The number of Indian tech startups launched in 2024 has declined nearly 65% as compared to last year, according to data provided by market intelligence firm Tracxn. While there has been a declining trend for startup launches since 2021, this is the sharpest year-on-year drop witnessed by the Indian startup ecosystem over the past 10 years.
This, experts say, is a combination of risk averseness among both investors and potential entrepreneurs and the lack of a strong niche for innovation.
“Various global and local factors could have led to this decline. There is an ongoing funding winter, which along with the economic uncertainty, geopolitical tensions, and rising interest rates has made it significantly harder to obtain growth funding,” Neha Singh, co-founder and chief executive officer, Tracxn said.
The number of tech startups founded yearly in India peaked in 2020 with around 17,400 launches. The number has been on a consistent decline since, though 2024 has witnessed a notably higher drop in the number of startups founded with under 2300 companies so far as compared with 6618 startups founded in 2023, according to data compiled by Tracxn.
With three months to go in the calendar, experts say that the trend is expected to continue as investors maintain caution, and geopolitical uncertainties persist.
While the pandemic gave rise to a spurt in startup launches due to the increased demand for solutions to tackle remote working, and access to resources and amenities during the lockdown, in the post pandemic years, investors have also become more conscious of where they are investing and why.
“There is a significant shift in investor mindsets post-pandemic towards prioritizing long-term profitability and strong fundamentals over chasing valuations. This increased scrutiny has led to fewer startups securing funding, and disincentivised founders who lack clarity about the scalability of their ideas for new businesses,” Singh added.
The cautiousness shown by investors, leading to the absence of significant growth funding, has in turn made entrepreneurs take a backfoot when it comes to launching new ventures.
“One of the reasons (for the decline in startup launches) could be increased risk averseness among potential entrepreneurs,” Vivek Soni, Partner and National Leader of Private Equity Services, EY India said. He added that given the funding winter the Indian startup ecosystem has witnessed, and the ongoing uncertainties at the macro level, people may be in wait and watch mode, accumulating capital and experience in the meantime.
Reduced access to capital, decreased investor appetite, and heightened scrutiny on business models have made it challenging for new startups to emerge, experts added.
These reasons, coupled with a lack of areas for innovation has compounded the slowdown in tech startup launches.
The startup space has also been hindered by a lack of novel, scalable solutions. Recent innovations have been largely confined to niche areas such as AI and R&D and space-tech,” Vishal Agarwal, partner, Grant Thornton Bharat said.
These domains require specialized expertise, limiting the number of potential founders, he added.