An interesting aspect have been the support extended by public sector banks, known for their conservative approach to risk

Fund raising is a key priority for many start-up founders since it takes several years for many start-ups to become cash positive or generate profits and access external capital. Given the risk profile of the ventures, equity is the primary source of funding. But number of startups funded by debt has increased by more than 15 times between 2016-2024. In years when VC funding dries up, as was seen in 2023 and 2024, debt appears to be acting as a backstop.

Start-ups access equity funds from angel investors and VC funds. The number of start-ups receiving their first angel funding during the year has shown a decreasing trend during 2016-25. The median round values have however shown an increasing trend during the same period. The median age of the start-up when they receive their first angel funding has also been increasing over the years, while the number of start-ups that receive their first angel funding within the first year of incorporation has been reducing.

The number of start-ups that have received VC funding during the year has shown a slightly increasing trend during 2016-25, though not significantly. The trends in median round values, the median age of the startup when they receive their first VC funding, the number of start-ups that receive their first VC funding within the first year of incorporation has been similar to that of the trends in angel funding. Though the time taken to receive the first round of angel funding is not very different from that of VC funding, the VC funding rounds are about 6.8 times larger than that of an angel round.

The surprise element in the package has been debt funding. While banks and other FIs are usually not perceived as a significant source of start-up funding, the on-ground reality is very different. Contrary to the trends seen in angel and VC funding, though the average debt funding round has not significantly increased, the number of start-ups that have received debt funding has increased by more than 15 times between 2016-2024. Private commercial banks have supported the most number of start-ups, whereas Private NBFC’s has invested the most capital. An interesting aspect have been the support extended by public sector banks, known for their conservative approach to risk. Public sector banks have invested in more than 18000 start-ups.

The number of start-ups funded by angels and VCs have not seen comparable growth to the number of startups formed. Startup founders have to come to terms to this ground reality and tailor their fund-raising strategies.

On an average, start-ups are taking more time to get their first round of angel or VC funding. Founders have to therefore bring in more capital through their own sources, family or friends to sustain the operations during the initial uncertain period.

Though VC’s form the largest source of capital for startup funding (about 64 percent of the total), debt funding from banks and FIs contribute around 30 percent. Founders may therefore consider including their friendly banker in the list of prospective investors.

[The writer is Professor, IIT Madras and Head, Centre for Research on Startups and Risk Financing, and Founder, YNOS Venture Engine. Research inputs from Dr. Vamanie Perumal and Chinni Chaitanya, Centre for Research on Startups and Risk Financing are hereby acknowledged]

Published on July 9, 2026