The Karnataka Mid-Year Review of State Finances (2023-24) has revealed a stark 80% decline in startup funding in the state, echoing a broader national trend of diminished investor activity. The report indicates that startup funding in Karnataka dropped from $3.4 billion in the first half of the previous financial year to $0.6 billion in the current financial year, marking a substantial $2.8 billion decrease.
The report attributes this significant decline to heightened investor caution and valuation concerns, leading to a 70% reduction in startup funding across India. The Indian startup ecosystem has experienced a notable contraction, with funding activity decreasing from $6.6 billion in Q1 FY23 to $1.9 billion in Q1 FY24.
Bengaluru, often referred to as India’s startup capital and home to 40% of the country’s unicorns, is particularly affected by these funding challenges. The decline raises concerns within the Private Equity/Venture Capital sector, amplifying uncertainties driven by macroeconomic and geopolitical conditions on the global VC funding landscape.
The report further highlights a 23.9% drop in Foreign Direct Investment (FDI) in India, attributing it to declines in services and computer software, which experienced a substantial 60% decline amounting to $4 billion. Karnataka, being the IT hub of India with the majority of global IT companies headquartered in Bangalore, is significantly impacted by these trends.
The overall FDI for Karnataka saw a 46% decrease, falling from $5.3 billion in the first half of FY23 to approximately $2.8 billion in the first half of FY24. This decline is primarily linked to reduced funding for startups and diminished FDI inflow in the IT/Software sector. The slowdown in advanced economies has contributed to the challenges faced by Karnataka’s startup ecosystem, reflecting the broader economic uncertainties impacting the state.