The number of new venture capital (VC) and private equity (PE) firms being launched in the country has plummeted in recent years, reflecting growing investor caution, tighter capital flows, and a shakeout of undifferentiated players in a maturing startup ecosystem. From 73 new VC firms in 2019, the number has dropped sharply to just 14 in 2024, according to Tracxn data. Not a single new PE firm was launched in 2024, compared to 21 five years ago.
This decline comes even as existing firms continue to raise new funds and global investors double down on India. The shift underscores a broader recalibration in how limited partners (LPs) deploy capital, with a clear preference for experienced fund managers and proven strategies. The more selective approach is driven by market headwinds, concerns over exit timelines, and the realisation that many of the firms launched during the recent VC boom failed to carve out a distinct value proposition.
“The market has become increasingly competitive, and funds without a clear differentiation in thesis, network, or operational value-add are finding it difficult to survive,” said Ashutosh Kumar Jha, general partner at Expert Dojo. “As LPs demand stronger performance and more transparency, capital is consolidating with managers who have delivered returns across cycles,” he said.
The peak of new VC firm creation came in 2021, when 120 were launched amid a surge of optimism, buoyed by low interest rates, high liquidity, and digital acceleration during the pandemic. But the enthusiasm proved short-lived. A more uncertain global climate emerged by late 2022, with rising interest rates, inflation, and geopolitical instability prompting LPs to reassess risk, especially in emerging markets like India.
This shift has also exposed the challenges of the venture model itself. Many first-time fund managers underestimated the long gestation period, resource intensity, and difficulty of staying relevant without strong differentiation. “Venture capital is not a quick-turn business,” said Jha. “A number of newer managers came in during the boom, only to realise they didn’t have the depth or endurance needed,” he said.
Exit challenges in India have added to the pressure. With IPOs and buyouts slowing, investors face longer holding periods and less predictable returns. “This lack of liquidity is a deterrent for LPs, especially at a time when they are under pressure to ensure capital efficiency,” said Vishwang Desai, managing partner at Desai & Diwanji. “The preference now is to stick with funds that have a proven exit track record and robust governance,” he added.
While fewer new firms are being launched, seasoned professionals are still entering the market with sharper, more focused approaches. LaunchBay Capital, for example, was recently started by former Temasek executives Padmanabh Sinha and Vibhor Kumar Talreja as a growth equity firm focused on India. At the same time, global players such as QED Investors are preparing to deploy hundreds of millions of dollars across Indian and Asia-Pacific startups.
But institutional investors are now far less inclined to back emerging managers. Surveys show the share of LPs actively looking for new VC relationships is at a historic low. Instead, they are consolidating capital with established firms that offer scale, stability, and predictable exit paths.
Regulatory friction has further raised the bar for new entrants. Tax uncertainty for non-resident investors in unlisted companies and tighter oversight of fund structures have made it harder to launch and operate VC funds. Several small firms are expected to shut shop in the near term due to fundraising challenges.
Still, industry experts believe this is a phase of introspection, not collapse. “Some consolidation is inevitable, but newer fund models like evergreen and rolling funds will emerge,” said Ankit Kedia, founder and lead investor at Capital-A. “The slowdown in new firm formation could ultimately lead to a stronger, more resilient investment landscape,” he said.
