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Navigating the Maze: Indian Tech Start-up Ecosystem in 2024
Navigating the Maze: Indian Tech Start-up Ecosystem in 2024

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The journey for startups in 2023 resembled a rollercoaster ride, with its fair share of highs and lows. Layoffs, prolonged sales cycles, and the struggle for profitability defined the landscape. The nation's tech startup ecosystem remained gripped by a funding winter, as funding hit a five-year low. The drop in funding could be seen across all Late stage, Early stage, and Seed stage funding rounds, with maximum decline in Late-stage funding.

However, within the funding winter sectors like Supply Chain Management (SCM) & Logistics, Automotive, and Industrial & Manufacturing, defied the downturn. While all three sectors saw an increase in their share in total startup funding in 2023, Automotive, in particular, secured more funding (in absolute numbers) than 2022, fuelled by the growth of electric vehicles (Source: nasscom-Zinnov Weathering The Challenges: The Indian Tech Start-Up Landscape Report 2023)

As the curtain rises on 2024, the horizon seems to hold a mix of promises and hurdles. Economic indicators show signs of slight improvement, yet experts advise against expecting a swift rebound. The startup ecosystem is entering an era where the flow of money will be more measured, thus challenging those without ample capital. For startups entering 2024, the need to prove their worth will be very critical, and having enough financial cushion to weather lengthy sales cycles will become paramount. For the year, investors eye macro factors such as elections and the US Federal Reserve's decisions, and hint caution going forward. While public market investors show an appetite for profitable or path-to-profitable companies, private investors seek long-term value drivers and strong moats in companies. The consensus is clear – startups need robust foundations to attract funding in these uncertain times.

In 2024, the era of skyrocketing valuations may also seem to be behind us, but technology, especially in manufacturing and hardware, can emerge as a linchpin for the anticipated rebound. The strategic application of AI can be the key to high growth and value across industries. As the technology continues to penetrate deeper into every sector, its careful integration into solutions and services will help industry unlock its full potential. Focus of investors on IP-driven start-ups is likely to show an increase, indicating more of their focus on value creation and less on scaling. However, some experts see startup funding to start showing some recovery no sooner than the second half of 2024 with sectors like AI, fintech, enterprise software, healthtech, and sustainability tech likely to capture investor interest. Direct-to-consumer brands might continue to struggle with securing funding due to market saturation.

The message is clear – even with inflation letting up, and many currency headwinds subsiding, 2024 might not necessarily be an year of recovery for start-ups. Surprisingly, funds totalling around $20 billion await deployment (source: CNBCTV18), hinting the unlikeliness of investors chasing the fads in 2024 as well. Even as IT spending is expected to increase in 2024, startups will need to fight for their share in the enterprise budgets to lift their business and have enough cash to get through long sales cycles. Yet, funding is expected to flow into start-ups which show right product-market fit, show strong moats, and/or are profitable or are about to be profitable.


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Dhiraj Sharma
Principal Analyst

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