After two years of muted deal-making and largely flat funding levels in 2025, venture capital investors expect 2026 to usher in a steadier, though more selective, phase for the startup ecosystem. A strong IPO market this year has unlocked long-awaited liquidity for funds, encouraging investors to prepare for higher capital deployment next year, particularly into artificial intelligence and deeptech startups that can demonstrate scale, revenues and clear paths to profitability.
Several investors say the excesses of the previous boom cycle have permanently altered how capital will be allocated. “We are already seeing investors move away from chasing headline ARR milestones and high valuations, and instead focus on fundamentals like retention, unit economics and real customer pull,” Aditya Singh, partner and co-founder at All In Capital, told FE. According to him, the past two years have underscored how rapid early growth combined with inflated valuations can constrain a company’s ability to raise follow-on capital when market sentiment turns.
Read FE 2026 Money Playbook: Your Ultimate Investment Guide for the new year
Artificial intelligence is expected to dominate investment themes in 2026, but with a shift in emphasis. While 2025 saw heightened interest in consumer-facing AI applications, investors say the coming year will focus on AI that delivers structural productivity gains. Arjun Malhotra, partner at Good Capital, said India’s large MSME base presents a significant opportunity for AI-led workflow automation and solutions that can address fragmented and unstructured business processes. These use cases, he said, are more likely to translate into sustained enterprise spending and predictable revenues.
New AI Mandate
Beyond AI, investors expect other deeptech segments such as advanced manufacturing, robotics and semiconductors to remain core focus areas. Shyam Menon, co-founder at Bharat Innovation Fund, said founders are increasingly moving from incremental innovation towards tackling complex tech challenges. “With nearly Rs 1.75 lakh crore raised through IPOs in 2025, early-stage investors now have the liquidity to reinvest in the next generation of frontier tech,” he said. Bharat Innovation Fund focuses on early-stage, IP-driven deeptech companies.
Funding data from 2025 already points to this tilt. Deeptech startups raised about $1.2 billion during the year, nearly 50% more than in 2024. Menon, however, cautioned that capital is likely to remain scarce for undifferentiated consumer brands and capital-intensive models that lack strong unit economics. That view is widely shared. “Patience for weak fundamentals has declined,” Brijesh Damodaran, managing partner at Auxano Capital, said. He added that valuation expectations across early- and mid-stage startups have largely reset, making deal-making cleaner and more grounded. Exit avenues, including secondaries, strategic mergers and acquisitions and public markets, are also expected to improve in 2026. Auxano itself recorded four exits in 2025.
Frontier Tech Surge
Liquidity events over the past year are expected to influence investment decisions across the venture ecosystem. Abhishek Prasad, managing partner at Cornerstone Ventures, pointed to the more than 100 IPOs in 2025, many involving venture-backed companies, as a turning point. “The venture industry has seen much-awaited liquidity and delivered promised outcomes to investors, which will lead to accelerated investments,” he said.
Government-led initiatives are emerging as another catalyst. Investors cited research and development-focused frameworks and dedicated deep-tech funds as important enablers, particularly for sectors with long gestation cycles. Ankita Vashishta, managing partner at Arise Ventures, said these programmes help bridge the gap between laboratory research and venture capital. “2026 will mark a structurally stronger phase for the ecosystem, not necessarily headline-driven, but more fundamentals-led,” she said, adding that rising participation from domestic capital sources such as family offices and corporate venture arms is reducing reliance on global liquidity cycles.