LPs in limbo: why much of India’s VC money is stuck on ice

India has billions of dollars in VC inflows and one of the world’s busiest startup pipelines. But for many limited partners (LPs) who wrote checks a decade ago, the money is still very much tied up, interviews with tech investors in the country reveal.

“You take the risk, wait years for exits, and you’re left with very little,” says a venture capitalist who requested anonymity.

Meanwhile, IPOs remain sporadic, despite India producing more than 100 unicorns over the past decade, with activity peaking during the 2021-2022 funding boom.

Early unicorn IPOs – Paytm, Nykaa, PolicyBazaar, and Zomato – ran headlong into post-listing slumps and brutal drawdowns before partially recovering. This made both founders and investors in VC and private equity (PE) cautious, contributing to a stop‑start, non‑steady IPO pattern.

Strategic M&A is thin. In 2025, tech startups in the country recorded around 136 acquisitions, a modest uptick but still below the peak levels seen in prior years.

For limited partners to commit fresh capital, exits need to be more predictable – something that remains difficult in India.

The Securities Exchange Board of India (SEBI), for example, requires VC funds to run for 10 years with limited extensions. However, the regulator does not allow funds to shut down early.

This poses a challenge because startup exits don’t follow fixed timelines. When markets are weak or exits are delayed, the rule forces fund managers to sell companies too early or at discounted prices simply to meet the regulatory clock, consequently hurting returns for investors.

Also, the lack of an early wind-down option makes it harder for funds to manage portfolios during downturns and leaves many older VC funds stuck in regulatory limbo.

“SEBI’s fixed fund-life framework offers little room for early wind-downs when exit timelines slip,” says M Varatharajan, who previously worked with iDrive Capital and market research firm Venture Intelligence.

To formally shut down or restructure, managers must either migrate into an alternative investment fund – SEBI’s newer regulatory framework for VC and private equity funds – or keep extending fund timelines.

A market that should exist but doesn’t

The opacity problem

Where the math breaks

Discounted or no liquidity?

A quiet policy gap