Bengaluru: Startups in Karnataka raised $2.7 billion in the first nine months of 2025, marking a sharp 40 percent decline from $4.5 billion in the same period last year, as a global funding winter tightens its grip on India’s startup capital.
The state recorded only two funding rounds exceeding $100 million during the period, down dramatically from eight in the corresponding months of 2024, according to data by startup tracker Tracxn.
Late-stage startups bore the brunt of investor caution, with funding plummeting 59 percent to $1.3 billion, from $3.2 billion year-on-year.
Seed-stage investments also fell 22 percent to $287 million, from $366 million in the same period last year, and 21 percent from $361 million in the first nine months of 2023.
“The decline in funding in the Karnataka startup ecosystem can be accounted for by the pertaining global funding winter, uncertain macro-economic environment. Given policy shifts, global economic uncertainties and recent lay-offs across tech, investors are placing greater emphasis on business models with clear profitability and scalability, rather than speculative, high-growth ventures,” said Neha Singh, co-founder of Tracxn.
The funding drought extended to public markets, with just two companies—Ather Energy and BlueStone—launching initial public offerings (IPOs) in the first nine months of 2025, compared to six in the same period last year.
The number of new unicorns—companies valued above $1 billion—dropped too, with only three companies achieving that status against five last year.
Singh noted that investors have grown increasingly risk-averse at both seed and late stages, concentrating capital in early-growth companies with clear metrics.
Early-stage (pre-seed) investment rose 20 percent to $1.1 billion, from $914 million year-on-year (first nine months), suggesting continued appetite for nascent ventures.
Restrictions linked to US tariffs and inflationary pressures in overseas markets have pushed investors to prioritise sustainable growth and better returns over rapid scaling and valuation-backed funding.
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Sector-wise divergence
Financial technology, better known as fintech, emerged as the sole bright spot among major sectors as funding rose 38 percent to $841 million in the first nine months of the year, from $830 million during the same timeframe in 2024.
In contrast, enterprise applications saw a 19 percent decline to $830 million from $1 billion, and retail witnessed a steeper 43 percent drop to $730 million from $1.3 billion, the Tracxn report said.
Enterprise applications covers companies that provide software for businesses to manage their processes. It can include finance, human resources, and collaboration, among functions.
The funding crunch reflects a broader shift in global venture capital sentiment following post-pandemic correction. Sectors such as education technology, which boomed during Covid-19 lockdowns, have since seen demand and valuations drop.
“In 2021, pandemic-led boom that accelerated e-commerce marketplaces such as Flipkart, Meesho raised major funding rounds followed by EdTech companies such as BYJU’s and Unacademy raising significant amounts in later stages. However, by 2024–25, demand and valuations for many of those models have moderated, reflecting slower overall market expansion and tighter scrutiny on governance and unit economics,” Singh said.
She added that global venture capital has “reduced appetite for large follow-on rounds” as sentiment decisively shifted towards profitability and efficiency.
“As a result, Karnataka’s total funds raised have dropped, a trend driven largely by the near-absence of large-ticket rounds,” she said.
Much of India’s venture capital comes from overseas investors, often termed ‘tourist capital’, who typically focus on larger companies rather than early-stage ventures, making the ecosystem particularly vulnerable to global pressures.
Regional disparities
While Karnataka remains India’s largest tech funding destination, Maharashtra and other startup hubs have shown resilience.
Tracxn data said tech companies in Maharashtra raised $2.01 billion in the first nine months of 2025, against $1.8 billion the previous year.
“While total funds raised by the tech ecosystems in Maharashtra and Delhi remain below the levels seen in the Karnataka tech ecosystem in 2025, both regions have nevertheless managed to raise more in 2025 than in the same period of 2024,” Singh said.
Within Karnataka, funding has been concentrated entirely in Bengaluru – 100 percent in the first nine months — indicating limited investor interest in early-stage innovation outside the state capital.
To bridge this gap, the Karnataka government has responded with multiple initiatives to support local startups. At the Bengaluru Tech Summit last week, the state’s IT Minister Priyank Kharge announced a partnership with private venture capitalists for a ‘deep tech decade’ initiative.
“For the first time, the government is partnering with private venture capitalists (VC) and coming together for the ‘deep tech decade’ for which we have announced Rs 663 crore funding,” Kharge said, adding that venture capitalists will invest around Rs 430 crore.
(Edited by Prerna Madan)
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