The broader point is that Indian startups have been finding it difficult to raise early-stage funding for a while, and this has a domino effect on late-stage funding that gets activated when growth milestones are achieved.
Regulatory interventions are designed to curb froth from building up in the startup ecosystem. However, the business environment needs to be encouraging as well for domestic innovation. The speed of churning out unicorns should not slow down dramatically.
Some of the sluggishness is driven by technology. Late-stage funding in the US is being cornered by AI, and Indian startups are likely to catch that wave sooner than later.
There is a degree of inevitability about Indian innovation pulling down the cost of AI and accelerating its dispersal. Both early- and late-stage VC funding could revive if homegrown startups embrace AI as readily as earlier technology iterations.
India has clocked up an impressive crop of unicorns that brought data-driven solutions to business. AI takes that process more than a few steps forward, and the next haul of billion-dollar startups may be taking shape as we speak. VCs sitting on the sidelines could start dipping their toes again in the Indian startup ecosystem.It would not be too much of a stretch to see the current capital drought reversing once structural shifts take place in India’s startup ecosystem. Startups are now more sensitive to governance standards, which makes for a cleaner flow of funds. Once the technology hurdle is overcome – and there is evidence that companies are reading their AI play, both foundational and application – there will be a fresh finding flood. The transformation potential of AI will speed up recovery once it begins.