The funding winter is thawing and expected to end in 6-12 months

• A survey has revealed that as many as 67% believe that the funding winter will end in the next 6-12 months.
• The funding winter that started last summer almost slashed the capital raised by startups to half in 2023.
• If the funding winter ends, startup funding will go back to 2017-2020 levels, i.e. before the pandemic, says Redseer.

Startup investors are in an upbeat mood, as over two-third of them surveyed by Redseer believe that the funding winter will end in a year maximum. As per the survey, 50% said that it will end in 6-12 months and another 17% believe that it will end even before that.

As many as 33% of the respondents are slightly more circumspect and believe that it will take another 12-18 months for the funding to start flowing properly again. The funding winter was set off in the second half of last year, resulting in startups retrenching, reducing manpower and tightening belts.

The period has seen funds raised by startups slashed to around a half in 2022 — $25 billion from a high of $42 billion in 2021. However, 2021 was an unusually good year for startups, and the funding had been steady at around $12-13 billion for years before the pandemic spike.

Indian tech startup funding

Calendar year	Funds raised
2023 so far	$6 billion
2022	$25 billion
2021	$42 billion
2020	$12 billion
2019	$12 billion
2018	$12 billion
2017	$13 billion

The good, the bad & the ‘pandemic spike’

The present year, 2023, has been unusually bad for startups. With over half the year over, startup tech funding has been only at around $6 billion.

“The expectation with funding patterns so far is that 2023 will revert to the long-term trends in line with the years 2017 to 2020, and hover between $12-$15 billion, beyond which it is expected to be bullish into 2024 and touch $15-20 billion,” Redseer expects.

The number of funding deals which dropped early in 2023 to 700-900 deals from 1,519 deals in 2022 is also expected to shoot back in 2024 to 1,000-1,200 deals.

“VCs today have more dry powder than ever, also signalling a positive outlook are the total number of deals this year, 90% of which are likely to be seed or early-stage deals similar in trend with what was seen since CY17,” said Kanishka Mohan, a partner at Redseer Strategy Consultants.

The number of active investors doubled from 400 investors in 2018 to about 900 investors as of 2022. “Apart from the doubling of investors at home, global sources of funding have also become more diversified than before. In all, the USA, EU, UAE, and Japan are the largest source of funding for Indian startups making up 5% of total global funding and 20% of total APAC funding,” Mohan adds.

Redseer also predicts that the next set of unicorns would emerge from sectors like D2C that also includes beauty and personal care and health & wellness, diagnostics & clinics, gaming and app studios.