The 2023 Funding Winter Storm, The Toughest Year For Indian Startups As Funding Cruch Hits All-Time Low

The year 2023 brought unprecedented challenges for the Indian ecosystem. What began as a promising era, with successful listings and positive sentiments, quickly transformed into a funding winter, leaving startups grappling with a sharp decline in investment. As the aftershocks of the Covid-19 pandemic, geopolitical conflicts, and global financial shifts reverberated, the once-booming landscape faced a seven-year low in funding.

Investment in Indian startups took a significant hit in 2023, dropping to $7 billion, which is less than one-third of the previous year’s estimated $25 billion, according to industry data. 

This represents the lowest funding level in seven years, dating back to 2017, and is attributed to a challenging global economic environment marked by geopolitical conflicts.

The fourth quarter of 2023 saw a notable decline in equity investment for new-age ventures, reaching levels not seen since the third quarter of 2016, as reported by research platform Tracxn data as of December 5.

Indian startups, Funding Winter

The situation has been characterized as a “funding winter,” with startups facing difficulties in securing funding, particularly in the growth and late stages.

In 2023, several startups, including ZestMoney, Frontrow, and Akudo, have closed their operations, reflecting the ongoing challenges in the funding scene. 

Siddarth Pai, founding partner at 3one4 Capital, notes that more casualties are expected in the startup ecosystem, particularly for business models relying on frequent capital raises.

The venture capital playbook has shifted in response to the high-interest rate environment, prioritizing operational cash flows over the previous growth-at-all-costs mindset. Fintech, retail, and enterprise applications, including software-as-a-service, emerged as the top sectors attracting capital during the year.

In contrast to the record-breaking 2021, where $41.6 billion was invested in Indian startups and a significant number achieved unicorn status, only two new unicorns were created in 2023 – Zepto and Incred

This marks a drastic drop from the 23 unicorns in 2022, representing a 91% decrease, and the 39 unicorns in 2021, reflecting a nearly 95% decline.

Late-stage startups such as Udaan, Byju’s, and Dunzo had to resort to alternative financing methods like convertible notes and term loan B facilities due to the scarcity of venture capital. 

Byju’s (has its own problems) and Dunzo, in particular, faced challenges in raising fresh funds, leading to multiple rounds of layoffs and salary delays amid a cash crunch; the drying up of venture capital in 2023 is in stark contrast to the excesses of 2021.

In the same year, several late-stage startups such as Zomato, Nykaa, PolicyBazaar, and others achieved successful listings, benefiting from a widespread positive outlook; however, a significant decline ensued due to reduced demand for technology services and digitization following the Covid-19 pandemic and worsening geopolitical conflicts and financial liquidity constraints in the US contributed to a broader correction in global public markets.

The Global’ Winter Crunch’

The decrease in funding is not unique to India; it’s a trend observed globally in major geographies like the US, the UK, China, and Southeast Asia, as noted by Neha Singh, co-founder of Tracxn. 

Private market investors have become cautious, holding back capital and conserving “dry powder,” a term in venture capital referring to committed but unallocated cash.

The challenging funding landscape has led to more reasonable valuations and robust business models, prompting some mid-stage funds to resume investments and signal a potential uptick in activity, according to Arpit Agarwal, partner at Blume Ventures, and this trend is expected to reflect in data in the early half of 2024.

Additionally, some startups had to raise funds to facilitate partial exits for existing investors; for example, Lenskart’s $600-million fundraising this year involved a $450-million secondary sale by existing investors, including SoftBank, Premji Invest, and Chiratae Ventures. In a secondary share sale, the capital does not contribute to the company’s funds.

However, even mature startups faced the brunt of the slowdown, with major investors like Tiger Global and SoftBank adopting a more cautious approach. Investors took longer to make new investments, influenced by concerns over corporate governance in several venture-backed startups.

In terms of deal size, the domestic technology ecosystem witnessed only 17 deals worth $100 million or more in 2023, including companies like PhonePe, Perfios, and Zepto; a significant decrease compared to the 55 such deals in 2022.

Late-stage companies experienced the sharpest decline in funding, dropping by over 73% to $4.2 billion in 2023 as of December 5, compared to $15.6 billion in the same period in 2022. 

Early-stage and seed-stage funding also saw substantial drops of 70% and 60%, respectively, indicating the widespread impact on startups across different stages.

The Tough Terrain For Indian Startups In 2023

The year 2023 has proven to be a challenging chapter for Indian startups as they steered through what can aptly be termed a “funding winter.” 

In the wake of global economic uncertainties and escalating geopolitical tensions, the once-thriving startup landscape faced a harsh reality check- the profound impact of the funding winter on Indian startups. These ripple effects have resulted in massive job cuts, closures, and the overarching issue of overvaluation. 

Moreover, the reluctance of global investment firms to pour capital into the Indian market amid the economic and geopolitical landscape added more fuel to the already lit fire. 

The Viewpoint

The funding winter has cast a long shadow over Indian startups, forcing many into a corner where tough decisions had to be made. 

Massive job cuts became an unfortunate consequence, as startups grappled with the dual challenges of limited capital inflow and a need for operational efficiency. 

The casualties of the winter were evident in the closure of several ventures, including prominent names like ZestMoney, Frontrow, and Akudo, marking a somber period for the entrepreneurial landscape.

One of the underlying issues aggravating the funding crisis is the problem of overvaluation. 

The exuberance of previous years, marked by sky-high valuations, collided with the harsh reality of economic headwinds and geopolitical uncertainties. 

The correction in valuations was inevitable, leading to a stark realization that sustainable business models and operational resilience should be prioritized over aggressive growth at any cost.

On the global stage, investment firms, usually bullish on Indian startups, adopted a cautious stance. The economic and geopolitical scenes prompted many global investors to reassess their risk appetite, resulting in a reduction in investments in Indian startups. 

This pullback from global investment firms further intensified the challenges for Indian startups, creating a domino effect that impacted the entire ecosystem.

The Last Bit, The funding winter of 2023 has been a crucible for Indian startups, testing their mettle and resilience in the face of adversity. 

The funding winter, though harsh, forced a recalibration of valuations and a focus on robust business models. While late-stage companies bore the brunt of the slowdown, signs of recovery are emerging as mid-stage funds cautiously re-enter the scene.

However, the stark realities of job cuts, business closures, and the reassessment of valuations stressed the importance of a recalibrated approach to growth. 

As we look ahead, the lessons learned from this turbulent period may well serve as a catalyst for a more robust, sustainable, and resilient era for Indian startups. 

While challenges persist, the industry’s ability to adapt and evolve could pave the way for a brighter future once the clouds of the funding winter finally begin to lift.




Writing is not just a pastime for me; it's a calling! There is something about the power of words - they can move people, inspire change, and bring about new ideas. With nearly 15 years of experience in the corporate sector, I have understood the therapeutic value of writing, using it as a means to explore my thoughts and articulate my views on various topics. Being passionate about writing, I strive to create content that informs and enriches the lives of my readers. I am grateful for the time they spend reading my work and aim to make every word count.

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