Is funding winter over for Indian startups?

Indian startup sector is finding it tough to pursue its growth prospects as global economic conditions remain grim amid rising interest rates, fears of economic downturn in US and recession in many parts of Eurozone. Funding has been restrictive for new companies as startups are not finding investors as they used to before the pandemic.

The overseas funding for Indian startups surged to around $14 billion in 2018 but the liquidity started to tighten after 2022 when major economies like the US embarked on interest rate hikes after inflation surged to 40-year high in the aftermath of Russian invasion of Ukraine which led to shortage of food grains to cooking oil, analysts said.

The digital revolution has acted as a catalyst, igniting a startup boom at an unparalleled pace. Starting from a modest base of approximately 10,000 registered startups in calendar year 2018, this number skyrocketed to an impressive 90,000 by 2022, Redseer Strategy Consultants said in a report.

This exponential growth hasn’t escaped the keen eyes of investors. Attracted by the vast potential and promise of the Indian digital landscape, the investor count has seen a twofold increase, moving from 400 in CY18 to an impressive 900 in CY22.

With India’s rapid digitisation trajectory, numerous sectors are buzzing with opportunities and innovations. Whether it’s healthcare, education, FinTech, or eCommerce, there’s a gold rush of activity and innovation. Fresh, groundbreaking solutions are not just gaining traction within Indian borders but are also capturing the attention of global investors, Redseer said.

“Amidst the chill of the funding winter, it’s essential to note that cold phases often serve as periods of consolidation and reflection. Seasons change, and just as surely as winter arrived, the spring of funding optimism is on the horizon,” Redseer noted.

Reseer added that funding winter for Indian startups is likely to end in next 6-12 months.

“Investor sentiment, despite the prevailing circumstances, remains largely optimistic. A recent survey highlighted that approximately half of the investors are sanguine about the funding environment, expecting a resurgence in the next 6-12 months. They believe that this period is an opportunity to recalibrate strategies, evaluate market potential, and prepare for the forthcoming bloom. A noteworthy 17 per cent of those surveyed are even more bullish, expecting the return of the funding spring in less than six months,’ Redseer added.