In recent years, India’s startup ecosystem has been a vibrant hub of innovation, with thousands of entrepreneurs launching ventures across sectors like fintech, healthtech, and artificial intelligence. The country’s startup scene has grown exponentially, with over 35,000 active startups by 2024, fueled by a young, tech-savvy population and increasing digital penetration. However, despite this growth, securing pre-seed funding—the earliest stage of capital that helps transform ideas into tangible prototypes—has become increasingly challenging for Indian founders, particularly those outside major metropolitan hubs. This article explores the reasons behind the tightening of pre-seed funding in India, the evolving expectations of investors, and the implications for aspiring entrepreneurs.
The Shifting Landscape of Pre-Seed Funding
Pre-seed funding is typically the first external capital a startup raises, often used to develop a minimum viable product (MVP), conduct market research, or hire initial team members. Unlike seed or Series A rounds, pre-seed investments focus on the strength of the idea, the founding team’s vision, and the potential market opportunity rather than proven traction or revenue. In India, pre-seed rounds typically range from ₹20 lakh to ₹1 crore (approximately $24,000 to $120,000), with investors like angel networks, accelerators, and early-stage venture capital firms playing a key role.
However, in 2024 and 2025, the pre-seed funding environment has grown more competitive. Investors are becoming more selective, and the bar for securing capital has risen significantly. Several factors contribute to this trend, including macroeconomic challenges, evolving investor priorities, and structural gaps in India’s startup ecosystem.
1. Increased Investor Scrutiny and Demand for Traction
One of the primary reasons pre-seed funding is getting tougher is the heightened scrutiny from investors. Historically, pre-seed funding was a bet on the founder’s vision and the potential of an untested idea. Today, investors increasingly expect early signs of traction, such as customer interest, pilot programs, or even initial revenue, before committing capital. This shift stems from a broader market correction following the funding boom of 2021, when valuations soared, and capital flowed freely.
The global economic slowdown, coupled with inflationary pressures and geopolitical uncertainties, has made investors more risk-averse. In India, venture capital firms and angel investors are prioritizing startups that demonstrate a clear path to profitability or at least a validated business model. For instance, investors now look for evidence of product-market fit, even at the pre-seed stage, which was traditionally a requirement for later-stage funding. This expectation places significant pressure on founders, particularly first-time entrepreneurs who lack the resources to bootstrap their ventures to this level of readiness.
2. Decline in Funding Volume
Data from PitchBook indicates that while the average pre-seed round size in Q2 2024 was $990,000, the overall volume of pre-seed deals has decreased, with approximately two-thirds fewer rounds compared to the peak funding years. This reduction in deal flow reflects a cautious approach among investors, who are allocating capital to fewer, higher-potential startups. The decline in funding volume is particularly acute for pre-seed startups, as investors prefer to back companies with established traction at the seed or Series A stages, where risks are lower, and returns are more predictable.
In India, this trend is exacerbated by the concentration of venture capital in metro cities like Bengaluru, Mumbai, and Delhi-NCR. Tier 2 and Tier 3 city founders, despite their innovative ideas, often struggle to access investor networks, further limiting their ability to secure pre-seed funding.
3. Preference for Experienced Founders
Investors in India are increasingly favoring founders with prior entrepreneurial success or deep industry expertise. Repeat founders or those with a track record of taking companies to IPO or achieving significant exits can often bypass the pre-seed stage entirely, moving directly to seed or Series A rounds with larger cheque sizes. This preference creates a significant barrier for first-time founders, who must work harder to prove their credibility and convince investors of their ability to execute.
The focus on experienced founders is driven by the perception that they are better equipped to navigate the complexities of building a startup in a challenging economic environment. For pre-seed investors, betting on unproven founders carries higher risks, especially when capital is scarce, and competition for funding is fierce.
4. Geographic and Network Disparities
India’s startup ecosystem is heavily concentrated in urban centers, with Bengaluru alone accounting for a significant share of venture capital activity. Founders in Tier 2 and Tier 3 cities, such as Jaipur, Kochi, or Bhubaneswar, face unique challenges in accessing pre-seed funding. These founders often lack the personal and professional networks needed to secure warm introductions to investors, a critical factor in early-stage fundraising.
Moreover, the rise of remote pitching and virtual investor engagement has not fully bridged this gap. While technology enables startups to connect with investors online, many pre-seed investors still prioritize in-person relationships and local ecosystems. Initiatives like Startup India and regional incubation programs, such as T-Hub in Hyderabad or NSRCEL at IIM Bangalore, are helping to democratize access to funding, but their reach remains limited compared to the scale of India’s startup aspirations.
5. Sector-Specific Investor Preferences
Investor interest in pre-seed funding is increasingly skewed toward high-growth sectors like artificial intelligence, blockchain, healthtech, and climate tech. Startups in these areas are more likely to attract capital due to their potential to disrupt traditional industries and deliver outsized returns. Conversely, ventures in less trendy sectors, such as traditional retail or consumer goods, face greater difficulty securing pre-seed funding unless they demonstrate exceptional innovation or market fit.
This sector-specific focus creates challenges for founders working on niche or localized problems, particularly in Tier 2 and Tier 3 cities, where startups often address region-specific needs. Investors may overlook these ventures in favor of those with broader, scalable applications, further tightening the funding pipeline.
6. Structural Gaps in the Ecosystem
India’s startup ecosystem, while robust, still lacks sufficient pre-seed-focused venture capital firms and angel networks compared to more mature markets like the United States. Traditional funding models in India prioritize seed and Series A rounds, leaving a gap for startups at the ideation or validation stage. While initiatives like the Startup India Seed Fund Scheme (SISFS), with its ₹945 crore corpus, aim to address this gap by providing grants to incubators and startups, the scale of funding remains inadequate relative to the number of early-stage ventures seeking capital.
Additionally, the reliance on friends and family or personal savings for pre-seed funding remains common, but this option is not viable for many founders, particularly those from underrepresented backgrounds or Tier 2 cities. Crowdfunding and accelerator programs offer alternatives, but they often require significant marketing efforts or access to established networks, which can be challenging for new entrepreneurs.
Implications for Founders
The tightening of pre-seed funding in India has significant implications for aspiring entrepreneurs. To navigate this challenging landscape, founders must adapt their strategies to meet investor expectations and leverage available resources effectively. Here are some actionable steps for securing pre-seed funding:
- Build a Compelling MVP: Investors are more likely to fund startups that have moved beyond the idea stage. Developing a minimum viable product, even with limited resources, can demonstrate proof of concept and attract early interest.
- Leverage Incubators and Accelerators: Programs like Techstars Bangalore, T-Hub, or NSRCEL offer not only funding but also mentorship, networking, and investor introductions, which are critical for first-time founders.
- Tap into Government Schemes: Initiatives like SISFS, Atal Innovation Mission, or state-run innovation challenges provide grants and subsidies that can serve as pre-seed capital without diluting equity.
- Focus on Traction: Even at the pre-seed stage, demonstrating early customer engagement, pilot partnerships, or market validation can set a startup apart from competitors.
- Network Strategically: Building relationships with investors through startup communities, pitch competitions, or platforms like LetsVenture and AngelList can increase visibility and credibility.
The Road Ahead
While pre-seed funding in India is becoming tougher, the ecosystem is also evolving to address these challenges. The rise of specialized pre-seed funds, increasing corporate venture capital participation, and government-backed initiatives are creating new opportunities for early-stage startups. Moreover, the resilience of Tier 2 founders, who are leveraging lower operational costs and local market insights, is driving a wave of innovation that investors cannot ignore.
However, closing the pre-seed funding gap will require continued efforts to democratize access to capital, particularly for founders in underrepresented regions and sectors. By fostering a more inclusive ecosystem and supporting first-time entrepreneurs with mentorship and resources, India can unlock the full potential of its startup revolution.
In conclusion, while securing pre-seed funding in India is undoubtedly challenging, it is not insurmountable. Founders who can adapt to investor expectations, demonstrate early traction, and leverage the growing network of incubators and government schemes will be better positioned to turn their ideas into reality. As India’s startup ecosystem matures, the hope is that pre-seed funding will become more accessible, empowering the next generation of entrepreneurs to drive innovation and economic growth.
Last Updated on Tuesday, July 15, 2025 8:39 pm by Ediga vivekanandha Goud
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