India’s startup ecosystem raised nearly <head>1 billion in 2025, but investors wrote far fewer checks and grew more selective about where they took risk, underscoring how the world’s third most-funded startup market is diverging from the AI-fueled capital concentration seen in the U.S. The selective approach was most evident in deal-making. The number of startup funding rounds fell by nearly 39% from a year earlier, to 1,518 deals, according to Tracxn. Total funding slipped more modestly — down just over 17% to <head>0.5 billion. That pullback was not uniform. Seed-stage funding fell sharply to <head>.1 billion in 2025, down 30% from 2024, as investors cut back on more experimental bets. Late-stage funding also cooled, slipping to $5.5 billion, a 26% decline from last year, amid tougher scrutiny of scale, profitability, and exit prospects. However, early-stage funding proved more resilient, rising to $3.9 billion, up 7% year-over-year. Image Credits:Tracxn “The capital deployment focus has increased towards early-stage startups,” said Neha Singh, co-founder of Tracxn, pointing to growing confidence in founders who can demonstrate stronger product–market fit, revenue visibility and unit economics in a tighter funding environment. The AI quest Nowhere was that recalibration clearer than in AI, as AI startups in India raised just over $643 million across 100 deals in 2025, a modest 4.1% increase from a year earlier, per Tracxn data shared with TechCrunch. The capital was mainly spread across early and early-growth stages. Early-stage AI funding totaled $273.3 million, while late-stage rounds raised $260 million, reflecting investor preference for application-led businesses over capital-intensive model development. This was in sharp contrast to the U.S., where AI funding in 2025 surged past <head>21 billion across 765 rounds, per Tracxn, a 141% jump from 2024, and was overwhelmingly dominated by late-stage deals. “We don’t yet have an AI-first company in India, which is $40–$50 million of revenue, if not <head>00 million, in a year’s time frame, and that is globally happening,” said Prayank Swaroop, a partner at Accel. Techcrunch event San Francisco | October 13-15, 2026 India, Swaroop told TechCrunch, lacks large foundational model companies and will take time to build the research depth, talent pipeline, and patient capital needed to compete at that layer — making application-led AI and adjacent deep-tech areas a more realistic focus in the near term. This pragmatism has shaped where investors are placing longer-term bets outside core AI. Venture capital is increasingly flowing into manufacturing and deep-tech sectors. These are some of the areas where India faces less global capital competition and has clear advantages in talent, cost structures, and customer access. While AI now absorbs a significant share of investor attention, capital in India arguably remains more evenly distributed than in the U.S., with substantial funding still flowing into consumer, manufacturing, fintech, and deep-tech startups. Swaroop noted that advanced manufacturing in particular has emerged as a long-term opportunity, with the number of such startups increasing nearly tenfold over the past four to five years — an area he described as a clear “right to win” for India given lower global capital competition. Rahul Taneja, a partner at Lightspeed, said AI startups accounted for roughly 30–40% of deals in India in 2025, but pointed to a parallel surge in consumer-facing companies as changing behaviour among India’s urban population creates demand for faster, more on-demand services — from quick commerce to household services — categories that play to India’s scale and density rather than Silicon Valley–style capital intensity. India versus the U.S. Data from PitchBook shows a stark divergence in capital deployment between India and the U.S. in 2025. U.S. venture funding surged to $89.4 billion in the fourth quarter alone, according to PitchBook data up to December 23, compared with about $4.2 billion raised by Indian startups over the same period. Image Credits:Jagmeet Singh / TechCrunch However, that gap does not tell the whole story. Lightspeed’s Taneja cautioned against drawing direct parallels between India and the U.S., arguing that differences in population density, labour costs, and consumer behaviour shape which business models can scale. Categories such as quick commerce and on-demand services have found far greater traction in India than in the U.S., reflecting local economics rather than any lack of ambition among founders or investors. Recently, Lightspeed raised $9 billion in fresh capital with a strong focus on AI, but Taneja said the move does not signal a wholesale shift in the firm’s India strategy. The U.S. fund, he noted, is geared toward a different market and maturity cycle, while Lightspeed’s India arm will continue backing consumer startups