Overall funding dips, but investor interest rises in early stage start-ups in Karnataka: Report

Karnataka-based tech companies recorded a year-on-year funding drop of 28% in 2025, notes a report recently released by market research firm Tracxn.

According to data from Tracxn, the State witnessed a significant percentage drop compared to geographies such as Maharashtra, Delhi NCR and Tamil Nadu.

However, in terms of the total capital raised, Karnataka remained ahead of its peers.

Leading in numbers

Karnataka-based tech companies raised a total funding of $3.8 billion in 2025, a drop of 28% compared to the $5.4 billion raised in 2024.

In contrast, Delhi NCR witnessed a 7% rise and Maharashtra witnessed a 7% drop in overall tech funding in the corresponding period, as per data from Tracxn. While Telangana witnessed a 64% decline in funding, Tamil Nadu saw only a 3% drop.

However, the total funding amount raised by tech start-ups in these geographies in 2025 stood at $2.9 billion, $2.5 billion, $236.4 million and $655.1 million, respectively, lagging behind Karnataka.

Changing patterns

The report titled Karnataka Tech 2025 recorded a change in capital deployment patterns in the State. A 27% contraction in deal volume was seen during 2025. The drop in overall funding was attributed largely to a slowdown in late-stage investments.

Early-stage start-up funding witnessed a 32% rise from the previous year, with start-ups raising $1.6 billion. This also marked a 37% rise from the $1.1 billion raised in 2023.

However, more caution was observed in the seed stage and late stage funding.

Betting on innovation

Seed-stage companies in Karnataka raised a total of $434 million in 2025, marking a 17% decrease from the $520 million raised in 2024. 

The funding drop in late-stage was even sharper, with companies raising only $1.8 billion in 2025, a 50% drop from the $3.6 billion raised in 2024.

According to Tracxn, this reflected investors’ preference to bet on the next wave of innovation over scaling mature assets.

Madan Padaki, serial entrepreneur and former president of TiE Bangalore, notes that a large number of upcoming deeptech and AI start-ups are catching investor fancy, causing a spate of activity in the early stage segment.

“In the last many years, it is the unicorns in Bengaluru that hogged a significant portion of the overall funding. Valuations of many unicorns have dropped now and they have stopped raising significant capital. Many of them are in pursuit of profitability. So, founders themselves don’t want more capital, and the investors also don’t want to invest in them,” says Mr. Padaki.

Rise of IPOs

He points out that many start-ups have also gone for IPOs and funding is coming in the form of capital markets.

The year that went by saw a rise in the number of public listings from the State. Nine companies took the IPO route in 2025 as against eight in 2024 and three in 2023. Among the companies that got listed in 2025 are Groww, Meesho, and Ather Energy.

The ecosystem saw three unicorns created in 2025, as against five in 2024 and one in 2023.

Enterprise Applications, FinTech, and Retail were the top-performing sectors in Karnataka’s tech ecosystem in 2025. The Enterprise Applications sector recorded total funding of $1.1 billion in 2025, remaining in line with 2024. FinTech companies raised $1 billion during the year, representing a 47% increase from 2024.