The startup ecosystem in India has, of late, grappled with issues of poor governance and mismanagement, thereby sparking a debate over where accountability truly lies: with founders, investors, or the system at large. But that tide is now turning.
At the Asia PE-VC Summit 2025, hosted by DealStreetAsia in Singapore last week, panelists agreed that the landscape is shifting increasingly, with a stronger focus on transparency, improved corporate practices, and closer alignment with investor expectations.
“It’s not governance per se—it’s about whether people can commit fraud and get away with it,” said Arpit Agarwal, Investment Partner at Blume Ventures, at the session titled: “India VC: From rebound to returns but can discipline, exits & governance keep up?”
“What’s often called a governance issue is usually a small oversight or the result of India’s complex laws, which make running a company 100% clean very difficult,” he explained, adding that if such issues are taken out of context—say, by someone overseas—they can seem much bigger than they actually are.
“Mistakes happen, but rarely. Mostly, these are ongoing procedural issues. The narrative often gets muddled quickly, and foreign investors may not understand the nuance—leading them to fear the market unnecessarily,” added Agarwal.
Aggressive growth vs sustainable models
As VC funding gains steam, some deeper systemic issues have surfaced. In a tendency to prioritise aggressive growth—often fueled by steep discounts and subsidies—over sustainable business models and genuine innovation, startups have often struggled to deliver in the public markets, where profitability and EBITDA are now under sharp scrutiny.
Asked what the single biggest friction is in delivering the consistent top-quartile returns that LPs have been seeking, Pratip Mazumdar, Partner & Co-founder at Inflexor Ventures, said it is the lack of valuation discipline at entry and missed opportunities to exit when conditions were favourable.
Mazumdar also highlighted that many investors have been slow to take money off the table, which delays capital recycling within the ecosystem. However, disciplined investment strategies—such as maintaining strict entry valuations and executing exits at the right time—can lead to strong outcomes. Quoting industry data, he said India has outpaced Southeast Asia and China in exit volumes, reinforcing the growing credibility of the country’s VC landscape.
On what cross-border LPs think about India in terms of real returns, Visa Kannan, Managing Partner at Saison Capital, said two key observations—particularly from a micro-VC perspective—stand out.
First, she noted that success with smaller funds—those in the $10 million to $15 million range—doesn’t automatically translate into success with larger funds of $80 million to $100 million, given that portfolio construction, follow-on strategy, capital deployment, and ownership approach differ significantly at that scale.
“Many managers aren’t prepared for this shift but still raise larger funds, which can erode returns over time,” said Kannan.
Second, in the next 5-10 years, discipline and clear specialisation will matter, which is why “understanding emerging sectors, articulating why your fund exists, and how founders perceive you is crucial. Without that clarity, you may not be relevant, and competition needs to stabilise,” she added.
Global capital allocation is still modest
Responding to a question on whether India is over- or under-allocated in terms of capital, Mazumdar said India is under-allocated, both regionally and globally. Capital flows where there is growth, and India has delivered strong growth, especially in public markets. This is even as FIIs have been net sellers over the past five years.
“It’s the Indian domestic, vibrant capital market and the wealth, which is there within the domestic, institutional and retail investors, which has taken the market from where it was five years back to where it is now. In that context, India is not at all overallocated.”
“India has always looked expensive, but over a 5-15-year window, net dollar returns have been strong. Indian listed businesses are more expensive because they are highly capital efficient and deliver high ROA [Return on Assets]. So, while opinions may differ, India still holds a small allocation in global capital flows,” Mazumdar said.
Exits could be better
“If you’re looking to exit upwards of $100 million, IPOs seem like the only option. But, that’s not fair to entrepreneurs, as IPOs typically take 10 to 13 years, and many may not be ready for that journey. Still, people pursue it for returns,” said Blume’s Agarwal.
“There needs to be a healthier secondary market—either through investor secondaries or M&A. In India, high-quality M&As are rare, which is a gap. In the US, hundreds of M&As happen daily.”
He also pointed out that there has been a lack of structured exit strategies. The ecosystem must learn timing—when to exit, at what valuation, IRR, etc.—and engage in options like restructuring, full fund sales, or single asset exits.
“Exit planning is a muscle VC firms in India are still building— some of us are better than others but eventually everyone will get there,” said Agarwal.
On concerns about the post-IPO performance, Kannan of Saison Capital said: “India is an expensive public market today—that’s fair. But concerns about post-IPO performance are much ado about nothing.”
She explained how equity markets are a risky asset class, and how retail investors must enter with eyes open and that SEBI and the government should educate investors on participation timing.
“There’s a large financial literacy gap across asset classes. It’s not the companies’ responsibility to ensure stock price performance—if disclosures are made and laws are followed, one can take a company to IPO. IPOs can be priced freely. After that, it’s caveat emptor.”
Healthcare stays resilient amid global headwinds
Asked about the impact of tariffs imposed by the US on the Indian healthcare sector, Rahul Agarwal, Partner at HealthQuad, said, “Healthcare is more of a local sector. Healthcare is a necessity—not discretionary like gems, textiles, or leather—so the US can’t disrupt it beyond a point.”
While parts of South Asia and Southeast Asia—like India and Malaysia—have been successful in exporting pharmaceutical drugs and medical consumables, healthcare remains largely local and not impacted much by externalities.
He added that events like these are actually good—they shake things up and push companies to reduce overdependence on a single market. “Overall, not a big worry. Public and private market behaviour over the last 9–10 months also shows no major concern in the operator ecosystem.”
With aging demographics and strong underlying demand, healthcare continues to be a high-growth sector. Over the past few years—especially post-COVID—technology has significantly transformed healthcare in India. The rise of digital health and AI-powered solutions have significant growth, he said.
Rahul highlighted that specialization plays a key role in consistently building and investing in successful companies. Deep domain expertise—whether from clinicians, hospital operators, or health tech professionals—helps investors stay disciplined on valuations and avoid overpaying for early traction that may not scale.
