Biggest Issue for Startups is Lack of Capital, Regulatory Reforms Needed: Mohandas Pai Restrictive regulations of the government have resulted in inadequate domestic capital for the Indian startup ecosystem, said Mohandas Pai, Chairman at Aarin Capital, who called for reforms in policy and better investments to drive the ecosystem in an interview with PTI.
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Restrictive regulations of the government have resulted in inadequate domestic capital for the Indian startup ecosystem, said Mohandas Pai, Chairman at Aarin Capital, who called for reforms in policy and better investments to drive the ecosystem in an interview with PTI.
"We have 1,65,000 registered startups, 22,000 are funded. They created USD 600 billion in value. We got 121 unicorns, maybe 250-300 soonicorns, the biggest issue for startups is the lack of adequate capital," said Pai.
India ranks third globally, behind the US and China, where startups investments recorded USD 2.32 trillion and USD 835 billion respectively. "We just put in USD 160 billion, out of which possibly 80 per cent came from overseas. So local capital is not coming in," he added.
Pai also said that changes in the regulatory realm will allow insurance companies to get involved in fund-of-funds, and also called for better flexibility in investment structures. Pai also suggested that the government's fund-of-funds be expanded to INR 50,000 crore from the existing INR 10,000 crore.
According to an EY-IVCA monthly PE/VC roundup, private equity and venture capital (PE/VC) investments in India declined by 20 per cent in April 2025 compared to March 2025 in value terms.
Vivek Soni, Partner and National Leader, Private Equity Services, EY said that April 2025 recorded USD 4.7 billion in PE/VC investments, 6 per cent lower than investments in April 2024 and 20 per cent lower than in March 2025 with the number of deals in April 2025 being 4 per cent lower year-on-year.
Pai also suggested that the country eradicate barriers for startups to do business with public sector units.
"Even though the government has reformed it, it doesn't work in actual practice. It must be opened up, and I think that has to be a mind shift. The problem in India is that all the big companies try to beat down the small startups and give them less money, and force them to sell the technologies and use them, and often don't pay them on time. This culture of hurting the small people should change," Pai added.
The EY report also said that PE/VC investments in April 2025 totalled USD 4.7 billion, 6 per cent lower than the US$4.9 billion recorded in April 2024. The number was also 20 per cent lower than the USD 5.9 billion recorded in March 2025. The number of deals in April 2025 declined by 4 per cent year-on-year, with 108 deals compared to 113 in April 2024, while remaining consistent with the deal count in March 2025 (108 deals).
Somdutta Singh, Founder and CEO, Assiduus Global, said that there's no denying that the Indian startup ecosystem has had its share of funding challenges. But what's unfolding now is less a crisis and more a shift, a recalibration that's making space for more thoughtful, resilient growth.
"Yes, seed and early-stage startups are finding it harder to raise funds this year. Deal volumes in that bracket have dipped, and capital is flowing more freely into later-stage ventures. But that doesn't mean early innovation is being ignored. What we're seeing is a market that's becoming more selective, more focused. Investors are looking for stronger fundamentals, clearer business models, and long-term viability. For founders who are prepared, this is not a drought, it's a filter," said Singh.
