India startup funding hits $11B in 2025 as investors grow more selective

India’s startup ecosystem raised nearly $11 billion in 2025, but investors wrote far fewer checks and became more selective about where they took risks, underscoring how the world’s third most funded startup market is a departure from the AI-driven capital concentration we see in the US.

The selective approach was most evident when closing deals. According to Tracxn, the number of startup financing rounds fell by almost 39% compared to a year earlier, to 1,518 deals. Total funding fell more modestly: just over 17% to $10.5 billion.

That withdrawal was not uniform. Seed-stage funding fell sharply to $1.1 billion in 2025, a 30% decline from 2024, as investors cut back on more experimental investments. Late-stage financing also cooled, falling to $5.5 billion, down 26% from last year, amid tighter controls on scale, profitability and exit prospects. However, early-stage financing proved more resilient, rising to $3.9 billion, up 7% year-over-year.

“The focus on deploying capital has increased towards early-stage startups,” says Neha Singh, co-founder of Tracxn, pointing to growing confidence in founders who can demonstrate stronger product market fit, better revenue visibility and better unit economics in a tighter funding environment.

The AI ​​quest

Nowhere was that recalibration more evident than in AI, as AI startups in India raised just over $643 million across 100 deals in 2025, a modest 4.1% increase from a year earlier, according to Tracxn data shared with TechCrunch. Capital was mainly spread across early and early growth stages. Early-stage AI funding totaled $273.3 million, while late-stage funding raised $260 million, reflecting investor preference for application-oriented companies about capital-intensive model development.

This was in stark contrast to the US, where AI funding rose above $121 billion in 765 rounds in 2025, per Tracxn, up 141% from 2024, and was overwhelmingly dominated by late-stage deals.

“We don’t yet have an AI-first company in India that will have $40 to $50 million, if not $100 million, in revenue in a year, and that’s happening globally,” said Prayank Swaroop, a partner at Accel.

India, Swaroop told TechCrunch, lacks large fundamental model companies and will take its time to build the research depth, talent pipeline and patient capital needed to compete at that tier – making application-driven AI and adjacent deep-tech areas a more realistic focus in the near term.

This pragmatism has led investors to place their longer-term investments outside of core AI. Venture capital is increasingly flowing into manufacturing and deep tech sectors. These are some of the areas where India faces less global capital competition and has clear advantages in talent, cost structures and customer access.

While AI now attracts a significant portion of investor attentionCapital in India remains arguably more evenly distributed than in the US, with significant funding still flowing to consumer, manufacturing, fintech and deep-tech startups. Swaroop noted that advanced manufacturing in particular has emerged as a long-term opportunity, with the number of such startups increasing almost tenfold over the past four to five years – an area he described as a clear ‘right to win’ for India given lower global capital competition.

Rahul Taneja, a partner at Lightspeed, said AI startups would account for roughly 30-40% of deals in India by 2025, but pointed to a parallel rise in the number of consumer-facing companies as changing behavior among India’s urban populations creates demand for faster, more on-demand services – from quick commerce to home services – categories that cater to India’s scale and density rather than Silicon Valley’s capital intensity.

India vs USA

PitchBook data shows a stark difference in capital deployment between India and the US in 2025. US venture capital funding rose to $89.4 billion in the fourth quarter alone, according to PitchBook data through December 23, compared to around $4.2 billion raised by Indian startups in the same period.

However, this gap does not tell the whole story.

Lightspeed’s Taneja cautioned against drawing direct parallels between India and the US, arguing that differences in population density, labor costs and consumer behavior determine which business models can scale. Categories like high-speed commerce and on-demand services have found much more traction in India than in the US, reflecting the local economy rather than any lack of ambition among founders or investors.

Recently Lightspeed has raised $9 billion in fresh capital with a strong focus on AI, but Taneja said the move does not indicate a wholesale shift in the company’s India strategy. The US fund, he noted, is focused on a different market and maturity cycle, while Lightspeed’s Indian arm will continue to back consumer startups, besides selectively exploring AI opportunities shaped by local demand rather than global capital intensity.

Nuances in India’s startup ecosystem

The Indian startup ecosystem also saw funding tightening for women-led startups. Capital invested in tech startups founded by women remained relatively stable at around $1 billion in 2025, down 3% from a year earlier, Tracxn’s report said. Yet this headline figure masked a sharper decline beneath the surface. The number of funding rounds at female-founded startups fell by 40%, while their first-time counterparts fell by 36%.

Overall, investor participation has declined sharply as selectivity increased. About 3,170 investors participated in funding rounds in India this year, down 53% from about 6,800 a year earlier, according to Tracxn data shared with TechCrunch. India-based investors accounted for almost half of that activity, with about 1,500 domestic funds and angels participating – a sign that local capital was playing a more prominent role as global investors turned cautious.

Activity also became more concentrated among a smaller group of returning donors. 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 became more visible in 2025. New Delhi announced one $1.15 billion fund of funds in January to expand access to capital for startups, followed by a ₹1 trillion ($12 billion) research, development and innovation programme, targeting areas such as energy transition, quantum computing, robotics, space technology, biotechnology and AI, using a mix of long-term loans, equity injections and allocations to deep-tech funds.

This momentum is also beginning to catalyze private capital. The growing involvement of the government has contributed to the impetus pledge of nearly $2 billion by US and Indian venture capital and private equity firmsincluding Accel, Blume Ventures and Celesta Capital, to back deep-tech startups – an effort that also brought Nvidia on board as an advisor and tapped Qualcomm Ventures. Also the Indian government co-led a $32 million financing for quantum computing startup QpiAI earlier this year — a rare federal move.

This growing state involvement has helped reduce a risk long noted by investors: regulatory uncertainty. “One of the biggest risks you don’t want to take is what happens when regulations change,” says Lightspeed’s Taneja.

As government agencies become more familiar with the startup ecosystem, Taneja adds, policies are more likely to evolve with it, reducing uncertainty for investors backing companies with longer development cycles.

Exits in India

The reduced uncertainty is already starting to manifest itself to some extent in the exit markets. India has seen a steady pipeline of technology IPOs over the past two years, with 42 tech companies going public in 2025, up 17% from 36 in 2024, according to Tracxn. Much of the demand for these listings comes from domestic institutional and retail investors, addressing long-standing concerns that the exit of Indian startups is too heavily dependent on foreign capital. M&A activity also picked up, with the number of acquisitions rising 7% year-on-year to 136 deals, Tracxn data shows.

Accel’s Swaroop says investors have long been concerned that India’s public markets are mainly backed by foreign capital, raising questions about the sustainability of exits during global recessions. “This year has refuted that,” he said, pointing to the growing role of domestic investors in absorbing technology listings – a shift that has made exits more predictable and reduced dependence on volatile foreign flows.

The Indian unicorn pipeline in 2025 also reflected that shift towards restraint. While the number of new unicorns remained stable year over year, Indian startups reached a $1 billion valuation with less capital, fewer funding rounds and a smaller pool of institutional investors, indicating a more measured path to scale compared to previous years and global peers.

Challenges remain as India heads into 2026, especially in how the country positions itself in the global race for AI and whether late-stage financing can be expanded without relying on excessive capital inflows.

Still, the shifts in 2025 point to a startup ecosystem that is maturing rather than retreating – one in which capital is deployed more consciously, exits become more predictable and the dynamics of the domestic market increasingly determine its growth. For investors, India is emerging less as a substitute for developed markets and more as a complementary arena with its own risk profile, timelines and opportunities.