Despite a modest recovery in startup funding this year, seed-stage investments remain in a slump, hitting their lowest since 2020. The number of seed funding rounds plummeted 40% to 925 in 2024, down from 1,545 last year, according to Tracxn data. The total raised also shrank 22%, barely crossing $971 million. The lowest before this was in 2019, when funding stood at $814 million. The dip reflects a growing investor hesitancy to back untested business models. First-time funding rounds fell 40% to 393 startups this year, compared to 665 in 2023.
While funding rounds have declined across the board, the drop has been steeper at the seed stage. Early-stage and late-stage rounds saw smaller declines of about 8%. However, late-stage funding bucked the trend, climbing 22% to $7.13 billion. Early-stage funding also edged up 2% to $3.16 billion. Overall, startup funding in 2024 rose 6% year-on-year to $11.3 billion.
The reluctance to fund early-stage startups underscores a shift toward safer bets in the current downcycle. Investors are prioritising companies that exhibit resilience, profitability potential, and clear exit strategies. This cautious approach is further reinforced by the IPO market, which has provided lucrative exits for venture capital (VC) and private equity (PE) investors.
Data from Venture Intelligence shows VC exits via public markets surged to $4.06 billion this year, doubling from $2.06 billion in 2023. The correction from previous overvaluations in the startup ecosystem has also pushed investors toward more conservative early-stage bets.
“The market is evolving from prioritising quantity to emphasising quality,” said Ganesh Raju, founder and CEO, Turbostart, which provides VC financing to seed and pre-series startups. “While some capital has temporarily shifted to late-stage deals due to attractive valuations, this shift presents a unique opportunity to identify and support innovative startups at sensible valuations”.
He added that investors are spending more time understanding unit economics, market size, and technology differentiation of startups. “I expect deal flow to pick up through 2025 but with a stronger focus on fundamentals. The focus has shifted from ‘growth at any cost’ to ‘sustainable growth with clear metrics’,” he said.
Rahul Chowdhri, partner at Stellaris Venture Partners agrees with the optimism. “I believe there has not been a better time to invest — we’re seeing a rise in high-quality founders, technology innovation, and ample dry powder in the country,” he said. His firm has invested in companies such as Mamaearth-parent Honasa, Whatfix and Zouk.
As startups and investors navigate this evolving landscape, seed funding recovery remains an open question, though long-term opportunities continue to draw committed backers, analysts said.