VC Insights | Issue# 13 [May 7, 2025]
What?
The first quarter of 2025 showed promising signs for India’s late-stage startup ecosystem with a significant uptick in funding for Series F and above. However, shifting global economic conditions are forcing both investors and IPO-bound startups to adjust their strategies in what experts describe as increasingly choppy waters. Let us take a deeper look. For reference, see YourStory’s coverage about the topic.
Market Momentum Meets Global Headwinds
Late-stage funding saw remarkable growth in early 2025, with 13 companies securing Series F and above rounds totaling $918 Mn during Q1 – a substantial increase from just $179 Mn across six deals in Q1 2024. This surge built on momentum from 2024’s successful IPO wave that demonstrated public market appetite for profitable, sustainable, and well-positioned tech startups.
However, recent macroeconomic developments – particularly the import tariffs planned or imposed by US President Donald Trump – have triggered global trade tensions, with ripple effects visible across India’s investment landscape. These uncertainties have prompted what industry experts characterize as a strategic recalibration rather than a full market retreat. While the flow of capital may not come to a complete halt, it is expected to slow down, with smaller cheque sizes likely becoming the norm, according to market observers tracking late-stage investment trends.
IPO Strategies: Trim and Proceed
Faced with investor caution, IPO-bound startups are revising their public offering strategies. Rather than postponing listings entirely, many are opting to substantially reduce their issue sizes.
Urban Company, for example, has slashed its planned IPO size to INR 1900 Cr from an earlier target reportedly around INR 3,000 Cr. Similarly, electric vehicle manufacturer Ather Energy has scaled back to INR 2,981 Cr from its initial INR 3,100 Cr target outlined in last year’s DRHP filing.
This tactical adjustment serves a number of strategic purposes. Investment experts suggest that smaller IPOs typically achieve better pricing on the bourses and attract a wider investor base. Additionally, a reduced offering size limits the leverage that anchor investors and mutual funds might otherwise use to pressure startups into less favorable valuations.
Three Distinct Response Patterns
Late-stage startups are demonstrating three primary strategies in the current environment that are shown below.
1. Flat-Valuation Fundraising
Some late-stage companies are raising capital at unchanged valuations to extend their runway. B2B ecommerce platform Udaan exemplifies this approach, having secured $75 Mn from existing investors in February at a flat $1.8 Bn valuation despite reportedly preparing for an IPO. Used car marketplace Spinny similarly raised $131 Mn without changes in valuation, as reported by Inc42.
2. Reduced IPO Ambitions
As noted earlier, startups committed to public listings are proceeding with significantly reduced raise targets. This “trim and proceed” approach allows them to test public markets while minimizing pricing pressure and valuation disappointments. Additionally, the startups are also looking at current profitability as an important metric to determine realistic valuations that would resonate well with retail investors and VCs.
3. Wait and Watch
Interestingly, companies with sufficient cash reserves are choosing to delay fundraising entirely. Financial management experts suggest that company leadership teams are taking a measured approach, pausing to observe market developments before making major funding decisions. Many are waiting to gauge how these economic shifts might fundamentally impact their business models and growth trajectories.
Secondary Transactions Gain Traction
For VCs seeking liquidity in uncertain times, secondary transactions have emerged as an increasingly attractive alternative to traditional exit paths. These transactions – where existing stakes are purchased from Private Equity (PE) fund investors – provide crucial liquidity without requiring new public offerings.
Industry experts observe a direct correlation between IPO market uncertainty and secondary transaction interest. As public market anxiety increases, more investors are pragmatically exploring secondary sales as viable alternatives for liquidity.
Additionally, industry observers have identified a notable shift in capital composition: big-ticket transactions continue, but with a smaller percentage of primary capital (new shares) and larger proportion of secondary capital (existing shares changing hands). This indicates that today’s growth-stage companies require less new capital for expansion than previously.
Investment Focus Shifts to Quality Metrics
The unrestrained optimism of 2022 – characterized by ballooning valuations and outsized funding rounds – has given way to a more disciplined approach. Late-stage investors who previously deployed $100-300 Mn in single rounds now prefer smaller, $50-100 Mn investments in capital-efficient businesses.
This recalibration reflects both market realities and the maturing of India’s startup ecosystem. The funding boom of 2022 created a larger pool of late-stage startups, giving investors more options to diversify their bets while maintaining more conservative position sizes.
Profitability Now Non-Negotiable
Perhaps the most significant shift is investors’ intensified focus on clear paths to sustainable growth and profitability. As late-stage startups approach potential public listings, they face scrutiny comparable to public companies, including deeper due diligence and heightened attention to burn rates and unit economics.
Investment advisors warn that companies with significant EBITDA losses or unclear profitability roadmaps face particularly steep challenges. Such businesses have substantially reduced chances of successful public offerings in the current environment, with experts suggesting this constraint may persist for at least the next 6-12 months.
This prioritization of sustainable business models over growth-at-all-costs represents a fundamental shift in late-stage investment criteria. Investors increasingly favor startups that demonstrate robust fundamentals, stand out in competitive markets, and show concrete progress toward profitability with well-defined timelines.
Thoughts
The current market adjustments reflect a natural maturation of India’s startup ecosystem rather than a fundamental crisis. While startup funding peaked in 2022 at extraordinary levels – with late-stage rounds reaching $2.61 Bn in Q1 alone – the present recalibration brings investment practices back to sustainable fundamentals.
Investment firms that deployed $100-300 Mn in single late-stage rounds during the funding peak have recalibrated to $50-100 Mn investments, reflecting both market conditions and a heightened focus on capital efficiency. This downsizing of check sizes, alongside the shift toward profitability focus and more modest public offerings, may produce healthier companies and stronger long-term outcomes for the ecosystem. Companies forced to operate with capital discipline typically build more sustainable business models with improved unit economics.
Meanwhile, the emergence of secondary transactions as a prominent liquidity channel represents another sign of ecosystem maturity. This alternative path provides early investors with much-needed returns without forcing startups into premature public listings – a valuable adaptation that helps bridge funding gaps during periods of public market volatility.
For founders, the message is clear: the path to late-stage funding and public markets now runs through demonstrated unit economics, sustainable growth, and clear profitability horizons. The days of raising hundreds of millions primarily on growth metrics appear to be paused, if not permanently altered.
What is particularly interesting is how India’s startup ecosystem is developing its own resilience mechanisms – like the growing secondary transaction market – to navigate global economic uncertainties. These adaptive responses suggest an ecosystem growing in sophistication beyond simply importing Silicon Valley funding patterns.
The next 12-18 months will be telling. Companies that successfully navigate these adjusted expectations are likely to emerge stronger and be better positioned for sustainable growth. Meanwhile, the increased focus on fundamentals should ultimately deliver better returns for investors and healthier companies for the Indian economy – even if the journey involves navigating some choppy waters along the way.
If you are interested to learn more, feel free to check out this coverage by YourStory.
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Acronyms used in the blog that have not been defined earlier: (a) Venture Capital (VC), (b) Initial Public Offering (IPO), (c), Million (Mn), (d) United States (US), (e) Crore (Cr), (f) Draft Red Herring Prospectus (DRHP), (g) Business-to-Business (B2B), (h) Billion (Bn), and (i) Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).