National Start-up Day: Despite funding winter, Indian start-up ecosystem can expect over $20 billion in dedicated funding, report says

India’s start-up ecosystem, the third-largest in the world, has over 99,000 recognised start-ups and 108 unicorns valued at $340.80 billion. Factors like global inflation, headquarter, relocation taxes, and valuation complexities have led to a recent funding dip leading to funding winter but experts are confident that India’s start-up appeal remains strong, with over $20 billion in dedicated funds ready for deployment, as projected by industry experts, a recent report by Dezan Shira & Associates said.   

The Indian start-up ecosystem also saw a downturn in H1 2023, according to ‘Tracxn Geo Semi-Annual Report: India Tech’. “The number of funding rounds dwindled to 536 during this period, a substantial decrease from the 946 rounds recorded in H2 2022 and the over 1,500 rounds in H1 2022. In parallel, the total funding in H1 2023 amounted to US$5.5 billion, marking a 24 percent decline compared to H2 2022 and a staggering 72 percent drop compared to H1 2022,” it said.   

Despite the drop, start-ups have led to a shift in their workforce trends. According to a recent payroll report launched by RazorpayX—the neo-bank arm of payments firm Razorpay, the demand for skilled gig workers earning over Rs 1.5 lakh per month has increased by 21.38 per cent in the past six months, indicating higher demand for skilled gig workers. The growth has come amid a hiring slump as the rate of hiring in start-ups declined by 36.45 per cent, the report said. 

Venture Intelligence, a PE-VC data provider, reported that there were 332 deals valued at $17.6 billion during this period, compared to the previous year’s $21.7 billion. This dip was even more pronounced when compared to the peak funding cycle of September 2022, where investments reached a staggering US$37 billion. 

Despite the dip, on the jobs front, in the last few years, start-ups have become key contributors to innovation and job creation in the Indian economy. “They are responsible for creating around one million direct jobs, which increased by 64 percent in 2022. However, Indian start-ups appear to be experiencing a funding winter, which officials date to the end of 2022,” Dezan Shira & Associates said. 

Experts say things are looking up. Maharashtra with 4,801 registrations, Uttar Pradesh with 2,572 registrations and Delhi with 2,567 registrations were the top three hubs of start-ups in terms of registrations in 2022, as per the data shared in the Rajya Sabha by Som Parkash, Minister of State in the Commerce Ministry. According to the data, 26,522 new start-ups were registered in 2022 under the Start-up India initiative by the government, up by 32.6 per cent from 19,989 start-up registrations in 2021. 

As per Start-up India data, India had 99,380 recognised start-ups so far including 3,579 start-ups funded through SIDBI Funds of Funds. Under the Government of India's Start-up India initiative,  the government is undertaking measures like Credit Guarantee Scheme for Start-ups (CGSS), income tax exemptions for 3 years, and Start-up India Seed Fund Scheme (SISFS), etc. to boost the start-up ecosystem.  Other states including Andhra Pradesh, Assam, Bihar, Chhattisgarh, Himachal Pradesh, Kerala, Madhya Pradesh, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Tripura, Uttarakhand, and West Bengal also witnessed growth in their start-up base last year.

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