Trends Shaping Private Equity in India's Growth-Stage Tech Startups
Manali is the leading key initiative in investment banking, focusing on high-growth technology, media, and telecommunications sectors from early-stage to pre-IPO. She is passionate about working with founders on product development, financial strategies, and ESG initiatives.
India’s startup scene is shifting gears. The days when early-stage, high-risk ideas dominated the headlines are giving way to a new era. Today, investors are favoring companies that have already shown they can make it work. This change isn’t just a passing trend—it’s a sign that the market is maturing. With funds flowing more toward growth-stage startups, early-stage innovators are now facing tougher times. Let’s break down what’s happening, why it matters, and where things might be headed.
A New Funding Landscape
The funding scene in India has changed a lot over the past couple of years. Recent data shows that money for early-stage rounds—think seed, angel, and Series A funding—has dropped to about $3 billion across 1,533 deals in 2024. That’s a big drop from the boom years of 2021 and 2022. Meanwhile, growth-stage deals are getting a bigger slice of the pie. In the first 11 months of 2024, investors poured around $3.5 billion into companies that have already passed the early hurdles.
Even though total startup investments slipped slightly from $16.5 billion to $15.9 billion, the real story is about where that money is going. The shift shows that investors now prefer to put their money in companies with a proven track record. They’re less willing to bet on untested ideas and more interested in startups that already have a customer base, solid revenue, and a clear path to scale.
Why the Shift?
Several factors are driving this move. The overall market conditions have changed, and the risks associated with backing early-stage ideas have become more apparent. Here’s a quick look at what’s behind the shift:
Proof Over Promises: Investors want to see that a business works before they commit. They prefer companies that have already passed the trial-and-error phase and can show real results.
Lower Risk, Steady Rewards: A business with a stable customer base and steady revenue is a safer bet. Growth-stage companies offer this kind of stability compared to early-stage startups that are still finding their footing.
Eyes on the Exit: Many growth-stage companies are gearing up for public listings. Big names like Zepto and Rapido are planning to go public in the next two to three years. The promise of an IPO makes these companies even more attractive.
Global Factors: More than 85% of the funding in India comes from foreign investors. With global economic uncertainties and exchange rate ups and downs, these investors are extra cautious now. They’re looking for the safer, proven bets rather than chasing every new idea.
The funding winter that started in late 2022 and stretched through 2023 played a big role too. During that time, even promising early-stage startups found it hard to get Series A or Series B money. Now, as the market slowly recovers, investors are sticking to the companies that have already shown they can weather the storm.
How Investors Are Thinking
The way investors decide where to put their money has changed. Instead of jumping on every new idea, they’re taking a more measured, “wait and watch” approach. Here’s what that looks like:
Waiting for Proof: Investors are holding off until startups can prove that they have real traction. They want to see a clear growth path before investing.
Betting on Scale: It’s no longer enough to have a good idea. Companies need to show that they can grow fast and sustain that growth over time. Investors are backing those that already have a market and a plan for expansion.
Not Tied to One Sector: In the past, investors might have focused on one industry—fintech, healthtech, edtech, and so on. Now, they’re more open. Whether it’s a startup in tech, healthcare, or any other field, what matters is the performance and scalability of the business.
This shift in strategy has broader consequences for the ecosystem. Early-stage founders now face stiffer competition for the available funds. They need to move quickly and prove their value sooner rather than later. Meanwhile, companies that have already shown success are likely to see even more support, which could speed up their growth and market impact.
What It Means for the Ecosystem
The focus on growth-stage companies signals that the market is maturing. On one hand, this can lead to a more stable and sustainable startup ecosystem. When investors back companies with proven models, it reduces the overall risk and can lead to fewer, but stronger, winners in the long run.
On the other hand, early-stage startups—the ones that spark fresh ideas and disruptive innovations—might struggle to find the funds they need. With fewer dollars available at the seed and Series A levels, some promising ideas might never get off the ground. It’s a double-edged sword: while the emphasis on solid performance is good for overall market health, it might slow down the flow of new innovations.
Here are a few key takeaways:
Early-Stage Funding Is Tight: The money for seed and Series A rounds is nearly half of what it was at its peak. This makes it tougher for new ideas to gain traction.
Growth-Stage Gains Momentum: Investments in companies that already have a proven track record are on the rise. This reflects greater confidence in their ability to scale.
Global Influences Count: With a large share of funding coming from abroad, global economic conditions and currency swings play a big role in shaping investment decisions.
Long-Term Focus: Investors are looking at the long game. They’re not just interested in quick wins; they want companies that can eventually go public or achieve other big milestones.
The Road Ahead
Looking forward, this trend is likely to continue. As India’s tech ecosystem grows and matures, investors will keep favoring companies that offer a clear path to growth and lower risk. For early-stage startups, this means an uphill battle. They’ll need to show potential fast if they want to grab any of the shrinking seed or Series A funds.
For companies already in the growth stage, the current climate is a boon. With more capital available and a clearer path to scaling up, these businesses can push forward, refine their models, and even prepare for IPOs. This could set the stage for a more robust and resilient market in the coming years.
In simple terms, the funding landscape is getting more selective. Investors are no longer casting a wide net over every idea that comes along. Instead, they’re zeroing in on businesses that have already proved they can deliver. This shift might mean fewer early-stage successes in the short term, but it also promises a stronger, more sustainable ecosystem overall.
For the startup community in India, it’s a call to adapt. Founders need to focus not just on creating a buzz but on building a solid, scalable business model that can attract serious investment. And for investors, the focus on proven winners is a way to balance risk in an uncertain global economy.
In the end, this change reflects a broader trend in the market—a move toward maturity and sustainability. It’s a sign that the Indian startup ecosystem is growing up. And while this might mean tougher times for early-stage innovators, it also points to a future where the companies that succeed are those that can stand up to real-world challenges and deliver steady, long-term growth.
Investors’ preference for proven business models isn’t just about reducing risk—it’s about building a market that can thrive over time. In a country known for its entrepreneurial spirit and innovative ideas, this shift could lead to a stronger, more resilient tech landscape. The winners will be the ones who can prove they’re ready for the big leagues, and that’s good news for everyone in the long run.
.jpeg "Manali Jain, Investment Banking Associate, Sumitomo Mitsui Banking Corporation")
India’s startup scene is shifting gears. The days when early-stage, high-risk ideas dominated the headlines are giving way to a new era. Today, investors are favoring companies that have already shown they can make it work. This change isn’t just a passing trend—it’s a sign that the market is maturing. With funds flowing more toward growth-stage startups, early-stage innovators are now facing tougher times. Let’s break down what’s happening, why it matters, and where things might be headed.
A New Funding Landscape
The funding scene in India has changed a lot over the past couple of years. Recent data shows that money for early-stage rounds—think seed, angel, and Series A funding—has dropped to about $3 billion across 1,533 deals in 2024. That’s a big drop from the boom years of 2021 and 2022. Meanwhile, growth-stage deals are getting a bigger slice of the pie. In the first 11 months of 2024, investors poured around $3.5 billion into companies that have already passed the early hurdles.
India’s startup scene is shifting. Investors now back companies with proven growth over risky early bets, reflecting a maturing market where real results speak louder than untested ideas, paving the way for sustainable tech innovation.
Even though total startup investments slipped slightly from $16.5 billion to $15.9 billion, the real story is about where that money is going. The shift shows that investors now prefer to put their money in companies with a proven track record. They’re less willing to bet on untested ideas and more interested in startups that already have a customer base, solid revenue, and a clear path to scale.
Why the Shift?
Several factors are driving this move. The overall market conditions have changed, and the risks associated with backing early-stage ideas have become more apparent. Here’s a quick look at what’s behind the shift:
Proof Over Promises: Investors want to see that a business works before they commit. They prefer companies that have already passed the trial-and-error phase and can show real results.
Lower Risk, Steady Rewards: A business with a stable customer base and steady revenue is a safer bet. Growth-stage companies offer this kind of stability compared to early-stage startups that are still finding their footing.
Eyes on the Exit: Many growth-stage companies are gearing up for public listings. Big names like Zepto and Rapido are planning to go public in the next two to three years. The promise of an IPO makes these companies even more attractive.
Global Factors: More than 85% of the funding in India comes from foreign investors. With global economic uncertainties and exchange rate ups and downs, these investors are extra cautious now. They’re looking for the safer, proven bets rather than chasing every new idea.
The funding winter that started in late 2022 and stretched through 2023 played a big role too. During that time, even promising early-stage startups found it hard to get Series A or Series B money. Now, as the market slowly recovers, investors are sticking to the companies that have already shown they can weather the storm.
How Investors Are Thinking
The way investors decide where to put their money has changed. Instead of jumping on every new idea, they’re taking a more measured, “wait and watch” approach. Here’s what that looks like:
Waiting for Proof: Investors are holding off until startups can prove that they have real traction. They want to see a clear growth path before investing.
Betting on Scale: It’s no longer enough to have a good idea. Companies need to show that they can grow fast and sustain that growth over time. Investors are backing those that already have a market and a plan for expansion.
Not Tied to One Sector: In the past, investors might have focused on one industry—fintech, healthtech, edtech, and so on. Now, they’re more open. Whether it’s a startup in tech, healthcare, or any other field, what matters is the performance and scalability of the business.
This shift in strategy has broader consequences for the ecosystem. Early-stage founders now face stiffer competition for the available funds. They need to move quickly and prove their value sooner rather than later. Meanwhile, companies that have already shown success are likely to see even more support, which could speed up their growth and market impact.
What It Means for the Ecosystem
The focus on growth-stage companies signals that the market is maturing. On one hand, this can lead to a more stable and sustainable startup ecosystem. When investors back companies with proven models, it reduces the overall risk and can lead to fewer, but stronger, winners in the long run.
On the other hand, early-stage startups—the ones that spark fresh ideas and disruptive innovations—might struggle to find the funds they need. With fewer dollars available at the seed and Series A levels, some promising ideas might never get off the ground. It’s a double-edged sword: while the emphasis on solid performance is good for overall market health, it might slow down the flow of new innovations.
Here are a few key takeaways:
Early-Stage Funding Is Tight: The money for seed and Series A rounds is nearly half of what it was at its peak. This makes it tougher for new ideas to gain traction.
Growth-Stage Gains Momentum: Investments in companies that already have a proven track record are on the rise. This reflects greater confidence in their ability to scale.
Global Influences Count: With a large share of funding coming from abroad, global economic conditions and currency swings play a big role in shaping investment decisions.
Long-Term Focus: Investors are looking at the long game. They’re not just interested in quick wins; they want companies that can eventually go public or achieve other big milestones.
The Road Ahead
Looking forward, this trend is likely to continue. As India’s tech ecosystem grows and matures, investors will keep favoring companies that offer a clear path to growth and lower risk. For early-stage startups, this means an uphill battle. They’ll need to show potential fast if they want to grab any of the shrinking seed or Series A funds.
For companies already in the growth stage, the current climate is a boon. With more capital available and a clearer path to scaling up, these businesses can push forward, refine their models, and even prepare for IPOs. This could set the stage for a more robust and resilient market in the coming years.
In simple terms, the funding landscape is getting more selective. Investors are no longer casting a wide net over every idea that comes along. Instead, they’re zeroing in on businesses that have already proved they can deliver. This shift might mean fewer early-stage successes in the short term, but it also promises a stronger, more sustainable ecosystem overall.
For the startup community in India, it’s a call to adapt. Founders need to focus not just on creating a buzz but on building a solid, scalable business model that can attract serious investment. And for investors, the focus on proven winners is a way to balance risk in an uncertain global economy.
In the end, this change reflects a broader trend in the market—a move toward maturity and sustainability. It’s a sign that the Indian startup ecosystem is growing up. And while this might mean tougher times for early-stage innovators, it also points to a future where the companies that succeed are those that can stand up to real-world challenges and deliver steady, long-term growth.
Investors’ preference for proven business models isn’t just about reducing risk—it’s about building a market that can thrive over time. In a country known for its entrepreneurial spirit and innovative ideas, this shift could lead to a stronger, more resilient tech landscape. The winners will be the ones who can prove they’re ready for the big leagues, and that’s good news for everyone in the long run.
