India’s once-vibrant startup ecosystem, hailed as the third-largest in the world, is witnessing a worrying trend. According to data from startup intelligence platform Tracxn, more than 28,000 startups have shut down over the past two years, highlighting growing stress within the ecosystem that was until recently seen as a beacon of innovation and economic potential.

A Surge in Shutdowns

The numbers paint a sobering picture:

• 15,921 startups shut down in 2023
• 12,717 followed in 2024
• In comparison, only 2,300 startups closed between 2019 and 2022 combined

This sharp spike in closures marks a dramatic reversal from the momentum India had built over the past decade, fueled by rapid digital adoption, strong investor interest, and favorable government policies like the Startup India initiative.

Why Are Startups Shutting Down?

Multiple factors are contributing to this wave of closures:

1. Funding Winter: After the investment boom of 2021–2022, global macroeconomic uncertainty—driven by inflation, rising interest rates, and geopolitical tensions—has led to a decline in venture capital funding. According to Bain & Company, startup funding in India dropped by over 70% in 2023 compared to 2022.
2. Profitability Pressure: Investors have shifted focus from “growth at all costs” to sustainable business models. Many early-stage startups, especially in consumer tech, edtech, and e-commerce, struggled to pivot to profitability.
3. Operational Burnout: Poor product-market fit, mismanagement, and unrealistic scaling expectations led to many companies becoming financially unsustainable.
4. Layoffs and Talent Drain: A surge in layoffs and brain drain towards more secure employment has hurt startup continuity and product development cycles.

Decline in New Startup Formation

Not only are more startups shutting down—fewer are being created. The number of new startups launched fell sharply:

• 2024 saw only 5,264 new startups founded, compared to an annual average of 9,600 between 2019 and 2022.
• In 2025, the trend looks even more grim: only 125 new startups have been launched so far (as of April).

This reflects a crisis of confidence among aspiring entrepreneurs, driven by capital scarcity, market saturation in key sectors, and a more risk-averse investor landscape.

Bankruptcy vs. Inactivity

While some companies have formally filed for bankruptcy, a larger number have simply become inactive, failing to operate or generate revenue for over a year. This hidden attrition adds to the challenge of accurately measuring the true scale of the downturn.

Sectoral Impact

Certain sectors have been more affected than others:

• Edtech: Once a darling during the pandemic, it saw a steep demand drop post-COVID.
• D2C Brands: Struggled with high customer acquisition costs and rising logistics expenses.
• Crypto and Web3: Regulatory uncertainty and global bearishness significantly curbed growth.
• Foodtech and Hyperlocal: Unit economics remained unsustainable for many.

However, there are green shoots in sectors like:

• SaaS (Software as a Service): Driven by global B2B demand
• ClimateTech and Greentech: Attracting impact-driven investments
• AI/ML Startups: Seeing renewed interest amid the global AI boom

The Road Ahead

Despite the downturn, experts argue that this “shakeout” could ultimately be healthy for the ecosystem. Here’s why:

• It filters out unsustainable business models
• It encourages more disciplined, capital-efficient startups
• It sets the stage for stronger, more resilient companies to emerge

Investors, meanwhile, are taking a more cautious but long-term view, backing fewer startups but with more involvement and strategic guidance.

Government and Policy Intervention

To arrest the slowdown, there is increasing demand for:

• Easier access to government-backed funds
• Simplified compliance and tax regulations
• Better support for early-stage incubation
• More robust insolvency and winding-down mechanisms for failed startups

The Future of Business: 10 Game-Changing Trends for 2025 & 2026

Conclusion

India’s startup ecosystem is at an inflection point. The rise and fall of 28,000+ startups in just two years is both a wake-up call and an opportunity. While the days of unchecked optimism may be over, this reckoning could pave the way for a smarter, leaner, and more impactful generation of startups—ready to build for India and the world.