Summary Points:
- Over 28,000 startups in India ceased operations in the last two years.
- Key reasons include funding winter, flawed business models, and rising competition.
- Experts point to sustainability and profitability gaps as root issues.
- Government is now revisiting startup support frameworks and policy tools.
- India’s startup ecosystem still remains the third largest globally despite the hit.
India’s startup dream, once flying high on investor optimism and unicorn valuations, is now seeing a sharp correction.
According to data from the Ministry of Corporate Affairs (MCA), more than 28,000 startups have officially shut down operations in the last two years — a staggering number for the world’s third-largest startup ecosystem.
What’s behind this wave of closures?
The Big Reasons Behind the Startup Shutdown
Several factors are contributing to the decline of Indian startups:
1. Funding Winter
- Post-2021, funding inflow into Indian startups dropped sharply.
- Global interest rate hikes and cautious investor sentiment slowed venture capital deals.
- Startups relying heavily on continuous funding were the first to fall.
2. Unsustainable Business Models
- Many startups were built on deep discounts and cash burn models.
- With capital drying up, they failed to pivot to profitability.
- Businesses with no clear revenue streams couldn’t survive beyond a few funding rounds.
3. Rising Operational Costs
- Inflation and global supply chain disruptions raised input costs.
- Hiring challenges and rising salaries pushed burn rates even higher.
- Small startups with lean resources found it hard to manage overheads.
4. Regulatory and Tax Pressures
- GST complexities and compliance burdens hit early-stage companies.
- Changes in angel tax provisions and scrutiny from IT departments added pressure.
- Several startups cited “policy unpredictability” as a key factor for shutdown.
What the Data Tells Us
- In FY 2022–23, over 14,000 companies applied for strike-off under the MCA.
- In FY 2023–24, the number crossed 14,000 again, with many being early-stage tech and D2C startups.
- These are voluntary closures, where startups chose to wind down instead of going bankrupt.
Is the Indian Startup Dream Fading?
Not entirely.
Despite the sharp decline, India remains home to over 1 lakh registered startups, according to DPIIT. The country still has over 110 unicorns and continues to attract global investors.
However, the nature of startup success is shifting:
- Investors are now asking for unit economics, not just user acquisition.
- Growth at any cost is no longer the norm.
- Founders are being pushed to build resilient and scalable business models.
What Comes Next?
The Indian government has acknowledged the trend and is working on:
- Simplifying compliance frameworks for early-stage companies.
- Revisiting the angel tax provision for DPIIT-recognised startups.
- Encouraging mentorship networks and incubation support in Tier 2 and Tier 3 cities.
At the same time, private players are building founder support programs, focused on business fundamentals, customer-first thinking, and sustainable scaling.
A Reset, Not a Recession
Experts say the current wave is less of a collapse and more of a correction — a reset of expectations, funding patterns, and operational rigor.
For India’s startup ecosystem to thrive in the long term, this shake-up might be necessary. It separates hype-driven ventures from businesses with real-world value.
