Domestic VC Investment in India: Unlocking Potential

Summary

Domestic capital is currently a small contributor in India’s venture capital ecosystem, in contrast to China’s thriving local LP-driven surge. Allocating 5–10% of investments to domestic VC can protect against fluctuations in USD and capitalise on India’s digital consumption narrative. Experienced local teams and well-sized early-stage funds are essential for generating wealth across Indian families.

In 2024, private-market investment in India recovered to approximately $43 billion—accounting for one-fifth of all Asia-Pacific investments and ranking second only to China in the region. The deal count reached an all-time high of 1,270 VC transactions, despite a 20% decrease in average investment sizes. International investors are enthusiastic, with 87% of the world’s 30 largest funds now committed to investing in Indian rupees. However, local investors—including family offices, corporate treasuries, and insurance companies—still play a minor role. Unlike China, where local LPs fueled the growth in the 2010s, Indian investors currently contribute only a fraction of VC assets, representing both a risk and an untapped opportunity.

Why Homegrown Money Matters

Stability & Alignment

Foreign investment tends to be more volatile; in contrast, Indian wealth is stable and denominated in rupees, making it ideal for founders whose exits are increasingly realised through local IPOs or block trades. In fact, public markets constituted around 59% of exit value in 2024.

Nation-Building Upside

Reforms such as GST, IBC, and Digital India have not only attracted foreign megafunds but also opened avenues for domestic savers to engage in wealth creation within private markets.

A few local General Partners (GPs) are successfully raising onshore capital, exemplified by ChrysCapital’s $2.1 billion fund and Kedaara’s $1.7 billion Fund IV, both supported by Indian families and institutions. However, when compared to the over 60% increase in competing funds since 2016, local contributions remain relatively modest.

India Is Not Silicon Valley—Experience Counts

Effective investing in India requires not just capital, but contextual understanding. The market comprises 28 states, each with unique cash-flow dynamics and a complex regulatory environment that often rewards those with seasoned experience. This explains the rise in buyouts—where operational expertise takes precedence over rapid scaling—growing from 37% to 51% of private equity value in two years. Teams with decades of business experience in India can identify promising niches, such as Tier-II lending or emerging med-tech exporters, far ahead of traditional investment strategies.

Taming The Power Law

While India generates unicorns, the timeline for exits is slower: only 36% of buyouts exceeding $100 million from 2018–19 have completely exited in five years, compared to 50% for the 2012–13 group. Successful funds in this environment merge conventional power-law strategies with anchor investments—companies capable of achieving earnings growth of 20% to 30% over a decade in sectors like housing finance, healthcare outsourcing, or defence electronics. These anchor investments help stabilise returns while waiting for significant growth opportunities.

Right Sizing Early-Stage Bets

Seed and Series A investments are currently averaging in the low single-digit millions, indicating that the market cannot support numerous INR 4,000 crore seed funds. Investment vehicles within the INR 200-400 crore (US $25-50 million) range are sufficiently sized to lead funding rounds, maintain pro-rata positions, and return capital without depending on a single high-risk investment. Oversized funds tend to focus on larger markets and dilute returns.

What This Means For India’s UHNIs & Family Offices

Diversification Inside The Border

Investing 5–10% of alternative assets in domestic VC can safeguard against USD fluctuations and leverage the digital consumption trends that have already attracted foreign investment.

Preferred-Partner Status

Local limited partners often gain co-investment rights and more favourable fee arrangements—benefits that international investors strive to secure.

Impact With Returns

Capital invested connects with businesses that generate employment, tax revenues, and strategic capabilities—delivering value beyond financial returns.

The Call To Action

To elevate India’s venture ecosystem, input from those who fully understand the local landscape—Indian families and institutions—is critical. Collaborating with investment teams familiar with the Indian market, which blend long-term strategies with selective high-risk investments and keep early-stage funds agile, can transform upcoming innovations into generational wealth. The opportunity is ripe, and it would be unfortunate if the primary beneficiaries of India’s technological advancement continued to be predominantly offshore.