New Avenues, New Hopes In Start-up Funding

INDIA’S START-UP ecosystem is showing signs of recovery with first half of the year (H1 2024) seeing a slight increase in funding. Companies are upbeat and stepping up hiring; and layoffs have declined 55%. Since H1 2022, countries grappled with funding winter for four consecutive half-year periods, but 2024 shows promise. Tech start-ups raised $5.1 billion in H1 2024, a 7% increase from $4.46 billion in H2 2023, turning around two years of successive decline in funding every six months.

In H1 2024, India’s tech start-up space was among the top four globally in fund-raising after China ($6.2 billion), U.K. ($6.8 billion) and U.S. ($55.7 billion). It fared better than major economies Israel, Germany, France and Canada, according to data from Tracxn Technologies, a market intelligence firm. “The start-up funding landscape reflects a blend of resilience and strategic caution,” says Neha Singh, co-founder and CEO, Tracxn. It is remarkable that venture capitalists are showing confidence in the Indian market despite global uncertainties, she adds.

The H1 2024 fund-raising was led by new-age companies like Zepto and Meesho, and seasoned players such as Flipkart and Apollo 24/7. Zepto, the three-year-old grocery start-up co-founded by college dropouts Aadit Palicha and Kaivalya Vohra, raised $665 million from existing and new investors in June 2024. This pushed the Bengaluru-based start-up’s valuation to $3.6 billion, up $1.4 billion from August 2023. Palicha, also the CEO, says the aim is to build Zepto “into a world-class $50-billion Indian company that employs lakhs.” With investor money pouring in, Zepto is planning an initial public offer (IPO) next year. Meesho raised $275 million in Series F funding in May. Ashish Kumar Singh, CHRO, says growth is opening up “newer opportunities.”

The IPO Route

Cashing in on the Dalal Street bull run, the number of start-ups launching IPOs has also risen from six in H1 2023 to 20 in H1 2024. Around 168 start-ups raised funds for the first time, adding to the positive sentiment. India even surpassed China, the world’s second-largest and Asia’s biggest economy, in two categories — start-up IPOs and first-time funding. China saw just six IPOs and 159 first-time funding rounds in H1 FY24, according to Tracxn data.

“India’s IPO market is showing resilience,” says Anshuman Das, CEO, LONGHOUSE Consulting, a Bengaluru-based talent advisory firm. He says Zomato’s strong performance has restored faith in shares of start-ups. Recovery is also under way in other new-age stocks like PolicyBazaar and Nykaa. “Significant funding in quick commerce is giving a lot of traction. Even traditional players like Reliance and DMart are serious about this space, a net positive for the industry,” says Das.

Three start-ups — Krutrim, Perfios and Porter — became unicorns in H1 2024, compared to none in H1 2023. E-commerce was the most funded sector followed by healthcare and social reselling platforms. Among different stages, seed funding grew the most by 6.5% to $455 million. Late-stage deals touched $2.4 billion, a drop of 1.3% from H1 2023.

Tech start-ups have been going through a rough period since 2021 when funding peaked at $39.4 billion. In 2022, the numbers plunged to $11.4 billion and fell further to $8.8 billion in 2023. On recovery in funding in H1, Das says there’s still a “lack of big cheque writers in India” with no substitutes for investors such as SoftBank and Tiger Global. “Companies capable of writing $100 million-plus cheques are scarce,” says Das.

Hiring Up

The uptick in funding is reflected in hiring, especially of freshers, and increase in number of new start-ups. There has been a 37% increase in number of start-ups since last year and a 14% rise in number of jobs, says Ankit Agarwal, founder and CEO of Unstop, a New Delhi-based hiring platform backed by Japan-based Mynavi and Coursera. “Of these, 53% jobs are for freshers,” he says.

Start-ups are diversifying recruitment and going beyond IITs and IIMs. Hyderabad and Pune have emerged as hotspots for experienced professionals, while Delhi-NCR, Bengaluru, Mumbai and Hyderabad are attracting fresh talent, says Shantanu Rooj, founder and CEO, TeamLease Edtech, a recruitment and human resources platform. “H1 2024 unveiled a rejuvenated Indian job market, highlighted by an impressive 6.33% net employment growth,” says Rooj.

Demand for gig work is also booming. The gig economy has carved out a space for itself in India and can contribute up to 1.25% to India’s gross domestic product in the long term. Sekhar Garisa, CEO of Foundit, a Quess group company earlier known as monster.com, says the gig economy comprises a sizable part of the start-up space and “jobs are up 10% in H1.”

Ashish Kumar Singh of Meesho says the company will keep hiring for key roles, “especially from the 2025 campus batch.” In past six months, the e-commerce major has added over “300 experienced professionals and 150 campus hires for roles like analytics, tech, business, finance, product & design and fulfilment & experience,” he says.

Ankur Sharma, CHRO, Aye Finance, says he plans to add over 1,000 employees in next two years. “We are doing a lot of hiring in the mortgage loan set-up. Almost 95% is in the field,” he says. Aye Finance, backed by Google parent Alphabet’s investment arm CapitalG, has raised ₹550 crore since December 2023. A 67% jump in revenue to ₹1,072 crore helped it post ₹161 crore profit in FY24. “In Q3 and Q4 FY24, we opened 100-odd locations. This time again, we are looking at around 40 new locations, which the HR team is hiring for right now. These locations will go live in the next two months,” says Sharma.

Rooj of TeamLease says initiatives like Start-up India Programme added 12.42 lakh jobs as on December 31, 2023. India had 1,17,254 start-ups at 2023-end, as per commerce ministry data, with every state and UT having at least one recognised start-up.

Hiring trends are expected to strengthen. Around 56% start-ups believe their workforce is likely to grow in coming months, while 21% foresee a decline, according to TeamLease’s Employment Outlook for H1. Healthcare & pharma, automotive & manufacturing, engineering and infrastructure will see the most expansion, says the report. Majority of new jobs will be clustered around Delhi, Bengaluru and Hyderabad, while Coimbatore, Visakhapatnam and Jaipur emerge as hotspots. Among 1,417 employers surveyed by TeamLease, 58% expect to grow sales teams, the highest among functional areas.

Dipping Layoff Graph

After a string of layoffs in 2023, the start-up sector saw a 55% decline in job losses in H1 FY24. Companies across India laid off around 11,250 in first half as against 21,000 in same period last year. “The funding landscape remains challenging with 2023 being a difficult year and 2024 seeing recovery. However, it’s important to note that 2020-2022 were exceptional years, and we’re now experiencing a correction,” says Das.

Prominent companies that handed over pink slips in H1 FY24 were Paytm (3,500), Flipkart (1,500), Ola Electric (600), Unacademy (600), BYJU’s (500) and Swiggy (400). In H1 2024, education and gaming sectors were among the laggards, hit by the crisis at BYJU’s and imposition of 28% GST on e-gaming companies.

The fintech sector, facing regulatory heat after the crisis at Paytm’s former associate Paytm Payments Bank, also faced challenges. “However, within fintech, the equity space (companies like Angel and Groww) is attracting more capital and showing growth,” says Das.

Core “tech layoffs” are also falling. “In H1 2024, there were 26 reported tech layoffs in India totalling 7,175 employees. This is down from H1 2023 when there were 75 tech layoffs involving 10,924 employees,” says Roger Lee, founder, layoffs.fyi, an independent platform that tracks tech layoffs worldwide. Globally, a total of 366 tech start-ups resorted to layoffs in first half (H1), shedding over 1,07,370 employees, layoffs.fyi data shows. From big to smaller start-ups, there has been a fair amount of churning.

As the start-up sector charts its recovery path, two factors will be keenly watched out for in the second half of 2024, says Das. “The outcome of upcoming elections in U.S. and subsequent policy directions, and potential reduction in interest rates by the U.S Federal Reserve, which could lead to more funding availability.” The TeamLease report adds as more organisations adapt to AI, there’s going to be a “paradigm shift” in talent acquisition approach, job role customisation and decision-making processes. Ability to change will be key to the full start-up revival.