VC fundraising wave gains momentum as dealmaking rebounds, but caution prevails

Mumbai: A wave of fundraising is sweeping through India’s venture capital landscape as firms like Nexus Venture Partners, Lok Capital, Chiratae Ventures, Peak XV Partners, and Fireside Ventures gear up to raise fresh capital, but with more selective fund sizes and targeted strategies.

Funds such as WEH Ventures and Avataar Venture Partner are also expected to hit the market in the coming months, while Arkam Ventures is in the final stages of closing its latest fund, multiple people familiar with the developments said.

While dealmaking is resuming after a lull, the fundraising strategies reflect a more selective and conservative approach. Investors are recalibrating amid valuation corrections and tougher exit conditions, experts said.

Several funds have pivoted toward leaner sizes as the funding euphoria of previous years gives way to a more measured approach. This has led several firms to scale down fund sizes or maintain them at previous levels, a stark contrast to the aggressive raises from the years before.

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“India’s venture scene is suffering from too much money and too few investable targets. Funds raised during the 2021 boom have left about $20 billion of dry powder on the sidelines," said Siddharth Mody, partner at JSA Advocates & Solicitors. “Managers are now three years into their investment periods, yet have deployed barely half of what they raised because many growth-stage founders are still anchored to peak-cycle valuations while revenue curves trail projections."

This mismatch has created a “deal-making bottleneck," with term sheets concentrating around a handful of breakout stories while other startups struggle to secure funding, Mody added.

“Limited partners see this mismatch and are in no hurry to write new cheques. That’s why India-focused fundraising collapsed to $2.7 billion in 2024, its lowest since the pandemic, even though the macro backdrop is healthy," he said.

“General partners are responding by shrinking vehicle sizes, extending deployment timetables, and keeping larger follow-on reserves for the few companies that merit additional capital. Until exits accelerate and pricing expectations normalise, expect leaner funds and a slower tempo of initial investments. Dry powder is no longer a growth accelerant but is rather an opportunity cost weighing on returns," Mody explained.

Fund moves

Nexus Venture Partners is eyeing a $500-600 million corpus for its eighth fund, a slight decrease from its previous $700 million fund that invested in India and the US, the people cited above said.  Chiratae, meanwhile, is looking to raise over ₹2,000 crore to back Indian startups, while Lok Capital plans a $250 million fifth fund, they added.

Fireside Ventures is also gearing up to raise $230 million (around ₹2,000 crore), maintaining the corpus size of its third fund raised in 2022, according to news reports. 

Nexus did not respond to Mint’s request for comment, while Arkam and Chiratae declined to comment. 

“We are in the final stages of investing from our fourth fund. We have just launched our fifth fund and have begun discussions with LPs (limited partners). It is likely to be about $250 million largely led by our existing LP base although we are hoping to bring in new investors as well," said Venky Natarajan, co-founder of Lok Capital, confirming the development. 

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The fund expects a first close by mid-2026 and will also seek to bring back some Indian LPs, although its investor base remains predominantly overseas, he added. Over the years, Lok Capital has pivoted towards growth-stage investments in financial services, food and agriculture, climate, and healthcare, sectors with clearer revenue paths and profitability potential. 

“We started with an average ticket size of about $2 million in our first fund to $10 million in Fund IV. With our new fund, we plan to do $15-20 million investments and aim to increase our focus on the consumer space, as we see a lot of opportunities there," Natarajan said.

WEH Ventures, known for backing Apps for Bharat, Jar, Smallcase, and Pratilipi, is also poised to launch its next fund, driven by inbound interest from existing domestic LPs and international investors. 

“We are seeing interest from our existing domestic investor base and inbound interest from other international LPs as well…India has performed well in terms of exits, and valuations have corrected," said Rohit Krishna, partner at WEH Ventures. He did not disclose the fund size. 

“It’s ultimately a question of which funds they want to invest in based on distributions rather than whether to invest in this asset class or not," Krishna added.

Avataar Venture Capital, which raised its second $350 million fund in 2022 to invest in Enterprise/AI software, deeptech, and B2B2C business models, is now preparing to raise its third fund.

“While we have not decided on the exact size, we will never do a billion-dollar fund as it makes exits more challenging. We have stuck to around $350 million for our first two funds and aim to be in that range keeping in mind the kind of distributions we want to give our LPs," Avataar’s founder Mohan Kumar told Mint.

Blume Ventures and Peak XV are also in discussions to raise new funds. Blume, which has invested in Battery Smart, Purplle, and Unacademy, is expected to maintain its next two funds at about $290 million, in line with its previous corpus.

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Peak XV, meanwhile, is eyeing a $1.4 billion India-Southeast Asia fund, its first since separating from its parent firm. The new fund is expected to be raised by the end of the current fiscal year and may also invest in other funds launched by other former company executives, Mint reported last month. This comes after Peak XV cut the size of its previous $2.85 billion fund by $465 million last year to reduce its cost of capital.

For context, investing in funds is a common strategy for new VC and PE firms to enter a market. Several global investors made LP investments in Indian funds before making direct investments, using these LP stakes to understand the market.

The surge in fundraising activity aligns with a broader revival in Indian private equity and VC markets over the past six to eight months. Several firms, including Kedaara, ChrysCapital, Stellaris Ventures, India Quotient, Sixth Sense, Prime Ventures, Accel, A91 Partners, Cornerstone VC, and Bessemer Venture Partners, have launched new funds.

“The Indian market is fairly large and will continue to expand. While there has been some correction even in the number of GPs who have been able to raise follow-on funds, the market is very deep, and the investable opportunity is large," said Lok’s Natarajan.

Market mood

While several firms are returning to the market, overall fundraising remains subdued. According to a report by Bain & Co., while exits in 2024 rose to $6.8 billion, total fundraising dropped by 35% to $2.7 billion, the lowest since 2020. This divergence suggests that despite increased exit activity, LPs are exercising caution, likely due to accumulated dry powder and ongoing volatility in public markets.

These exits came on the back of 7x surge in returns from initial public offerings (IPOs) fuelled by investors seeking liquidity as they approach the end of their fund life cycles and a recovery in key tech stock valuations, regulatory reforms, and a pent-up IPO backlog. Some prominent startup IPOs from the last year include Ola Electric, Swiggy, Blackbuck, Unicommerce, FirstCry, and Ixigo. 

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The report noted that maiden funds also gained prominence last year, comprising nearly a third of all venture/growth capital raised. These funds are increasingly targeting specific themes such as sustainability, defence, and gaming, indicating that even as overall capital becomes scarcer, sector-specific strategies are gaining traction.