India’s startup ecosystem is witnessing a sharp contrast between growing investor confidence in deep-tech innovation and increasing pressure on the broader startup landscape. In a significant development, AUM Ventures has launched its second investment vehicle, the AUM Ventures – India Innovation Fund II, with a target corpus of ₹750 crore (around $80 million). The move comes at a time when startup shutdowns are rising, funding activity remains subdued, and policymakers are stepping up efforts to support innovation-led ventures.
The Abu Dhabi Global Market (ADGM)-regulated venture capital firm plans to back 25 to 30 early-stage and pre-seed startups over the next five years. The fund will primarily focus on sectors such as artificial intelligence (AI), deep-tech, semiconductors, defence technology, space-tech, and intellectual property-led innovation.
AUM Bets Big on Deep-Tech and Emerging Technologies
AUM Ventures’ latest fund reflects growing investor interest in technology-driven businesses capable of building globally competitive products from India. The firm intends to invest between $750,000 and $2 million in selected startups, while also reserving capital for follow-on investments through Series A and Series B rounds.
The launch follows the deployment of AUM Ventures’ maiden $30 million fund, which backed 24 early-stage startups. Founding Partner Chetan Mehta believes the next phase of India’s startup growth will be led by founders developing proprietary technologies in strategic sectors.
The optimism surrounding deep-tech investments is already visible in the performance of several portfolio companies. Hyderabad-based Skyroot Aerospace recently achieved unicorn status after raising $60 million in a funding round co-led by Sherpalo Ventures and Singapore sovereign wealth fund GIC. The company’s valuation reportedly crossed $1.1 billion, making it India’s first space-tech unicorn.
Skyroot has gained recognition for launching Vikram-S, India’s first privately built rocket, and is now preparing for the launch of its Vikram-1 orbital rocket. The fresh capital is expected to support manufacturing expansion and testing activities.
Meanwhile, semiconductor-focused startup Azimuth AI has attracted strategic interest from engineering services major Cyient. The company, co-founded by Sridevi Badiga, is working on advanced edge-AI chips for smart utility applications and recently secured additional funding to accelerate commercial production.
Startup Closures Rise Despite High-Profile Success Stories
While select startups are attracting significant capital, the wider ecosystem is facing a challenging period. Data from startup intelligence platform Tracxn indicates that 11,223 startups shut down operations during 2025 so far, representing a 30% increase compared to 8,649 closures in 2024.
The trend highlights the growing pressure on startups struggling with profitability, governance issues, debt obligations, and prolonged funding shortages. Several well-known names have either scaled down operations or exited the market, raising concerns about the sustainability of venture-backed growth models.
Funding activity has also slowed considerably. Indian startups reportedly raised $7.7 billion during the first nine months of 2025, reflecting a 23% decline compared to the same period last year. The impact has been most severe at the seed stage, where funding fell by nearly 39% year-on-year.
However, the government maintains that startup closures are a normal part of business cycles rather than evidence of systemic weakness. Minister of State Jitin Prasada recently stated that startup shutdowns are often linked to market viability, changing economic conditions, and product relevance rather than a broader deterioration in the ecosystem.
Another major challenge facing mature startups is the rising cost of “reverse flipping” — the process of shifting overseas holding companies back to India ahead of public market listings. Companies such as Groww, Meesho, and PhonePe have reportedly paid substantial tax liabilities to restructure their corporate entities and align themselves with future IPO plans.
Government Push and SEBI Reforms Reshape Venture Capital Landscape
To strengthen India’s innovation ecosystem, the Department for Promotion of Industry and Internal Trade (DPIIT) has introduced operational guidelines for the ₹10,000 crore Startup India Fund of Funds 2.0.
Under the framework, the Small Industries Development Bank of India (SIDBI) will act as the implementing agency. Instead of investing directly in startups, the government will channel capital through SEBI-registered Alternative Investment Funds (AIFs), which will then deploy funds into eligible ventures.
The programme places strong emphasis on deep-tech startups, innovative manufacturing, micro venture capital funds, women entrepreneurs, and founders from Tier-2 and Tier-3 cities. New provisions also allow reinvestment opportunities and require unutilised funds to earn returns linked to the RBI repo rate.
At the same time, regulatory changes introduced by SEBI are reshaping the venture capital ecosystem. Stricter eligibility requirements for angel investors, including higher net-worth thresholds and larger minimum investment amounts, have significantly reduced retail participation in startup funding. Industry estimates suggest angel investment rounds declined by 44% during 2025.
Additional disclosure requirements for foreign investors and updated rules governing unliquidated investments in AIFs are aimed at improving transparency and strengthening governance standards.
As India’s startup ecosystem enters a new phase, the launch of AUM Ventures’ $80 million fund underscores continued confidence in innovation-led businesses. However, the contrasting realities of unicorn creation, rising startup closures, regulatory reforms, and funding challenges suggest that the path ahead will reward only the most resilient and technology-driven founders.