Ecommerce Startup Funding In 2023 Tanks 32%, D2C Leads The Show

India’s ecommerce market, which is projected to hit $400 Bn by 2030, experienced a notable contraction in startup funding in 2023. According to Inc42’s latest “Indian Startup Funding Report 2023”, Indian ecommerce startups raised $2.6 Bn during the year, down 32% from $3.8 Bn raised in 2022.

Meanwhile, the deal count, too, declined 33.6% to 192+ from 288+ a year ago. Overall, the ecommerce funding returned to 2019 levels when the sector raised a total of $2.5 Bn across 130 deals.

On a positive note, however, ecommerce continued to lead the charts as the top-funded sector in 2023 in terms of the number of deals. It was followed by enterprise tech and fintech at over 157 and 129 deals, respectively. 

In terms of funding amount, the ecommerce sector took the second spot. Fintech led the funding race with $3 Bn+, while the enterprise tech players secured the third spot with $1.3 Bn+ funding. 

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In addition, in the Indian ecommerce realm, another B2C ecommerce unicorn, Mamaearth, got listed on the Indian bourses. The first venture to get listed in this space was Nykaa in 2021. The sector is also expected to have at least one more IPO in 2024, with FirstCry eyeing an INR 1,816 Cr public listing.

Despite the overall decline in funding in the year of extended funding winter, the ecommerce space emerged as the second-best bet for investors. Meanwhile, let’s steal a glance at some of the top ecommerce funding trends observed in 2023.

• Mega deals returned to 2020 levels: The ecommerce sector observed five mega deals in 2023. While Flipkart lapped up $600 Mn from investors, Lenskart received the same amount in two mega rounds. The year also witnessed Udaan and FreshtoHome take home $340 Mn and $104 Mn, respectively. Overall, mega deals in ecommerce sector returned to 2020 levels when the ecosystem saw only three mega deals. 
• Seed stage median ticket size took a hit: The median ticket size at the seed stage slumped to $0.3 Mn, enduring a 67% year-on-year (YoY) drop. For three consecutive years, 2020 to 2022, the sector maintained a median ticket size of $1 Mn. However, in 2023, it returned to 2015 levels and is the lowest in the last eight years.
• Late stage startups took 73% of the total ecommerce funding: Most ecommerce startup funding remained concentrated at late stage in 2023. Late stage startups raised $1.9 Bn+ or 73% of the total ecommerce funding in 2023. Despite this, the sector failed to see any unicorns in the year, as opposed to three unicorns in 2022 and 12 unicorns in 2021. 
• Delhi NCR-based startups worst hit: In 2023, among the top three startup hubs, ecommerce startups in Delhi NCR raised $761 Mn in funding, a 36% YoY decline compared to $1.1 Bn raised in 2022. Ecommerce startups in Bengaluru raised $1.4 Bn (down 1% YoY) while Mumbai raised $329.81 Mn, registering a 17% YoY decline in 2023.
• D2C startups led the charts: Direct-to-consumer (D2C) brands continued to take center stage in ecommerce, securing $1.4 Bn or 53.84% of the total ecommerce funding in 2023. D2C startups raised funds across 135 deals, making up more than 70% of the total deals observed in the sector.

Seed And Growth Stage Ecommerce Startups Worst Impacted In 2023

According to Inc42’s annual startup funding report 2023, the seed stage ecommerce startups raised $89 Mn+, registering a 65% YoY decline from $252 Mn raised in 2022. In comparison, growth and late stage startups saw a 43% and 24% YoY decline, respectively.

In terms of the number of deals, seed stage startups saw a 25% YoY decline to 107 from 142 in 2022, However, late stage saw the most impact with a 61% YoY decline to 16 deals from 41 in 2022.

“Amid sector-specific challenges, investor attention shifts towards safer sectors like fintech and healthcare, diverting focus and resources away from early-stage ecommerce ventures,” said Karan Verma, cofounder and director of FAAD Network.

In 2023, the overall market sentiment remained bearish due to the extended funding winter. At the same time, most ecommerce startups, particularly at growth and late stage were not able to showcase profitability in FY23. Of the 18 ecommerce companies which disclosed their FY23 results in 2023, only five were able to turn a profit.

This is what led to a decline in growth and late stage funding.

Will D2C Continue To Woo Investors In 2024?

India’s D2C market, which is poised to reach $100 Bn by 2025, has witnessed remarkable growth fuelled by factors like the Covid-19 pandemic, increased internet penetration, robust digital infrastructure, and the rise of millennials.

With over 190 Mn digital shoppers, India has the world’s third-largest online shopping base. It is this burgeoning ecosystem that the new-age D2C brands aim to capitalise on.  

According to Deepak Gupta, general partner at WEH Ventures, on the consumer side, large companies’ growth remained tempered and the path to profitability remained elusive. Models which emulated successes like Shanghai-based Pinduoduo haven’t worked out for the most part. Pinduoduo is a Chinese online retailer with a focus on the traditional agriculture industry. 

“So, there is some circumspection on ecommerce versus other segments — for example, D2C brands, which have grown well and are seeing increased investor attention of late,” Gupta said.

In the last few years, many D2C startups have also gone global, either by setting up their operations in foreign territories or by using local marketplaces such as Amazon. Some of the prominent D2C brands that have gone global include Lenskart, FreshToHome, BombayShavingCompany, Chumbak, Paper Boat, Wakefit, and Wow Skin Science, just to name a few.

The success of emerging D2C brands such as Mamaearth, CaratLane, and Nua, reaching the INR 100 Cr revenue mark within a short span, further serves as a testament to the thriving D2C landscape in the country.

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