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Funds crunch, falling consumption spell doom for India’s startup story

A funding squeeze at Indian startups that has already led to layoffs and delayed stock listings is set to worsen as investors reckon with stretched valuations and faltering consumption growth, likely laying the ground for industry consolidation. 

Startups in India raised just $2 billion in the first quarter of 2023, 75 per cent lower than that in the same period of last year, and the smallest quarterly number in nearly three years, figures from data firm CB Insights show. 

At this run rate, startups may end up raising less than $10 billion this year, a far cry from the record $30 billion garnered in 2021 and $20 billion in 2022. 

The slowdown is a setback for startups as well as Prime Minister Narendra Modi who has lauded their success by calling such companies the “backbone of new India”. It could hurt India’s economic growth and its jobs market. 

“This is a fundamental reset, not just another blip,” notes V T Bharadwaj, a former India managing director of Sequoia Capital, who now leads venture capital firm A91 Partners. “I don't think I’ll again see a record fund mop-up year like 2021 at least for a decade.” 

The prospect of fast rising consumption both offline and in India’s digital space helped many startups clock multi-billion-dollar valuations in recent years, with the likes of Sequoia and Tiger Global betting big on businesses which burnt cash to lure consumers in the country of 1.4 billion people.

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