A funding squeeze at Indian startups that has already led to layoffs and delayed stock listings is set to worsen as investors reckon with stretched valuations and faltering consumption growth, likely laying the ground for industry consolidation.
Startups in India raised just $2 billion in the first quarter of 2023, 75% lower than the same period of last year, and the smallest quarterly number in nearly three years, figures from data firm CB Insights showed.
The slowdown is a setback for startups as well as Prime Minister Narendra Modi who has lauded their success by calling such companies the "backbone of new India". It could hurt India's economic growth and its jobs market. The prospect of fast rising consumption both offline and in India's digital space helped many startups clock multi-billion-dollar valuations in recent years, with the likes of Sequoia and Tiger Global betting big on businesses which burnt cash to lure consumers in the country of 1.4 billion people.
But India's startups - which are far more reliant on foreign capital than global peers - have seen a more severe squeeze, which some executives say is also partly due to investors realising that they misjudged consumption growth.
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