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Indian Startups Experience Lowest Investments in 4 Years, PwC Report

Indian startups witnessed a significant funding decline in H1 2023, reaching a four-year low of $3.8 billion, as investors exercised caution and conducted thorough due diligence.

Kashish Haswani
11 Jul 2023
startup funding decline

Indian startups faced a significant decline in funding during the first half of 2023, according to a recent report by PwC India.


The total funding dropped by 36%, reaching a mere $3.8 billion, marking the lowest half-yearly figure in the past four years. Investors' prolonged due diligence processes contributed to this downward trend as they scrutinized various aspects of businesses. 

In this article, we will delve into the key findings of the PwC report titled "Startup Perspectives - H1 CY23" and explore the implications of this funding slowdown on the Indian startup ecosystem.

The Funding Landscape in H1 CY23


In terms of capital volume, early-stage deals accounted for 57% of the total capital during the first half of 2023. However, in terms of value, early-stage deals only contributed to around 16% of the total funding, marking the lowest percentage in the past two years. The decline in raised capital compared to H2 CY22, which amounted to $5.9 billion, was nearly 36%.

Amit Nawka, Partner - Deals & India Startups Leader at PwC India, commented on the current investment outlook for Indian startups, stating, "A funding winter is just a season in a startup's journey. There is a slowdown in start-up funding despite significant untapped capital reserves held by venture capitalists (VCs). Active VC firms in India have secured new funds in the past year, and we can expect the pace of investments to pick up in the next few months."

Sector Analysis

 Despite the funding challenges, specific sectors managed to secure substantial investments. Fintech, SAAS, and D2C emerged as the most funded sectors in H1 CY23. They continued to attract investor interest and capital despite the overall funding slump.

The Importance of Due Diligence 

Due diligence is a critical process conducted by investors to assess an investment's viability, risks, and potential. It involves a comprehensive investigation and evaluation of various aspects of a startup's operations, financials, market position, technology, intellectual property, governance, and more. Investors undertake due diligence to gain confidence in the startup's ability to deliver investment returns and mitigate risks.

In recent times, due diligence has become more detailed and extensive. Apart from the traditional finance and legal compliance areas, investors now scrutinize technology infrastructure, human resources, and business processes. This shift in due diligence practices aims to ensure startups have a robust corporate governance framework, promoting transparency, accountability, and sustainability.

Investors are increasingly focusing on startups that exhibit strong governance structures. They seek startups to implement effective risk management practices, ethical business conduct, and compliance measures. Startups with comprehensive policies and procedures in data privacy, information security, and regulatory compliance are seen as more attractive investment opportunities.

By conducting thorough due diligence, investors can identify potential red flags, understand the startup's growth prospects, and make informed investment decisions. It is an essential process that allows investors to assess the startup's capabilities, market fit, competitive advantage, and potential for scalability.

Mergers and Acquisitions (M&A)

While venture capital funding experienced a decline in H1 CY23, M&A transactions remained stable compared to H2 CY22. The report revealed that 80 M&A deals involving startups were executed during the year's first half, with 80% being domestic transactions. SaaS, FinTech, e-commerce, and D2C sectors witnessed the highest number of M&A transactions.

The extended due diligence process has temporarily slowed funding activity but is expected to have long-term benefits for the startup ecosystem. By promoting robust corporate governance practices, investors can build a stronger foundation for sustainable growth and attract further investments. Startups prioritizing transparency, compliance, and risk management will be better positioned to secure funding and forge lasting partnerships.

Sector-wise Investment Analysis

SaaS, D2C, FinTech, e-commerce B2B, and Logi and AutoTech emerged as the top five sectors regarding funding received in the year's first half. Collectively, they accounted for approximately 89% of the total funding. Notably, the D2C and online gaming sectors experienced a three-fold increase in investments compared to H2 CY22, while the food tech sector witnessed a four-fold increase during the same period.

Startup Cities and Funding Activity

 Bengaluru, NCR, and Mumbai remained the primary hubs for startup funding, representing around 83% of the total activity in H1 CY23. Chennai stood out with increased funding in the SaaS space, while other cities experienced a decline in funding activity.

Outlook and Optimism 

While the funding slump poses challenges for startups, there is optimism about the investment outlook for Indian startups. Venture capital firms in India have secured new funds in the past year, indicating the potential for increased investments in the coming months. Although there is a slowdown in funding, active VC firms are committed to supporting startups and driving growth.

Startups that embrace due diligence as an opportunity to showcase their strong corporate governance practices will likely attract investors' attention. By implementing robust policies, ensuring regulatory compliance, and establishing effective risk management frameworks, startups can instil confidence and create an environment conducive to further funding and growth.


The funding slump experienced by Indian startups in H1 CY23 reflects the cautious approach of investors conducting more thorough due diligence. However, entrepreneurs must recognize that this slowdown is part of the startup journey.

With untapped capital reserves and investors' renewed focus on corporate governance, the Indian startup ecosystem holds promise for future growth and success. By leveraging their strengths, demonstrating growth, and adapting to the evolving investment landscape, startups can navigate tending challenges and build sustainable businesses in the long run.

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