities in various sectors including payments and lending. 
• 3.6 trillion+ Total Cumulative Value of UPI Transactions: Demonstrates the enormous scale and adoption of digital payment solutions. 
• $580 billion+ Total Asset Under Management of Mutual Funds: Indicates a growing interest and trust in investment and financial planning services. 
• $27 billion Total Funding in Fintech: Reflects the sector’s robustness and investor confidence. 
• Lendingtech: Most Lucrative Segment: Points to the increasing demand and innovation in digital lending solutions. 
• 116+ Number of M&As in Fintech: Shows a trend toward consolidation and strategic partnerships. 
• 23 Fintech Unicorns: Highlights the success and scalability of fintech ventures in India.   

By 2025, India is expected to have over 900 million active internet users, with a significant proportion from rural areas and women, further expanding the market for tech start-ups.   

The outlook for 2024 presents a mix of challenges and opportunities for Indian start-ups. Success will likely favor those integrating innovation, sustainability, and agility into their core operations, effectively navigating the complexities of the market with a flexible, data-driven approach 

 Authored by Garima Mitra, co-founder, Treelife (legal and finance service provider to start-up and investor community)