Pessimism In Indian Startup Ecosystem ‘Overdone’ As Was The Optimism Once

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The latest research report by Credit Suisse suggests that the negative sentiment prevailing in the Indian startup ecosystem due to the ongoing funding winter is overdone. The report compared the current scenario with the earlier period of optimism in the ecosystem, which was also overdone. The current slowdown in funding indicates a pause rather than a complete halt of funding, according to the report. The report noted that the startup ecosystem had seen 70 unicorns in the past two years and there is a much-needed pause at present.

The report also listed the 11 new entrants (unicorns) on Credit Suisse’s list, reflecting greater economic salience of Indian unicorns in terms of wealth creation and economic growth. The funding slowdown in the Indian startup ecosystem began at the start of last year due to the Russia-Ukraine war, and its impact has been still evident in the startup funding activities. In February 2023, the total funding raised by startups was down 28.53% MoM and 81% YoY, with startups raising only $693.47 Mn across 67 funding deals.

However, growth-stage startup funding surpassed late-stage funding, with startups in this category raising $381 Mn in 20 deals, while the late-stage startups could only raise $214 Mn in three deals during the month. According to Inc42’s latest ‘Annual Indian Startup Funding Report 2022’, Indian startups raised $25 Bn in funding in 2022, a decline of 40% from $42 Bn raised in 2021. Many investors believe that the funding winter was needed to separate the businesses which were actually seeing growth on the basis of customer capital, rather than surviving on investors’ money.