India´s startup ecosystem has rapidly expanded, supported by government initiatives and significant foreign investment. The number of DPIIT-registered startups is nearing 150,000, and the ₹10,000 crore Sidbi Fund of Funds has already backed over 129 domestic venture capital (VC) funds, fueling innovation. Yet this progress is undercut by a major vulnerability: a heavy dependence on foreign capital. In 2023, less than 15% of startup funding in India came from domestic sources, a precarious figure for the world´s third largest startup system and fifth largest economy.
This reliance on overseas funds brings notable risks. Foreign investment flows tend to be highly sensitive to global economic and geopolitical shifts, which can create sudden shocks or pullbacks for Indian startups. Unlike the US and China—whose thriving startup ecosystems are solidly rooted in domestic capital—India risks having priorities and strategic direction shaped by external stakeholders whose interests may not always align with national objectives. Particularly in sensitive sectors like defence, space, cybersecurity, and Artificial Intelligence, the absence of domestic funding can compromise national interests, hinder the retention of key talent and intellectual property in India, and curb the ability to operate strategically.
The presence of stable, locally-anchored capital brings multiple advantages. Domestic investors have a nuanced understanding of local markets, a longer-term outlook, and are more likely to recycle gains back into the startup community. Encouragingly, the number of Indian family offices investing in startups surged from about 45 in 2018 to over 300 by 2024, with corporates and successful founders also reinvesting through venture cycles. This has been aided by recent policy measures, including the reduction of long-term capital gains tax on unlisted equities, which creates more parity between public and private markets and incentivizes local capital deployment.
To galvanize true self-reliance and resilience, India needs to amplify domestic VC activity by scaling the Fund of Funds program and further incentivizing banks, insurance companies, HNIs, corporate treasuries, and family offices to back startups. Only with a robust base of domestic capital can India protect its economic interests, withstand global financial turbulence, and ensure every success story seeds the next wave of entrepreneurial growth.
