As 2025 draws to a close, the contours of India’s venture capital market look clearer than they appeared at the start of the year. The fund hasn’t fizzled out of the system, but investors seemed more reluctant on parking their money.

What made VCs risk-shy this year? While funds froze sitting on dry power, deployment slowed down as exit uncertainties became the wet blanket. Valuations went into a reset and limited partners stepped up scrutiny.

An Inc42 report on funding at the end of the first half of 2025 showed that startups had so far raised about $5.7 Bn, with the full-year projection exceeding $15 Bn. By mid-December, however, total funding stood at roughly $11 Bn across 936 deals, marking a slump in both funds raised and deals sealed from over $12 Bn mopped up from 993 deals last year.

A closer examination of valuation trends, exit activity, LP expectations, and stage and sector wise funding patterns reveals just how uneven and selective the flow of capital has been through the year in a market that remained active, but stayed cautious on deployment.

For instance, mega-deal count went through a structural reset, sliding down to 18 from 24 last year but the capital deployed through them nearly doubled, making 2025 one of the strongest large-ticket years outside the post-Covid outlier of 2021.

Between 2023 and 2025, a total of 73 mega deals above $100 Mn were recorded, of which 35.61% or 26 deals were concentrated in just nine companies – PhonePe (6), Zepto (5), and rest gaining two deals each including Zolve, Udaan, Rapido, Pharmeasy, Minitif, Lenskart and InMobi.

Fund-level fundraising in 2025 scripts a parallel story. As Green Frontier Capital managing partner Sandeep Bhammer highlighted, several VCs started the year with enough dry powder generated from their exits from vintages, partly backed by an IPO boom. Such exits take long to materialise and investors are aware that the windows are cyclical, and not continuous.

“Having finally achieved liquidity, VCs have become cautious about redeploying the capital too quickly and getting locked into another long investment cycle,” he said.

At the sundown, 2025 does not seem to be a year of momentum, but of behavioural changes. Cheques were fewer, diligence was deeper and capital flowed only where conviction was high and exits felt plausible. As the ecosystem nears the dawn of 2026, it has hit the reset button.

Stage-Wise Reset: An Evolving Trend

Activities softened in the early stage landscape in 2025. Seed stage deal volumes remained largely flat, with 433 deals sealed during the year, up from 425 a year back. Capital raised also stayed broadly stable at $0.8 Bn as against $0.9 Bn in 2024. This indicates a steady pace of experimentation through a similar number of bets, but lower capital deployment per company, which signals thinner cheque sizes and stricter caution among investors.

As Waterbridge Ventures partner Anjali Sosale mentioned, at the early stage, investor confidence is increasingly tied to founder quality, rather than market momentum. The ecosystem sees a sharp rise in repeat and experienced founders, including operators who have built or worked at scale, listed startups such as Lenskart, Zomato and Urban Company. This shift has strengthened the quality of entrepreneurship at the grassroots level and changed how early stage risk is assessed.

“Investors are keen on founders with proven execution experience and operating depth. As a result, despite broader caution in the market, early stage funding remains accessible to high-quality founders only,” she said.

Growth stage funding, however, recorded a notable rise in 2025 to $4 Bn across 269 deals from $2.9 Bn from 287 deals in 2024. This reflects a clear recovery........

© Inc42