India’s startup ecosystem has undergone drastic changes in funding dynamics this year 2025, with overall investments summing to a massive $10.5 billion. That’s the lowest point ever for funding rounds, representing a 42% drop from last year, at least. They dropped off a cliff by almost 39% for only 1,518 deals total. At the same time, investors are getting pickier in today’s investment environment. Participation has fallen off a cliff to just 3,170 investors, an incredible decrease of 53% from nearly 6,800 last year.
Even with these challenges, early-stage funding proved to be incredibly resilient. It actually grew to $3.9 billion, a 7% boost over last year. Late-stage funding experienced a significant downturn as it fell to $5.5 billion, down 26% year-over-year. The outlook for the startup ecosystem overall seems more daunting as they maneuver through these funding trends in the context of a less favorable economic climate.
Early-Stage vs Late-Stage Funding
The surprising difference between early-stage and late-stage funding shows how much investors have changed their focus. Additionally, early-stage startups have been an attractive place for many investors seeking to establish ground floor positioning in new technologies and long-term high-growth markets.
Neha Singh, a prominent figure in the startup ecosystem, noted, “The capital deployment focus has increased towards early-stage startups.” Investors are clamoring to capitalize on the latest innovations and market disrupting technologies. They want to invest before these opportunities mature and attract bigger piles of money.
Late-stage funding has cooled significantly. The huge drop in this category indicates that investors have tightened their wallets. In fact, they look more shy than ready to open the spigot wider to even proven companies. This trepidation is due in large part to continued market volatility and the economic transition still taking place around the world.
Sector-Specific Insights
Among all sectors, Artificial Intelligence (AI) startups in India led the third quarter growth with a smaller, but nevertheless impressive growth quarter. In 2025, these companies did well for themselves, collectively raising a little over $643 million. They did it across 100 deals, up 4.1% from last year. Although growth is evident, industry experts like Prayank Swaroop emphasize that India still lacks an AI-first company generating substantial revenue comparable to global standards.
“We don’t yet have an AI-first company in India, which is $40–$50 million of revenue, if not $100 million, in a year’s time frame, and that is globally happening.” – Prayank Swaroop
As much promise as the AI sector holds, significant issues are still blocking the path to scale companies up to global standards.
Recently, the Indian government has taken major steps to strengthen the startup ecosystem. In January, it announced a $1.15 billion Fund of Funds focused on increasing access to capital for underrepresented startup founders. They are rolling out a ₹1 trillion ($12 billion) Research, Development and Innovation scheme. This strategic step reinforces the USDOI’s commitment to creating a robust environment for innovation and technological advancement within the nation.
Women-Led Startups and Market Dynamics
Even against the backdrop of government initiatives to support them, women-led startups took a hit in 2025 with funding down 3%. This decline not only threatens the prospects of gender diversity, but threatens inclusivity as a whole within India’s startup ecosystem. Advancing women entrepreneurs continues to be essential for building an equitable and inclusive economic landscape.
We saw a powerful trend in the opposite direction from a domestic investor perspective on the funding landscape. India-based investors were at the forefront, making up almost 50% of all funding action. Over 1,500 local funds and angel investors got in on the action. This local investment boom is a sign of increasing confidence among local players about the potential of Indian startups.
In 2023, Mergers and Acquisitions (M&A) had one of their best years yet. Activity jumped a huge 7% year-over-year, resulting in a record high 136 deals. This increase represents a continued consolidation trend in the industry as firms look for synergies and accelerated growth paths through mergers and acquisitions.
IPOs and Future Outlook
India’s technology sector enjoyed a robust line-up of Initial Public Offerings (IPOs) in 2025. Of those, 42 were venture-backed tech companies that went public—up 17% from 36 the year prior. This impressive growth illustrates the strong demand from investors for technology companies and underscores potential paths to liquidity in increasingly challenging funding environments.
U.S. and Indian venture capital and private equity firms are increasing their participation. They pledged almost $2 billion to back deep-tech startups — companies developing breakthrough innovations typically requiring years of research and development. Smart investors are betting heavily on deep-tech right now. This excitement is indicative of their overall big picture outlook for advanced technologies that will fuel the creation of the next wave of innovative startups.
