In 2023, over a thousand Indian startups collectively secured venture capital exceeding $11 billion, a sharp decline compared to $25 billion in 2022 and $38 billion in 2021, as per the latest report from startup data tracker TheKredible.
The report highlights a decrease in the number of deals from 1,625 in 2021 to 1,556 in 2022 and further to 984 in 2023. Notably, late-stage companies like PhonePe, Flipkart, and Lenskart emerged as the top three, raising $850 million, $600 million, and $600 million, respectively.
The year 2023 was another dry year for India’s startup ecosystem, which ranks at third place globally. Due to factors like inflation, rising interest rates, geopolitical tensions, and recession concerns, global venture funding hit a low in 2023. While a few startups achieved profitability and entered the unicorn club, the majority faced difficulties in securing funding and some lost their values drastically resulting in mass layoffs at prominent entities like Byju’s, ShareChat, PayTm, PhonePe. Additionally, some startups, like ZestMoney and Striker, had to cease operations.
The upheaval in the startup ecosystem also spilled over to theadvertising sector. Leading agencies experienced single digit growth in billing in calendar year 2023 compared to the previous year's double-digit growth, though AI and inflation also played aspoilsport.
As the calendar turns to 2024, the advertising and media sector hope for “funding spring” which will inject vitality into the advertising sector as well.
After all, manyunicornshave been pumping huge money into marketing over the last couple of years, sometimes many-fold of their revenues, liftingIndia’s advertising spendto a great extent. Some of them have been the sponsors of some of the biggest sports properties like the Indian Premier League. Many of them have now either walked out of the sponsorship deal or skipped the high pitch property altogether.
Cautious optimism
According to the PMAR 2023, India’s AdEx grew by 16 per cent in the year. That means it is expected to cross the 1 lakh crore landmark. However, considering the current trend, experts are not fully confident of breaching the Rs 1 lakh crore figure. They, however, insist that there is no cause for concern in 2024, as improvements are anticipated soon.
“Despite challenges, the Indian startup ecosystem exhibits resilience. The Indian economy remains a bright spot in the midst of global economic turmoil which will attract the present and new investors in the coming days. Hence, the M&A sector has no reason to worry,” says Anil Solanki, Senior Director - Media Lead at Dentsu X.
Besides, the Union government has also implemented various initiatives to support startups, including the Fund of Funds for Startups, Startup India Seed Fund Scheme, and Credit Guarantee Scheme for Startups which will help lift the sector, say experts.
Llyod Mathias, angel investor, echoes the sentiments. “We have the largest tech manpower and startups are driving the growth of the global south. However, investors will surely go cautious for the edtech category as of now.”
The trajectory of startup investments typically aligns with a more stable long-term trend, as affirmed by historical data, experts pointed out. “The funding environment is influenced by short-term economic factors. There is cautious optimism about a potential rebound in the coming year, based on various factors influencing investor sentiment and economic conditions,” an agency head noted.
Despite the unparalleled challenges posed by the pandemic, startup funding experienced a significant upswing in CY21. This growth encountered a decline in CY22, largely attributed to macroeconomic pressures, stated an ad executive.
Funding to return soon
A Redseer report released in August estimated that startup funding winter is expected to pass in 6-12 months.
“Investor sentiment, despite the prevailing circumstances, remains largely optimistic. Our recent survey highlighted that approximately half of the investors are sanguine about the funding environment, expecting a resurgence in the next 6-12 months. Over 17% of those surveyed are even more bullish, expecting the return of the funding spring in less than six months,” the report stated.
There is another reason for optimism. General elections are expected to be held in April-May. The Union government, states and political parties are likely to spend huge amounts on advertisements, industry veterans point out.
