Rise and Pitfalls of India’s Startup Ecosystem in the Year 2023

In 2023 India saw a downfall of growth than expected from the startups compared to the preceding year 2022. India saw a bumpy $8 billion investment in its startup ecosystem in 2023, which was significantly less than the previous year’s $25 billion. There were only 3 startups that could become unicorns in 2023 as opposed to 24 from last year. 

Major firms that many pinned their hopes on, such as BYJUS and Pharmeasy who were already Unicorns saw a valuation decrease of 85-90%. Unicorns were severely reduced to 82 in 2023 from 110 in the previous year. Despite the freezing winters in investments for startups, we see positive trajectories and developments in sectors of Artificial Intelligence (AI), Electric Vehicles (EVs), Fintech firms, Space Tech Firms and E-Commerce giants like Flipkart investing in future technologies like 3D, and augmented reality, doing relatively well. 2023 was a mixed bag in terms of the growth and evolution of these Unicorns, let us look extensively at the many developments we see with other Unicorns in 2023 and what prompted the reduction of valuation and investments.

(Source of the image: https://www.pexels.com/)

Slump in the Startup Economy

In the year 2023, till the first 2 quarters, there was no new startup company that achieved Unicorn status. In August we saw a ray of hope when Zepto was announced as the first Unicorn company of 2023. The drop in investments and the overall slump in the growth of the Startups saw a 15,000 job loss as per a report by Bussiness Standard.  This was the first blow that could be felt at an intensity never expected. 

Debt Stride Venture Fund Manager Apoorva Sharma said in a statement to the press, “The primary focus as of now for the Investors is to ensure there is healthy asset quality before pooling in more money.” 

Companies Facing the Funding Crunch

Hex Gn’s CEO Jaspreet Sethi in a statement to Bussiness Standard said that there was a significant reduction in the valuation of Health Tech and Med Tech Firms with companies seeing an 8% decline, comparatively in tail tech, portals and marketplace, the fall is a staggering 9% in valuation. 

Ivy Cap Venture Managing Partner Vikram Gupta echoed the same concerns however offering a gleam of hope, he said in his statement that almost 30 unicorns saw a change in their status in three years (2021-23). He also talked of various innovative technology startups doing well in areas like Software-as-a-service (SaaS), Artificial Intelligence, Fintech, Electric vehicles, Astronomy & Space and Casual Gaming.

Impact Investment Firm Omidyar Network’s departure from India also called for the ringing of alarm bells as the company which stayed here for 10 years, now was exiting after investing a whopping $500 million in Indian startups, the bulk of which over 70% were for for-profit industries. Omidyar had put money into startups like two-wheeler mobility company Bounce, SME Fintech Firms like Indifi and E-Pharmacy companies like 1 MG. Prominent Investors like Berkshire Hathway took out their money at a loss of 31% per share in One 97 Communication (PayTM).

(Source of the image: https://www.pexels.com/)

Downfall in Corporate Governance

With news of Bharatpe’s cofounder Ashneel Grover involved in fiscal mismanagement and financial irregularities, investors were demotivated to put money into Indian startups. Ashneel Grover’s former company Bharat Pe filed a case against him and his wife for embezzling money and using it for personal expenses, such as buying plane tickets and going on holidays. He is also accused of generating fake invoices. 

Former Managing Director (MD) of Bharat Pe, Grover allegedly created a fake recruitment company and used its services at an elevated price based out of Panipat. The Mint reports, that to cover several damages, Grover is asked to pay Rs 88.76 crores worth to his former company. A case was registered against Grover with the Delhi Police.

Soon, the impact intensified with an array of similar cases including startups like Go Mechanic, social media app Trell, Byju’s and 4B. Failing to adhere to rules, and financial discrepancies made Investors wary about making future investments in Indian startups.

(Source of the image: https://www.pexels.com/)

Glimmer of Hope in India’s Startup Ecosystem

Despite such challenging times, hopes are still on, so many startups have shown a positive trend of growth. This includes the startups whose services include emerging technologies, one example is Flipkart Labs which is leading the innovation in the E-commerce sphere by integrating advanced technologies like 3D, Virtual Reality, Augmented Reality and BlockChain. 

Ola Electric is going public in a few months making history by being the first EV to go public for IPO (Initial Public Offering) in the early months of 2024. As battery stations are on a surge, the development of EVs shows a positive growth prospect. Taiwanese manufacturer Gogoro believes India can be its EV manufacturing hub. A LinkedIn report mentions good news through its piece as it lists 20 Indian startups that showed phenomenal growth in 2023 giving us hope to expect tangible growth prospects in 2024.

Conclusion

The startup ecosystem did not bring in good news at the start of 2023. But after the 2nd quarter reports came, it showed positive trends in the 3rd quarter. With Corporate Governance taking a bad hit because of Bharat Pe, Go Mechanic the startup ecosystem saw a decline in investments. Zepto became a Unicorn in August. We did see a sharp decline in investments and many of our valued startups lost their valuation including Byjus and Pharmeasy. But there were good moments to relish as well, we are seeing the emerging technology market of AI, Space sector and EVs dominate the market. On the whole, it's a bittersweet year, but the future seems to be glistening for Indian startups.