What Awaits E-commerce Startups in 2023 Amid a 63% Drop in Funding in 2022?

What Awaits E-commerce Startups in 2023 Amid a 63% Drop in Funding in 2022?


  • Indian e-commerce businesses were only able to raise $4.01 billion, as opposed to $10.7 billion in 2021
  • Growth-stage capital in the e-commerce industry fell by 25% to $947.88 in 2022 from $1.25 Bn raised in the previous year, while late-stage funding plummeted 71% YoY to $2.65 Bn.
  • After raising $1.65 billion and $1.47 billion in 2022, two of the largest subsectors appeared to be D2C and B2B.

The e-commerce industry in India is one of the most vital parts of the country’s startup ecosystem, boasting the most unicorns and investment transactions out of any other sector in the country at more than 790. By the end of the decade, India is expected to have more than 1.3 billion internet users, 500 million of whom will be e-commerce customers, according to Inc42’s “Indian Tech Startup Funding Report, 2022”.

Despite the alluring estimates and the nation having the second-largest global e-commerce industry after China, the sector could not avoid the financial slump of 2022. It continued to be at the forefront of investors’ failure to put money into the nation’s expanding startup sector.

The e-commerce industry saw a 62.5% YoY decline in financing in 2022 compared to industries including edtech, health tech, fintech, consumer internet, and media and entertainment, which saw funding declines of 40-45% YoY.

Before we continue, it is crucial to understand that Indian e-commerce startups raised $31 billion in funding through more than 1.4K deals between 2014 and 2022, making them the most well-funded sector of the nation’s startup ecosystem. More than 30% of the entire capital the industry secured between 2014 and 2022 was invested in the sector in 2021, totalling $10.7 Bn.

E-Commerce Startups

The startup ecosystem was forced to make do with whatever money was available during the funding winter of 2022 as investors tightened their purse strings. As a result, the e-commerce industry had a 62.5% decline in investment year over year (YoY) and was only able to raise $4.01 billion in 2022.

Additionally, there was a significant change in investor perceptions towards funding at different company stages. Growth-stage capital decreased 25% to $947.88 from $1.25 Bn raised a year ago, while late-stage funding in the e-commerce industry plunged 71% YoY to $2.65 Bn in 2022.

It’s interesting to note that seed funding increased 1.5X in 2022, from $169.46 million in 2021 to $256.33 million last year, reflecting increased investor pressure on early-stage e-commerce businesses. D2C and B2B emerged as two of the largest subsectors within e-commerce, raising $1.65 billion and $1.47 billion, respectively, in 2022. In addition, social commerce, rollups, marketplaces, and recommerce were among the top subsectors.

Surprisingly, D2C was the only industry that saw funding increase from 2021 to 2022. The subsector saw startups rake in $1.65 Billion in 2022, up 2.16X from the $760.75 Mn raised in 2021, thanks to companies like Mamaearth, boAt, and others. On the other hand, the remaining subsectors experienced a decrease in funding from 2021 to 2022.

Marketplace emerged as the largest subsector in 2021 thanks to massive fundraising rounds by Flipkart, Meesho, and others, which contributed to $4.46 Bn of the total funding raised in 2021. Unfortunately, the market sector was only able to increase $144 million in the previous year, a decrease of about 97% year over year.

The financing declines of more than 90% YoY industries included recommerce and vertical commerce. Last year, just $99 Mn and $50 Mn, respectively, could be raised by the two sectors.

2022: Transition Year?

E-Commerce Startups

Without question, 2022 will go down in history as the year when investors returned to their caves, along with all the layoffs, closures, and mergers that followed. Although it was a transitional year for e-commerce, it served as a reminder of the value of having solid business fundamentals, favourable unit economics, and a clear route to profitability.

Many e-commerce players realized they were walking a tightrope by relying on external funding or runways when investor money dwindled, which drove them to make expense reductions. Interestingly, many people’s livelihoods were lost, but marketing expenses remained high to draw in additional clients.

According to Inc42 Layoff Tracker, as many as ten e-commerce businesses have fired 2,606 workers since the year 2022 began. Surprisingly, not all was doom and gloom. Sales-wise, e-commerce firms had a successful year in 2022, particularly during the holiday shopping season. In India, e-commerce businesses reported sales of $5.7 Bn in the first week of the holiday season last year, according to Redseer research.

Additionally, during the holiday season, online retailers like Flipkart and Meesho outperformed more established rivals like Amazon, Tata, and Reliance in terms of orders received. Only $4.6 Bn in gross merchandise value (GMV) might be recorded by India’s e-commerce firms during the first week of the holiday season in 2021. In 2020, the same was estimated to be worth $3.7 Bn by Redseer.

In contrast to 2020 and 2021, the average user expenditure in 2022 stayed constant at INR 5,200 per shopper, even though this was 41% and 30% lower than pre-Covid levels in 2018 and 2019, respectively. According to the research, 75–80 million people shopped throughout the festival week in India, an increase of 24% from the same period in 2021.

An increased emphasis on customer happiness, which coincided with the e-commerce boom of the previous year, prepared the way for rapid commerce firms like Zomato, Swiggy, Blinkit, Zepto, and others to jump on board. The government’s large-scale digital commerce project, the Open Network for Digital Commerce, was launched, another development affecting all facets of e-commerce in India (ONDC).

The network employs an open-network model that is not constrained to a particular platform to allow smaller businesses to market their products and services more effectively online. With a buyer app for customers and a seller app for sellers, the ONDC functions as a platform and builds a value chain. The ONDC is in for a lot from the government. The ONDC expects the network to have 900 million buyers, 1.2 million vendors, and a gross merchandise value (GMV) of $48 billion within the next two years.

Although pilots for the digital commerce project have already taken place in Delhi, Bengaluru, and Meerut, reactions have been muted due to the numerous operational issues that continue to plague the initiative.

Is there a way out of this situation?

E-Commerce Startups

E-commerce companies could learn a lot from 2022. Still, moving forward, the most crucial things to bear in mind are attaining profitability, streamlining operations, and maintaining budgetary restraints.

Industry analysts predict that marketing and customer experience innovation will continue to grow in 2023. In general, e-commerce companies will implement sustainable growth strategies rather than pursuing expansion at any cost. They think India’s smaller cities and towns will be the source of the upcoming e-commerce boom.

In addition, experts predict that the ONDC will be instrumental in advancing the localization of e-commerce in 2023 as an increasing number of regional retailers and brands join the government’s ambitious digital commerce initiative. In general, the following years will be spent maximizing e-potential, growing into smaller cities and rural areas of the nation, and preparing for the next wave of e-commerce customers.

Edited by Prakriti Arora

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