Silver Linings Emerge For Indian Tech Startups Amidst Challenges In 2023

A report on Thursday revealed that the tech startups in India had a horrid time in 2023 as their funding value reached a total of USD 6 billion, down 67 per cent over 2022. While the decrease in funding affected startups at all stages, late-stage investments experienced a particularly pronounced impact, witnessing a 71 per cent decline.

Despite the challenging global economic landscape affecting the startup ecosystem in 2023, Indian tech startups showed some resilience and adaptability, with silver linings emerging amidst the difficulties. Several positive trends signal the industry's determination to weather the storm and continue its growth trajectory.

Business Fundamentals Take Centre Stage

A significant shift was observed as tech startups increased their focus on business fundamentals. Approximately 60 per cent of startup founders reported a surge in revenue and profitability in 2023, which highlighted a strategic pivot towards sustainable growth rather than rapid expansion.

“In 2023, despite facing global economic and regulatory challenges, Indian tech startups have prioritised the imperative of enhancing their business fundamentals, driving profitability and growth. India’s tech startup ecosystem has truly matured attracting more than USD 70 billion in cumulative funding between 2019 to 2023,” noted Debjani Ghosh, President at nasscom.

The tech startup landscape witnessed a notable transformation with an increasing number of new startups dedicating themselves to DeepTech last year. About 25 per cent of tech startups leveraged DeepTech, a considerable jump from the previous two years.  Source: nasscom-Zinnov's "Weathering The Challenges – The Indian Tech Start-up Landscape Report 2023" 

AI And Generative AI Thrives 

India's startup ecosystem now boasts over 100 active Generative AI startups. These startups are engaged in developing both horizontal and vertical applications, showcasing the breadth and depth of AI integration in the ecosystem.

A remarkable 70 per cent of startup founders expressed intentions to embed Artificial Intelligence in their solutions, according to the latest nasscom-Zinnov report, which reflects a growing recognition of AI's transformative potential across various industries and positions these startups as key players in the evolution of technological solutions.

Diverse Startup Hubs Emerge, B2B Clicks 

The share of tech startups established in emerging hubs rose to 40 per cent in 2023, in move away from convention. This decentralisation of innovation indicates a more diverse and inclusive startup landscape that blossomed in the year gone by, with entrepreneurship flourishing beyond traditional metropolitan areas.

Amidst the global economic slowdown, B2B sectors such as Automotive, Industrial and Manufacturing demonstrated stability and witnessed an increase in funding share, which suggests that certain industries, perhaps due to their essential nature or adaptability, remain robust in the face of economic challenges.

“Despite funding headwinds – including valuation corrections, selective capital allocation, and regulatory changes- India's tech startup ecosystem continues to grow at an impressive clip. 2023 saw the launch of 950+ new tech startups, bringing the total to over 31,000. The noteworthy expansion isn't just numerical; it signifies a resilient adaptation to macro-economic, business and technology changes. DeepTech, a burgeoning sector, is gaining prominence, and tier-II/III cities are transforming into new innovation hubs, decentralising the startup landscape.” - Pari Natarajan, CEO at Zinnov

However, these silver linings emerge against the backdrop of a global slowdown that significantly impacted the Indian tech startup ecosystem with deal volumes declining by 48 per cent, reaching 824 deals. Source: nasscom-Zinnov's "Weathering The Challenges – The Indian Tech Start-up Landscape Report 2023" 

Moreover, new startup creation experienced a sharp decline to approximately 30 per cent of the previous year's level, signaling a potential slowdown in the pace of innovation. Merger and acquisition (M&A) activities in the Indian tech startup ecosystem dropped to pre-COVID levels, declining twofold compared to the previous year

The nasscom-Zinnov report mentioned that tech startup founders acknowledged the challenging market environment, citing cash flow issues, funding availability and low customer demand as their top concerns. About 82 per cent of startups reported longer sales cycles and 46 per cent witnessed shifts in technology priorities in their key segments.