Startups cradling in the country’s top three startup hubs – Bengaluru, Mumbai, and Delhi NCR – were impacted the most due to the funding winter of 2022, when investors returned to their cocoons, leaving many founders high and dry.

According to the data compiled by Inc42, funding activities at Bengaluru-based startups declined 48% year-on-year (YoY), from $21.3 Bn in 2021 to $11 Bn in 2022, compared to the national average of 40%. Nation-wide, startup funding declined to $25 Bn in 2022 from $42 Bn in 2021. Meanwhile, startups based in Delhi NCR and Mumbai saw a funding decline of 49% and 42% respectively.

In terms of average ticket sizes in 2022, Bengaluru lost its top spot to Chennai, one of the emerging startup hubs. Bengaluru’s average ticket size during the year stood at $21 Mn, down 23% YoY. Further, the total number of deals in Bengaluru declined 14% YoY to 472 in 2022.

Bengaluru-based startups have raised $62.99 Bn and minted 40 unicorns since 2014. 

Sector-Wise Breakdown Of Funding Activities

Although losses in business, layoffs, and regulatory hurdles continued to grapple the country’s fintech startups during the year, the sector secured the top spot, with $4.5 Bn raised across 250 deals, and Bengaluru remained the undisputed leader.

According to Inc42, Bengaluru recorded 92 fintech deals and raised $1.5 Bn during the year. While Bengaluru minted six unicorns in the year, neobank Open was one among the fintech startups that entered the coveted unicorn club this year.

Among some other high-ticket size fundraisings, Bengaluru-based fintech unicorn slice raised $50 Mn in a Series C funding round, which was led by Tiger Global. Further, fintech startup Money View raised $75 Mn in a Series D funding round from Tiger Global, Winter Capital, Evolvence India, and Accel.

The ecommerce sector raised $4 Bn across 310 deals, and Bengaluru startups remained at the forefront of this with $1.5 Bn raised across 86 deals. The city also saw more mega deals compared to other major startup hubs.

Indian ecommerce startup Udaan raised $250 Mn at the beginning of the year. Later as it delayed its IPO plans, due to the prevailing market conditions, it raised $120 Mn in convertible notes and debt from its existing investors, shareholders and bondholders.

Karnataka Government Steps Up Initiatives

While Bengaluru has been the hotbed of tech startups in the country, the state government was seen taking several initiatives to boost its standing in 2022.

In an earlier interview with Inc42 last year, the minister of IT, Dr. Ashwathnarayan C.N., talked about the state’s plans to achieve $150 Bn in exports, and a $300 Bn digital economy within the next five years.

In December 2022, the Karnataka government approved the Karnataka Startup Policy for the next five years, from 2022 to 2027. Some of the key announcements of the policy include stimulating 25,000 startups in the next five years and establishing new-age innovation network (NAIN) centres to set up an INR 100 Cr venture capital fund to back deeptech startups.

“The new policy framed by the Department of Electronics and IT/BT has the aim of positioning Karnataka as the ‘Champion State’ for startups and further increase the number of high-growth startups by 2027,” Narayan said.

Under the new policy, the state has also proposed to increase support for early-stage startups and add 10K additional startups in the next five years.

Along with the funding provisions for startups at various stages, from seed to growth, the new policy will include provisions to provide incubation support, mentorship, coworking spaces and a dedicated startup cell to help early-stage startups grow.

Emerging Startup Hubs Are Gaining More Prominence

Given that the Karnataka government has its undivided focus on the ‘Beyond Bengaluru’ programme, the state will soon be seen incentivising startups to set up their bases outside the state’s capital. Beyond Bengaluru Cluster Seed Fund will empower early-stage startups in Mysuru, Hubli, and Mangaluru.

As of now, Mysore is being developed as an electronics system design and manufacturing (ESDM) and cybersecurity cluster, and Hubli-Dharwad is known for its focus on the foundry and automobile sectors.

In November 2022, the CM announced that the state government will build six new high-tech cities in Gulbarga, Hubli, Dharwad, Mysore, Mangaluru, and central Karnataka areas.

While emerging startup hubs across the country are gaining momentum, most of the funding is still flowing in the big cities such as Chennai and Hyderabad.

To promote its tier 2 and tier 3 cities as the next promising hubs, Karnataka needs to focus on resolving infra-related challenges, so that more talent establishes its base in smaller cities.