Indian Startup Fundraising Hits Four-Year Low—What’s Behind the Decline

The Indian startup ecosystem, once soaring with record-breaking investments, is now facing one of its most challenging years in venture capital fundraising. While deal activity is showing signs of recovery after a sluggish 2023, venture capital (VC) fundraising has taken a sharp dive. In 2024, startup VCs managed to raise only $2.7 billion, marking a 35% decline from the previous year and the lowest figure since 2020.

So, what’s driving this downturn? Why are investors holding back despite the ecosystem’s gradual revival? TICE decodes this for you.

A Steep Decline in VC Fundraising

A new report by the Indian Venture Capital Association (IVCA) and Bain & Company paints a stark picture of the VC funding slowdown. In 2022, venture capital fundraising peaked at an impressive $8 billion, significantly higher than $3.4 billion in 2021 and $3.2 billion in 2020. However, the following years witnessed a sharp pullback—$4 billion in 2023 and now a further plunge to $2.7 billion in 2024.

Notably, the average size of funds raised by investors has also declined by 40%, dropping from $83 million in 2022 to $49 million in 2024. The number of large fundraises exceeding $100 million has dwindled from 10 to just four in the past two years.

The Dry Powder Dilemma

One of the primary reasons for this decline is the presence of significant “dry powder”—capital that VCs have raised but haven’t deployed. Investors are treading cautiously, ensuring their existing portfolio companies are stabilized before injecting fresh capital into new ventures.

A challenging global economic environment, geopolitical uncertainties, and cautious capital deployment strategies have further contributed to this slowdown. Even though deal activity is bouncing back, investors are exercising increased diligence, preferring sustainable business models over high-burn, growth-at-all-costs strategies.

Domestic Investors Lead the Charge

Interestingly, while the overall fundraising scene looks grim, domestic investors have stepped up to fill the gap. Excluding Accel’s $650 million raise, nearly 95% of VC fundraising in 2024 was led by domestic funds. Major players include Stellaris Venture Partners with $300 million, Playbook Partners with $130 million, IN-SPACe with $119 million, and Alteria Capital with $75 million, among others.

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This shift indicates a stronger reliance on homegrown capital as global investors remain cautious. The increase in the number of first-time funds—from 20 in 2023 to 24 in 2024—suggests that new players are entering the market, ensuring that fresh capital is still trickling in despite broader fundraising challenges.

Despite Fundraising Slump, Investment Activity Picks Up

While VC fundraising has slowed, the broader startup funding landscape is seeing a revival. Venture capital and growth-stage funding in India surged by 1.4x, reaching $13.7 billion in 2024, up from $9.6 billion in 2023. This growth outpaced the Asia-Pacific VC market, which remained largely stagnant.

Several factors are contributing to this uptick: an improving regulatory environment, positive macroeconomic conditions, and a handful of large pre-IPO deals that have drawn investor confidence back into the market. Deal volume has also risen significantly, increasing from 880 deals in 2023 to 1,270 in 2024.

Early-stage startups continue to dominate, accounting for approximately 82% of total deals. The average deal size has remained stable at around $10.8 million, indicating that while the number of deals has increased, investors are maintaining disciplined check sizes rather than making aggressive bets.

Exit Market Gains Strength

Another promising development is the improvement in startup exits, which have grown by 4% year-on-year, reaching $6.8 billion in 2024. Public market exits have gained prominence, increasing from 55% to 76% of total exit value. At the same time, secondary exits have seen a 1.6x rise in value, with a corresponding 1.3x increase in average exit size.

This signals a maturing ecosystem where investors are finding viable exit routes, whether through IPOs or acquisitions, which in turn encourages reinvestment into new ventures.

What Lies Ahead?

Despite the drop in VC fundraising, the overall Indian startup ecosystem remains resilient. The increase in deal volume, steady early-stage investments, and improving exit scenarios indicate that the industry is far from slowing down entirely.

However, the coming months will be crucial in determining whether the fundraising slump is a temporary blip or a prolonged downturn. Key factors to watch include global economic conditions, investor sentiment, and regulatory developments that could shape the startup funding landscape in 2025 and beyond.

For founders, this shift means a need for prudence—funding will be available, but only for startups that demonstrate strong fundamentals, clear revenue models, and sustainable growth strategies. The era of easy money might be over, but opportunities still abound for those who can navigate the changing investment landscape smartly.