Early-Stage Funding Dips, but Optimism Grows in India's Maturing Startup Ecosystem Only two unicorns emerged in H1 2025, a 33% decline from three unicorns in H1 2024. Does the lack of early-stage funding mean fewer unicorns?

The road towards a USD 7 trillion economy by 2030 does not seem too difficult for India, given how the Indian startup ecosystem has drastically transformed the face of the Indian economy.

Behind flourishing startups, there are two important pillars, one is innovative ideas that cater to Indian needs, and the other is the capital that enables these ideas to reach the market.

However, in the first half of 2025, we have seen turbulence in the funding ecosystem. According to Tracxn's recent report, India's tech startup ecosystem raised USD 4.8 billion, a 25 per cent decline from H1 2024 and a 19 per cent drop from H2 2024. Why is the market witnessing such a deep dip in funding?

Overall dip in funding

Seed-stage funding declined to USD 452 million, a 23 per cent fall from USD 584 million in H2 2024 and 44 per cent lower than USD 802 million in H1 2024. Early-stage startups raised USD 1.6 billion, a decrease of 6 per cent from USD 1.7 billion in H2 2024, and down 16 per cent compared to USD 1.9 billion in H1 2024. Meanwhile, late-stage funding stood at USD 2.7 billion, marking a 25 per cent decline from USD 3.6 billion in H2 2024 and a 27 per cent drop compared to USD 3.7 billion in H1 2024.

But for Brijesh Damodaran Nair, Managing Partner, Auxano Capital, this decline is a sign of maturity in the startup space. "The sharp decline in seed and early-stage funding reflects maturity in the space. The VCs and the ecosystem are becoming more selective, preferring to deploy dry powder into scale-ups with clearer paths to profitability and with adherence to governance and data-backed numbers," says Nair.

However, Arjun Malhotra, General Partner, Good Capital, believes that the market is flooded with similar ideas.

"A big factor is the explosion of AI — it has unlocked a lot of new market opportunities, but it's also led to a flood of similar or overlapping ideas. Founders are often building in the same spaces, which makes it harder to differentiate. As a result, investors are taking more time to evaluate what will truly stand out and scale," notes Malhotra.

He also adds that AI has made it possible to do more with fewer resources, so early-stage companies don't need as much capital upfront, which naturally slows the pace of early funding rounds.

But Anil Joshi, Founder and Managing Partner, Unicorn India Ventures & VC Council member, IVCA, shares a different perspective.

"The drop in seed and early-stage funding this year is more cyclical than structural. Several micro-VCs and early-stage funds have closed new rounds recently, but many are still in the process of deploying fresh capital. On the founder side, we're also seeing a shift. Some entrepreneurs are choosing to bootstrap longer to build stronger traction and negotiate better valuations. It's not that capital isn't available, but both investors and founders are being more deliberate. This temporary dip is likely to correct itself as new funds start deploying more actively in the coming quarters," Joshi says.

Where have the unicorns gone?

Additionally, the market has also seen a dip in unicorns. Only two unicorns emerged in H1 2025, a 33 per cent decline from three unicorns in H1 2024. Does the lack of early-stage funding mean fewer unicorns?

"Not necessarily. If anything, we might actually see more startups emerge because it's easier and cheaper to build today, thanks to AI. What will be interesting is to see which companies break out, given how crowded certain use cases have become. Success will likely come down to who can execute better, move faster, and carve out a truly differentiated space. So while the unicorn count might slow in the short term, the overall startup ecosystem could actually get more dynamic," explains Malhotra.

Adding to this, Joshi says, "A dip in early-stage funding doesn't automatically translate into fewer successful startups or unicorns down the line. Many founders are choosing to stay bootstrapped longer, focusing on product–market fit and customer growth before raising capital. This often helps them command better valuations when they do raise. While the overall pace of funding has slowed, we expect activity to pick up as more funds begin deploying capital. Predicting the number of unicorns is always tricky, but the pipeline of high-quality startups remains strong."

Meanwhile, Abhishek Prasad, Managing Partner, Cornerstone Ventures, adds, "I don't think this will affect the number of unicorns or successful startups in the future, as it will only ensure lower failure rates. We are, in fact, moving into a more positive phase in India's VC industry, where more thematic investing will lead to much better outcomes and stronger realisation for investors in India's startup story."

Logistics tech bucked the trend

In an interesting development, Logistics Tech emerged as one of the leading sectors in terms of performance in H1 2025, alongside Transportation, Retail, and Enterprise Applications. The Transportation and Logistics Tech sector saw a strong recovery, raising USD 1.6 billion, a 104 per cent increase from USD 799.3 million in H2 2024 and a 54 per cent rise from USD 1.1 billion in H1 2024.

What contributed to the growth in this sector?

"Several elements contribute to the return of investor confidence in India's logistics sector. An important role has been played by government initiatives like the National Logistics Policy and the 2025–2026 Budget. These policies emphasise tax incentives, digitisation, and infrastructure development. Demand in manufacturing, retail, and e-commerce continues to grow. This has highlighted the need for technologically enabled automated supply chains that include sophisticated storage. As a result, investors are backing more companies offering scalable and complex logistics solutions. The recovery mirrors the strong long-term prospects of the industry and the vital role it plays in India's economic development," says Bir Singh, Co-founder, Addverb.

On the other hand, Dhruvil Sanghvi, CEO & Founder, LogiNext, believes that inefficiencies continue to cost businesses 3–5 per cent of revenues annually. "Investors are now doubling down on platforms solving these inefficiencies at scale. What's changed is clarity. AI-powered logistics platforms are now proven to reduce delivery costs by 15–20 per cent, improve SLA adherence, and create operational visibility. In a capital-disciplined environment, that's a compelling value story."

What will revive early-stage funding?

For a prosperous startup ecosystem, early-stage funding remains a lever that brings the initial stage of a startup to market. So, what will revive early-stage funding?

Joshi says, "India's macroeconomic outlook remains strong, and that's a good foundation. What the early-stage ecosystem needs now is greater momentum on exits—IPOs, secondary sales, and strategic acquisitions. These events bring confidence back into the market and encourage LPs to back new funds, which in turn fuels early-stage investing. We're already seeing signs of recovery, and with a few high-quality listings or successful exits, the sentiment could shift quickly."

Sunil K Shekhawat, CEO of SanchiConnect, believes, "Expanding angel networks in Tier 2 and Tier 3 cities and activation of capital from SME/family office books will diversify deal flow. Additionally, strengthening incubators and DeepTech accelerators with dedicated commercialisation and investor-readiness programmes is essential."

While concluding, Damodaran says, "To revive early-stage momentum, the ecosystem needs lower entry barriers for angel investors, swifter regulatory clearances, and more active participation from domestic institutional capital, along with adherence to governance requirements. More local success stories and stronger exits can definitely restore confidence and convince investors that backing early-stage tech in India is an opportunity not to miss."