Start-up funding in Karnataka drops 24% in 2024, while India sees signs of recovery with 5.4% uptick

Bengaluru: Regulatory uncertainty in the run-up to the Lok Sabha elections, coupled with rising inflation, geo-political conflicts and disruption of supply chains, among other factors, fuelled start-up funding volatility in India last year, with Karnataka among the hardest hit, according to start-up funding tracker Tracxn.

Showing “signs of slight recovery”, overall, the Indian start-up ecosystem raised $11.6 billion in funding in the Calendar Year (CY) 2024, Tracxn said in an emailed statement to ThePrint. This, it said, was a 5.4 percent increase from the $11 billion reported in 2023.

It was also a staggering 68 percent fall in funding compared to the $11.7 billion raised in 2022.

When asked about the reasons, in an email response to ThePrint, Tracxn said that “various macroeconomic headwinds such as rising inflation, geo-political conflicts, disruption of supply chains across industries, and changes in political leadership, among others have made the market conditions substantially volatile for investments”.

Among domestic factors, it said, “post-election uncertainty in the regulatory front, and complicated taxation structures, among others,” have impacted the start-up ecosystem in India.

Despite this, Karnataka, along with Maharashtra and Haryana, was among the states with the top funding states in the Indian tech start-up ecosystem. Funding in the Karnataka and Maharashtra tech ecosystem alone accounted for more than 63 percent of the funds raised in the country last year, the report said.

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As India’s most robust start-up ecosystem, the funding data for Karnataka-based start-ups are a worrying sign of the slow down in funding. The decline has been especially consistent since 2022, with the start-ups feeling the impact with each passing quarter.

According to the report, Tracxn found that two out of the three stages—seed, early and late—of start-up funding witnessed a sharp decline in Karnataka last year. Late-stage funding—wherein a start-up is focusing on either its performance, expansion or exit—saw the biggest fall.

A total of $2.3 billion were raised in funding last year, a drop of 32 percent and 73 percent when compared to the $3.4 billion and $8.4 billion raised in 2023 and 2022 respectively, the data showed.

There is a “visible shift in investor mindsets”, Tracxn said. “Investors are prioritising start-ups with strong fundamentals +

and clear paths to profitability and have grown risk-averse towards big-ticket investments.”

The data further showed that funding during seed-stage rounds—the first stage where a start-up raises money—was down 18 percent with just $349 million coming in 2024 as against $428 million in 2023 and $719 million in 2022.

Only early-stage funding witnessed an increase, raking in $1.1 billion in 2024 as against $1 billion in 2023—a 10 percent rise. However, this was a 58 percent decline when compared to 2022 when this category raked in $2.6 billion.

This comes as Karnataka has been holding road shows to attract investments in manufacturing and other big ticket projects for the Global Investors Meet (GIM) 2025.

This slowdown in start-up funding is also expected to impact larger Bengaluru-based companies. It is particularly relevant since “Bengaluru-based tech firms accounted for 98.44 percent of all funding raised by Karnataka tech companies,” the report said.

The data also showed that funding inflows pan-India have consistently declined since 2021 when a total of $37.5 billion were registered. It dropped to $25.7 billion in 2022, dropping to its lowest in 2023 before marginally increasing in 2024 to $11.6 billion.

However, in its response to ThePrint, Tracxn said that while “funding numbers are not likely to reach peak 2021 levels soon”, the outlook for 2025 was positive. The budgetary announcements made by Union Finance Minister Nirmala Sitharaman, such as the setting up of a fund of funds (FOF) with Rs 10,000 crore and abolishing Angel Tax and other measures, are likely to help lift investor interest.

“The outlook for 2025 is positive owing to recent developments on the regulatory front and adequate government support,” it told ThePrint.

The government doubling the guarantee limit from Rs 10 crore to Rs 20 crore for Micro-, Small and Medium-sized Enterprises (MSMEs) to support emerging start-ups and allowing 100 percent Foreign Direct Investment in the insurance sector “will boost the financial sector in the country and bring in further capital”, it said.

“We expect the region’s start-up ecosystem to recover and grow further in the near future,” Traxcn told ThePrint.

(Edited by Sanya Mathur)

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