Navigating Venture Capital Investment Trends in India

In 2024, India’s venture capital (VC) ecosystem experienced a significant rebound, with investments reaching US$13.7 billion, marking a 40 percent year-over-year increase. This positioned India as the second-largest VC destination in the Asia-Pacific region, defying broader global slowdowns.

India has positioned itself as the second-largest VC destination in the Asia-Pacific region, surpassing regional peers despite relatively flat global funding trends. According to a 2025 report by Bain & Co., India’s venture capital market witnessed a robust resurgence in 2024, with total funding reaching US$13.7 billion, representing a 40 percent year-over-year increase.

The report notes that the increase in VC investments in the country was supported by strong macroeconomic fundamentals and progressive policy shifts. In addition, improved exit pathways, particularly via public listings, have increased investor confidence.

Technology-driven sectors dominate India’s VC landscape in 2024

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As per Bain & Co.’s report, deal volume mirrored the sector’s renewed momentum, rising sharply from 880 transactions in 2023 to 1,270 in 2024 — a 45 percent increase. Notably, 95 percent of these deals were below the US$50 million threshold, highlighting continued investor focus on early- and mid-stage opportunities. While larger transactions (above US$50 million) rebounded to near pre-pandemic levels, the average size of mega-deals (above US$100 million) contracted by 20 percent — signaling a recalibration in valuations and an emphasis on sustainable growth metrics.

In 2024, over 60 percent of India’s venture capital investment was directed toward technology-led sectors. Consumer technology led the pack, with deal value more than doubling from US$2.4 billion in 2023 to US$5.4 billion. This surge was fueled by investor interest in digital platforms that cater to evolving consumer behaviors, particularly in urban and Tier 2 markets. 

• India’s consumer technology segment attracted US$5.4 billion in funding, registering a 2.3× year-over-year growth, fueled by strong investor interest in quick commerce, digital content platforms, and D2C brands.
• Software and SaaS firms in the country secured US$1.7 billion, with generative AI applications gaining significant traction.
• Investors increased capital allocation to India’s high-tech sectors, including semiconductors, energy transition technologies, and deep-tech innovations.
• Banking, financial services and insurance (BFSI) funding grew 3.5×, while the consumer and retail segments expanded 2.2× compared to 2023.

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The report states the expansion was powered by greater reach into Tier 2 and Tier 3 cities like Lucknow, Jaipur, and Mysuru. Additionally, rising digital adoption and formalization of the economy are unlocking new growth markets.

This diversified investment pattern reflects a more mature and resilient VC environment in India, balancing high-growth tech sectors with scalable opportunities in traditional industries. Investor participation continued to diversify, with increased contributions from private equity growth funds, corporate venture arms, and family offices. These investor categories were involved in over 50 percent of deals exceeding US$50 million.

ALSO READ: Quick Commerce Leads India’s US$13.7 Billion Venture Capital Resurgence in 2024

Strategic considerations for foreign investors

India’s macroeconomic environment in 2025 presents a compelling case for VC investment, supported by favorable demographic trends and rapid digital adoption. Approximately 43 percent of India’s population is under the age of 25, creating a favorable long-term demographic dividend and consumption potential. This young population is driving an increase in digital engagement, and the country’s online consumer base has grown to between 270 and 280 million users.

India’s startup ecosystem is also demonstrating increased maturity, particularly through initial public offerings (IPOs) and mergers and acquisitions (M&A), offering enhanced exit opportunities and liquidity for investors. In Q1 of 2025, India saw 62 IPOs raise US$2.8 billion, accounting for 22 percent of global IPO activity.

India has also taken steps to enable startup re-domiciliation, often referred to as “reverse flipping,” whereby startups return their parent entities back to India to capitalize on local advantages. Such policy advancements collectively enhance India’s position as a destination for global venture capital.

Entry routes for foreign investment into India

India offers a diverse range of entry routes for foreign investors seeking to tap into its fast-growing economy. These avenues range from regulated fund structures to direct investment channels across equity, debt, and startup sectors. Below is a breakdown of key routes available.

Investment via Indian VC funds

Foreign investors can access India’s startup ecosystem by investing in Alternative Investment Funds (AIFs) registered with the Securities and Exchange Board of India (SEBI).

• Category I: AIFs target socially or economically desirable sectors such as venture capital, infrastructure, and small and medium enterprises (SMEs).
• Category II: AIFs include private equity and debt funds that do not undertake significant leverage, except for operational needs.

These funds can raise capital from foreign limited partners (LPs), subject to compliance with SEBI regulations and the Foreign Exchange Management Act (FEMA).

Direct investment routes

India also allows foreign investors to engage directly through several well-defined channels. These are as follows:

Foreign Direct Investment (FDI)

FDI enables foreign entities to acquire at least a 10 percent equity stake in Indian companies (both listed and unlisted). Most sectors fall under the automatic route, requiring no prior approval. However, strategic and sensitive sectors — such as defense, telecommunications, and multi-brand retail — require prior government approval. Additionally, investments originating from countries sharing land borders with India are subject to mandatory approval, regardless of the sector.

Foreign Portfolio Investment (FPI)

FPIs allow foreign investors to participate passively in India’s capital markets by investing in listed equities, bonds, and derivatives. Registration must be obtained through a Designated Depository Participant (DDP) authorized by SEBI. Investment limits are governed by sectoral caps and vary by security type and sector.

Foreign Venture Capital Investment (FVCI)

The FVCI route caters to foreign investors targeting early-stage ventures and high-growth sectors such as IT, biotechnology, nanotechnology, and infrastructure. FVCIs must register with SEBI under the FVCI Regulations, 2000. Benefits include exemptions from certain pricing norms and lock-in requirements, providing greater flexibility for investment and exit.

External Commercial Borrowings (ECBs)

ECBs are loans extended by non-resident lenders to eligible Indian borrowers in foreign currency. These borrowings are regulated by the Reserve Bank of India (RBI) and come with defined guidelines on maturity, interest rates, and end-use restrictions. Common beneficiaries include Indian entities in the infrastructure, manufacturing, and services sectors.

India’s tax and policy reforms for foreign investors

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India’s 2025 tax and regulatory reforms have substantially improved the investment environment for foreign investors, particularly those focused on VC and startups. Key developments include streamlined registration processes, reduced tax burdens, and the removal of legacy policy hurdles.

Withholding tax on dividends and capital gains

Dividends and capital gains earned by non-resident investors continue to be subject to withholding tax (WHT), with rates determined by the nature of income and relevant Double Taxation Avoidance Agreements (DTAAs). Under the Income-tax Act, 1961, dividends paid to non-resident shareholders are typically taxed at 20 percent.

In a major boost to startup investing, the Finance Act, 2025 reduced the long-term capital gains (LTCG) tax on unlisted equity shares from 20 percent to 12.5 percent, though without indexation benefits.

Angel tax abolished for non-residents

Effective April 1, 2025, India repealed the controversial “angel tax” provision for non-resident investors. Previously, this tax applied to the excess consideration received over the fair market value of shares issued by closely held companies. The abolition removes a key tax deterrent and is expected to unlock greater foreign capital for Indian startups.

CLICK HERE: Abolishing the Angel Tax in India: Applicable for FY 2025-26

FPI onboarding and compliance streamlined

To simplify the entry process for Foreign Portfolio Investors (FPIs), SEBI has proposed regulatory changes via a consultation paper. These aim to reduce data duplication and ease compliance, making it easier for FPIs to register and operate in India.

Repatriation rules under FEMA

Repatriation of profits, dividends, and share redemptions by non-resident investors continues to be governed by the FEMA. Investors must ensure that all applicable taxes are paid and tax clearance certificates are obtained prior to repatriation. 

This framework is designed to balance regulatory compliance with ease of doing business.

Conclusion

India’s venture capital (VC) landscape is evolving from rapid growth toward greater strategic depth and maturity. Favorable demographics, proactive policy reforms, and expanding digital infrastructure are driving innovation and attracting investment. Foreign investors now find in India not only vast market scale but also increasing regulatory clarity and diverse sectoral opportunities—from deep tech and green energy to fintech and semiconductors. To succeed, investors must understand local transaction dynamics, comply with regulatory norms, and target scalable, long-term opportunities across both emerging and traditional sectors.

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