India’s startup ecosystem in 2025 witnessed a significant rise in funding, with nearly $11 billion raised. However, investors adopted a more selective approach, demonstrating a divergence from the capital concentration seen in the U.S. The number of funding rounds decreased by almost 39%, with 1,518 deals recorded, while total funding saw a more modest decline of over 17% to $10.5 billion.
The decline in funding was not uniform across all stages. Seed-stage funding dropped sharply to $1.1 billion, a 30% decrease from the previous year, as investors reduced their bets on experimental ventures. Late-stage funding also cooled, falling to $5.5 billion, a 26% decline, with a focus on scale, profitability, and exit potential. On the other hand, early-stage funding showed resilience, increasing to $3.9 billion, a 7% rise year-over-year.
According to Neha Singh, co-founder of Tracxn, the shift in capital deployment towards early-stage startups is due to growing confidence in founders showcasing stronger product-market fit, revenue visibility, and unit economics in a more stringent funding environment.
In the realm of AI, Indian startups raised over $643 million in 2025, reflecting a 4.1% increase from the previous year. The capital distribution was mainly concentrated in early and early-growth stages, with early-stage AI funding reaching $273.3 million and late-stage rounds securing $260 million. This trend contrasts with the U.S., where AI funding surged past $121 billion in 2025, dominated by late-stage deals.
Prayank Swaroop, a partner at Accel, highlighted the absence of AI-first companies in India with substantial revenue, emphasizing the preference for application-led businesses over capital-intensive model development due to the country’s current market dynamics.
While the U.S. witnessed a surge in venture funding in 2025, with $89.4 billion raised in the fourth quarter alone, India’s funding landscape showed a different trajectory. Lightspeed’s Rahul Taneja emphasized the importance of considering differences in population density, labor costs, and consumer behavior when comparing the two markets, pointing out the success of categories like quick commerce and on-demand services in India.
The article also delves into the challenges faced by women-led startups in accessing funding, the increasing involvement of the Indian government in the startup ecosystem through various initiatives and funds, and the evolving exit markets in India, with a steady flow of technology IPOs and a rise in M&A activity.
As India enters 2026, the startup ecosystem is poised for growth, with a more measured approach to scaling, predictable exits, and a focus on domestic market dynamics. The changing landscape presents unique opportunities for investors, positioning India as a complementary arena with its own set of risks, timelines, and prospects.
