How venture capitalists fund Indian startups: Inside the minds of India's top VCs

Raising capital is a well-known challenge for startup founders. But what about the investors backing them?

Venture Capital Funds (VCs), too, must fundraise - convincing Limited Partners (LPs) to bet on their fund, navigating portfolio strategy, and ensuring timely exits for returns.

In the latest episode of the Prime Venture Partners Podcast, get a deep-dive into the business of venture capital with three leading homegrown investors: Gautam Mago, Partner, A91 Partners; Rahul Chowdhri, Partner, Stellaris Venture Partners; and Amit Somani, Managing Partner, Prime Venture Partners playing host on this panel session.

Each of them have co-built homegrown Indian VC firms, raising multiple funds totalling ~$2B, backing market-defining startups and navigating the evolution of venture capital in India.

This episode offers rare insights into how VCs raise funds, support founders, and plan exits - challenges that aren’t often talked about.

VCs vave to fundraise too!

Founders hustle for capital, but so do VCs. Raising a fund isn’t about one "yes" - it’s about convincing dozens of investors to back you for 10+ years.

"Most founders think VCs have unlimited money. But the reality is - we, too, must raise funds. And in many ways, it’s harder than raising a startup round," says Somani.

Even seasoned investors face rejection. "There was a time when we thought we’d have to pack up and go home," says Rahul about raising Stellaris’ first fund.

"You don’t need just one 'yes' - you need many. That’s what makes VC fundraising unique," says Mago.

The evolving limited partners landscape in India

A decade ago, global LPs dominated Indian VC funding - pension funds, endowments, and institutions from the US or Europe. Today, India has its own growing base of LPs - family offices and institutional backers looking to invest in venture.

"There are reasonable-sized LPs in India now, but they’re still evolving in terms of understanding venture investing," says Mago.

"LPs who were hesitant about India 10 years ago are now eager. But the real shift will happen when India’s institutional investors start allocating serious capital to venture," says Chowdhri.

While this shift brings more domestic capital for startups, it also raises new challenges in educating LPs on fund cycles, risk, and long-term returns.

Why India? The big question for global LPs

The macro indicators for India have never been stronger:

• $3+ trillion economy
• Rising GDP per capita
• Thriving digital ecosystem

Yet, LPs still ask: “Does India offer the returns to justify the risk?”

"We’ve seen increased LP interest in India over the past 6-9 months - more than in the last 6-9 years." - Amit Somani

"LPs are optimistic about India, but they also ask tough questions - Why India? Why now? Why are you? They need proof that a venture here can deliver outsized returns," says Mago.

The exit problem: M&As are rare, IPOs take time

For VCs and LPs, exits define success:

IPO timelines in India? At least 13-15 years for the best companies.

M&A market? Rarely, India doesn’t yet see multi-billion-dollar acquisitions like the US.

Solution? Smart funds are leveraging secondaries - taking liquidity in growth rounds while still betting on long-term winners.

"The challenge isn’t just building great startups - it’s about ensuring liquidity along the way. M&A markets aren’t as deep, so we must think ahead," says Mago.

"Full potential exits don’t work in India. You need a ‘McAloo Tikki’ strategy - something that fits the Indian market," says Chowdhri.

"If you're investing in the early-stage, you must back companies with IPO potential. There’s no other scalable exit path," says Somani.

The future of Indian VC

By 2030, we should see:

• Larger, more sophisticated Indian LPs funding local startups.
• More late-stage, India-specific funds writing $50M+ checks.
• Stronger proof of DPI (capital returned to LPs) as Indian VC firms mature.

"For Indian VC firms to be truly world-class, they must last beyond their founding partners - just like Sequoia & Bessemer have done over decades," says Chowdhri.

"We’ve made incredible progress, but the next decade is about making Indian VC sustainable—not just in returns, but in longevity," says Mago.

"The real bottleneck isn’t LP interest - it’s how we build great companies in India. If the companies thrive, the capital will follow," adds Somani.

This episode is a must-listen for founders, investors, and anyone curious about how VC works behind the scenes.

Timestamps:

0:00 - Introduction

2:45 - How Gautam Mago & Rahul Chowdhri Became VCs

4:55 - The Growth of India’s Startup & VC Ecosystem Over the Years

7:40 - How LPs Shape the Venture Capital Industry

12:08 - What VCs Look for in a Startup

16:35 - Fundraising Mistakes Founders Make & How to Avoid Them

21:20 - India vs Global VC Markets: Differences in Investment Strategies

26:05 - Sectors & Trends That Will Define the Next Wave of Startups

30:50 - Why Exits Matter: IPOs, Acquisitions & VC Returns Explained

36:45 - Advice for Founders