Fund managers have been tightening their purse strings over the last couple of years, investing in only those ventures they felt would be able to turn profitable sooner rather than later. But they are becoming even more demanding on targets and timelines, as a report in this newspaper showed on Wednesday. Investors are not just willing to go by a promoter’s estimate of revenue potential, they want to be convinced the brand is a good fit for the market and that customers will be sticky. They are also poring over spreadsheets to make sure the financial forecasts aren’t flaky. A consumer tech startup needs to have Rs 16-20 crore in annual revenues to be able to raise Series A money; two years ago, it could have done so with half the revenues. Vanity metrics like gross merchandise value are out the window. So, unless a promoter can prove he has a sound business model and can deliver the numbers, he’s unlikely to get a cheque.
Indeed, the data on investments is sobering. In June, venture capital flows into startups trickled down to $460 million. That’s the smallest sum in 12 months, according to data from Tracxn. In fact, the first half of 2025 has seen funding falling a sharp 25% year-on-year to just $4.8 billion. Private equity (PE) investments too appear to be slowing. The combined PE and venture capital (VC) inflows plummeted more than 40% in the first half of 2025 to just under $15 million, data from Venture Intelligence shows. Fintechs appear to be cornering a fair share of the pickings while AI startups are the other favourites. The many down-rounds are also an indication of how investors are taking a good hard look at valuations; some businesses are now valued at a tenth of the original amount.
It’s no surprise investors are waking up to smell the coffee. Too many ventures that looked promising have lost their way. It’s not just the more high profile names like Byju’s, but many others that are waiting to implode. With investors insisting the mindless cash burn to stop, companies have been compelled to cut back on expenses, even if that has meant a slower top line growth. In FY24, for instance, India’s top unicorns reported a growth in revenues of just 5.5%, way below the growth of 32% in the previous year. That helped narrow the losses sharply to about Rs 15,000 crore from nearly Rs 23,000 crore in FY24. That’s good going, but it is early days, and we need to how these start-ups fare in the days ahead.
Nonetheless, with much of the exuberance having evaporated, we can hope for some promising plays valued reasonably. At least a dozen startups are readying to debut on the bourses, armed with clearances from the regulator. Their offerings are likely to get a good response from investors. To be sure, the performance of listed startups has been somewhat mixed—PayTm trades at half its IPO price while Ola’s value has eroded by more than 40% from the IPO price. But investors of Eternal have been handsomely rewarded. By one estimate, the market cap of VC-backed startups should double to about $200 billion in two years with 38 more listings. That may not be a very big share of India’s total market cap of $5.4 trillion, but it’s been just a few years since start-ups have been going public.