India’s venture capital market is witnessing a growing disconnect between abundant seed-stage funding and increasingly elusive Series A capital, creating a funding bottleneck that is leaving many start-ups stuck in a limbo.
While pre-seed and seed investments have remained active over the past year, founders and investors say securing the next institutional round has become more difficult. As a result, start-ups are spending longer periods between funding rounds, often raising bridge capital at flat or lower valuations to stay afloat.
“The bar is much higher now with AI,” said Kushal Bhagia, founder and partner at All In Capital. According to him, global growth investors are increasingly benchmarking start-ups against the explosive growth being recorded by artificial intelligence companies in Silicon Valley.
“Companies in the US are hitting hundreds of millions of dollars in ARR within 1-2 years of launching and achieving $60 billion-type outcomes like Cursor. Global funds that can write $10-50 million cheques are benchmarking Indian start-ups against the numbers they are seeing from AI companies in Silicon Valley, and that is very, very hard to replicate,” said Bhagia.
funding boom
The shift reflects a broader change in investor behaviour. During the funding boom of 2021, venture firms were often willing to back future potential. Today, investors want evidence that a business model is working before committing larger cheques.
“Two or three years ago, investors were often underwriting future potential. Today, they are underwriting demonstrated execution,” said Ashish Taneja, founder and chief executive of growX ventures.
Taneja said a significant share of venture capital attention has shifted towards AI-led opportunities, particularly companies targeting global markets. That has reduced the number of investors actively competing for traditional Series A deals in India, even as a large pipeline of seed-funded startups continues to mature.
The slowdown is not necessarily a result of weak start-ups, said investors. Rather, capital deployment has become more selective amid macroeconomic uncertainty and changing market priorities.
“I would not attribute it solely to weaker fundamentals,” said Taneja. “Even where funds have dry powder available, deployment cycles have lengthened and conviction thresholds have increased.”
Bhagia pointed to the absence of large global crossover funds that were highly active in India during the previous cycle. “Today, while there is another boom underway in the US, most of the capital is being concentrated in leading AI companies. As a result, you rarely hear of these funds doing deals in India,” he said.
great expectations
For founders preparing for a Series A raise, investors say expectations have risen sharply. Beyond product-market fit and improving unit economics, growth investors are looking for evidence that companies can scale rapidly and address large markets.
“The challenge today is not a lack of capital in the ecosystem,” said Taneja. “It’s that capital has become far more selective. Seed investors are still willing to fund potential. Series A investors increasingly want proof.”