The History of Venture Capital: Origin and An Indian Perspective

Introduction

Venture capital has been instrumental in advancing economic growth across geographics. It has undergone cycles of rise, fall, strategic changes, and expansion across India, and the world.

Especially when we talk about the venture capital industry in India, we can witness a tale of adaptability and resilience. The industry emerged as a government-aided funding programme in the 1980s. Later, private investors jumped on the bandwagon to back high-potential companies. Thanks to legislative reforms and a boom in tech enterprises, India’s venture capital industry has now become one of the top three startup ecosystems globally.  

Without further ado, let’s go through the emergence, decline, and revival of venture capital in India. 

The Evolution of Venture Capital in India

The Early Days: 1980s–1990s

India's venture capital journey began in the mid-1980s, primarily driven by government aid for young businesses. Unlike the U.S., where private investors played a major role, India's venture capital industry was initially state-controlled. Organizations like IDBI, SIDBI, and ICICI were formed particularly to provide financial support to businesses. 

In 1988, India's venture capital rules were established by the Technology Policy Implementation Committee (TPIC). Moreover, the SIDBI Venture Capital Fund (SVCF) was established to assist new businesses in 1995. 

India's startup scene did not flourish despite these efforts. Due to stringent restrictions, a lack of private sector involvement, and restricted international investment, the growth of venture capital businesses faced a major setback. 

Global VC Firms Enter India (2000–2010)

India became a desirable location for investors in the early 2000s due to economic liberalisation and the growth of IT outsourcing. Indian operations were established by international venture capital firms such as Sequoia Capital and Norwest Venture Partners (in 2000) but momentum was delayed by the 2001 dot-com meltdown. Investor confidence did not return until 2003-2005. During this time, the startup boom was fueled by success stories of early investments in MakeMyTrip, Naukri.com and likes.

The Startup Revolution and India’s Unicorn Era (2010–2020)

The 2010s witnessed a dramatic rise in India's venture capital landscape. Many factors contributed to its rapid growth. 

• The introduction of affordable mobile internet by Reliance Jio in 2016.
• The Startup India initiative (2016) offered tax benefits and reduced regulatory barriers.
• Growth in the number of venture capital funds and private market investors interested in fintech, e-commerce, and SaaS companies.

India had more than 30 unicorns by 2020, including Flipkart, Ola and Paytm. During this time, India solidified its position as the world's third-largest startup ecosystem.

The Funding Winter and Market Correction (2021–2025)

Although India saw a record $42 billion in venture capital funding in 2021, the industry faced a harsh reality check in the following years. Rising interest rates, investor anxiety, and regulatory scrutiny all contributed to a significant downturn in 2022 and 2023.

As of Q1 2025, India's venture capital (VC) industry is starting to recover from the funding slowdown of 2022–2023. Even if total VC investments are currently below the 2021 high, industries including artificial intelligence, deep technology, finance, and sustainability are attracting substantial sums of money.

This year, 2025, has seen a noticeable transition in the venture capital industry in India from hypergrowth to profitability-driven investments. IPOs and late-stage funding are still sluggish, even though deep tech, artificial intelligence, and sustainability are the most popular investment themes. 

Conclusion:

The venture capital industry is constantly evolving since its origin. Moreover, it is considered the foundation of many developments and innovations throughout the world while going through booms, crashes and market recoveries.

A small initiative led by the government of India kickstarted its venture capital journey and later attracted private investors. It has now evolved into a profound startup behemoth that reflects global trends. Despite recent market corrections, India's long-term prospects remain promising since investments are shifting towards deep tech, artificial intelligence, and sustainable enterprises.

With government-backed investment, growing investor confidence, and a growing startup climate, India is well on its way to becoming a top venture capital destination in the next ten years.

About Taghash
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