Startup funding in Karnataka dips 80% amid global geopolitical tensions: Govt report

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Karnataka's startup funding has witnessed an 80 percent decline, according to the Karnataka Mid-Year Review of State Finances (2023-24), presented in the state legislature.

The report highlights a significant reduction in startup funding activity in Karnataka, decreasing from $3.4 billion in the first half of the previous year to $0.6 billion in the first half of the current financial year, marking a $2.8 billion drop.

"The Indian startup ecosystem is grappling with heightened investor caution and valuation concerns, leading to a 70 percent decrease in startup funding activity across India, from $6.6 billion in Q1 FY23 to $1.9 billion in Q1 FY24", the report said.

The report said Bengaluru, known as India's startup capital and home to 40 percent of India's unicorns, is particularly affected by these challenges.

"The Private Equity/Venture Capital (PE/VC) sector has also experienced a downturn, with amplified uncertainty caused by macroeconomic challenges and geopolitical conditions influencing the global VC funding scene", it said.

Contributing to the 23.9 percent drop in Foreign Direct Investment (FDI) in India, according to the report, is the services and computer software market, experiencing a substantial 60 percent decline ($4 billion).

"Karnataka, as the IT hub of India with a majority of global IT companies headquartered in Bangalore, magnifies the impact for the state."

The report said that the slowdown in advanced economies has resulted in a 46 percent decrease in FDI for Karnataka, falling by $2.5 billion from $5.3 billion in the first half of FY23 to approximately $2.8 billion in the first half of FY24.

"This is mainly due to the reduced funding for startups and a drop in FDI inflow in the IT/Software sector", it said.