India's tech startup ecosystem witnessed a significant funding decline of 72% in 2023, compared to $25 billion in the previous year, making it the lowest-funded year in the last five years, according to Tracxn.

With a total funding of $7 billion received so far this year, India has dropped from 4th place in 2022 and 2021 to 5th place among the highest-funded geographies globally in 2023, the report says. The last quarter recorded the lowest funding of $957 million to date, making it the lowest-funded quarter since Q3 2016.

The decline is primarily due to the biggest drop in late-stage funding, by over 73% to $4.2 billion in 2023 from $15.6 billion in 2022, Tracxn says. The number of over $100 million rounds recorded this year stood at just 17, dropping by 69% compared to last year.

Only two new unicorns were created in 2023 — Incred and Zepto — as against 23 in the previous year and 119 acquisitions as compared to 187 acquisitions in 2022, a 36% drop.

Fintech, driven by increasing smartphone penetration and government initiatives towards a cashless economy, received $2.1 billion in funding so far in 2023 compared with $5.8 billion from the same period last year.

Payments company PhonePe stands out as the top-funded company in the sector, securing a total of $750 million in four Series D rounds which makes up for 38% of the funding received by the sector.

The retail sector has received $1.9 billion in funding, marking a 67% drop compared to 2022. Lenskart, with $600 million raised in two Series J rounds, emerges as the top-funded company in the sector this year.

Despite the overall funding slowdown, sectors such as environment tech and space tech have garnered investor attention. Environment tech received $1.2 billion in funding, while space tech saw a 6% increase with $122 million raised so far in 2023 brought about its privatisation by the government.

Bengaluru, Mumbai, and Delhi-NCR continue to attract significant funding in India's tech startup ecosystem with LetsVenture, Accel, and Blume Ventures, being the top investors supporting the growth of the India tech space.

"While the funding slowdown in 2023 presents challenges for the Indian tech startup ecosystem, we remain optimistic about the future. With favourable government policies and a fast-growing economy, we believe India is well-positioned for success in the years to come," says Neha Singh, co-founder, Tracxn.

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