Karnataka startup funding drops 23% in Q1 2025 to $633 million; no unicorns, no $100 million+ deals

Karnataka's startup ecosystem witnessed a sharp decline in funding activity in the first quarter of 2025, with total capital raised dropping 23% quarter-over-quarter, according to Tracxn's latest Karnataka Tech Funding Report.

The state's startups collectively raised $633 million, a steep fall from the $825.5 million in Q4 2024 and an even more pronounced 46% drop from $1.2 billion in Q1 2024.

The report underscores a continued cooling in venture activity, marked by the absence of any $100 million+ deals or new unicorns during the quarter—an indication of investor caution amid a broader recalibration of startup valuations and growth expectations.

No mega deals, no unicorns

Q1 2025 closed without a single $100 million+ funding round, down from one in Q4 2024 and two in Q1 last year. The state also failed to produce any unicorns, repeating the trend from Q4 2024.

By contrast, two unicorns had emerged in Q1 2024, signalling a more buoyant funding environment just a year ago.

Funding slows across most stages

Seed-stage funding amounted to $57.3 million, down 14% from Q4 2024 and 55% from the same quarter a year ago. Late-stage funding—typically driven by larger checks—tumbled to $282 million, a 48% fall from the previous quarter and 60% lower than Q1 2024.

Amid the downturn, early-stage startups bucked the trend, raising $294 million, a 34% increase over Q4 2024. While still below Q1 2024's total of $344 million, the rebound in early-stage deals reflects renewed investor appetite for younger companies with scalable models.

Enterprise, fintech, and retail lead the way

Despite the funding pullback, Enterprise applications, fintech, and retail emerged as the top-performing sectors. Enterprise Applications raised $298.6 million, up 80% from Q4 but down 18% from the year-ago period. Fintech startups attracted $221.1 million, a staggering 271% jump from Q4, though still trailing Q1 2024’s $309.2 million. The retail sector secured $219.8 million, up 80% from the previous quarter and down 12% from Q1 last year.

The rise in sector-specific investments suggests investors are narrowing their focus to proven verticals amid a broader market correction.

Bengaluru remains the epicentre

Unsurprisingly, Bengaluru accounted for more than 99% of all startup funding in Karnataka. The state's capital continued to dominate the tech landscape, with Hubli trailing at a distant second. Investor activity remained concentrated among top-tier firms. 

Accel, Blume Ventures, and Sequoia Capital emerged as the most active backers overall. At the seed stage, 100X.VC, Venture Catalysts, and Antler led the charge. For early-stage deals, Accel, Alteria Capital, and Peak XV Partners stood out, while Think Investments, M&G, and Mars Growth Capital topped the late-stage charts.

Notable acquisitions

While capital inflows dipped, acquisition activity surged, with 21 deals recorded in Q1 2025, nearly doubling from 11 in the previous quarter. The most prominent transaction was Amazon's $150 million acquisition of Axio, followed by Mintoak's $3.5 million purchase of Digiledge.

The rise in M&A activity, particularly involving global acquirers, signals renewed confidence in strategic consolidation, even as primary capital remains scarce.

While Q1 2025 has clearly been a period of retrenchment for Karnataka's startup ecosystem, pockets of strength—particularly in early-stage funding and enterprise sectors—suggest the market is resetting rather than retreating.

The lack of blockbuster deals and unicorns may signal a more disciplined funding environment, but the increased investor interest in sectors aligned with real business needs—such as productivity tools, financial access, and consumer retail—could pave the way for more sustainable growth.