Decoding Early-Stage Funding in India: What Founders Should Know

Explore why early-stage startup funding in India is slowing down in 2024. Learn what founders must prioritize to survive the funding winter.

Introduction

India’s early stage funding is in flux. Early stage venture capital funds are tightening their purse strings now as startups wade through issues such as falling valuations, prolonged due diligence cycles, and a cautious investor sentiment shaped by global economic uncertainty. Founders are finding it increasingly difficult to secure seed and Series A rounds, leading many to downsize operations, delay hiring, or pivot business models to extend runway and survive the funding winter.

This tightening of early-stage capital is not just anecdotal—it’s reflected in the data and broader market activity. This blog will take you through what to expect as a founder when it comes to decoding the early stage funding landscape.

The Current Landscape: Funding Slowdown in Early Stages

For those who’ve been part of the startup ecosystem for a while, 2024 may feel like déjà vu. The early months of 2024 indicated that the "funding winter" is far from over. According to YourStory, early-stage funding has been slashed to nearly half of what it was at its 2022 peak, showing that investor confidence—especially into early stage startups—had began waning. This, however, isn’t a uniquely Indian story. With over 85% of startup funding in India coming from foreign investors, global socio-political dynamics play a significant role. The cautious flow of capital—particularly U.S. dollars—coupled with India not yet being seen as a full-fledged alternative to China, suggests that financial constraints may tighten even further in the near term.

Early trends into FY25 at least support these assumptions. With late stage companies bagging the most amount of funding in the year so far, it signals that investors are looking at their investments more closely now and that the era of easy money might be coming to end.

Key Reasons Behind The Slowdown

There are several reasons why early-stage investments have slowed down recently. To begin with, investor caution—already mentioned earlier—is now more pronounced than ever. As the Indian startup ecosystem matures, investors are becoming more discerning, favoring startups with realistic valuations over inflated promises.

External factors are also at play. Geopolitical tensions, such as the recent tariffs imposed by the United States and ongoing supply chain disruptions in China, have dampened investor sentiment and affected funding activity across the Indian startup landscape.

Let’s take a closer look at why venture capitalists are rethinking their priorities.(Side note: If you like what we’re reading so far we are releasing a report that covers these types of topics in detail. Click here to sign up for it.)

Shift in VC Priorities: Profitability Over Scale

It’s no secret that most of the capital is currently flowing into late-stage companies. This trend can largely be explained through two key perspectives.

The first centers on the Indian startup ecosystem’s transition into a more mature phase. As the market evolves, investors are prioritising sustainability over rapid scale. The focus is shifting toward backing businesses that demonstrate clear paths to profitability and long-term viability, rather than chasing hypergrowth at any cost. The underlying assumption is that these companies are better positioned to withstand market fluctuations and generate steady returns over time.

Like for instance brokerage firm Zerodha has been able to scale its business while being bootstrapped, a stark contrast to highly funded VC companies that often don’t place profitability at its core.

The second perspective attributes this shift to broader macroeconomic factors. With global economic uncertainty, currency fluctuations, and protectionist policies—such as recent U.S. tariffs—foreign capital is being deployed more cautiously. Since global investors constitute a significant portion of institutional funding in India, they are increasingly gravitating toward startups with proven models, predictable revenue streams, and stronger governance from the outset. In this environment, credibility and financial discipline are more valuable than ever.

Together, these forces are reshaping venture capital priorities—from a scale-at-any-cost mindset to a more measured approach that emphasizes profitability, resilience, and long-term value creation.

Extended due diligence and cautious capital

As investor priorities shift, so too does the investment process. Venture capital firms are now spending more time in the due diligence phase, scrutinising not just financials but also operational efficiency, unit economics, and governance structures. Part of this is due to international funds seeking greater scrutiny after major players struggled to maintain the right corporate governance.

Like in the case of GoMechanic’s unraveling, following revelations of financial misreporting during an investor audit, signalled the need for deeper scrutiny and more rigorous checks—especially by international funds investing in Indian startups.

Investors are favouring quality over quantity—choosing to back startups that align with long-term macroeconomic trends and have a defensible market position. The days of aggressive term sheets and rapid-fire rounds are being replaced with a more patient, disciplined approach.

Also Read: early stages of seed funding strategies

As a founder this means that you’ll have to tailor your approach to suit these demands. Metrics like burn rate, margin profile, and payback period are no longer back-of-the-deck slides—they’re front and centre in investor conversations, so keeping a check on the fundamental vitals of your company will be key going forward.

The WeWork Labs Take

A new era of disciplined investing is upon us. That doesn’t necessarily spell doom and gloom for founders, though. It simply signals a shift—a chance to recalibrate. Founders now have the opportunity to double down on the metrics that truly matter: customer retention, unit economics, operational efficiency, and sustainable growth.

Rather than chasing valuations, the focus is returning to fundamentals. This is a moment to build with intention—to create resilient, purpose-driven companies that can weather economic shifts and emerge stronger. In many ways, this environment favors thoughtful innovation over flashy disruption.

The startups that will thrive in this climate are those that embrace discipline, stay agile, and stay true to the problem they’re solving. Real innovation doesn’t just survive downturns—it’s often born in them.

See you in the next WeWork Labs blog!