BW Online BureauNov 09, 2026
Domestic fund constraints: Most Indian VC funds top out at $500 million
(Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication)
India has a growing class of companies that should be easy to fund. They serve millions of customers, make real profits and have doubled revenue in two years. Their next step, whether building capacity, hiring a leadership bench or going global, needs about $50 million.
That is where the money stops.
Angels and seed funds will back a promising idea. Large global funds will back an established category leader. But few will back the company in between – the one quietly compounding at 40–50% a year.
This is India’s $50-million chasm.
India has built both ends well – a world-class seed ecosystem, and public markets increasingly willing to list high-growth companies. The bridge between them, where proven scale-ups need growth capital to institutionalise and expand, is thin, fragmented and dependent on foreign capital.
Headline numbers say the funding winter is over. Tracxn counts $10.3 billion raised by Indian tech startups between January and 21 September 2026, up 7% on a year earlier. But look beneath the total. The number of rounds fell 38% to 1,134, and rounds at Series A and above fell 23% to 409. The money is back, but it is pooling in fewer, bigger bets, including 18 rounds of $100 million or more.
For the company in the middle, this isn’t a passing chill. It’s a structural gap.
Three forces keep the gap open.
Domestic fund constraints: Most Indian VC funds top out at $500 million. At that size, a $50 million cheque, plus reserves for follow-on rounds, would tie a tenth or more of the fund to one company. Few managers, or their LPs, will accept that concentration. Only a handful of India-dedicated vehicles exceed $1 billion.
Missing patient capital: Domestic money is already here. Crisil Intelligence finds domestic investors supply 52.7% of the capital in Category I and II AIFs. What’s missing is the patient kind. Pension funds and insurers, the deepest long-term pools in any economy, have recently been allowed in, but within tight limits.
Mismatched mandates: Venture funds typically want hypergrowth. Private equity wants control or larger tickets. The profitable, steadily compounding company that needs $50 million fits neither.
Leave the gap open, and good companies hit a ceiling, or leave. Europe shows how that plays out.
Europe raises about $21 billion a year in Series B-and-later funding; the US raises about $133 billion. Between 2013 and 2023, Europe produced 11 venture funds above $1 billion while the US produced 137.
One big difference is pension funds. US and Canadian pension funds typically put 1-3% of their portfolios into venture capital. In Europe, VC and growth equity make up just 0.12% of pension assets, according to the World Economic Forum.
No wonder Europe’s most promising companies routinely relocate, reincorporate in the US, or sell prematurely before realising full commercial scale.
In Southeast Asia, the mid-stage vacuum is even more pronounced, forcing growth-stage founders to look abroad to Japan, Hong Kong, or China for co-investment.
China, meanwhile, has taken the opposite route. State-guided funds helped drive $35.1 billion of VC investment in Q2 2026 alone, three-quarters of it into Series C and later rounds
India has advantages Southeast Asia lacks – deep, liquid public markets and a growing domestic investor base. But on growth capital deployment, India remains closer to Europe’s fragmented landscape.
The good news is that some of the fixes are already underway.
SEBI is streamlining accreditation rules for AIF investors, while government initiatives like the Self-Reliant India (SRI) Fund are stepping up to anchor growth-stage funds. Meanwhile, secondary transaction markets are maturing rapidly, offering liquidity to early backers without forcing premature listings.
But piecemeal reform won’t close the gap. Four things need to happen together:
Let pension and insurance money in. PFRDA and IRDAI should widen the room for pension funds and insurers to back growth-stage AIFs, within clear risk limits.
Build funds that lead, not follow. India needs domestic growth funds with mandates for profitable compounders, not just hypergrowth, and the scale to anchor $50 million rounds on their own.
Give early backers an exit before the IPO. A deeper secondary market lets seed and Series A investors cash out without pushing companies to list before they’re ready.
Build for profit from Series A.Founders and investors should treat profitability and governance as Series A habits, not pre-IPO clean-up.
The test is simple. How many domestic enterprises can scale from ₹500 crore to ₹5,000 crore in revenue without leaving the country or selling out early?
The next era of Indian enterprise won’t be decided at the seed table or when the IPO bell rings. It will be decided in the middle.
(Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication)
