India’s VC funding stalls as capital funnels into fewer deeptech bets

India’s venture capital funding has remained nearly flat over the past three years, even as the money is funneled into fewer, larger rounds concentrated in deeptech and AI startups. Between January and mid-October this year, Indian startups raised billions across equity rounds, a modest increase from the same period last year, according to data reported by Rediff. The average round size has grown significantly, reflecting a sharp drop in the number of deals.

The top startups by funding accounted for a substantial share of the total, securing billions between them. Among them, a prominent generative AI startup raised significant sums across multiple rounds, while another AI-focused company saw its valuation nearly double after a large funding round. The largest single deal involved a data center business backed by a major telecom player.

This concentration reflects a broader shift. Investors are pulling back from sectors like consumer tech and fintech, where exits have been slow, and redirecting capital toward areas requiring longer hold periods. An investment partner at a deeptech-focused firm noted that the stagnation stems partly from subdued public markets, which have kept key investors on the sidelines. Investors are moving carefully as they assess the risks and potential of emerging sectors.

The shift aligns with government efforts to bolster the sector. India’s Research, Development and Innovation (RDI) Fund recently committed billions to VC funds and research organizations, aiming to accelerate private investment in deeptech. Earlier this year, officials proposed a capital corridor with a foreign partner to channel early-stage funding into Indian deeptech startups, tapping into long-term investment pools.

Yet challenges remain. At a recent industry event, founders and investors noted that while seed capital is more accessible, follow-on funding is still scarce. Some startup hubs host large clusters of deeptech companies but attract a disproportionately small share of venture funding, with capital increasingly favoring a select group of companies in major cities.

Valuations are rising alongside round sizes. The combined valuation of top startups climbed this year, reflecting investor confidence in certain sectors. One AI startup, backed by major corporate and government initiatives, crossed the unicorn threshold earlier this year. Another company’s valuation jump highlights the premium investors are placing on infrastructure plays.

The trend suggests a maturing market where capital efficiency and long-term potential matter more than rapid scaling. For founders outside the top tier, securing follow-on funding will likely remain difficult unless they can demonstrate a path to scale. For investors, the question is whether this consolidation will yield the exits that have eluded India’s venture ecosystem in recent years—or if caution around longer horizons will keep capital on the sidelines. Either way, the next year will test whether this shift is temporary or a lasting change.

Sources: rediff.com