Venture Capital Shifts From Hype to Value, Policy Support Crucial for Private Capital, Say Experts Globally, the capital reallocation toward technology-led fundamentals is already visible in hard numbers. To boost investments and stimulate growth in sectors such as the manufacturing sector, the government must consider reintroducing accelerated depreciation as a targeted fiscal incentive.
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Globally, the capital reallocation toward technology-led fundamentals is already visible in hard numbers. According to multiple industry datasets for 2024-25 flows, software, AI, and generative AI together accounted for roughly 45-50 per cent of total global VC deployment, up from ~30 per cent in 2020.
Notably, over 60 per cent of AI funding globally is now directed toward application-layer companies, not foundation models, signalling investor preference for faster monetisation cycles, clearer ROI, and lower infrastructure risk. Median late-stage valuations have corrected by 25-40 per cent from 2021 peaks, bringing revenue multiples closer to historical norms of 6-10x ARR, depending on growth and margin profile.
Dr. Apoorva Ranjan Sharma, Co-founder and MD of Venture Catalysts, said that 2026 will mark the shift where technology narratives finally translate into business fundamentals and AI will move decisively from experimentation to daily operations, thus powering customer engagement, supply chains, risk, and decision-making.
"As per data accessed by us, globally, software, AI, and generative AI already command over 45 per cent of VC capital allocation, clearly indicating that applied AI, developer tools, and AI agents are becoming core business infrastructure, not optional innovation. Back home in India, the trends are in line with global markets, and the recovery is visible but disciplined. VC investments grew by more than 40-50 per cent surge with increased deal volumes. There is a strong tilt toward application-layer platforms and capital-efficient models rather than capital-heavy bets," said Dr Sharma.
EY India, in a recent company note, emphasized the critical role of the upcoming Union Budget 2026 in shaping India's economic trajectory. Ey suggests that with a keen focus on sustaining robust growth, enhancing tax certainty, and driving sector-specific investments, adopting a forward-thinking approach that reinforces investor confidence and catalyzes private sector participation is crucial.
Sameer Gupta, National Tax Leader, EY India, said, to stimulate private investments, the existing Production-Linked Incentive (PLI) scheme may be extended to cover new technology sectors such as AI, space, and robotics.
"Additionally, public infrastructure investments in futuristic areas, including AI, GenAI, robotics, and space technology, may induce growth of private investment in these sectors. Targeted incentives for the emerging industries will be crucial in driving innovation and attracting both domestic and foreign investors. On the tax front, businesses look for a strong commitment to tax certainty and streamlined compliance processes," said Gupta.
To boost investments and stimulate growth in sectors such as the manufacturing sector, the government must consider reintroducing accelerated depreciation as a targeted fiscal incentive.
Indian SaaS and AI startups raising capital currently are expected to demonstrate gross margins above 65 per cent, burn multiples below 1.5-2x, and clear pathways to breakeven within 18-24 months. At the fund level, VCs are reserving 50-60 per cent of committed capital for follow-ons, reducing portfolio sprawl and backing fewer companies more deeply.
Dr Sharma added that for venture capital, this is a transition from hype-led investing to value-led investing. Capital will follow with clarity of problem, execution, and long-term relevance.
"Founders will be expected to do more with less, demonstrating resilience, profitability, and operational depth. By 2026, success will not depend on who adopts AI first, but on who applies it best and executes on it faster to simplify operations, unlock efficiency, and build scalable, durable businesses across sectors and geographies," said Dr Sharma.
