Startups often face challenges in securing the right type of capital to grow their impact. This challenge includes not just access to funding, but also the nature of the funds available. Investors can support new ventures by providing flexible, patient capital that is sustained over a longer period.
In the early stages, this flexible funding allows founders the time and resources to refine and test their business models. At later stages, it enables them to attract larger, more stable investments, which are crucial for executing bold, long-term scaling strategies built on solid evidence—helping the venture reach its ultimate goals.
However, in India, there is a rise in VC funding for startups, with a 42 per cent increase compared to last year.
“India's venture capital ecosystem is undergoing a major transformation as the ‘funding winter’ followed a period of over-exuberance, where an influx of capital during the pandemic led to inflated valuations,” said Priyanka Gill, Venture Partner, Kalaari Capital.
“Now, the market is returning to normalcy, with a focus on realistic valuations and more responsible investment strategies. Investors are increasingly seeking entrepreneurs with innovative, scalable, and sustainable business models,” Gill added.
She emphasised that the previous era of inflated valuations often led to governance issues, which both founders and investors must address. There is now a growing focus on early-stage startups, which Gill believes will drive the next wave of growth in the Indian startup ecosystem.
Whereas, Ankur Bansal, Co-founder of BlackSoil Capital, rejected the notion that startups are moving away from India, stating that there is still excitement among investors. Bansal said that public markets are now more focused on fundamentals, while private markets remain attractive. He highlighted that family offices are increasingly betting on private markets as a hedge and noted that debt has made a comeback as a tool for managing cash flow, reflecting a positive change in the investment landscape.
Domestic capital is playing a more significant role in venture capital as Indian family offices and institutions are now more familiar with startups and are investing more, said Ashish Kumar, Co-founder and General Partner, Fundamentum.
Kumar also mentioned that changes in tax regulations have made domestic capital more competitive compared to foreign investments. He predicted that India’s venture capital market has around USD 40 to USD 50 billion in capital ready for deployment in the next few years.
On the other hand, Shiva Shanker, Partner, Ankur Capital, stressed that the number of unicorns is not the key measure of success. “Instead, startups should focus on building sustainable, long-term businesses. While 2021 was an anomaly, Shanker said, he believes that India remains a strong market with plenty of capital flowing in.” He encouraged startups to prioritise long-term profitability and sustainable growth over short-term valuation spikes.
Vikas Aggarwal, Co-founder, We Founder Circle and Avinya Ventures sounded a positive outlook for India's growth story. He emphasised that India’s investment landscape has transformed significantly over the past 50 years, shifting from a cash economy to one where equity investments are more common. However, he pointed out that only 3.5 per cent of the Indian population is currently investing in equity, compared to a global average of 30 per cent. Aggarwal sees a tremendous opportunity for growth in this area and believes that India's startup ecosystem still has a long way to go.
Regarding the funding dryness, Aggarwal dismissed concerns about a lack of money in the market. Instead, he argued that it is about choosing the right asset class. He highlighted that while venture capital funds may be facing challenges, other asset classes like equity have been performing well.
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