Will funding hibernation end for Indian startups? Investors see inflow rebound in 2024

Startups funding in India witnessed a significant decline of 40 per cent in 2024 from January to March as compared to the same quarter last year. Indian startups raised $2 billion funds in the January-March quarter, while the figure was $3.3 billion in the year-ago quarter, according to data sourced from market research firm Tracxn. 

Indian startups ecosystem has already added two unicorns to its fleet in 2024 so far — fintech SaaS Perfios and Bhavish Aggarwal's AI venture Krutrim. Investors believe that the funding winter scenario in India has been milder than expected this year as the growth of Indian economy encourages investment in new ventures. 

“Unlike many global markets, India did not experience significant contraction due to government's robust spending on infrastructure and a vibrant consumer market,” said Anirudh A Damani, Managing Partner Company of Artha Venture Fund. 

He said the Indian stock market's strong performance, particularly in SME IPOs, has not only enriched the sense of wealth but also supported a healthy IPO market that encouraged more investment into the ecosystem. 

Damani asserted that the Indian startup ecosystem is poised for rapid recovery and growth, outpacing global VC markets. “We are on the brink of a robust bull run, making this an ideal time for investors to engage and for startups in need of capital to secure funding swiftly.”

The Artha Venture Fund further anticipates increased global investment, attracted by India's strong economic fundamentals and a historic-low level of foreign portfolio investment in Indian markets. 

Nowadays, startups are using debt funding, rather than only relying on traditional equity funding, to manage operational expenses and enable growth without premature equity dilution, Recur Club founder Eklavya Gupta told Livemint. 

“Regulatory improvements are enhancing transparency and safety in debt markets, and initiatives like the RBI's Retail Direct Scheme are attracting a broader range of investors, stabilizing the investment climate,” he said while suggesting businesses to innovate and excel in a dynamic financial landscape. 

Appalla Saikiran, founder and CEO of SCOPE recommended startups to direct the shift in economic turmoil, advancing strategies to survive amidst fluctuating investor sentiment. This provides an opportunity to create more sustainable ideas and look forwards for long term success, he said. 

"The flow of cash is not only hindered into the startups but also into VCs, as they struggle to raise new funds. The limited number of LPs in the market and the prevalence of "zombie VCs" exacerbate the situation. Incentivizing foreign venture funds to establish a presence in India could help revitalize the investment landscape," he added.