Will Investors Open Their Wallets Again In 2026?

By the end of 2025, India’s tech startup ecosystem was operating in a far tighter capital environment. Total funding closed at $11 Bn, well below mid-year projections of $14-15 Bn.

This played out despite a broadly supportive domestic backdrop. Global uncertainties, driven by geopolitical tensions, tariff concerns and an unclear interest-rate trajectory, however, continued to shape the investor behaviour. As a result, capital was deployed into fewer, stronger companies, with longer diligence cycles and tighter underwriting standards.

At the same time, 2025 marked a shift from a prolonged slowdown to a more balanced, cautious rebound. Investments and exits began to move in tandem, offering investors clearer capital-return visibility.

“That is what a rebuilding year usually looks like in private markets,” said Chandrasekar V, partner (research) at TVS Capital.

For instance, after a muted start, IPO activity accelerated in the second half, with 16 new-age tech companies listing on Indian exchanges. This improvement in exit outcomes helped restore limited partner (LP) confidence, which was reflected in strong fundraising by domestic VC and PE firms.

Further, according to the Inc42 data, new funds launched in 2025 collectively raised over $12.1 Bn, a 39% year-on-year (YoY) increase, with growing interest in deeptech and healthcare-focussed strategies.

“Deployment has been cautious and will rightfully continue to remain so as funds seek out differentiated ideas that have the potential to grow profitably. The one area where friction exists between VCs and LPs is in the pace of DPI (distributed to paid-in capital) generation. I hope funds will use the liquidity provided by the strong wave of IPOs that is happening now to exit positions and recycle cash,” said Deepak Padaki, president at Catamaran Ventures.

Going forward in 2026, rather than a dramatic snap-back, analysts project a selective but positive rebound for new-age tech startup funding.

For high-conviction stories – especially AI-led platforms, core fintech and real-economy infrastructure, or truly category-defining consumer and B2B brands – the ecosystem is already seeing willingness to write larger cheques.

Together, these shifts set the context for 2026 – one where capital is available, but only for startups that can combine conviction, differentiation and a clear path to profitable scale. Meanwhile, here’s everything else that 2026 is expected to see…

Capital May Return, But Pace Will Differ

In 2025, early stage activity remained resilient, with company formation continuing across AI, climate, healthcare, manufacturing and new-format consumer themes. Seed and Series A investors, including corporates and micro-VCs, stayed active and analysts expect this momentum to carry well into 2026.

The clearest scope for a step-up lies at the growth stage. As highlighted by Aarti Gupta, chief investment officer of the family office of DM Gupta (Jagran Group) and Anikarth Ventures, India still continues to face a shortage of depth in growth-stage capital.

While LPs remain comfortable allocating to multiple early-stage funds, diversification at the growth stage remains limited. Many early-stage funds taper participation beyond Series A or B, rather than consistently backing companies through later rounds.

“We need more funds for late Series A, B and C, and stay the course. Liquidity isn’t the issue at the very late stage or IPO end, it’s this middle part where long-term partnerships with strong managers are still developing,” said Gupta.

This view was echoed by Pearl Agarwal, the founder of Eximius Ventures. “A lot of early stage activity has already happened, and many companies are now ready for larger Series B and C rounds. With more secondary capital coming in, I expect an uptick rather than a slowdown at that end of the market,” said Agarwal.

Meanwhile, late stage and buyout activity is likely to remain selective, particularly in the first half of 2026. Large control deals and sizeable minority rounds will continue to hinge on clearer exit visibility and public-market benchmarks. This is expected to keep capital concentrated around a narrower set of category leaders, rather than broad-based deployment.

“Overall, the late stage market has become methodical and more reliable. If a company doesn’t succeed, it is for its own reasons — the market and capital are available,” said 3one4 Capital’s managing partner Pranav Pai.

Valuation Reset On The Anvil?

Broadly, industry insiders opine that valuation correction has already happened. However, what they see ahead is more sorting than resetting.

Going into 2026, strong, cash-generative startups in areas such as business software, specialised services, core financial intermediation and export-oriented manufacturing may see modest valuation multiple expansion, driven by scarcity and competition among buyers.

Sub-scale players in crowded consumer internet segments, or businesses whose model still does not stack up on economics, may face further pricing pressure, invariably through mergers, sale or ‘survival capital’.

“For the rest, valuation changes will be highly company-specific and tied to execution. There is no reason to expect another broad, market-wide reset if macros stay roughly where they are. So we see dispersion, rather than another wave of across-the-board repricing,” added Chandrasekar.

Rise In The IPO Appetite

Overall, analysts see a constructive opportunity building on the IPO side in 2026. Valuations will continue to adjust downward, reflecting an efficient market that applies proper scrutiny. The institutional segment, however, will remain the leading price setter, which is a positive sign for quality control.

As governance and profitability improve, analysts expect more companies to consider India as their natural listing venue. A part of that will come through reverse flipping.

Alongside that, there will be a real shakeout — weaker or undifferentiated tech names will struggle to come to public markets, while a clearer cohort of durable, AI-led platforms will emerge as candidates for IPO or large pre-IPO rounds.

Looking into 2026, analysts see three clear patterns:

• A steady pipeline of tech or tech-enabled companies getting ready for IPO.
• A clear bias in favour of businesses that are either profitable or have a credible, near-term path to it.
• A more diversified sector mix — platforms in logistics, healthcare, financial services, energy transition and enterprise tech, not just pure consumer internet.

Secondaries To Fill The Gaps In IPOs

As seen in recent listings, public markets are getting increasingly finicky about sustainable and predictable profitability. They have shown limited tolerance for volatility beyond a quarter, particularly in the case of companies commanding high valuations at the time of listing.

This has extended the timelines for several late stage startups that are otherwise operationally sound but not yet market-ready.

As Pai noted, most companies are not in a hurry to go public. According to him, companies that previously rushed into IPOs often didn’t perform well, and the market has learned that lesson.

“As a result, we do see some new secondary funds entering the market to fill the gap that is there in the Series B and C stages. It is much needed as not all companies can fast-track to IPOs, and they will need some time to mature, which early stage funds cannot afford in their fund tenures,” Pai said.

Analysts tracking exit activity have indicated that secondaries are increasingly positioning themselves alongside IPOs as standard liquidity tools.

In 2025, secondary exits moved from being a marginal channel to accounting for a low double-digit share of total exit value. This shift reflects longer holding periods, growing LP demand for predictable liquidity from older vintages, and the emergence of a sufficiently deep pool of Indian assets capable of attracting global secondary capital.

Another notable change has been the profile of participants entering the secondary market. As highlighted by Chandrasekar, beyond global secondary funds and large institutional sponsors, there has been a rise in organised participation from Indian and regional family offices.

Many now operate dedicated private markets teams and are using secondaries to gain exposure to proven late stage companies with stronger governance standards and clearer paths to liquidity. For these family offices, secondary transactions are increasingly being treated as a core component of long term allocation strategies rather than opportunistic investments.

Charting The Path Ahead For 2026

As 2026 unfolds, the Indian startup ecosystem is poised for a series of strategic inflexions. While certain areas, such as crypto and blockchains, remain restricted, there is optimism that policy evolution will unlock participation in fintech infrastructure, stablecoins, and other transaction-velocity enhancers. Analysts expect more innovation to flow into these regulated spaces once the frameworks are clarified, providing new avenues for capital deployment and product development.

“If regulation continues to improve, more capital should come into India… Next year, if we focus on that, I think it will be a win-win across all the investors in the private to public chain,” said Pai.

According to Pai, there are three key areas for ecosystem stakeholders to focus on in 2026:

• Regulatory Maturity: Despite India now being a $4-4.3 Tn economy, regulations often reflect a $1 Tn mindset, creating uncertainty for fintechs and other sectors. Frequent regulatory changes act like ‘earthquake events’, reducing investment appetite. India must adopt a 10 to 20-year horizon in policymaking, providing clear, stable, and growth-supportive regulations across all agencies.
• Re-Industrialising The Nation: Manufacturing’s share of gross value added (GVA) has fallen from historical highs to 14-15% today, well below the desired 21-22%. There is a need for consistent, long-term incentives for manufacturers that mitigate capital, land, and utility risks. Stable, grandfathered policies could replicate the success seen in India’s IT sector, where regulatory clarity over a decade helped build a global competitive advantage.
• High-Productivity Jobs: There is now an urgency for creating advanced, high-productivity jobs to avoid a looming middle-income trap. Simple GDP growth or job creation in low-skill sectors is insufficient. India must focus on efficient job creation, wage growth, and skills development aligned with emerging industries such as AI and advanced manufacturing. Without this shift, per capita income growth will lag, limiting economic transformation.

Entering 2026, the Indian VC landscape is expected to be more clearly defined, with established firms cementing their positions while underperforming players may exit the market. Global LPs are building stronger partnerships with long-standing Indian funds, reflecting growing confidence in the ecosystem.

At the same time, domestic capital is rising, with HNIs and family offices increasingly investing directly into startups, providing more risk capital. Fund managers will need to navigate evolving cheque sizes and maintain discipline, as the market continues to efficiently sort winners.