In an interaction with Adlin Pertishya Jebaraj, Correspondent at Finance Outlook, Devansh Lakhani, Director & Startup Fundraising Expert, Lakhani Financial Services, points out the radical alteration in the ecosystem of the startup capital in India where the growth is now entering the profitability and disciplined capital allocation stage. According to him, investors, especially during pre-Series A rounds, are now more focused on good unit economics, product market fit, governance and clarity of founders than on aggressive growth.

Devansh Lakhani is an esteemed Director and startup fund raising expert of Lakhani Financial Services who has an excellent history of raising capital during the early stages and strategic advisory. He is also an angel investor, mentor and host in industry-focused platforms that help founders learn how to grow and deploy capital on a scalable basis.

How has investor risk appetite shifted in India’s early-stage ecosystem over the years, particularly pre-Series A funding?

Investors have been much less prepared to take chances in India's early-stage ecosystem throughout the years, especially before Series A. It used to be easy and quick to spend a lot of money. These days, businesses have to follow a lot more rules and live up to higher standards. People still invest money, but not in the same manner like before. People who spend money are much smarter about it now than they were from 2020 to 2022, when it was easy to get a loan. They also use a lot more information.

People spent a lot of money without thinking about it. Now they are smart and know how to use their money wisely. You can certainly see this change.

The overall number of rounds of investments in businesses has gone down by 39%. It seems that people aren't writing as many checks, but when they do, they feel surer about it. The best companies were now at the top of the list. The business makes money right away. They know what they want to do and how to do it well, even if they don't have a lot of money. The market has changed to make it easier to use capital in a controlled and conviction-based way.

Now, people get paid based on how well the product matches the market, not how well the person who developed it fits the market.

What are the biggest capital allocation challenges investors face in balancing innovation bets with downside protection in today’s market?

There are so many new businesses in India that people don't know how to spend their money on it. Their limited partners don't want to lose money, but they do want to help new businesses that are quite risky. We cannot find a middle ground between these two points of view because the space between them is getting narrower and smaller.

A lot of people are anxious that there isn't enough money to keep up with the rise of chance venues. India features some of the newest and fastest-growing companies in the world right now. You can start a business in deep tech, AI, climate tech, or bank tech whenever you choose. However, Indian VCs still don't have as much money to spend as US VCs do. Investors need to be more selective about where they place their money because this will carry for a long time. Even though there are more and more exciting new businesses, this is still true.

It's also more expensive to keep accounts open. A lot of VC funds need to keep roughly 40% of their money on hand so that their current startups can get through a few rounds. There isn't as much money available for new ideas these days. A fund with ₹200 crore might only inject ₹120 crore into new projects over the next two to three years.

Also, putting money into AI and deep tech early on doesn't pay off for a long time. The market isn't sure what it will do, and it takes a lot of time and effort to learn and grow.

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Are startups from Tier 2 and Tier 3 cities now accessing capital on par with metro-based founders, or do structural funding biases persist?

It's clear that business owners in India's Tier 2 and Tier 3 towns are making more money. This is a positive thing on its own. Even while it's better than it used to be, people who start businesses in big cities are starting to act more like people who start businesses in small towns. Things are getting better, yet there is still prejudice.

One big reason things have changed is that it's now lot easier to get there. The infrastructure has been better, so you can now get fast internet for a decent price in Tier 2 and 3 cities. Teams also work from more than one spot these days. People can now start their own businesses without having to pay the high costs of doing business in a big city. Some people think that these places don't have a lot of smart people, but they do. Another thing that makes a place a good place to start a business is that it has groups and programs that help people with their enterprises.

But the structure still has some big difficulties. The most important thing is to be with investors who know what they're doing. Most of the time, family offices, startup networks, and venture capital funds are still in Mumbai, Delhi, and Bangalore. People who start businesses in small towns have to spend a lot of time and money getting to meetings. Being able to see is another thing.

Tier 2 and Tier 3 stars are still not the same, even though they are doing better now and the money disparity is reduced. It's nice that things are more balanced now than they were previously. The overall direction is definitely better.

How are regional accelerators and local investment syndicates influencing capital access beyond traditional startup hubs?

Regional efforts and local investment syndicates can help people access money from places other than Bengaluru, Mumbai, and Delhi. This is changing the way Indian startups do business. They are very important since they help everyone get money immediately away. In the past, it has been hard for founders in Tier 2 and Tier 3 towns to connect with institutional networks. This will be really helpful for them.

The "first check" problem is probably the most important one, therefore they should fix that first. Businesses in this area are getting more and more money to help them get their ideas off the ground. Founders are much more likely to gain significant investors if they get this basic help first. It's a lot easier for a new firm to get money after this first show. The location of the business doesn't have a big impact on how easy it is to get paid, in other words.

People in their region may also be able to get money from NGOs and new enterprises. The good news is that business owners don't have to go to big cities to find people who can help them. They set up pitch events in Surat or Jaipur so that business entrepreneurs may meet with prominent VCs in Mumbai. This helps the businesses get ready for what bigger investors want. People are more likely to look for things to do outside of cities when big investors trust them.

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Over the next five years, how do you see India’s startup capital ecosystem evolving in terms of fund structures, exit cycles, and global capital participation?

There will be many different ways to put up money and there are a lot of specialised venture capital funds on the market right now, and each one has its own ideas. This is not the same as broad funds. Small venture capital firms, seed funds, and funds that only invest in one type of business, like AI, deep tech, or climate tech, are all very important.

These smart investors are like good raw materials for later rounds. Leaders can work with them more easily because they know more about the organization. The ecosystem will improve over time and not required as much help from outside investors. There are many kinds of investment groups, such as family offices, corporations, syndicates run by operators, and microfunds run by entrepreneurs.

In the next five years, people will also be better at planning departure rounds. In the last few years, more Indian companies that went public seven to eight years back. People are more familiar with these businesses. But there aren't enough second deals yet, so the first buyers' money sits around for too long. To make departure times more competitive around the world, they should be cut down to five to six years. To make this happen, more businesses need to be bought and the secondary market needs to be more active.

Lastly, the amount of money in the world has been going down for the last two to three years. India wants more free trade agreements, but it's getting harder for Indians to send money to other countries. This means that the price will probably go up again. Pension funds and national wealth funds, which are big players that think about the long term, need to do more.

Now that investors are more selective, how does ISPL ensure the startup funnel stays high quality? What screening signals matter most today (unit economics, retention, governance, founder clarity), and how do you help promising founders close their gaps before they pitch?

Yes, investors have become extremely selective, and that’s exactly why we’re very intentional about the quality of startups that reach the ISPL pitch stage. Even though we have 50–55 founders in the league, only around 30–35 actually apply to pitch, and from there we narrow it down to just 12–14. That filtration is not random - our internal team spends real time with each founder.

We go through their pitch deck, get on detailed calls, and try to understand not just the business but the person building it. We look closely at the things that matter in today’s market: unit economics, retention, revenue clarity, and whether the founder genuinely understands their numbers and their customers.

Another big advantage is that we know the backgrounds of our team owners - many of them are active angels, HNIs, or from VC firms - so we understand what they’re likely to invest in. That allows us to shortlist startups that actually have a strong chance of getting funded.

And for founders who aren’t fully ready yet, we guide them on what needs to improve. So ISPL becomes more than a pitch stage - it’s a carefully curated pipeline where every startup has been deeply vetted and prepared.