Bengaluru: Startup funding into Karnataka-based companies fell a staggering 72 percent in the calendar year 2023, according to a new report, underscoring the growing pressure on foreign capital inflows into homegrown companies.
In 2023, startups in Karnataka received a total funding of $3.4 billion as against $12.2 billion in 2022, according to data intelligence and private market research firm Traxcn Technologies.
This trend of lower inflows into startups has accompanied an overall sharp decline in such funds into India, exacerbating the ‘funding winter’ that continues to hurt homegrown companies, it said.
Funding winter is a term used to describe an extended period of reduced capital inflows to startups.
“Companies in this space attracted late-stage investments worth $2.3 billion in 2023, a 74 percent decline compared with $8.9 billion in 2022. Early-stage funding in 2023 stood at $784 million in funding, a drop of 71 percent from the $2.7 billion raised during the previous year. Seed-stage funding fell 54 percent to $294 million from the $643 million raised in 2022,” Traxcn’s report said.
Data from Traxcn in January showed how 2023 was one of the lowest funding years over the last half a decade with $7 billion inflows into India, lowering its rank from third to fourth place in the list of highest funded geographies globally.
At the time, the lower inflows were attributed to the impact of the Russia-Ukraine war and other global uncertainties.
iSpirit Foundation co-founder Sharad Sharma called for focused regulatory changes to unlock the potential of domestic startups.
“No crisis should go to waste. We have to use the funding winter to unlock domestic rupee risk capital for startups. A set of focused regulatory changes can make that happen. The time to do it is now!” Sharma told ThePrint Friday.
But there is a section of the startup ecosystem which continue to believe that pursuing and raising domestic capital will have a more stabilising effect rather than depend on ‘tourist funding’ or money that is invested by individuals, private equity and venture capitalist firms, or other organisations overseas.
Though Karnataka has seen higher inflows into other sectors like manufacturing and semiconductor, startup funding has been under pressure due to the volatile markets globally.
Any impact on investment inflows have a larger impact on Karnataka, particularly Bengaluru, which is home to 18,000 startups. Karnataka is also home to 39 percent of Indian unicorns or technology companies that are valued over $1 billion, according to Traxcn.
Traxcn data showed that only eight rounds of over $100 million funding were seen in 2023 as against 26 in 2022 and 44 in 2021.
“PhonePe and Udaan secured the highest funding in 2023, raising $623 million and $377 million in Series D and Series E funding rounds, respectively. Further, no new Unicorns emerged from this space in 2023, a sharp contrast from seven Unicorns in 2022 and 18 in 2021,” according to the data.
FinTech firms in Karnataka secured a total funding of $1.15 billion in 2023, a decline of 51 percent when compared to the corresponding year during which $2.4 billion was invested.
Retail companies raked in $956 million, a decline of 56 percent compared with the $2.16 billion raised in 2022. Companies in the enterprise applications sector received investments worth $928 million, down by 68 percent from the $2.89 billion raised in 2022.
Even acquisitions were lower in 2023 at just 35 ( acquisition) as against 48 in 2022 and 57 in 2021. City-wise, Bengaluru raked in the highest investments Karnataka, garnering $3.4 billion followed by Hubballi.
“When it comes to startups, world over there is a kind of a drop in investment, not only in India but abroad also. So, it is a trend and not something that has happened only to Karnataka but all over the world,” Gunjan Krishna, the commissioner for the Karnataka Industries department, had said in January to reporters.
(Edited by Tony Rai)
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