Investors Back Fundamentals as Product-Led Indian Startups Take Centre Stage, Say Experts After an "enthusiastic" post-pandemic capital cycle, venture investors and founders alike have recalibrated expectations, shifting focus from rapid scale to resilient business models.

India's startup and capital ecosystem in 2025 entered a consolidation phase, marked by moderation in funding volumes but greater clarity around long-term value creation. After an "enthusiastic" post-pandemic capital cycle, venture investors and founders alike have recalibrated expectations, shifting focus from rapid scale to resilient business models.

Jeet Chandan, MD, BizDateUp, said that 2025 has been a year of pause and perspective for India's startup ecosystem. While funding in Q3 saw a 38 per cent year-on-year dip to just over USD 2.1 billion across 240 deals, it also brought a welcome focus back to building with intent, prioritising strong fundamentals, realistic valuations, and long-term sustainability.

"Encouragingly, sectors like e-commerce, AI, and specialised technology continued to see investor interest, and sentiment on deal activity remains cautiously optimistic for the coming quarters. Importantly, we are seeing a meaningful rise in Tier 2 and Tier 3 city founders building capital-efficient businesses across agritech, regional D2C, SaaS for Bharat markets, logistics, and healthcare delivery," said Chandan.

The Y-o-Y decrease reflects a global risk-off environment, tighter liquidity, and heightened scrutiny around governance, unit economics, and execution discipline.

Chandan also added that the shift is also causing regional founders to tap into local insights and demand to craft scalable solutions, and that is drawing increasing interest from both domestic and micro-VC funds.

Deal activity remained broad-based, according to data, while early-stage funding continued to dominate transaction volumes, even as average cheque sizes compressed. Sectors such as AI, SaaS, e-commerce infrastructure, climate tech, and deep-tech retained investor interest, while domestic capital, led by Indian VCs, family offices, and corporate investors, played a more prominent role in sustaining the ecosystem.

"2025 marked a reset year for India's early-stage startups. We saw capital returned predominantly from the domestic pool after a prolonged slowdown, but with high expectations around execution, capital efficiency, and meaningful differentiation," said Pratip Mazumdar, Co-founder and General Partner, Inflexor Ventures.

Mazunmdar also shared that 2025 marked a decade of the firm's work in science, engineering, and tech-product space and said the interest in these sectors reinforces long-term investor faith in India's IP and innovation-driven ecosystem. "We expect 2026 will continue to have a buoyant exit landscape, creating meaningful value creation for all stakeholders. Inflexor believes the next 10 years will be even more exciting in creating product-led companies from India."

Following the enthusiasm of previous cycles and the necessary market adjustments, investments this year became more intentional and focused. Startups that showcased robust unit economics, aligned with regulations, and displayed a clear growth trajectory gained significant traction, according to Karan Mehta, Venture Principal at Green Frontier Capital.

"Even amidst a more selective venture landscape, climate tech shone brightly, capturing a growing share of early-stage investments, particularly in innovative sectors like mobility, energy transition, waste management, and agricultural value chains. Robust policy support, from electric vehicle initiatives to scalable renewables and green hydrogen, has played an essential role in reducing risks associated with innovation and hastening commercialisation," said Mehta.

As the entire ecosystem looks toward 2026, the narrative is shifting from recovery to renewal. Investors are increasingly aligned around patient capital, differentiated IP, and scalable fundamentals, while founders are building with sharper intent and accountability. Exits show early signs of momentum, and with sectoral depth improving, India's startup landscape appears poised to enter a more mature, value-driven growth cycle.

"With surging energy demand, rapid urbanisation, and steadfast sustainability commitments, India stands out as one of the world's largest climate investment opportunities. The next wave of thriving companies will likely be those adept at integrating impactful climate solutions with strong governance, scalable business models, and outstanding execution," said Mehta.