Karnataka Top-performing State in Startup Investments in 2023 Report However, the funding fell 72%, says Tracxn Geo Annual Report

The Karnataka Tech startup ecosystem holds the first position in India in terms of overall funding to date and in 2023, says Tracxn Geo Annual Report: Karnataka Tech 2023.

It also says that the state boasts of a robust startup ecosystem, with more than 18,000 startups, and is also home to 39% of the unicorn companies in the country.

"Karnataka was the first state to introduce a dedicated Startup Policy in 2015. As per the Economic Survey of Karnataka (2022-2023), the state has a per-capita income of INR 3.01 lakh, the highest in India. However, similar to the global trend, this space witnessed a decline in funding in 2023, when compared with the previous year. This decline can be attributed to the prevailing macroeconomic conditions and geopolitical issues," it said.

The Karnataka Tech startup ecosystem received a total funding of $3.4 billion in 2023, which is a 72% plunge from the $12.2 billion raised in 2021, and an 83% decline from the $20.4 billion raised in 2021. Companies in this space attracted late-stage investments worth $2.3 billion in 2023, a 74% decline compared with $8.9 billion in 2022. Early-stage funding in 2023 stood at $784 million in funding, a drop of 71% from the $2.7 billion raised during the previous year. Seed-stage funding fell 54% to $294 million from the $643 million raised in 2022.

Only eight $100M+ funding rounds were observed in this space in 2023, as against 26 and 44 such rounds in 2022 and 2021, respectively.

PhonePe and Udaan secured the highest funding in 2023, raising $623 million and $377 million in Series D and Series E funding rounds respectively.

No new Unicorns emerged from this space in 2023, a sharp contrast from seven Unicorns in 2022 and 18 in 2021.

FinTech, Retail, and Enterprise Applications were the top-funded segments in 2023. The FinTech sector in Karnataka secured a total funding of $1.15 billion in 2023, a decline of 51% compared with $2.4 billion raised during the previous year.

The Retail sector witnessed total funding of $956 million in 2023, a decline of 56% compared with the $2.16 billion raised in 2022. Companies in the Enterprise Applications sector attracted investments worth $928 million in 2023, a plummet of 68% from the $2.89 billion raised in 2022.

In 2023, the Karnataka Tech sector witnessed 35 acquisitions, significantly lower than 48 acquisitions in 2022 and 57 acquisitions in 2021. None of the companies from this space went public in 2023, as against two IPOs in 2022.

Key Highlights:

• Total funding fell 72% to $3.4B in 2023, from $12.2B in 2022
• Total number of $100M+ rounds fell to 8 in 2023 from 26 in 2022
• Bengaluru took the lead in terms of city-wise funding
• FinTech, Retail, and Enterprise Applications were the top-funded segments in 2023

Bengaluru took the lead in terms of city-wise funding in 2023. Startups based in Bangalore raised $3.4 billion in 2023, while those based in Hubli raised $121K.

Top investors in the state

• Accel, Wellfound, and LetsVenture are the top investors in the state of Karnataka till date
• We Founder Circle, Y Combinator, and 100X.VC were the top seed-stage investors
• Accel, Lightspeed Venture Partners and Kalaari Capital were the top early-stage investors
• Footpath Ventures, Founders Circle Capital, and DST Global were the top late-stage investors

The Tracxn report further added that Karnataka has achieved the distinction of being the first state in India to offer grants-in-aid to startups without seeking equity in return. Since the inception of the Elevate Scheme, the State Government has provided approximately INR 200 crore in funding to support 874 startups.

The government announced a series of incentives for startups in the state, including the establishment of an incubation centre called INNOVERSE with an allocation of INR 50 crore. Such initiatives are expected to boost the growth of the startup ecosystem in the state.