India’s startup ecosystem is set to raise nearly $11 billion by 2025, but investors are writing fewer checks and becoming more selective about where they take risks, underscoring how the world’s third-most funded startup market differs from the concentration of AI-powered capital seen in the US.
The selective approach is most evident when making deals. The number of startup funding rounds fell nearly 39% from the previous year, to 1,518 deals, according to Tracxn. Total funding fell even more – down more than 17% to $10.5 billion.
The pullback is not uniform. Seed-stage funding fell sharply to $1.1 billion in 2025, down 30% from 2024, as investors cut their bets on more experiments. Late-stage funding also cooled, falling to $5.5 billion, down 26% from last year, amid tougher scrutiny of scale, profitability, and exit prospects. However, early-stage funding proved more resilient, rising to $3.9 billion, up 7% year over year.
“The focus of capital deployment is increasing towards early-stage startups,” said Neha Singh, co-founder of Tracxn, pointing to growing confidence in founders who can demonstrate product-market fit, revenue visibility and stronger unit economics in a tighter funding environment.
Looking for AI
Nowhere is the recalibration more evident than in AI, as AI startups in India are expected to raise more than $643 million in 100 deals in 2025, up 4.1% from a year earlier, according to Tracxn data shared with TechCrunch. Capital is mainly spread in the early and early stages of growth. Early-stage AI funding totaled $273.3 million, while late-stage rounds raised $260 million, reflecting investor preference for application-led business by capital intensive model development.
This is in stark contrast to the US, where AI funding by 2025 is expected to reach $121 billion over 765 rounds, according to Tracxn, a 141% jump from 2024, and largely dominated by late-stage deals.
“We haven’t had the first AI company in India, which is $40-$50 million, if not $100 million, in a year, and it’s happening all over the world,” says Prayank Swaroop, partner at Accel.
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India, Swaroop told TechCrunch, lacks the large base-model companies and will need time to build the research depth, talent pipeline, and patient capital needed to compete in that layer — making application-led AI and adjacent deep tech areas a more realistic focus in the near term.
This pragmatism has formed where investors are making long-term bets outside of core AI. Venture capital is increasingly flowing into the manufacturing and deep technology sectors. These are some of the areas where India faces less global capital competition and has clear advantages in terms of talent, cost structure, and customer access.
While the current AI absorb a significant part of the attention of investorscapital in India arguably remains more evenly distributed than in the US, with substantial funding still flowing to consumers, manufacturing, fintech, and deep-tech startups. Swaroop noted that advanced manufacturing in particular has emerged as a long-term opportunity, with the number of startups growing nearly tenfold in the past four to five years – an area he described as a clear “win-win” for India given the competition for lower global capital.
Rahul Taneja, partner at Lightspeed, said that AI startups account for approximately 30-40% of transactions in India in 2025, but showed a parallel surge in consumer-facing companies due to behavioral changes among India’s urban population creating a demand for faster and more on-demand services – from fast commerce to household services – from a Silicon-style scale of intensity from India.
India versus USA
Data from PitchBook shows a stark difference in capital deployment between India and the US in 2025. US venture funding rose to $89.4 billion in the fourth quarter, according to PitchBook data up to December 23, compared to about $4.2 billion raised by Indian startups in the same period.
However, the gap does not tell the whole story.
Lightspeed’s Taneja cautions against drawing direct parallels between India and the US, arguing that there are differences in population density, labor costs, and consumer behavior that business models can measure. Categories such as instant commerce and on-demand services are finding greater traction in India than in the US, reflecting the local economy rather than a lack of ambition among founders or investors.
Recently, Lightspeed raised $ 9 billion in fresh capital with a strong focus on AI, but Taneja said the move does not signal a wholesale shift in India’s strategy really. The US funds, he noted, are directed at different markets and maturity cycles, while Lightspeed’s Indian arm will continue to support consumer startups while selectively exploring AI opportunities shaped by local demand rather than global capital intensity.
Nuances in India’s startup ecosystem
India’s startup ecosystem is also seeing funding for women-led startups tighten. Capital invested in women-founded tech startups remains stable at around $1 billion in 2025, down 3% from the previous year, according to a Tracxn report. However, the main figure hides a sharper retreat beneath the surface. The number of funding rounds in startups founded by women fell by 40%, while the number of first-time funded partners fell by 36%.
Overall, investor participation has shrunk significantly due to increased selectivity, with approximately 3,170 investors taking part in funding rounds in India this year, down 53% from approximately 6,800 last year, according to data Tracxn shared with TechCrunch. India-based investors accounted for almost half of the activity, with around 1,500 domestic funds and angels participating – a sign that local capital is playing a more important role as global investors turn cautious.
Activity is also becoming more concentrated among smaller groups of backers. Inflection Point Ventures emerged as the most active investor, participating in 36 funding rounds, followed by Accel with 34, Tracxn data shows.
The Indian government’s participation in the startup ecosystem becomes more visible by 2025. New Delhi announced a Fund Fund $1.15 billion in January to expand access to capital for startups, followed by a ₹1 trillion ($12 billion) Research, Development, and Innovation scheme targeting areas such as energy transition, quantum computing, robotics, space technology, biotech, and AI, using a mix of long-term loans, equity infusions and allocations for deep technology funds.
That push has begun to catalyze private capital as well. government involvement which helps a lot spur a a commitment of nearly $2 billion of US and Indian venture capital and private equity firmsincluding Accel, Blume Ventures, and Celesta Capital, to create deep technology startups – an effort that also brought Nvidia on board as an advisor and attracted the attention of Qualcomm Ventures. Also, the Indian government too co-led $32 million in funding for quantum computing startup QpiAI earlier this year — a rare federal move.
This growing state involvement is helping to reduce a risk that investors have long flagged: regulatory uncertainty. “One of the biggest risks you don’t want to underwrite is what happens if regulation changes,” Lightspeed’s Taneja said.
As government entities become more familiar with the startup ecosystem, Taneja added, policies are more likely to evolve together – reducing uncertainty for investors who support companies with longer development cycles.
Out in India
The reduced uncertainty has begun to be reflected in the exit market to some extent. India has seen a steady pipeline of tech IPOs over the past two years, with 42 tech companies going public by 2025, up 17% from 36 in 2024, according to Tracxn. Much of the demand for the listing came from domestic institutional and retail investors, allaying long-standing concerns that India’s startup exits are too dependent on foreign capital. M&A activity also picked up, with acquisitions rising 7% year over year to 136 deals, Tracxn data showed.
Accel’s Swaroop said investors have long been concerned that India’s public market is largely driven by foreign capital, raising questions about its exit resilience during a global downturn. “This year has disproven that,” he said, pointing to the role of many domestic investors in absorbing technology listings – a shift that has come out more predictable and less dependent on volatile foreign countries.
India’s unicorn pipeline by 2025 also reflects this shift towards restraint. While the number of new unicorns remained flat during the year, Indian startups reached a valuation of $1 billion with less capital, fewer funding rounds, and a smaller pool of institutional investors, showing a more measured path compared to previous years and their global peers.
Challenges remain as India reaches 2026, particularly regarding its own position in the global race for AI and whether late-stage funding can deepen without relying on massive capital inflows.
However, the changes seen in 2025 indicate a maturing startup ecosystem rather than a retreat – one in which capital is deployed more deliberately, exits are becoming more predictable, and domestic market dynamics are increasing. For investors, developing India is less a substitute for developed markets and more a complementary arena with its own risk profile, timeline, and opportunities.