Funding Boom In 2025? Indian Startup Funding Projected To Touch $15 Bn 

The year 2024 was a defining moment for India’s startup ecosystem. Despite global economic headwinds such as rising inflation, interest rate hikes, and geopolitical tensions, Indian startups displayed remarkable resilience.

According to Inc42’s ‘Indian Tech Startup Funding Report 2024’, homegrown startups cumulatively netted more than $12 Bn in funding during the year, more than 20% higher than 2023. As of  December 28, 2024, more than 993 deals have been recorded in 2024, 11% higher than 2023.

The emergence of six new unicorns in 2024 also underscored the bullishness after a bleak 2023. Last year marked a 19% increase in funding compared to $9.87 Bn raised across 908 deals in 2023.

Additionally, 12 startups debuted on the public markets in 2024, offering partial exits to top venture capital (VC) and private equity (PE) firms. Prominent VC funds such as Peak XV Partners, Accel, Matrix Partners, Tiger Global, SoftBank, Temasek, Elevation Capital, Prosus, and Alpha Wave reaped extraordinary returns and cashed in on these IPOs.

Adding to the exit momentum, 81 new funds with a collective corpus of over $8.7 Bn were launched in the year, well exceeding the 2023 tally.

All this shows that Indian startups are on the right track after 15-18 months of stabilising. What can we expect from a funding perspective in 2025?

The stage is set for another dynamic year for India’s startup ecosystem.

For one, VC and PE investors and industry insiders predict heightened interest in climate tech, deeptech including AI and semiconductors as well as spacetech, which are seen as the next big sectors in India.

At the same time, a stronger focus on profitability and sustainable business models is likely to guide funding decisions in the late stage. Startups that have used the past 18 months to get to more sustainable unit economics will continue to see investor interest. However, this will come with clauses that necessitate exits through public listings, as we saw during the 2019-2020 era.

So-called pre-IPO rounds and secondary deals will continue to gain traction among those companies that do raise funding in the next year.

Startups On Course To Raise $15 Bn In 2025

Inc42’s annual funding report projects that compared to 2024, the total funding amount and deal count are likely to increase by 25% and 29% respectively.

Venture capital investment in India’s native generative AI startups has surged, growing 4.4 times from $277 Mn in 2020 to over $1.2 Bn by 2024. The AI boom is expected to fuel the next big wave of investments, with companies raising funds to set up the tech stack needed to become AI-first companies. These and other positives such as the increase in large pre-IPO rounds are the basis of Inc42’s projection for 2025.

According to Bhaskar Majumdar, founder and managing partner at Unicorn India Ventures, a stabilisation in global markets is likely to lead to a cautious recovery in funding.

Even in 2024, despite the higher YoY funding, there was a risk aversion among investors prioritising profitability over hypergrowth, focus on smaller early-stage deals due to limited late-stage opportunities and lower valuations across startups due to macroeconomic pressures. “In 2025, we expect that the decline should stabilise as startups align with realistic valuations and improved operational efficiency,” added Bhaskar.

While the investors don’t expect a return to the peak exuberance of 2021, the public markets have set more consistent expectations for private market investors, driven by heightened selectivity for companies that are prioritising fundamental resilience and predictability in setting and meeting guidance, and justifying capital allocation responsibly.

More global capital is expected to enter India next year owing to India’s strong economic position, mature startup ecosystem and undercapitalisation of emerging sectors. This balance will likely push private market funding volumes higher than the more cautious levels of the past two years.

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Seed Stage And AI Drive Investor Optimism

Early stage funding has been and should remain steady, with a focus on founders who are capable of building towards clear product-market fit with efficient operating models.

Growth stage deals are expected to rebound with flat to marginal uptick for companies that have become more efficient and better positioned for scale with profitability. Value expansion is another key area as companies look to integrate the vertical ops and own the full stack rather than rely on ecosystem partners and enablers.

On the late stage side, PE and VC funding is expected to be flat or suffer slight decline, but a lot of this depends on the exit momentum. Clearer exit pathways for companies will result in late stage funding, as seen in 2024 with the likes of PhysicsWallah, OYO among others.

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Investors May Get More Exit Opportunities 

After a dozen IPOs in 2024, investors expect another “year of IPOs” in 2025, leading to a surge in secondary rounds as companies look to restructure their cap tables.

“The legacy of Indian companies creating multi-decadal shareholder value is the best amongst all emerging markets globally, including China, and we hope that this new cohort of startups going public will continue this vital function for the economy,” said 3one4 Capital’s founding partner Pranav Pai.

As for exits outside of IPOs, these will be few and far between. The number of mergers and acquisitions slipped to their lowest point in a decade in 2024, after dipping consistently in the past two years.

Inc42 analysis projects that the ecosystem may see a 58% YoY increase in mergers and acquisitions as well as more than 25 startups to go public in 2025, offering a clear and lucrative exit path to the investors at all stages.

Sandeep Bhammer, founder and managing partner at Green Frontier Capital believes that M&A is a much larger possibility than IPOs, because a lot of companies are flush with cash and they’re not nimble enough to innovate fast enough, so they’re all looking for companies that can extend their own businesses in the shortest period of time.

Sectors such as climate tech and deeptech (electric vehicles, green hydrogen, native AI applications and infrastructure startups, robotics) as well as B2C segments in fintech, entertainment and consumer services all have high potential for startup acquisitions in 2025.

Listed companies looking to maximise profits want to increase vertical integration which makes acquisitions an attractive route for these capitalised companies.

Gemba Capital’s founding partner Adith Podhar believes that startup M&As will only pick up when there are enough large, profitable startups that have the resources to acquire smaller ones at attractive valuations. Many companies might also sell off verticals — Paytm Insider to Zomato, for instance — to boost the bottom line or make an acquisition push.

In contrast to Silicon Valley, Indian conglomerates and business houses have been very conservative in their M&A strategies. Over the next decade this is bound to change, Podhar added.

Pre-IPO Rounds To Become Highly Prominent

As Inc42 outlined in our look at the expectations from the IPO market in 2025, pre-IPO rounds have become commonplace in India.

“In addition to traditional crossover funds, lots of new pre-IPO funds have come up. We’ve seen family offices and HNIs being exceptionally active in this market. We expect this trend to continue,” Lightspeed India managing director Anuj Bhargava told Inc42 earlier, adding that the firm will certainly use pre-IPO rounds as an opportunity to exit some of its portfolio startups.

In 2025, marquee VC funds will eye hefty gains by offloading stakes in both pre-IPO rounds and during the listing. Even though some VCs and PEs might sell some stakes at a loss, it will be compensated by high returns from other portfolios, especially as several VC funds are nearing their expiry dates.

“Our focus is to continue to invest with a strong belief that we, in the venture capital industry, now have a very viable path to exit, not just a very strong IPO market about that, but also a strong pre-IPO market,” Bhargava added.

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Domestic LPs See The Startup Light

India’s startup ecosystem is hitting its stride as domestic capital pools expand, creating exciting opportunities for startups and investors alike. Pension funds, insurance companies, family offices, and increasing retail equity participation are now fueling innovation and growth. With a stronger base of Indian investors, startups are finding new ways to tap into this local capital and build long-term value.

The country’s booming economy is a key driver here. Rising consumption and market expansion are creating the perfect environment for new businesses to thrive. Add to this, the government’s push for innovation through the Startup India initiative — via early-stage funding initiatives like the Startup India Seed Fund Scheme and support for IP-based companies — and the stage is set for startups to make their mark.

As Padmaja Ruparel, cofounder at Indian Angel Network pointed out, “Favorable policy changes like the removal of the Angel Tax, PLI/DLI incentives, and IP-focussed initiatives are making it easier for investors to back startups. With traditional asset classes offering diminishing returns, startup and angel investing have become more attractive, promising higher potential returns and helping high-net-worth individuals diversify their portfolios.”

Family offices are also stepping up in a big way. HNIs are now writing larger direct cheques — often in the range of $30 Mn–$40 Mn — and focussing on sectors where they have expertise.

Domestic investors have learned valuable lessons from the period of FOMO investing and the “spray-and-pray” approach of 2020 and 2021, and now, there’s a lot more focus on value than valuation. Instances of governance lapses at unicorns have also led to some fears about a startup bubble. But fund managers claim domestic family offices and limited partners are more diligent at times because of how well they know the market.

Alternate Debt Financing To Increase

Founders are increasingly turning to alternative financing options. Solutions such as cashflow-based funding (CBF), seller financing, lines of credit, and fixed-term facilities are redefining how startups fund their growth.

“Founders are now more aware of diverse growth capital options and are adopting non-dilutive methods to scale while preserving equity,” says Bhavik Vasa, founder of Getvantage which offers non-dilutive growth capital to startups.

According to him, CBF is expected to grow across all startup stages. Early-stage startups favor non-dilutive financing to scale without sacrificing equity. Growth-stage companies leverage marketing and inventory funding, while late-stage startups opt for short-tenure inventory financing and lines of credit for working capital. Tailored options like seller financing and fixed-term facilities are also gaining traction, making CBF a critical tool in navigating the current funding environment.

“This shift highlights a broader trend where startups prioritise scalable, efficient models and alternative debt financing to maintain control over their businesses,” Vasa added.

The Push For Profitability Will Continue

As we step into 2025, the Indian startup ecosystem finds itself at a critical juncture. Challenges such as reducing customer acquisition costs (CAC), identifying the right channels, and optimising marketing and tech spending are some of the biggest markers for entrepreneurs.

These issues continue to complicate the journey towards positive unit economics, even for scaled up companies. However, over the past two years, the changing tunes of VCs have more or less compelled companies to move in the direction of profitability after years of chasing growth.

In 2025, this transition is expected to continue as VCs seek returns and outcomes from their legacy bets. This does add some pressure on founders, but it also outlines exactly what startups need to chase.

[Edited by Nikhil Subramaniam]

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