India’s startup and venture capital ecosystem is entering a new stage of growth. Along with rising startup investments and more companies going public, investors are now looking for better ways to generate returns and improve liquidity. One of the biggest trends supporting this shift is the growing use of continuation funds.
At the same time, the Indian government is investing heavily in sectors such as semiconductors, artificial intelligence, electronics manufacturing, and electric vehicles. These efforts are helping India move closer to its goal of becoming more self-reliant in technology and advanced manufacturing.
Together, these financial and policy developments are creating fresh opportunities for startups, investors, and technology companies across the country.
Continuation Funds Become a New Tool for Venture Capital Firms
India’s venture capital market has grown rapidly over the past few years. Startup investments have remained strong, and several well-known companies have successfully entered the public markets. However, many investors are still waiting for returns from older funds, creating pressure on fund managers to find new ways to provide liquidity.
This is where continuation funds are gaining attention.
A continuation fund is a new investment vehicle created by an existing fund manager to acquire successful portfolio companies from an older fund that is nearing the end of its life. Instead of selling a promising company too early, the fund manager can continue supporting its growth for a few more years.
Investors in the older fund are given a choice. They can either sell their stake and receive cash or continue investing in the company through the new fund. This flexibility helps investors who want liquidity while also allowing others to stay invested in businesses that still have significant growth potential.
The model has become increasingly popular around the world and is now finding strong acceptance in India as well. One recent example is YourNest, which launched a ₹400 crore continuation fund to support seven mature portfolio companies. These businesses operate in sectors such as healthcare technology, artificial intelligence, energy, loyalty solutions, and enterprise software.
Industry experts believe continuation funds will play a much larger role in India’s private capital market in the coming years, especially as startups take longer to reach IPOs or large acquisition opportunities.
Regulatory Changes Support a Stronger Investment Ecosystem
As continuation funds become more common, regulators and industry bodies are focusing on maintaining transparency and protecting investor interests.
Since the same fund manager is involved in both the selling and buying sides of a continuation fund transaction, there can be concerns about conflicts of interest. To address this, fund managers typically use independent valuations, third-party reviews, and competitive bidding processes to ensure fair pricing.
Investors are also given sufficient time to review the transaction before making a decision.
At the broader level, India’s Alternative Investment Fund (AIF) regulations have continued to evolve. Recent changes allow certain investment funds to create dedicated co-investment structures for accredited investors. These reforms are designed to make investing easier and more transparent.
New rules for angel funds have also been introduced. These include minimum investment requirements for fund sponsors and restrictions on investments from related parties. Such measures are expected to improve governance and strengthen investor confidence across the startup ecosystem.
These regulatory improvements reflect the growing maturity of India’s venture capital industry and its efforts to align with global best practices.
Government Push for Deeptech and Manufacturing Gains Momentum
Alongside changes in the investment landscape, the Indian government is actively supporting technology-led growth through a series of large-scale initiatives.
Electronics manufacturing has seen significant growth in recent years, driven by Production-Linked Incentive (PLI) schemes. These programmes encourage companies to manufacture products locally and reduce dependence on imports. Similar support is being provided for IT hardware and electronic components.
The government is also making major investments in the semiconductor sector through the Semicon India Programme. The initiative aims to build a stronger domestic chip ecosystem by supporting both chip design and manufacturing activities.
Artificial intelligence has become another key focus area. Through the IndiaAI Mission, the government is building high-performance computing infrastructure, creating access to large datasets, and supporting the development of AI models designed for Indian languages and local needs.
The programme is also helping train future talent through AI labs, fellowships, and research initiatives across the country.
India’s electric vehicle ecosystem is receiving support as well. Government agencies, research institutions, and industry partners are working together to develop locally designed EV technologies such as motors, battery management systems, and charging solutions.
Meanwhile, Infrastructure Investment Trusts (InvITs) are helping finance large infrastructure projects by allowing developers to unlock capital from operational assets and invest in new developments.
Together, these initiatives show how India is building a stronger foundation for innovation, technology development, and manufacturing growth. As venture capital firms adopt new investment models such as continuation funds and government-backed programmes accelerate deeptech development, India’s startup ecosystem is becoming more mature, resilient, and globally competitive.