How Venture Capital Works: A Deep Dive into India’s Startup Funding Journey

Explore how venture capital works, its early origins, golden era in India, and the rise of sector-focused VC funds shaping the future of Indian startups.

Understanding how venture capital works isn’t something most people grasp right away—and that’s completely normal. For many founders, it takes time to figure out which VC funds are the right fit, when to reach out, and how to craft a pitch that resonates with a specific investor’s focus. This isn’t just about checking boxes—it’s about learning how venture capitalists think and what influences their decisions.

Their choices are shaped by many factors: personal investment priorities, sector-specific beliefs, the makeup of their current portfolio, or even larger market trends. One year, you might see a strong push toward fintech or SaaS; the next, the spotlight shifts to climate tech or AI. The funding landscape is always evolving, which is why it’s so important to stay curious, observant, and adaptable. As you start or continue your fundraising journey, learning to spot these shifts and understand what’s driving them can help you make more strategic and confident decisions.

What happened in the early days?

Looking deep into the origins of venture capital, perhaps the first stark instance of this was in the 1950’s when the Rockfeller family set up a special fund—VENROCK—to finance new technology companies. A few years prior, General Doriot, a professor at

Harvard Business School, in 1946 set up the American Research and Development Corporation (ARD), the first firm, as opposed to private individuals, at MIT to finance the commercial promotion of advanced technology developed in American universities.

Flash back to India and the first time the Indians encountered venture capital was in the 1970s, when the government of India appointed R.S. Bhatt to find a way to bridge the gap between conventional financing for startups whose technologies were cutting-edge. By the 1980s, three key Indian financial institutions—IDBI, ICICI, AND IFCI—began investing small amounts of equity within technology-based companies.

By the 90s venture capital gained momentum within the country and by the early 2000s it was well and present part of the Indian ecosystem.

The Golden Age of Venture Capital in India

The period between 2014 to 2021 is often considered the golden age for venture capital in India. We’ve written about this period briefly in our previous blogs, I highly recommend you take a look. But in a nutshell, by 2021 Indian venture capital reached an all-time high, hitting a record $38.5 billion. That year, venture deals nearly doubled from the previous year, climbing to 1,545 deals. The foundation for this rapid growth was laid in the early 2000s, when companies like Infosys and Wipro emerged as the first successful large-scale startups.

While the 2014 cycle gave us companies like Flipkart and Ola, the 2021 cycle gave us companies that grew out of the disruption left behind by the pandemic. Startups like CRED, Zepto, Meesho, PharmEasy, and Digit Insurance capitalised on changing consumer behaviour—whether it was digital payments, home deliveries, remote healthcare, or online education. Many of these companies achieved unicorn status in record time, with 44 unicorns minted in 2021 alone, the highest ever in a single year for India.

This was also a time when India saw the rise of founder-led companies going global, and an increasing number of Indian-origin venture capitalists setting up funds both locally and abroad. What differentiated the 2021 wave was not just capital inflow, but a more mature ecosystem—with better access to seed funding, seasoned angel networks, and more defined regulatory frameworks.

Evolution into focused funds and beyond

With the Indian startup ecosystem now hitting its stride and entering into a mature phase, so has the venture capital ecosystem with it. This is a fundamental element to understanding how venture capital works or has historically worked. For the first time, a diverse mix of investors entered the investments field in 2024—almost on par with the mix that existed during the golden age. Private equity (PE) funds continued to reflect confidence in growth investments (e.g., KKR in Rebel Foods). Family offices and corporate VC firms also stepped up activity, with deal volumes increasing ~1.8x from 2023 to 2024, according to a report by Bain and Company. There are also steadily a number of focused domestic funds cropping up. Like for instance Omnivore which focuses on investing in agritech or Lightbox Ventures which focuses on investing in sustainability-focused startups.

One of the demands put forth by venture capitalists for the Union Budget this year was greater support in setting up more of these localised funds to strengthen India’s domestic funding capabilities. Nonetheless, the government also encourages individuals to create more focussed funds through initiatives such as the Startup India campaign and the Fund of Funds for Startups (FFS).

WeWork Labs Take

Venture capital often feels complex and intimidating—especially for first-time founders. It's not just about raising money; it’s about finding the right partners who believe in your vision, understanding what drives different funds, and knowing how to position your startup effectively. This isn’t something most people learn overnight. It takes time, research, and a lot of trial and error.

Through this blog, we’ve tried to break down the moving parts of the VC world to help you make sense of it. The truth is, the funding landscape is constantly evolving. Investor priorities shift with market cycles, macroeconomic conditions, and sector trends. What attracted capital in 2021 may not resonate in 2025. That’s why it’s important to look beyond hype and headlines—founders need to stay informed, study what’s working, and be adaptable.

There’s no one-size-fits-all strategy, but if you can understand the patterns, align with the right partners, and stay focused on your long-term goals, navigating the world of venture capital becomes far less daunting—and much more strategic.