The Indian venture capital landscape is witnessing a paradoxical rebound. While fundraising by India-focused funds has accelerated in 2025, crossing $2.5 billion, a massive reservoir of approximately $100 billion in uninvested capital suggests that deployment into startups will remain muted or flat in the coming year, according to sector experts.
Fundraising Momentum vs. Deployment Caution
Data from Venture Intelligence reveals a positive shift in fundraising activity. In the calendar year 2025 so far, venture capital funds have secured $2.5 billion across 20 new vehicles. This outpaces the $1.6 billion raised via 16 funds in 2024 and the $1.9 billion across 19 funds in 2023.
Leading the investment charge in 2025 are Accel India, Peak XV Partners, and Blume Ventures, with 43, 41, and 32 deals respectively. They are followed by Info Edge, DeVC India, and Elevation Capital.
However, the optimism from fundraising is tempered by the stark reality of deployment. An Inc42 report from July-September notes that India-focused VC and private equity funds currently in the market are seeking about $9 billion in total, including green-shoe options. Only around $2.5 billion has been closed so far.
This gap highlights the cautious stance of investors. Despite the fresh capital being earmarked for early-stage deals, venture capitalists and advisers anticipate that the pace of actual investment by both domestic and foreign funds will stay subdued in 2026.
The Rise of Domestic Capital and Patient Investing
A significant shift is underway in the source of capital for Indian VC funds. Domestic family offices are emerging as a crucial pool, especially for early-stage managers. They are choosing to enter earlier, hold investments for longer periods, and aim for higher returns, encouraged by a maturing exit market through IPOs and secondary deals.
This trend is evident at firms like Artha Ventures, an active seed investor. Founder Anirudh Damani states that roughly 80% of Artha's capital now comes from domestic family offices. He cautions that the easy-money rush of 2021-22 led many high-net-worth individuals to make numerous direct angel investments without proper diligence, a strategy that has led to disillusionment and exits from the ecosystem for some.
The shift is also visible in specialized sectors like deeptech. Vishesh Rajaram, Managing Partner at Speciale Invest, reports that 80% of the capital for their third deeptech-focused fund came from domestic family offices, founders, and HNIs. This marks a break from the past, where such capital was predominantly offshore.
"We are now seeing Indian family offices and founders actively choosing real technology, IP and hard problems over pure consumer convenience stories," Rajaram said, attributing this to lessons learned from the previous market froth.
Performance Metrics and Long-Term Expectations
As the investor base evolves, so does the scrutiny on fund performance. Alok Goyal, Partner at Stellaris Venture Partners, identifies DPI (Distributions to Paid-In Capital) and dollar IRR (Internal Rate of Return) as the most objective measures for Limited Partners (LPs).
Goyal provides a benchmark, noting that for a top-decile venture fund that started around 2017, a dollar IRR of about 21.8% annually over the fund's life is considered strong by global LP standards.
Gautami Gavankar of Kotak Mahindra Bank emphasizes the importance of understanding fund structures, which typically span 6-8 years with capital calls over the initial phase. She advises clients that venture capital is long-duration, illiquid capital, suitable primarily for sophisticated investors with aligned expectations.
Despite the current deployment headwinds, there are signs of underlying confidence. The sharp rise in venture-backed IPOs is boosting market liquidity. Alok Goyal of Stellaris expects this to fuel a more active investment cycle in 2026, potentially extending to growth and late-stage deals, suggesting that the vast dry powder may gradually find its way to promising Indian startups.
