Facing funding winter, Indian tech start-ups gearing up for the tough times ahead in 2024

Since 2019, tech start-ups in India have managed to raise $70 billion in funding, revealed Zinnov-Nasscom 2023 report on tech start-ups landscape.

The report states that Indian start-ups are successfully transforming challenges into opportunities, thus creating jobs and facilitating growth.

As a result, a number of tier-II and tier-III cities have come up as innovation hubs. 

With 40 percent of all tech start-ups in 2023 originating from emerging hubs, the ecosystem is ripe for disruptions from tier-II and tier-III locations. 

Global headwinds

As a result of global slowdown, Indian tech start-ups witnessed substantial dips in funding as well as deal volumes in 2023. Although the funding value drop was holistic across all start-up stages, late-stage investments bore the brunt with a 71 percent drop.

In fact, the funding winter is likely to continue in 2024 as well. Around 82 percent of start-ups stated that longer sales cycles were affecting their growth, the report shows.

Focus on AI and deep-tech

Despite the difficulties faced by the start-ups during the funding winter, tech start-ups increased their focus on business fundamentals with nearly 60 percent of founders reporting an increase in revenue and profitability in 2023.

The growing focus of start-ups on deep-tech is a trend worth noticing. In fact, 25 percent of the tech start-ups founded in 2023 leveraged deep tech vis-a-vis 12 percent in the past 2 years. 

Additionally, India now has over 100 generative AI start-ups, focused on building horizontal and vertical applications. 

The report also highlighted that the business-to-business sectors such as auto, industrial and manufacturing were more stable and witnessed an increase in the share of funding.

Moving forward

This year, the Indian tech start-up ecosystem expects higher performance with a renewed focus on business fundamentals. 

So, the Indian start-up ecosystem promises to transcend boundaries, creating a narrative that will resonate far beyond the country and sub-continent. 

Besides, India’s start-up ecosystem proudly claims its space — ranking second in start-up activity, fourth-largest in enabling ecosystem players and third-largest ecosystem overall.

The report highlighted that India scores well on the size of the landscape, unicorn-creating ability and employment growth but falls short of attracting early-stage funding.

When evaluated from the lens of funding tech start-ups, Israel leads in countries around the world with 34 percent share followed by India’s 18 percent, the report states.  However, with 16 percent of the world’s AI talent, India is positioned perfectly to become a global innovation hub.

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Published: 06 Jan 2024, 11:59 AM IST