India’s startup ecosystem raised nearly $11 billion in 2025, but investors became more selective, reflecting a shift in how the country approaches funding compared to the AI-driven investment boom in the U.S.
This cautious approach was most apparent in deal-making, with the number of funding rounds dropping by about 39% from the previous year, totaling 1,518 deals, according to Tracxn. Total funding decreased modestly, down over 17% to $10.5 billion.
The pullback, however, was not uniform across stages. Seed-stage funding plummeted to $1.1 billion in 2025, a 30% drop from 2024, as investors scaled back on experimental bets. Late-stage funding also cooled, declining to $5.5 billion, a 26% decrease, driven by increased scrutiny of scale, profitability, and exit potential. On the other hand, early-stage funding showed resilience, rising to $3.9 billion, a 7% increase year-over-year.
“The focus is shifting more towards early-stage startups,” said Neha Singh, co-founder of Tracxn, noting a growing confidence in founders who can demonstrate a solid product-market fit and revenue visibility in a tighter funding environment.
The landscape for AI startups in India reflected this recalibration. AI-related ventures raised just over $643 million in 2025 across 100 deals, a modest 4.1% increase from the previous year, with most capital going toward early and early-growth stages. Early-stage AI funding reached $273.3 million, while late-stage rounds secured $260 million, highlighting investor preference for application-led businesses over capital-intensive model development.
This stands in sharp contrast to the U.S., where AI funding in 2025 soared past $121 billion across 765 rounds, a staggering 141% increase from 2024, predominantly driven by late-stage deals.
“We don’t yet have an AI-first company in India generating $40–$50 million or even $100 million in a year, which is happening globally,” commented Prayank Swaroop, a partner at Accel.
Swaroop noted that India lacks significant foundational model companies and will require time to develop research depth, talent pipelines, and patient capital necessary to compete at that level—making application-led AI and adjacent deep-tech sectors a more practical focus for now.
This pragmatism influences where investors are placing long-term bets beyond core AI. Venture capital is increasingly flowing into manufacturing and deep-tech sectors, areas where India faces less global competition and enjoys advantages in talent, cost structures, and customer access.
While AI absorbs considerable investor attention, capital in India appears more evenly distributed compared to the U.S., with significant funding still directed towards consumer, manufacturing, fintech, and deep-tech startups. Swaroop pointed out that advanced manufacturing has emerged as a long-term opportunity, with the number of such startups increasing nearly tenfold over the past several years—a clear “right to win” for India due to lower global capital competition.
Rahul Taneja, a partner at Lightspeed, mentioned that AI startups accounted for roughly 30–40% of deals in India in 2025, but also highlighted a parallel rise in consumer-facing companies as urban demand for quicker, more on-demand services flourishes—domains where India’s scale and density play to its advantage, contrasting with Silicon Valley’s capital-heavy models.
Data from PitchBook illustrates a significant divide in capital deployment between India and the U.S. in 2025. U.S. venture funding surged to $89.4 billion in the fourth quarter alone, while Indian startups raised about $4.2 billion during the same period.
However, that disparity tells only part of the story.
Lightspeed’s Taneja urged caution in directly comparing India to the U.S., as differences in population density, labor costs, and consumer behavior influence which business models can thrive. Categories like quick commerce and on-demand services have gained more traction in India than in the U.S., reflecting local economics rather than any deficit in ambition among founders or investors.
Recently, Lightspeed raised $9 billion focused heavily on AI, but Taneja clarified that this does not signify a drastic shift in the firm’s strategy for India. The U.S. fund targets a distinct market and maturity cycle, while Lightspeed’s India branch will continue supporting consumer startups while selectively exploring AI opportunities driven by local demand.
India’s startup ecosystem also saw funding for women-led startups become more challenging. Investment in women-founded tech startups remained relatively stable at about $1 billion in 2025, a 3% decline from the previous year, according to Tracxn. However, this figure belied a sharper pullback below the surface, with funding rounds for women-founded startups plunging by 40%, while first-time funding for these ventures dropped by 36%.
In 2025, the funding landscape narrowed significantly as selectivity increased, with about 3,170 investors participating in rounds in India this year, down 53% from roughly 6,800 a year prior, based on Tracxn data shared with TechCrunch. India-based investors were responsible for nearly half of that activity, with around 1,500 domestic funds and angels involved—indicating a greater role for local capital as global investors became more cautious.
Activity also became more concentrated among a smaller group of repeat investors, with Inflection Point Ventures leading the pack by participating in 36 funding rounds, followed by Accel with 34, as per Tracxn.
The Indian government’s involvement in the startup ecosystem became more pronounced in 2025, with New Delhi announcing a $1.15 billion Fund of Funds in January to enhance capital access for startups. This was followed by a ₹1 trillion ($12 billion) Research, Development, and Innovation scheme aimed at fields like energy transition, quantum computing, robotics, space technology, biotech, and AI, utilizing a mix of long-term loans, equity infusions, and allocations to deep-tech funds.
This government push has also begun to spur private capital. The growing involvement led to nearly $2 billion commitments from U.S. and Indian venture capital and private equity firms, including Accel, Blume Ventures, and Celesta Capital, to support deep-tech startups—drawing attention from Nvidia as an adviser and connections to Qualcomm Ventures. Additionally, the Indian government co-led a $32 million funding round for quantum computing startup QpiAI earlier this year, marking a notable federal initiative.
Such increasing state participation has alleviated some risk previously flagged by investors: regulatory uncertainty. “One of the biggest risks you want to avoid is what happens if regulations change,” stated Taneja of Lightspeed.
As government entities grow more familiar with the startup scene, Taneja added that policies are likely to evolve alongside it, reducing uncertainty for investors backing companies with longer development cycles.
Signs of reduced uncertainty are beginning to appear in exit markets. India witnessed a steady stream of technology IPOs over the past two years, with 42 tech companies going public in 2025, up 17% from 36 in 2024, according to Tracxn. Much of the demand for these listings stemmed from domestic institutional and retail investors, helping to ease concerns that Indian startup exits overly rely on foreign capital. M&A activity also rose, with acquisitions climbing 7% year-over-year to 136 deals, based on Tracxn data.
Swaroop from Accel remarked that there have long been worries that India’s public markets predominantly depend on foreign investment, raising questions about the reliability of exits during global downturns. “This year has disproven that,” he pointed out, citing the growing contribution of domestic investors in absorbing technology listings—a change that has made exits more predictable and less reliant on volatile international flows.
India’s unicorn pipeline in 2025 illustrated a transformation towards caution as well. While the total number of new unicorns remained stable year-over-year, Indian startups reached $1 billion valuations with less capital, fewer funding rounds, and a narrower pool of institutional investors—indicating a more measured path to growth compared to previous years and global counterparts.
Challenges still loom as India heads into 2026, particularly regarding its positioning in the global AI race and the deepening of late-stage funding without leaning on outsized capital influxes.
Nonetheless, the trends observed in 2025 signify a maturing startup ecosystem rather than a retreat—one where capital deployment is more deliberate, exits have become more predictable, and domestic market dynamics are increasingly shaping growth. For investors, India is emerging not as a mere alternative to developed markets, but as a complementary landscape with its own unique risk profile, timelines, and opportunities.
