Business Intel

Indian Government and RBI Needs To Sharpen Start-up Strategy

August 24, 2025
GlobalfinserveIndia

CA Anil Rana

Indian Policy makers have made very little progress to boost Indian Startup Funding Ecosystem. India can’t become self reliant and developed economy without putting it’s start-up investment on a steroids.

Startup funding in 2024: U.S. vs. China vs. India

United States (2024)

  • Total VC deal value: ≈ $209B. Capital was highly concentrated—Q4 alone hit $74.6B, with mega-rounds in OpenAI, xAI, Databricks, Waymo, and Anthropic driving a large share. AI accounted for ~46% of U.S. VC deal value. Venture debt also expanded sharply to $53B, doubling 2023. (Scribd, NVCA, Reuters, Cravath – Homepage)

China (2024)

  • Total VC funding: ≈ $33.2B, down ~32% YoY and the lowest since 2014—reflecting weaker late-stage activity and tighter liquidity, despite a few billion-dollar rounds. (Crunchbase News)

India (2024)

  • Total VC + growth funding: ≈ $13.7B, 1.4× 2023, with robust deal volume in sub-$50M rounds. India retained the #2 spot in APAC VC destinations despite global softness. (Bain)

At a glance (2024 totals)

  • U.S.: ~$209B (AI- and mega-round driven; deep venture-debt market). (Scribd, Reuters)
  • China: ~$33.2B (multi-year low). (Crunchbase News)
  • India: ~$13.7B (rebound year; earlier-stage heavy). (Bain)

What explains the gap?

  • Cost and diversity of capital: The U.S. offers a full stack—seed to mega-growth—plus venture debt ($53B in 2024) and specialized credit, enabling longer runways without immediate equity dilution. (Cravath – Homepage)
  • Concentration + scale in AI: Outsized checks into AI platforms pulled overall U.S. totals up; ~46% of 2024 U.S. VC went to AI. (Reuters)
  • Macro and policy: China’s downturn reflects regulatory and market constraints; India’s recovery shows improving fundamentals, but average round sizes remain smaller and late-stage liquidity shallower. (Crunchbase News, Bain)

RBI and Indian Policy Makers Needs To Act and Act Fast

  1. Cheaper, targeted credit
    • Launch RBI-backed startup credit windows via banks/NBFCs at subsidized rates with performance-linked step-downs; pair with partial credit guarantees (CGTMSE-style) to crowd in private lenders.
  2. Build a deep venture-debt market
    • Create a priority-sector classification for venture debt; standardize covenants and recovery norms; allow pension/insurance allocations into rated venture-debt AIFs to mirror U.S. depth. (Cravath – Homepage)
  3. Chapter-11–like restructuring
    • Add a true debtor-in-possession (DIP) pathway within IBC for SMEs/startups with time-bound (≤180 days) restructurings, cram-downs, and safe-harbor protections for new money—so viable firms pivot instead of liquidating.
  4. Late-stage capital magnet
    • Scale Fund-of-Funds 2.0 and a Sovereign Growth Facility to co-lead Series C-E with private GPs; enable tax-neutral buybacks/secondaries to recycle early LP capital and signal exit pathways.
  5. Domestic LP base
    • Permit calibrated EPFO/NPS commitments to domestic VC/AIFs; simplify pass-through taxation and eliminate angel tax frictions for genuine price discovery rounds.
  6. IPO & M&A throughput
    • Streamline Mainboard/SME IPO processes for tech (predictable profitability carve-outs, research coverage incentives) and ease big-tech M&A thresholds for sub-$1B deals to restore strategic exits.
  7. FX & cross-border flexibility
    • Introduce a founder-friendly ODI/ODC sandbox for flipping/unflipping and global cash management; cheaper, standardized hedging for growth-stage dollar debt.
  8. National AI & deep-tech facilities
    • Expand subsidized compute credits, shared labs, and public procurement for domestic AI/cyber/healthtech—crowding in private growth checks similar to U.S. AI megadeals. (Reuters)
  9. Data transparency & benchmarking
    • Mandate anonymized quarterly disclosures from AIFs/banks on startup credit, defaults, recoveries—improving price discovery and reducing risk premiums.

Bottom line: The U.S. edge in 2024 came from scale + instruments (mega-rounds and venture debt) and a legal framework that preserves going-concern value. India can close the gap by cutting the cost of capital, deepening venture debt, adding Chapter-11–style restructuring, and accelerating late-stage liquidity—turning its strong 2024 rebound into sustained, U.S.-level firepower.

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