India's emerging VC managers face tougher test as seed funding declines

India's emerging venture capital fund managers have an expanding pool of startups to tap, with the country's recognised startup base crossing 250,000 in October 2026. However, a 37 per cent decline in seed funding in the first nine months of the year is raising the bar for investors seeking to back early-stage companies.

Domestic venture fundraising doubled to $5.4 billion in 2025, creating opportunities for first- and second-time fund managers with specialist sector knowledge and focused investment strategies, according to a report by Grant Thornton Bharat and the Indian Venture and Alternate Capital Association (IVCA).

Titled Emerging Managers Report 2026: From First Fund to Lasting Franchise, the study examines the opportunities and challenges facing emerging venture fund managers in India. It also notes that more than half of the country's recognised startups are based outside major metropolitan centres.

“Emerging managers who build their investment thesis on rigorous research and independent conviction may face a tougher first fundraise, but they give themselves a better chance of succeeding over the long term,” said Amarjeet Makhija, partner, Grant Thornton Bharat. “Before approaching LPs, managers should be able to demonstrate a clear investment strategy, differentiated sourcing and a pipeline of companies that fit the thesis.”

Looking ahead to 2030, the report urges emerging managers to adopt research-led investment strategies, align fund sizes with realistic exit prospects, maintain reserves for follow-on investments and support portfolio companies through exits, including strategic sales, secondary deals and IPOs. It also recommends a dedicated pathway for first-time managers under the ₹10,000-crore Startup India Fund of Funds 2.0 to strengthen their access to capital.

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“India’s venture capital ecosystem is entering a phase where the strength of emerging managers will be measured not just by their ability to raise capital, but by their ability to build sustainable investment businesses,” said Anisha Singh, founder and managing partner, She Capital; executive committee member and co-chair, emerging managers council, IVCA. “The priority now must be to strengthen access to institutional capital, create more predictable pathways to liquidity and enable credible managers to scale beyond their first fund.”

India's venture ecosystem is no longer constrained by a lack of entrepreneurial ambition or capital, says the report. The next challenge is ensuring that a broader base of fund managers can consistently identify promising businesses, back them through critical growth stages and deliver outcomes for investors. While fundraising conditions have improved, expectations around performance, governance and liquidity have risen in parallel.

The managers best positioned to succeed over the coming decade will be those who combine differentiated sourcing with disciplined deployment, strong portfolio support and a clear path to value realisation, says the report. As the ecosystem continues to mature, enabling more first-time managers to scale into enduring fund franchises will be critical to expanding India's private capital landscape and supporting the country's next generation of high-growth businesses.