Indian startup funding drops 26% in Q1 2026 as late-stage deals vanish; early-stage surges

India’s startup funding slid 26% year on year to $2.3 billion in the first quarter of 2026, as investors pulled back from large late-stage rounds. For the first time since 2022, there were no deals of $100 million or more, underscoring a decisive retreat in big-ticket financing.

The chill at the top end contrasted with a flurry of activity at the seed and Series A stages. Early-stage funding jumped 58% in the quarter, indicating investors are redirecting capital from scaling mature companies to backing new, technology-led bets, according to a new report tracking funding, M&A, public markets and sentiment.

Geopolitics is also reshaping investment behaviour. With 73% of portfolios affected by the West Asia crisis, capital is moving closer to home. The report says 74% of investors now favour domestic limited partners, while confidence in Gulf capital remains limited at 34%.

Artificial intelligence stands out as the sector investors deem most investment-ready—48% identified AI as their top pick. Yet that conviction comes with restraint: fewer than 10% of respondents said they are willing to pay premium valuations, highlighting a market driven by selectivity rather than hype.

Taken together, the trends point to a reset: fewer mega-rounds, more early bets and heightened caution on pricing. The report maps these shifts across the quarter to show how the ecosystem is evolving in Q1 2026, with investors prioritising discipline amid uncertainty.