Indian startup funding slumps: Investor enthusiasm for Indian startups has waned following major setbacks in the market. Despite the robust performance of Indian economy and stock markets, startup ventures are struggling to attract funding.

Decreased funding appetite

Previously eager investors are now proceeding cautiously, opting for smaller investments and stressing potential profitability over flashy tech ventures. This shift is evident in the reduced funding activity, with only about $900 million raised by Indian startups in the first two months of the year, signalling another sluggish period following a low point of $8 billion in 2023.

The decline in funding has been sharper in India compared to other major startup markets like the United States and China. Even established venture capital firms like Blume Ventures are scaling back, with their next fund expected to be either the same size or smaller than the previous one, a departure from the usual trend of increasing fund sizes.

Economic growth impacted

The downturn in startup funding has broader implications for the economy, as startups have been major contributors to job creation and economic growth in India. The recent struggles of once-prominent startups like Paytm, Byju, and Ola Cabs have further dampened investor sentiment. These companies have experienced drops in valuation and encountered various challenges, ranging from regulatory issues to internal conflicts.

In response to these challenges, investors are reassessing their strategies, diversifying their investments beyond tech startups to include more stable brick-and-mortar businesses. Some, like Nexus Venture Partners, are broadening their investment focus to capture a larger share of the economy and reduce risk.

Glimmers of hope

However, there are still glimmers of hope, such as SoftBank's potential plans to invest up to $300 million in India this year after a two-year hiatus. SoftBank's previous investments in Indian startups amounted to $11 billion between 2014 and 2021, but the company has been cautious due to concerns about overvalued startups.

Overall, the changing ecosystem reflects a more cautious approach from investors, who are prioritising sustainable growth and profitability over rapid expansion and high valuations in the Indian startup ecosystem.

(With Reuters Inputs)