PE-VC funding in late stage cos dips as investors turn cautious

CHENNAI: Private Equity-Venture Capital (PE-VC) investments in late stage companies plunged by 61% over the past four years as investors have turned cautious. It has recorded a sharp decline from $23.4 billion in CY2021 to around $9 billion last year (CY2024), data sourced from research firm Venture Intelligence has revealed.

The trend continues in the current FY with investments down to nearly $1.2 billion during Jan-March (CY2025) against $2 billion in the corresponding three months period of last year. The data excludes those investments in the real estate sector.

Arun Natarajan, founder, Venture Intelligence said, growth stage and late stage deals suffered the most from 'Funding Winter' after peaking in CY2021. "The recovery in growth stage and late stage funding is expected to be gradual, and led by domestic investors and longer term foreign investors including sovereign wealth firms, Family Offices and traditional PE firms," he told TOI. Also, the number of deals in the last stage companies by PE-VC investors is down from 197 in CY2021 to 165 in CY2024, the data said. Late Stage companies are those more than 10 years old or Series G or later rounds of institutional investments.

Karan Agarwal, director of PE firm Wilson and Hughes said, the drop in late-stage investments is an indication that the market has fundamentally recalibrated. "The year 2021 was an anomaly, driven by excess liquidity, record-low interest rates, and aggressive growth bets. Today, capital is more expensive, and investors are no longer funding hypergrowth without clear profitability. The reduction in deal value suggests a shift toward smaller, more structured rounds," he said.

Pointing out that many late-stage companies raised capital at peak valuations in 2021, he said, investors are hesitant to double down without a clear path to profitability. "The weak IPO pipeline means exit options are limited, leading PE-VC firms to deploy cautiously. Instead of fuelling aggressive scaling, capital is flowing into companies that can demonstrate strong cash flow and operational efficiency," Agarwal added.

Navin Honagudi, managing partner at Elev8 Venture Partners said, the trend of selective investments is likely to persist this year. "While we might see some recovery in certain sectors as macroeconomic conditions stabilize, the focus will remain on sustainability rather than just top-line growth. Investors are increasingly aware that the low-cost, high-growth days of the past may not return.

However, this doesn't mean opportunities will dry up. Markets are evolving, and with that comes the rise of new sectors like AI, wealthtech, consumer tech and others that offer resilient, profitable business models," he said.