Funding for Indian startups is showing signs of recovery, albeit cautiously optimistic, after more than two years of a funding winter. Indian tech startups raised $4.15 billion in funding across 540 deals in the first half of 2024.According to the latest report from Tracxn.
This positive trend comes at a time when China’s tech sector is facing challenges due to geopolitical tensions and a decline in investment from the West. Indian tech startups raised more funding rounds (540) than their Chinese counterparts in the same period, with 327 rounds worth $6.2 billion.
But a closer look at the investment figures reveals some interesting trends. Total funding for Indian tech startups declined 14.6% compared to the first half of 2023, but showed an increase of 3.5% from the second half of 2023.
The first half of 2024 marked the first consecutive period of growth in funding for tech startups in India since the second half of 2021. However, a continuing decline in the number of funding rounds suggests a continuing market correction, limiting this gain.
Despite these fluctuations, India maintains its position as the fourth most highly funded country in the world when it comes to tech startup ecosystem.The global effort is being led by the US, UK and China, reaffirming India’s key role in the international innovation space.
This raises the question: what is driving the sequential increase in funding for Indian tech startups in the first half of 2024?
Sector-specific funding for Indian technology startups
In the first half of 2024, the top three sectors that contributed most to the amount raised by Indian technology startups were retail, enterprise applications and fintech.
Interestingly, retail startups recorded an impressive 32.5% increase in funding, securing $1.63 billion in the first half of 2024 from $1.23 billion in the same period last year. This was followed by the enterprise applications sector, which raised $933 million in the first half of 2024, down 10.3% from $1.04 billion in the same period last year.
Surprisingly, Indian fintech startups saw a 50% drop in funding from $1.45 billion in the first half of 2023 to $726 million in the first half of 2024. The decline can be attributed to challenges faced by companies such as Paytm, which is struggling to sustain growth following restrictions on its payments operations by the RBI.
As Indian regulators continue to tighten the screws on fintech startups, investors appear to be staying away from them as a safe haven. Moreover, regulatory uncertainty and industry-specific challenges have raised doubts about investor confidence in fintech companies in the fast-developing Indian sector.
Seed funding and early stage growth
Seed-stage funding for Indian tech startups is set to total $455 million in the first half of 2024, a staggering 6.5% sequential increase from the second half of 2023. However, compared to the first half of 2023, the decrease of 17.3% is significant.This signals fluctuating investor confidence and a changing market environment for early-stage ventures.
Funding for early-stage startups in India totaled $1.3 billion in the first half of 2024, down 28% from the first half of 2023.
Similarly, late-stage technology startups raised $2.4 billion in the first half of 2024, a 1.3% decrease from the first half of 2023, but an increase of 3.8% from the second half of 2023.
The data above indicates that investors are increasingly only investing in startups with proven track records. They allocate more capital to later-stage startups than the seed or early stage, and therefore have more confidence in startups that have survived and thrived in the market for a long period of time. This is primarily due to the fact that later-stage companies typically have a clearer path to profitability and market dominance, mitigating some of the risks associated with early-stage ventures.
Notable funding rounds that exceeded $100 million in the first half of 2024 include: Flipkart’s $350 million Series J round led by Google, Apollo 24|7’s $297 million private equity round, and Meesho’s $275 million Series F round.
Despite facing funding challenges, India will see the birth of three unicorns in the first half of 2024This is a significant increase from zero in the first half of 2023. Number of startup IPOs to rise to 17 in first half of 2024This is a significant increase from six in the first half of 2023 and 12 in the second half of 2023, indicating growing confidence and market readiness among Indian startups to access public capital markets.
The first half of 2024 presents a cautiously optimistic outlook for Indian tech startups. The fundraising landscape is showing signs of recovery, driven by factors such as capital shift from China and investor confidence in incumbents. However, questions remain about the long-term sustainability of smaller startups seeking seed and early stage funding. The decline in fundraising by fintech startups warrants close attention.
