India's startup funding slows as global investors turn cautious, capital shifts to US

India's startup funding market is undergoing a correction, with late-stage and angel investments declining sharply as global investors become more selective and redirect capital to other markets and sectors, according to a report published by Mint and carried on TradingView. Rupee depreciation and intensifying competition, particularly from the US, have made fundraising harder for Indian startups and venture capital funds, while investors are reassessing valuations and demanding stronger business fundamentals.

The slowdown follows the exceptional funding boom of 2020 and 2021, which experts attribute to excessive liquidity and valuations that proved difficult to sustain. Late-stage funding peaked at $29.7 billion in 2021 before falling to $6.1 billion in 2025 and $5.7 billion as of 26 October 2026, per Tracxn data. Karan Mohla, general partner at B Capital, said the market had reset to levels fundamentals could support, and that underwriting now anchors on public-market comparables, including positive unit economics and a clear path to profitability. Analysts describe the decline as a re-baselining of the ecosystem, driven in part by the zero interest rate policy era.

Investor appetite is also shifting from conventional financial services and internet businesses toward artificial intelligence and deeptech, though many companies in these sectors remain too young for late-stage rounds. Ashish Kumar, co-founder and general partner at Fundamentum and F2A, expects late-stage funding to pick up around 2028, with consumer and financial services companies continuing to attract late-stage capital in the interim. Between 2020 and 2026 year-to-date, retail, enterprise applications and fintech drew the most funding, at $32.2 billion, $31.5 billion and $25.6 billion respectively, according to Tracxn.

The retreat of growth-stage investors has further constrained flows. Tiger Global's Indian investments fell from 55 in 2021 to one in 2026 year-to-date, and SoftBank, which made 17 investments in 2021, made two in 2026, according to Venture Intelligence. US competition has added pressure, with OpenAI and Anthropic raising billions at multi-billion-dollar valuations and SpaceX's record IPO in June drawing further attention to US technology. Abhay Agarwal, founder of Piper Serica Advisors, said there is little incentive for limited partners to invest in Indian VC funds at present, calling India a high-potential but underperforming market for global LPs.

The pullback extends to early-stage financing. Angel funding fell from $542 million in 2020 to $95.4 million in 2025, and rounds declined from 577 to 286. Experts partly attribute this to the institutionalisation of angel investing, as angel networks set up their own funds using domestic capital. Regulatory changes add uncertainty: under Sebi's revised accredited investor framework, angel funds can raise capital only from accredited investors and must onboard at least five before their first close. Sebi extended the compliance deadline for existing angel funds from 8 September 2026 to 31 March 2027 after industry representations. Nidhi Killawala, partner at Khaitan & Co, said capital may route around the regulated structure rather than shrink overall, reshaping the pipeline more than the pool.