2025: The Ideal Year for Indian Venture Capital

2025 stands out as a significant year for Indian venture capital. The previous cycle from 2020 to 2022 was characterised by excessive optimism. Low interest rates, fear of missing out, and aggressive growth strategies inflated prices beyond fundamental values. That era has concluded, paving the way for a more sustainable investment landscape.

Reliable Exit Opportunities Return

A key factor contributing to this positive outlook is the return of exit opportunities. India’s public markets began accommodating growth assets in 2024 and are expected to continue into 2025. Macro data reveals that India collected an unprecedented INR 1.6 Lakh Cr through IPOs in 2024, with a promising influx of offerings anticipated for 2025. This indicates that capital markets are once again accessible for issuers.

Within the venture capital and private equity realms, exit values maintained stability, with a noticeable shift toward public markets. Bain indicates that VC exits for 2024 are projected at approximately $6.8 billion, with the proportion of public market exits increasing from 55% to 76% between 2023 and 2024, driven by a sevenfold rise in IPO exit values. This scenario enhances timing and price discovery, aspects that limited partners highly appreciate. EY’s trendbook for 2025 shows that the overall PE/VC ecosystem achieved $26.7 billion in exits during 2024, complemented by a 33% increase in PE-backed IPOs, signalling more avenues, increased volume, and heightened confidence in the market.

Market Dynamics Favour Strategic Investors

While funding has resumed following a period of slowdown, the intense environment witnessed in 2021 is unlikely to return. Venture and growth funding in India surged to $13.7 billion in 2024, a 1.4 times increase compared to 2023. Nevertheless, both investors and founders have recalibrated their expectations, leading to a 20% reduction in megadeal sizes and a more cautious approach to pricing.

Discussions in boardrooms have shifted emphasis from revenue growth to profitability and sustainable unit economics, which is precisely what investors seek when committing to long-term funds: healthy activity with sound terms and structures.

Founders Focused on Long-Term Viability

The previous cycle of rapid growth and fundraising has transitioned to a culture centred on building, earning, and scaling sustainable businesses. Consumer technology has bounced back, SaaS has remained stable, and even quick commerce has gained credibility by demonstrating operational efficiency at scale. Investors are now seeing fewer superficial metrics and more tangible pathways to profitability. Bain notes a significant shift in the ecosystem towards profitability and regulatory compliance, marking 2024 as a turning point.

This progress fosters clearer cap tables, improved governance, and more mature follow-on funding rounds anticipated between 2026 and 2028, coinciding with the first rounds of returns from 2025-vintage funds.

A Strong Network of Local Managers

The landscape for management has evolved beyond a few international firms entering the market. A new wave of India-based general partners and specialised funds with extensive local connections—including operators, policymakers, distribution networks, and consumers—has emerged. In 2024, debut funds represented one-third of the VC/growth capital raised. Family offices and corporate venture capital are also stepping up their engagement, reflecting a 1.8 times increase in activity, while local platforms consistently perform well in competitive funding processes. These entities are not merely external participants; they are integral builders in the ecosystem.

Additionally, the infrastructure supporting these initiatives has expanded. SEBI’s Alternative Investment Fund market now boasts commitments reaching trillions of rupees, with Category I and II vehicles providing a strong foundation for domestic capital formation. The government’s Fund of Funds (SIDBI) has allocated INR 10,000 Cr to 141 AIFs, reinforcing many homegrown general partners. Recent headlines reflect this trend, highlighting new deep tech and micro-VC funds achieving closing rounds with predominantly Indian limited partner bases—a clear departure from the dynamics observed between 2016 and 2020.

Reducing Regulatory Barriers and Expanding Opportunities

Regulatory hurdles have significantly decreased. The removal of the “angel tax,” reduced long-term capital gains tax rates, and simplified foreign venture capital investment registrations have enhanced the relationship between startups and capital, particularly valuable for seed through Series B stages. On the fund management side, SEBI’s initiative to dematerialise AIF units may seem mundane, but it promotes transparency, minimises settlement issues, and makes domestic limited partners more comfortable engaging with larger investments. This collective effect streamlines processes, aligns interests, and allows for quicker cycles.

Why 2025 is a Prime Vintage Year

Value levels have stabilised, yet optimism is palpable. The year 2023 rectified excesses, 2024 revitalised markets, and 2025 offers a balance of price discipline and momentum—historically favourable conditions for solid investment vintages. Data from the first half of 2025 indicates that India ranks third globally for tech startup funding, demonstrating rational competition while keeping the funding pipeline active—indicative of a buyer’s market rather than a chaotic sell-off.

Opportunities for exits are becoming clearer. The IPO schedule is bustling; secondary markets and open-block trades are operational; strategic acquisitions are on the horizon again. These factors shorten holding periods and mitigate risks for investors from 2025 to 2027.

The quality of managers is improving. An increase in sector-specific, locally embedded general partners with operational expertise and higher governance standards contributes to better choices and enhanced post-investment value creation. The rise of new, focused funds alongside domestic limited partner capital signifies a lasting, structural transformation rather than a short-lived trend.

Recommended Actions for Indian Limited Partners

Invest in managers who prioritise sectors where India holds genuine advantages, such as financial technologies, enhancement of manufacturing processes, energy transitions, applied artificial intelligence, and defence and space technologies. It is essential to support managers who can accurately assess risks instead of reacting to market trends.

Identify funds that demonstrate genuine local connections—understanding customers, regulatory environments, and supply chains—while also having reliable syndicate networks for follow-on investments and a proven track record of preparing companies for IPOs, not just for their next funding rounds.

At this juncture, success accumulates for those who are patient in their entry strategy and aggressive in business nurturing. The market is no longer inflated; liquidity has returned, the pool of general partners has expanded in quality, and founders are focused on building resilient enterprises. This situation is precisely what investors aspire to secure when committing to a vintage. The landscape has now matured to that point.