In 2025, India’s startup sector attracted approximately $11 billion; however, investors became considerably more discerning in their funding choices and risk assessment. This trend highlights a growing divergence in the world’s third-largest startup market from the highly concentrated, AI-driven capital allocation observed in the U.S.
This cautious strategy was particularly apparent in deal activity. Tracxn data indicates that the volume of startup funding rounds decreased by almost 39% year-over-year, settling at 1,518 deals. While the total investment saw a less drastic reduction, declining by just over 17% to $10.5 billion.
The reduction in funding wasn’t consistent across all stages. Seed-stage investments saw a significant drop to $1.1 billion in 2025, a 30% decrease from 2024, as investors reduced their appetite for riskier ventures. Late-stage funding also experienced a decline, reaching $5.5 billion, a 26% decrease from the previous year, driven by stricter evaluations of scalability, profitability, and potential exits. Conversely, early-stage funding demonstrated greater stability, increasing by 7% year-over-year to $3.9 billion.
Neha Singh, co-founder of Tracxn, noted that “investment is increasingly concentrated on early-stage startups,” attributing this to enhanced investor confidence in founders who can effectively showcase product-market fit, clear revenue streams, and solid unit economics within a more constrained funding landscape.
The Pursuit of AI
This adjustment was most evident in the AI sector, where Indian AI startups secured just over $643 million through 100 deals in 2025, a slight 4.1% increase from the prior year, according to Tracxn data provided to TechCrunch. This funding was primarily allocated to early and early-growth phases. Early-stage AI investments amounted to $273.3 million, whereas late-stage rounds garnered $260 million, indicating investors’ preference for application-focused companies rather than capital-intensive model development.
This trend sharply contrasted with the U.S., where AI investments in 2025 exceeded $121 billion across 765 rounds, marking a 141% increase from 2024, and were predominantly comprised of late-stage transactions, as reported by Tracxn.
Prayank Swaroop, a partner at Accel, observed that “India currently lacks an AI-first company achieving annual revenues of $40–$50 million, or even $100 million, a benchmark that is being met globally.”
Swaroop informed TechCrunch that India currently does not possess major foundational model companies and will require time to cultivate the necessary research expertise, talent pool, and sustained capital to compete effectively in this domain. Consequently, application-driven AI and related deep-tech sectors present a more practical focus for the immediate future.
This practical approach has influenced investors to pursue long-term opportunities beyond mainstream AI. Venture capital is increasingly channeled into manufacturing and deep-tech industries. These segments offer India distinct advantages in talent, cost-effectiveness, and market access, while also encountering less international capital rivalry.
Although AI currently captures considerable investor focus, funding in India appears to be more broadly spread compared to the U.S., with significant investments continuing in consumer, manufacturing, fintech, and deep-tech ventures. Swaroop highlighted advanced manufacturing as a particular long-term prospect, noting a nearly tenfold increase in such startups over the last four to five years, a sector he views as a definitive “right to win” for India due to reduced global capital competition.
Rahul Taneja, a Lightspeed partner, stated that AI startups represented approximately 30–40% of deals in India during 2025. However, he also observed a concurrent rise in consumer-oriented businesses, driven by evolving urban Indian consumption patterns that generate demand for quicker, on-demand services—ranging from rapid delivery to home services. These categories leverage India’s considerable scale and population density, rather than the capital-intensive models often seen in Silicon Valley.
Comparing India and the U.S.
PitchBook data for 2025 reveals a pronounced contrast in venture capital allocation between India and the U.S. Specifically, U.S. venture funding escalated to $89.4 billion in the fourth quarter alone, through December 23, whereas Indian startups secured around $4.2 billion during the identical timeframe.
Nevertheless, this disparity doesn’t encompass the complete picture.
Taneja from Lightspeed advised against making direct comparisons between India and the U.S., asserting that varying population densities, labor expenses, and consumer habits dictate which business models achieve scalability. Sectors like quick commerce and on-demand services have gained significantly more momentum in India than in the U.S., a phenomenon stemming from local economic factors rather than a deficiency in ambition from either entrepreneurs or financiers.
Lightspeed recently secured $9 billion in new funding, largely targeting AI. However, Taneja clarified that this doesn’t signify a complete overhaul of the firm’s India approach. He explained that the U.S. fund targets a distinct market and stage of development, whereas Lightspeed’s Indian division will persist in supporting consumer startups while strategically investigating AI prospects influenced by domestic requirements, rather than global capital demands.
Specifics of India’s Startup Landscape
Funding for women-led startups within India’s ecosystem also became more constrained. Tracxn’s report indicates that capital invested in tech startups founded by women remained relatively stable at approximately $1 billion in 2025, a modest 3% decrease from the previous year. Yet, this overall figure concealed a more pronounced reduction: the number of funding rounds for women-founded startups dropped by 40%, and first-time funded women-led ventures saw a 36% decline.
Generally, investor involvement significantly decreased as selective criteria tightened, with only about 3,170 investors participating in Indian funding rounds this year, a substantial 53% reduction from approximately 6,800 participants a year prior, as per Tracxn data shared with TechCrunch. Nearly half of this activity involved India-based investors, with roughly 1,500 domestic funds and angel investors taking part—signaling a more influential role for local capital amidst global investor caution.
Furthermore, investment activity became more centralized among a select group of recurring financiers. Tracxn data indicates that Inflection Point Ventures was the most active investor, engaging in 36 funding rounds, with Accel closely following with 34.
The Indian government’s involvement in the startup landscape grew more pronounced in 2025. In January, New Delhi unveiled a $1.15 billion Fund of Funds to enhance startup capital accessibility. This was succeeded by a ₹1 trillion ($12 billion) Research, Development, and Innovation initiative, targeting sectors like energy transition, quantum computing, robotics, space technology, biotech, and AI, through a combination of long-term loans, equity injections, and dedicated deep-tech fund allocations.
This governmental impetus has also started to stimulate private investment. The increased state engagement helped secure a nearly $2 billion pledge from U.S. and Indian venture capital and private equity firms, such as Accel, Blume Ventures, and Celesta Capital, aimed at supporting deep-tech startups. This initiative also enlisted Nvidia as an adviser and attracted Qualcomm Ventures. Moreover, earlier this year, the Indian government co-led a $32 million funding round for the quantum computing startup QpiAI, an uncommon federal undertaking.
This expanding governmental involvement has contributed to alleviating a long-standing investor concern: regulatory unpredictability. Lightspeed’s Taneja remarked, “A primary risk you want to avoid assuming is the impact of regulatory shifts.”
Taneja further elaborated that as government bodies gain greater familiarity with the startup environment, policies are more likely to adapt concurrently, thereby diminishing uncertainty for investors supporting companies with extended development timelines.
Startup Exits in India
The diminished uncertainty is already somewhat apparent in the exit markets. Over the last two years, India has maintained a consistent flow of technology IPOs, with 42 tech firms going public in 2025, a 17% increase from 36 in 2024, according to Tracxn. The substantial demand for these listings originated largely from domestic institutional and retail investors, allaying previous worries about Indian startup exits being overly reliant on international capital. M&A activity also saw an uptick, with acquisitions growing by 7% year-over-year to 136 deals, as indicated by Tracxn data.
Accel’s Swaroop noted that investors previously feared India’s public markets were primarily propped up by foreign capital, which cast doubt on the resilience of exits during global economic downturns. He stated, “This year has refuted that notion,” highlighting the increasing involvement of domestic investors in acquiring technology listings—a change that has enhanced exit predictability and lessened dependence on unpredictable international capital movements.
India’s unicorn landscape in 2025 also mirrored this trend of financial prudence. Although the count of new unicorns stayed consistent year-over-year, Indian startups attained $1 billion valuations with reduced capital, fewer funding rounds, and a more concentrated group of institutional investors, suggesting a more conservative trajectory to scaling compared to prior years and international counterparts.
As India approaches 2026, challenges persist, especially concerning its role in the global AI competition and the potential for late-stage funding to grow without depending on excessively large capital injections.
Nonetheless, the transformations observed in 2025 indicate a startup ecosystem that is evolving and strengthening, rather than retracting. This environment features more intentional capital deployment, more reliable exit opportunities, and growth increasingly influenced by internal market forces. For investors, India is evolving not merely as an alternative to established markets, but as a distinct, complementary sphere with its own unique risk factors, time horizons, and prospects.