Decoding Startup Funding In Bengaluru — With 61% Decline, Funding At India’s Startup Capital Slips Below 2018 Levels

Even the country’s top startup hubs couldn’t escape the pains of the extended funding winter of 2023, and one of the prominent examples was the Silicon Valley of India, Bengaluru, which hit a six-year low last year in raising startup funds.

According to Inc42’s latest “Indian Tech Startup Funding Report 2023”, startup funding in Bengaluru tanked 61% year-on-year (YoY) to $4.2 Bn, even lower than the $5.3 Bn funding raised by the city’s startups in 2018. The number of deals, too, plummeted to almost half to 249 versus 478 deals in 2022.

According to the analysts Inc42 spoke with, the drop was in sync with the overall decline in funding in the Indian startup ecosystem in 2023. With Indian startups raising a little more than $10 Bn in the year-ago period, funding levels plummeted to a seven-year low, hovering around the 2017 levels ($13 Bn).

However, unsurprisingly, Bengaluru continued to retain its position as the top startup hub of India in 2023. The city garnered maximum funding in January ($625 Mn), October ($847.23 Mn), and December ($608.33 Mn).

Close on the heels were Delhi NCR at $2.6 Bn and 241 deals and Mumbai at $1.4 Bn and 160 deals.

Hottest Sectors In Bengaluru

Even though startup funding in Bengaluru plummeted to a six-year-low, five sectors received the most investor interest — fintech, enterprise tech, ecommerce, cleantech and deeptech.

While enterprise tech startups topped the charts with 49 deals, fintech and ecommerce startups lapped up 39 deals each. Similarly, founders of Bengaluru-based cleantech and deeptech startups took home 25 deals and 16 deals, respectively.

Fintech startups raised the most funds at $1.5 Bn, and fintech unicorn PhonePe accounted for almost 56.6% of the total sectoral funding in Bengaluru at $850 Mn.

Overall, the country’s Silicon Valley saw 13 mega deals during the year. Apart from PhonePe, other major funding rounds were raised by Ola Electric, Udaan, Perfios, Zetwerk, Ather Energy, FreshToHome, KreditBee, and Zolve.

Ecommerce funding took the second spot at $826 Mn and then followed sectors like cleantech ($659.7 Mn), enterprise tech ($459.22 Mn) and deeptech ($131.73 Mn).

Cleantech Gains Prominence In Bengaluru

Between 2014 and 2023, the cleantech sector in India observed $7.2 Bn in funding across 309 deals. Of this, Bengaluru startups raised $2.1 Bn or 29% of the share in total funding across 104 deals.

In the last three years, the city saw an influx of EV, climate tech, waste management, water tech, solar tech and biotech startups in the cleantech space. Between 2021 and 2023, Bengaluru-based cleantech startups raised $1.6 Bn across 71 deals.

A key role here has been played by the entry of players like Ola Electric and the success of startups such as Ather Energy, Bounce Infinity, Sea6 Energy, Ultraviolette Automotive and Urban Sphere. All these companies raised late-stage funding rounds in 2022 and 2023 and have been instrumental in encouraging new-age entrepreneurs to take the cleantech route.

Meanwhile, the Karnataka government has also played a major role in role in giving a major boost to the state’s startup ecosystem.

Talking about Bengaluru in particular, the state government has taken multiple initiatives over the years to solve infrastructure problems in the city to make it more sustainable.

Here are some of the Karnataka government’s key initiatives to promote clean energy ecosystem

• June 2022: Launched EV-awareness portal EV Jagruthi
• December 2022: BorgWarner, an American automotive and emobility supplier, opened a technical centre in Bengaluru
• January 2023: BorgWarner set up the India Electric Propulsion Engineering Centre to develop EV-specific products in Bengaluru
• August 2023: Proposed a ‘State Energy Efficiency Action Plan’
• December 2023: Explored the expansion of the green energy corridor dedicated to hydrogen energy to reduce reliance on traditional fuel sources
• October 2022: Approved 11 projects worth over INR 1.74 Lakh Cr, mostly in the clean energy sector

What’s Next For The Karnataka’s Startup Ecosystem?

Bengaluru has been an epicentre of innovation, serving as a globally connected hub dominated by both domestic and international IT companies.

As of now, the current imperative is to streamline Bengaluru, as the capital city struggles to manage rapid growth.

Waterlogging, traffic congestion, drinking water shortages in specific areas, and declining groundwater levels represent significant infrastructure and environmental challenges the city confronts. If these issues are not promptly addressed, the state’s sustainability goals may face setbacks.

One of the key initiatives in this regard has been the ideation of the Karnataka Digital Economic Mission (KDEM), which aims to foster Bengaluru-like startup economies in cities like Mysuru, Mangaluru and Hubli-Dharwad.

However, not much impact has been seen on this front so far. Nevertheless, in a recent interview, Karnataka’s information and biotechnology minister said that the state was looking to adopt a sector-specific strategy for further development.

He added that the focus will be on sectors such as deep technology, IoT, cybersecurity,  life sciences, medical devices, manufacturing, automobiles, wireless products, biotech, animation, and fintech. In addition, the government also aims to set up gaming and biotech accelerators by the end of FY24.

While much is being planned for other cities to alleviate stress on the country’s top startup hubs, it will be interesting to see if Bengaluru continues to maintain its position as the country’s top startup hub in terms of funding deals, volume, and size in 2024 and beyond.

[Edited by Shishir Parasher]

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