Karnataka's Startup Ecosystem Faces Funding Slump in Early 2025: Report Accel, Blume Ventures, and Sequoia Capital led overall. 100X.VC, Venture Catalysts, and Antler dominated seed-stage, while Accel, Alteria Capital, and Peak XV led early-stage. Think Investments, M&G, and Mars Growth Capital topped late-stage deals.
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Karnataka's startup ecosystem—long considered one of India's most vibrant—has experienced a significant funding slowdown in the first quarter of 2025. While the region, especially Bengaluru, continues to dominate the national tech landscape, the fresh numbers indicate a cautious sentiment among venture capitalists and a notable drop in high-ticket funding activity.
Tracxn, a global market intelligence platform, has released its Q1 2025 Karnataka Tech Funding Report, providing a detailed snapshot of startup funding trends across the state.
According to the report, Karnataka-based startups raised a total of USD 633 million in Q1 2025. This represents a 23% drop from the USD 825.5 million raised in Q4 2024 and a stark 46% decline from USD 1.2 billion raised in Q1 2024.
The report reveals a substantial contraction in funding activity, both quarter-over-quarter and year-over-year, alongside a complete absence of unicorns or USD 100 million funding rounds. Despite the downturn, specific sectors like enterprise applications, fintech, and retail emerged as strong contributors to the overall capital raised.
In terms of funding stages, seed-stage funding saw a 14% quarterly and 55% yearly decline, totalling USD 57.3 million. Early-stage funding, on the other hand, offered a bright spot, rising 34% from Q4 to reach USD 294 million, though still down 14% compared to the previous year. Late-stage funding, however, plummeted 48% quarter-over-quarter and 60% year-over-year to USD 282 million.
Sector-wise, Enterprise Applications led the charge with USD 298.6 million, up 80% from Q4. FinTech startups also had a strong quarter, raising USD 221.1 million, up a whopping 271% from Q4. The Retail sector followed closely, securing USD 219.8 million, an 80% jump from the previous quarter. However, all three sectors reported lower figures compared to Q1 2024.
The absence of mega deals was striking. There were no USD 100 million+ funding rounds in Q1 2025 and no new unicorns, compared to two in Q1 2024. Furthermore, no tech IPOs occurred during the quarter.
In contrast to the funding downturn, M&A activity surged. Karnataka witnessed 21 acquisitions, a 91% increase from 11 in both Q4 2024 and Q1 2024. The highlight was Amazon's USD 150 million acquisition of Axio, followed by Mintoak's USD 3.5 million acquisition of Digiledge.
Bengaluru maintained its position as the tech capital, accounting for over 99% of all funding in Karnataka. Hubli came in a distant second.
"Karnataka, especially Bengaluru, has always been a hub for innovation and tech talent, dating back to the establishment of Infosys and Wipro in the 1970s. It continues to be the tech capital of the country," said Dr Apoorva Ranjan Sharma, Co-founder and Managing Director of Venture Catalysts.
The report also identified leading investors. Accel, Blume Ventures, and Sequoia Capital topped the overall charts. 100X.VC, Venture Catalysts, and Antler dominated seed-stage funding, while Accel, Alteria Capital, and Peak XV Partners were active in early-stage deals. At the late stage, Think Investments, M&G, and Mars Growth Capital led the pack.
Despite the funding dip, investor confidence in Karnataka remains cautiously optimistic.
"We are funding startups at a very early stage, where most of the startups are at an early revenue and pre-revenue stage. We have not seen any slowing down of the pitch flows… Some drops in the overall funding could be temporary," said Ninad Karpe, Founder and Partner, 100X.VC.
Dr Sharma echoed a similar sentiment: "Despite the current slowdown, we continue to invest in high-growth, early-stage startups with strong fundamentals. Karnataka remains a top priority, thanks to its innovation and talent. This period allows us to support founders focused on sustainable growth through our mentorship and network-driven approach, as seen in our steady deal flow."
"At Alteria Capital, we continue to maintain a disciplined approach to our underwriting framework while actively exploring opportunities within the startup ecosystem," said Punit Shah, Managing Partner at Alteria Capital. "For early-stage ventures, we have strengthened our capabilities with a dedicated pool of capital—anchored by IFC—focused on financial services and addressing cash flow mismatches faced by commerce and consumer brand companies."
As Karnataka navigates a cooling period in funding, industry stakeholders remain hopeful, viewing this phase as an opportunity to build sustainable and resilient ventures.
