Karnataka’s tech start-up ecosystem recorded a significant 40% decline in total funding between January and September 2025 compared to the same period last year, a new industry report has revealed. The fall marks one of the steepest drops for the state, which has long been considered India’s start-up capital.
Global Headwinds and Domestic Shifts Drive Cautious Investment
Industry analysts cited a combination of factors — including global economic uncertainty, tighter venture capital flows, and the rising cost of capital — for the slowdown. Investors have shifted toward more cautious deal-making, prioritizing profitability and operational discipline over rapid scaling.
Early-Stage Start-ups Face the Hardest Hit
While funding contracted across all stages, early-stage start-ups experienced the highest decline, reflecting a hesitancy among investors to bet on unproven models during challenging economic conditions. Seed and pre-Series A rounds dropped sharply as due diligence cycles stretched longer.
Bengaluru Retains Dominance but Competition Rises
Despite the downturn, Bengaluru continued to attract the majority of the funding, reinforcing its leadership position. However, the report notes growing competition from emerging hubs such as Hyderabad, Pune, and Chennai, which attracted larger-than-expected deal volumes in 2025.
Selective Growth Seen in AI, Deep Tech, and Enterprise Solutions
Not all sectors suffered equally. AI, deep tech, and enterprise software start-ups continued to receive interest, though at a moderated pace. Investors remain optimistic about long-term value creation in these segments, particularly those aligned with global digital transformation trends.
Experts Predict Market Correction Rather Than Long-Term Decline
Industry watchers suggest the downturn may ultimately strengthen the ecosystem by encouraging start-ups to focus on unit economics and sustainable growth. They view the funding decline as a “market correction” rather than a structural setback.
Outlook: Slow Recovery Expected by Late 2026
Given current trends, funding activity in Karnataka is expected to stabilize gradually through 2026, with late-stage deals recovering first. However, the path ahead remains uncertain as global financing conditions continue to evolve.