Harnessing Domestic Capital: The Next Big Leap for India’s Startup Ecosystem

When Hon. Commerce & Industry Minister Shri Piyush Goyal recently urged India to “use domestic funds to build the next phase of our startup ecosystem,” it was not just a policy remark — it was a powerful statement of direction. It aligns perfectly with the vision of Atmanirbhar Bharat and Make in India, and recognises the reality that India has evolved from being a market for ideas to a creator of them.

From the Capital of Ideas to the Capital of Startups

India — and Bengaluru in particular — is now celebrated as one of the world’s most vibrant startup hubs. Unicorns are emerging faster than ever before, and several have successfully gone public. Yet, amid the celebration, there is a less-discussed reality: in most of these firms, promoter holdings have fallen to barely 10 per cent. The rest of the ownership is held by foreign venture capital and private equity investors.

Two decades ago, this was acceptable — capital was the scarcest of the four factors of production. Today, however, the differentiator is not capital, but creativity and entrepreneurship. The ideas are Indian, the innovators are Indian, the talent is Indian — but the ownership and strategic control, too often, are not.

Why Domestic Capital Matters

The call to “build with domestic funds” is not about rejecting foreign investment; it’s about balancing the equation of control, continuity, and sovereignty

Foreign capital is often structured for quick exits and high returns.

When ownership and control rest largely abroad, so do the levers of strategy, technology, and data governance. 

Domestic funding helps ensure that Indian innovation serves Indian priorities — from financial inclusion to digital infrastructure. Retaining more ownership at home ensures that wealth creation, employment multipliers, and secondary benefits (such as reinvested profits) remain within our economy. It’s how we build true “national champions.”

Building the Domestic VC Ecosystem

India is not short of capital. Our pension funds, insurance companies, banks, and family trusts collectively manage trillions of rupees. The challenge lies in creating an enabling ecosystem to channel this into startups. That means policy, regulation, and mindset all need to evolve.

1. Institutional mechanisms.
   The government’s Fund of Funds for Startups (FFS), managed by SIDBI, is a step in the right direction. It mobilises domestic institutions to invest in Indian venture funds that, in turn, back Indian startups. Expanding this model through state funds and corporate venture capital can multiply its impact.
2. Tax and regulatory incentives.
   Rationalising capital-gains taxation, easing compliance norms, and providing clarity on valuation guidelines would encourage domestic LPs (limited partners) to participate more actively.
3. Professional fund management and governance.
   Domestic fund managers must build credibility through transparency, consistent reporting, and strong governance. Here, the roles of Boards, internal audit, and information systems audit become critical — ensuring both investor confidence and systemic resilience.
4. Robust exit pathways.
   Healthy IPO markets and acquisition frameworks are essential for domestic funds to recycle capital. India’s recent surge in SME and startup listings on NSE Emerge and BSE Startups Exchange is encouraging, but deeper secondary markets are needed.

Current Progress and Public Sentiment

Data from The Economic Times (2025) shows that India’s venture capital assets under management rose to ₹4.9 lakh crore, led by domestic fund flows. Family offices and smaller domestic funds are increasingly active, signalling that the ecosystem is slowly maturing.

Minister Goyal’s remarks underline the government’s commitment to deepen this pool, while think tanks such as ORF and IMPRI have also called for “reclaiming innovation financing from within.” The direction is clear: India must become not only a startup factory, but also its own financier of innovation.

Way Forward:

It’s essential to recognise that foreign investment has played a crucial role in India’s rise as a startup powerhouse. Global VCs bring:

• Access to international markets and customer bases,
• Mentorship, governance models, and exit expertise, and
• Deep pools of follow-on capital.

The goal, therefore, is not exclusion but equilibrium. India must blend global exposure with domestic ownership.

Beyond Capital: The Mindset Shift

True Atmanirbhar Bharat is not only about manufacturing or export substitution; it’s about owning the value we create. For that, India needs confidence — confidence in its entrepreneurs, in its fund managers, and in its financial architecture.

Bengaluru, Mumbai, and Hyderabad may be the visible faces of the startup story, but with the right domestic capital networks, Tier II and III cities can also flourish. The next unicorn may not just come from India — it may be funded, governed, and grown by India.

Conclusion

Minister Piyush Goyal’s call to action is both timely and visionary. The startup story that began with global capital must now enter its next chapter — powered by Indian ideas, Indian capital, and Indian conviction.

If we can channel our domestic funds with discipline, transparency, strict risk management and long-term commitment, we will not just build startups; we will build a self-sustaining ecosystem of innovation, ownership, and national wealth creation.

“Should India’s next unicorns be funded primarily by domestic capital?”