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Recently, a founder taking his company public summed up the new reality of Indian startups: ‘No one was ready to finance my next phase of growth and write a $100 million cheque… so I decided to go public.’ He was talking about the state of startup funding in India and the rush of young companies tapping public markets.

Over the last two-three years, India’s late-stage private tech funding landscape has changed radically as growth bets and larger cheques have mostly vanished. A $100 million funding round for mature startups has all but disappeared. This has meant that Indian new-age companies that wanted to stay private for as long as some of their global counterparts have only one option if they want to raise funds — to go the IPO way.

This is widely different from what’s happening in Silicon Valley where Sam Altman’s OpenAI is now valued at $500 billion in a secondary sale of shares by its employees. While the hype cycle around AI is apparent, the not-so-crazy sectors like fintech also have startups like Stripe, currently valued at $91 billion, that continue to refuse to go public.

Things may change after the recent listing of design software firm Figma, which registered a 250% first-day jump on listing, and may add some momentum to the tech pack eyeing an IPO.

So, what’s missing?

At the heart of the problem is the pullback of crossover investors, hedge funds, sovereign wealth firms, and the likes of Tiger Global, SoftBank, Prosus, that have poured big monies into Indian tech for the past 15-odd years. This vacuum has left late-stage founders stranded. Compounding this is that these startups are non-AI, which means that in this environment, going public is almost like a last resort for mid-to-large non-AI companies wanting to scale further.

And if that becomes the new normal, it will start to sound more like a small-to-mid cap story, and in many ways a private equity-type outcome for investors. These impending listings may not really be what VC-backed tech startups look like, barring a few like Groww, Lenskart and Meesho. A VC fund bets early to get exponential, outlier outcomes that can go up to 100x, even 1,000x return on capital invested, not a 2x-3x PE return.

This takes me back to the existential crisis being faced by India-focussed VCs, more so the larger sized ones, which I highlighted last year in a separate column.

Also Read: Startups aim to raise over Rs 18,000 crore via IPOs in major D-Street push

Private vs public

Another reality that has hit many Indian startups is the sobering valuations they are being offered by domestic mutual funds as they go public. Whether Swiggy, FirstCry, or GoDigit, a flat or lower listing valuation, compared to its last private round, became the norm. ‘In recent months, keeping the geopolitical volatility and the Trump tariff impact, another 20-30% cut in valuation is already being discussed, until and unless the company is a leader in its segment. IPO size has also been trimmed in many cases,’ said a founder.

The real issue could be the absence of buzzy AI startups in India. Globally, all large pools of capital are chasing AI and AI-related bets. Profile of startups being funded at early stages here does not match their thesis.

For instance, VCs are still hotly contesting deals in quick service for house helps, fashion, and pumping funds in direct-to-consumer brands. While these platforms are growing fast, there is a big chasm between what is happening in the US and in India tech, the largest evident for over a decade. Clearly, it’ll be hard for billion-dollar cheques to be written for anything other than AI, and those startups are not in India currently.

Also Read: VC funds flow into AI, but only to a few

D-Street report card

While 30-odd Indian companies have made their public market debut since 2021, a closer look shows that performance has been just about average for the larger set. Besides Zomato, PolicyBazaar, and logistics player Blackbuck, most startups are below their listed price. Clearly, many Indian startups have rushed to the public markets and will take many years to claw back the valuations they commenced when they listed.

Look at Swiggy, an 11-year-old company that went public in November last year. Its decision is now being questioned. What was the reason for the IPO? With its quarterly losses ballooning to over Rs 1,197 crore, nearly double those of Q1 FY25, the journey to profitability is key for its stock to grow and facilitate huge returns to its shareholders. It’s the same story for One 97 Communications that runs Paytm. Having listed in 2021 as one of the largest new-age public market debuts, it’s still trading 40% below its IPO price of Rs 1,950.

But going public and growing under sharper scrutiny is something that will eventually benefit Indian startups.

What’s also significant is that public market investors haven’t lost sight of profitability. Over the past year, both Paytm and Delhivery have seen meaningful recoveries as they moved closer to profitability. Delhivery, for instance, listed at Rs 493 (IPO price Rs 487), slumped to Rs 236.50, and has since rebounded to around Rs 463–464. Paytm, too, has clawed back ground after encouraging quarterly performance.

For the past 15 years, private investors have led the funding boom in domestic tech companies, and valuations have zoomed unrealistically. The next chapter of India tech will most likely be played out in the public markets, if AI startups don’t dominate the tech sector locally.

Samidha Sharma is Editor - ETtech. She’s been covering the tech and new-age digital economy for over a decade, and has had a ringside view of the industry and its people. ‎ ‎