With capital tightening and deeptech ambitions rising, VCs call for real reforms—blended finance, flexible credit, and regulatory clarity—to unlock India’s innovation economy.
India’s venture capital ecosystem is at a defining crossroads as Budget 2026 approaches. Amid a post-pandemic recalibration of global capital flows, investors are urging the government to move beyond lofty announcements to tangible execution. The message is clear: no more vision without velocity.
In 2025, Indian startups raised $11 billion—down from earlier highs, with VC investments per capita at $7.5. While the ecosystem remains robust—with 126 unicorns, 147 soonicorns, and 70K+ startups—investors say the era of abundant capital is over, replaced by disciplined, performance-based funding. What now?
Policy Must Evolve Beyond Equity-Led Thinking
VCs say India’s funding frameworks must reflect its maturing startup landscape.
- Ankur Bansal, MD at BlackSoil, argues for blended capital models, where venture debt and flexible credit complement equity.
- Instead of top-down grant announcements, Bansal urges execution-first reforms: sector-specific credit aligned with cash flow, and improved risk-sharing mechanisms.
VCs highlight a persistent concern: foreign capital is cooling, yet India lacks deep domestic capital channels. The silver lining? Domestic investors are holding steady—but need enabling policy.
Unleash Domestic Capital: Learn from the 401(k) Model
Could Indian pensioners back the next Flipkart?
- Sridhar Parthasarathy, cofounder at Bluehill.VC, recommends unlocking banks, provident funds, and pensions for private market access—akin to US 401(k) pathways.
- Manu Iyer suggests applying Section 54-like tax incentives to startup funds. Allowing individuals to direct capital gains to SIDBI’s fund of funds could spark a wave of long-term domestic capital.
Why rely on volatile FII flows, when patient capital is sitting idle?
Deeptech Deserves More Than Declarations
India’s deeptech ambitions—INR 10,000 Cr Fund of Funds and INR 1 Lakh Cr R&D Scheme—sound impressive. But can they deliver?
- Amit Chand of BYT Capital stresses that execution speed and clarity of access remain missing.
- Iyer notes that while schemes like PLI, DLI, iDEX, and BIRAC exist, fragmented disbursement limits impact.
- The FAME subsidy example is cautionary: INR 1,000 Cr flowed to OEMs like Hero Electric, yet zero localisation occurred.
“Policy without filters breeds waste, not innovation,” said one VC. Who ensures funds reach true builders—not just box-checkers?
Democratise Angel Investing—With Guardrails
Angel investing remains elitist, fenced in by regulatory constraints.
- Vinay Bansa of Inflection Point Ventures argues for broader participation. Like public markets, let professionals invest small, diversified stakes in startups—enabled by SEBI-compliant safeguards.
- Today’s accredited investor norms are premature for an evolving ecosystem, say VCs. A recalibration could unlock grassroots innovation and liquidity.
How long can India scale startups while its own citizens remain locked out of early-stage wealth creation?
IPO Boom Masks Pricing Pitfalls
2025’s IPO wave provided liquidity—but also exposed flaws.
- Aggressive pricing and offer-for-sale dominance caused post-listing slides of 20–50%, eroding investor trust.
- Parthasarathy warns that unchecked pricing—without regulatory ballast—risks long-term damage to the exit ecosystem.
Without public market sanity, private markets can’t thrive. Can Budget 2026 introduce checks for mega-issues to preserve investor confidence?
India Needs More Than Announcements—It Needs Follow-through
From deeptech to domestic capital, VCs are aligned on one theme: intent must be matched by implementation.
The 2026 Budget is a test. Will India power the next wave of innovation, or fall into the familiar trap of grand plans, weak execution? The startup economy is ready. It’s the system that must now deliver.
TL;DR:
Indian VCs want Budget 2026 to prioritize execution over vision—calling for blended capital, domestic funding access, deeptech reforms, and regulated IPO pricing. Without concrete action, India risks stalling its startup and deeptech ambitions.
AI summary
- VCs seek execution-driven policies over mere funding announcements
- Push for blended capital, flexible credit, and domestic institutional participation
- Deeptech needs faster, more accountable disbursal of government funds
- Democratizing angel investing and IPO pricing discipline are key asks
- Budget 2026 is seen as pivotal for India’s innovation trajectory
