Venture Capital

Flush with funds, starved of conviction: Inside the Great Indian startup pause

Nikhil Patwardhan

June 16, 2025 | 9 Min Read

Despite record dry powder and early-stage optimism, India’s startup ecosystem is stuck in limbo—with stalled IPOs, missed AI opportunities, and risk-averse capital. Everyone’s waiting for the next big wave. But what if it never comes?

Key Takeaways

India's startup funding has hit a decade-low despite record dry powder, as investors hesitate and founders delay amid the absence of a clear inflection point
Growth-stage capital is drying up while early-stage activity holds steady, creating a widening gap that threatens to stall promising startups mid-journey
India is missing the global AI wave, with most domestic efforts focused on applications rather than foundational innovation or infrastructure
Without meaningful exits or sector-wide momentum, the ecosystem is stuck in a holding pattern—waiting for a spark that may never arrive

India’s startup economy was once a story of relentless motion—from dorm-room ideas to decacorns, from SoftBank bets to Nasdaq dreams. But in 2025, the momentum has dulled. In the first five months of this year, Indian startups raised just $5.8 billion in equity funding, per Tracxn—the weakest start in nine years.

It’s not just the number. It’s what it signals.

From 2020 to 2022, startups in India were riding a high. Capital was flowing freely, and the mood was bullish. The pandemic had digitised behaviour, startup valuations were booming, and global investors competed to write big cheques. But today, even as dry powder accumulates and pitch decks circulate, the market feels stuck. Founders are cautious. Investors are hesitant. The sense of inevitability—that India’s tech ecosystem was always a year away from greatness—has been replaced by silence.

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