Overview:
A recent report by Nasscom, in collaboration with consulting firm Zinnov, reveals a significant trend in the startup ecosystem, with 70% of Indian startups strategically investing in artificial intelligence (AI). This surge in AI adoption is primarily directed towards enhancing product capabilities and optimizing internal operational efficiencies, underscoring the pivotal role AI plays in driving growth for these innovative ventures.
Approximately 70% of startups are channeling investments into artificial intelligence (AI) to elevate product capabilities and optimize internal efficiencies, as highlighted in a recent report from Nasscom, the technology industry’s apex body, in collaboration with consulting firm Zinnov.
As per the Indian Tech Startup Landscape Report 2023, over 950 new technology startups were founded and over 750 were funded in the past year.
“In 2023, Indian tech startups, resilient in the face of global economic and regulatory challenges, have prioritized the crucial task of strengthening their business fundamentals to foster both profitability and growth,” stated Nasscom President Debjani Ghosh.
With a burgeoning ecosystem, India currently boasts over 31,000 tech startups, witnessing a cumulative funding surpassing $70 billion in the last five years. Notably, the landscape is evolving, with 40% of tech startups now emerging from tier-2 and tier-3 cities in 2023.
Zinnov CEO Pari Natarajan remarked, “The transformation of Tier-II/III cities into burgeoning innovation hubs signifies a decentralization of the startup landscape.” This change highlights the continuous and robust growth of India’s tech startup ecosystem.
Last year, startups secured an impressive $6 billion in equity funding, with 72% of the total funding allocated to seed-stage investments, showcasing a notable increase from 64% in 2022, according to the report.
Despite the prevailing ‘funding winter’ impacting startups worldwide, the report observed a notable decrease in late-stage funding due to valuation adjustments and a heightened emphasis on achieving profitability. In 2023, founders faced key challenges related to cash flow, limited funding availability, and reduced demand, ranking as the top three concerns in the startup ecosystem.
The report pointed out, “The ecosystem is expected to witness enhancements in funding, upcoming IPOs, and innovations across disruptive technologies and pivotal sectors.”
While deal volumes dipped by 48% to 824 in 2023 compared to the previous year, a striking revelation is that approximately 60% of surveyed startup founders reported increased revenue and profitability during the same period.
Around 46% of founders foresee an improved funding landscape in 2024. Additionally, a substantial portion of unfunded tech startups expects higher revenues in 2024 when compared to their funded counterparts, according to the report.
The tech startup ecosystem’s expansion shows its ability to adapt to changes in the economy, business, and technology, according to Natarajan. A significant area of focus is DeepTech, with over $500 million invested in 2023, and this trend is expected to continue in 2024. Among the surveyed tech startups, 59% use DeepTech for better organization, 52% to cut costs, and 41% for automating internal tasks.
“DeepTech, a big innovation driver, makes up only 14% of this funding. We need to speed up to build India’s Deeptech ecosystem,” pointed out Ghosh.
The report also stressed the importance of a pro-innovation, risk-based approach to AI regulation. It highlighted the need to guide startups in complying with the Digital Personal Data Protection Act, passed last year.
