Soonicorns and Unicorns: A Changing VC Landscape India's startup funding landscape is evolving, with VCs prioritising sustainable growth. Debt is emerging as a strategic tool, and sectors like fintech, quick commerce, and AI are driving the next wave of unicorns.

India's startup ecosystem is undergoing a significant transformation. The once abundant venture capital (VC) inflows have slowed, forcing startups to reassess their growth strategies and capital structures. In this evolving landscape, debt financing is emerging as a complementary tool to equity, while investors are sharpening their focus on sustainable business fundamentals.

At the Tech and Innovation Summit 2025 in Bengaluru, leading Indian VCs discussed the changing funding environment, the rise of soonicorns, and the next wave of unicorns. Their insights shed light on how startups must adapt to secure long-term success.

Debt: A Tool for Growth, Not Survival

With equity funding becoming more selective, many startups are exploring debt as an alternative. However, Punit Shah, Managing Partner at Alteria Capital, said that debt financing must be approached with discipline.

"Debt is a powerful tool, but it's not a substitute for equity. We always ensure that leverage doesn't become a burden on the founders. The idea is to optimise the capital structure, not overburden it."

He pointed out that while debt can accelerate growth, it should not be used to sustain a struggling business."There's a reason why some startups struggle—they take on excessive leverage just because it's available. We avoid that by ensuring debt is used for growth, not survival."

Punit also highlighted how market benchmarks are shifting, requiring investors to constantly adapt their underwriting criteria. "A few years ago, a SaaS company at USD 1 Mn ARR was great; today, the benchmark is higher. So, our underwriting adapts to evolving market dynamics while maintaining discipline."

The Evolution of India's Startup Landscape

India's startup ecosystem is evolving rapidly, with new sectors emerging as high-potential investment areas. Bhushan Arun Patil, Founder and General Partner at Multiply Ventures, said, "We've seen e-commerce transition to quick commerce, SaaS giving way to AI, and hyperlocal models emerging as dominant players. The platforms on which startups are being built are changing, and as investors, we must continuously adapt."

The timeline for building unicorns has also compressed significantly. "The time taken to build successful startups has reduced—from decades to just six or seven years in India. This shift makes it crucial for us to back businesses that can scale rapidly while ensuring capital efficiency," added Patil.

Patil believes India's next wave of unicorns will come from financial services, cross-border commerce, and digital content tailored for Bharat. "Innovations such as hyperlocal commerce and fintech inclusion will unlock massive opportunities over the next decade."

Spotting Overvaluations and Sustainable Growth

With market volatility, ensuring sustainable valuations is critical. Punit warned that some sectors, particularly consumer brands, are witnessing inflated valuations.

"We've seen instances where companies raised funds at unsustainable valuations, only to return money to investors months later. One such case was a Series A consumer healthcare brand that raised capital at an INR 70 million valuation with just INR 1.5 crore in monthly revenue. Six months later, it collapsed under its own weight."

While bubbles exist, he believes execution is the differentiator between success and failure. "Within the same sector, you'll find companies thriving and others struggling. It all comes down to fundamentals and execution."

The Role of Founders in Early-Stage Investing

Bhushan emphasised that the founder matters more than the idea when evaluating early-stage startups. "Are they leaving a high-paying job, committing multiple years, and deeply invested in their vision? Founders with more at stake tend to persist longer."

Multiply Ventures closely tracks founders post-investment, ensuring they stay on course during the first 6–24 months. "The real test of an investment isn't just writing the first cheque—it's seeing how a company navigates its early years and adapts to market challenges."

The Future of Indian Unicorns

Despite funding slowdowns, both Punit and Bhushan remain optimistic about India's next generation of unicorns. Punit believes financial services, fintech, and digital-first consumer models will lead the way. "Banks continue to leave vast gaps unaddressed. Quick commerce, once thought to be saturated, continues to attract innovation. The next wave of unicorns will be driven by India's rapidly evolving internet population."

Bhushan, meanwhile, cautioned against herd mentality investing. "If one startup succeeds in lending, suddenly there are dozens of lending startups. Many of these aren't building for an INR 5,000 crore outcome but rather a small niche, making the space overcrowded. The real challenge is identifying the ones with a long-term vision and strong execution capabilities."

As India's startup ecosystem matures, VCs are becoming more selective, founders are focusing on sustainable business models, and debt is gaining acceptance as a strategic financial tool. While the road to unicorn status may be tougher, the companies that navigate these shifts wisely will emerge as the next big success stories.