According to the India Venture Capital Report 2026 by Bain & Company and the Indian Venture Capital and Alternate Capital Association (IVCA) (the “Bain VC Report 2026”), venture capital and growth equity investments in India reached approximately USD16 billion in 2025, representing a 1.2-fold increase over 2024 levels. Growth was balanced between deal volumes (approximately 1,400 deals) and average deal sizes (approximately USD11.5 million). This performance is notable given that broader private capital deployment remained subdued, while global markets continued to face tariff uncertainty, geopolitical risk and tighter liquidity. Investments were concentrated in mid-size deals (sub-USD50 million), primarily supporting emerging start-ups and growth companies in AI/generative AI, consumer technology, fintech, and software-as-a-service (SaaS) sectors. The Bain VC Report 2026 indicates a shift away from traditional segments such as banking, financial services and insurance (BFSI), which had dominated the previous two years. Notably, India’s share of Asia-Pacific VC and growth deployment increased to approximately 20%, although its global share declined as the US market rebounded more rapidly, growing 1.8 times over 2024 levels.

Significant investments during the period included PhonePe (approximately USD600 million), Zepto (approximately USD450 million), Porter (approximately USD310 million), Moengage (approximately USD280 million), Darwinbox (approximately USD140 million), Snapmint (approximately USD125 million), and Dhan (approximately USD120 million), among others. Exits remained broadly stable, with an improved composition as IPO-led exits increased by 30% year-on-year, public-market exits continued to dominate, and strategic sales rebounded sharply from 2024 lows. The Bain VC Report 2026 identifies consumer technology and fintech as accounting for more than 60% of total VC and growth exit value, with notable exits including Groww, Paytm, Dr Agarwal’s Health Care, and Sai Life Sciences.

India demonstrated resilience as capital returned selectively, growth rounds focused on scalable sectors, and exit visibility improved compared to 2024, despite continued selective liquidity.

The most significant trend in the Indian venture market over the past 12 months has been the shift from volume-led recovery to balanced, quality-driven growth. Unlike 2024, 2025 saw both deal count and average ticket size rise in parallel: USD100 million-plus rounds rebounded (particularly in software/SaaS and fintech), USD250 million-plus deals doubled year-on-year, and sub-USD 50 million activity remained the market’s core. Capital rotation was pronounced, with fintech deal value rising by approximately 2.2 times (led by payments and wealthtech), software/SaaS funding increasing by 1.5 times (driven by AI-led product evolution and international expansion), and consumer tech becoming more selective, shifting towards verticalised quick commerce, higher-margin D2C and retention-led economics.

Capital has continued to flow, but investors have focused more on companies with stronger unit economics, clearer monetisation pathways and better governance. This has affected deal terms more by tightening execution standards than by a fundamental shift in documentation. Investors are applying greater valuation discipline, conducting thorough due diligence, and seeking stronger information rights, governance controls and reserved-matter protections. In stronger companies, the mainstream position remains largely unchanged, but in more competitive or stressed situations, investors are pushing for tighter downside protection and more structured liquidity outcomes.

The strongest financing sectors were fintech (payments, wealthtech, alternative lending), software/SaaS (AI-led product pivots, generative AI-native B2B applications, international expansion), consumer tech (verticalised quick commerce, scaled D2C brands) and AI/generative AI (vertical applications in BFSI and healthcare). A directional distinction can be drawn between sectors with deeper follow-on financing activity and those with more visible monetisation pathways. Fintech and consumer tech currently anchor the exit landscape, together accounting for over 60% of total exit value, with healthcare and software/SaaS recording substantial exit growth through select large transactions and late-stage funding rounds. By contrast, earlier-wave AI-native, vertical commerce and emerging D2C businesses remain predominantly financing-heavy, with exit pathways still developing.

Venture capital funds in India are typically organised as Securities and Exchange Board of India (SEBI) regulated Alternative Investment Funds (AIFs) and, as a matter of market practice, are most commonly established in trust form, although the AIF Regime (as defined at 2.3 Fund Regulation) also permits the structuring of a fund in the form of a company or a body corporate or a limited liability partnership (LLP). The trust structure remains the preferred vehicle because of its structural flexibility, lighter ongoing compliance burden and relative tax efficiency. In a trust-based structure, the usual architecture is a settlor, trustee, manager and contributors/investors. The trustee holds the fund property, while the primary management powers are typically delegated to the investment manager. In practice, the manager often also acts as the sponsor.

Decision-making is therefore ordinarily exercised through the investment manager, pursuant to the investment management agreement, with the trustee retaining such reserved powers as are identified in the trust instrument. In LLP and company structures, investors participate as partners or shareholders, respectively, but those forms are materially less common for Indian AIFs.

The core constitutional and commercial documents are:

• the trust deed/indenture of trust (or constitutional documents of the LLP/company);
• the private placement memorandum (PPM);
• the investment management agreement; and
• the contribution/subscription agreement.

Fund Principals in India typically participate in fund economics through a combination of management fees, carried interest (additional return), and sponsor or manager commitments. The investment manager is ordinarily paid an annual management fee for managing the fund, and is also entitled to a share of post-capital profits through the distribution waterfall. The sponsor commitment is generally treated pari passu with other investor commitments, save that the management fee is often not charged on that commitment. The AIF regime also requires a minimum continuing interest from the sponsor or manager as “skin in the game”, although investors may negotiate a larger commitment contractually.

Carried interest mechanics in India are typically structured through a waterfall comprising return of capital, preferred return, catch-up and residual profit split. Carried interest is commonly referenced in the 15%–20% range, with clawback and retention/escrow mechanics used to protect investors against over-distribution. Indian and India-focused funds have more commonly adopted a European-style whole-fund waterfall, although variations within that template are now actively negotiated.

Continuation fund activity, while still nascent relative to the US and European secondaries markets, has become materially more visible in India. Notable transactions include ChrysCapital’s approximately USD700 million continuation fund to retain its position in NSE and Multiples’ approximately USD430 million continuation vehicle in 2025, both structured under the AIF framework. This trend is driven by delayed exits, vintage overhangs from 2015 to 2020 fund cycles, and SEBI’s regulatory framework for AIF tenure extensions and liquidation, which together provide a viable domestic structuring pathway for GP-led secondary transactions.

As to investor protection and governance, negotiated terms have become more institutionalised. The terms that now recur most frequently include:

• key person provisions;
• change-of-control protections;
• GP removal or no-fault divorce-style rights;
• carried interest clawbacks;
• fee adjustments;
• indemnification protections;
• MFN and side-letter arrangements; and
• more detailed disclosure obligations.

That negotiated market practice sits alongside a stronger regulatory baseline requiring:

• fiduciary conduct;
• conflict management;
• transparency; and
• subject to permitted exceptions, pari passu treatment of investors.

Venture capital funds in India are typically regulated as AIFs rather than as mutual funds or public investment companies. The principal legislation is the SEBI (Alternative Investment Funds) Regulations, 2012, read with the Securities and Exchange Board of India Act, 1992 and the applicable SEBI circulars and master circulars issued thereunder (collectively, the “AIF Regime”). Given the form of the vehicle, along with the AIF Regime, the relevant statute – including the Indian Trusts Act, 1882, the Companies Act, 2013 (the “Companies Act”) or the Limited Liability Partnership Act, 2008 – would also be applicable. AIFs are privately pooled investment vehicles that raise capital on a private placement basis and are expressly carved out of the regimes applicable to mutual funds, collective investment schemes, and other separately regulated fund vehicles.

For venture and growth strategies, the relevant categories are usually Category I and Category II. A venture capital fund falls within Category I, which is intended for start-ups, early-stage companies, and other sectors regarded as socially or economically desirable. That route comes with sub-category-specific investment conditions, including the requirement that venture capital funds invest the prescribed proportion of investable funds in qualifying venture capital investments.

A significant part of the Indian venture and growth market is also organised through Category II AIFs. Category II is the residual category for funds that are neither Category I nor Category III and do not use leverage other than limited temporary borrowing permitted under the AIF Regime. In practice, funds with a broader private equity or growth strategy, or which do not fit comfortably within the venture capital fund subcategory, are often housed in Category II.

The current Indian VC fund environment is marked by a deeper and more institutionalised AIF market, greater domestic participation, and a wider range of product structures. There is also a visible increase in attention to ESG and sustainable investment themes, and GIFT IFSC has become a more relevant venue for structuring India-focused funds. Co-investment structures are also increasingly prominent.

Regarding government and quasi-government participation, a clearer trend is the gradual widening of the pool of domestic institutional capital permitted to invest in AIFs. In particular, the regulatory framework permits non-government provident funds, superannuation funds, gratuity funds, and NPS pension funds to invest in specified Category I and Category II AIFs, subject to prescribed conditions and exposure limits.

To accommodate longer average holding periods, Indian funds principally rely on tenure extensions, recycling provisions and the newer SEBI winding-up tools. Category I and Category II AIFs are close-ended, and their tenure may be extended by up to two years with the approval of investors holding at least two thirds by value. Large-value funds for accredited investors have greater flexibility. Managers also commonly negotiate recycling rights, usually subject to caps, time limits and other LP safeguards. Where liquidity remains unavailable at the end of the term, the SEBI framework now permits an additional liquidation period, dissolution period, liquidation schemes and, subject to conditions, in-specie distribution of unliquidated assets.

In India, the level of due diligence conducted by venture capital investors is typically risk-based and stage-sensitive. In seed and very early-stage transactions, diligence is usually more focused and confirmatory, with particular emphasis on the founders, product, market opportunity, early traction, and the company’s basic legal integrity. In larger early-stage, growth-stage or sector-regulated investments, the exercise becomes materially more extensive and usually involves legal, financial, tax, commercial and technical workstreams running in parallel.

The principal areas of focus are usually the following.

• Corporate and capitalisation diligence covers incorporation and constitutional documents, the cap table, prior issuances, shareholder arrangements, employee stock options (ESOPs) and the company’s authority to undertake the transaction.
• Financial and tax diligence focuses on historical financial statements, cash position, burn, runway, revenue recognition, key metrics, liabilities, tax compliance and any accounting irregularities or aggressive assumptions in projections.
• Commercial diligence examines the business model, market size, competitive positioning, customer traction, churn, concentration risk, scalability and, where relevant, unit economics.
• Legal and regulatory diligence typically covers material contracts, licences, litigation, data and consumer compliance, sector-specific regulation, related-party arrangements and any historical non-compliance with applicable laws.
• Intellectual property, employment and operational diligence usually include ownership and assignment of intellectual property, founder and employee contracts, consultant arrangements, confidentiality protections, incentive plans and key dependency risks within the business.
• Where the company is technology-led, investors will also look closely at technology infrastructure, data protection, cybersecurity and product integrity, integration of open source software, among others. In sectors that are regulated or operationally sensitive, diligence is often deeper and more specialised.

For investments involving foreign investors, the Foreign Exchange Management Act, 1999, read with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (collectively, the “Foreign Investment Regime”), becomes a key diligence stream. This typically includes reviewing whether the business and the proposed instrument are eligible for foreign investment, whether the investment is under the automatic or approval route, whether any sectoral or beneficial ownership restrictions are engaged, and whether prior and proposed issuances, transfers, pricing, remittances and reporting comply with the applicable Foreign Investment Regime.

The practical position is that Indian venture capital diligence is not uniform across all transactions. It is calibrated to stage, sector, cheque size, regulatory exposure and investor profile, but the recurring focus remains on cap table integrity, compliance hygiene, founder and IP ownership, financial reliability and foreign investment compliance where relevant.

There is no reliable uniform market timetable in India. In a well-prepared company with a clean cap table, limited legacy rights and no material regulatory complications, the process can move from signed term sheet to closing within a matter of weeks. Equally, it is not unusual for the process to extend materially longer, sometimes to several months, where the following occur:

• legacy rights issues;
• extensive diligence findings;
• sectoral regulation;
• foreign investor participation;
• a secondary component; or
• negotiated changes to governance or economics.

In practice, the relationship between the parties in one round is governed primarily by the company’s existing constitutional documents and contractual architecture and by relative bargaining power at the time of the round, rather than by a single market norm. Existing investors may support the new lead investor, invest pro rata alongside it, negotiate against it on economics or governance, or remain relatively passive. Much depends on their ownership, board position, affirmative voting rights, entry stage, and the extent of protection already embedded in the constitutional documents and the shareholders’ agreement. Venture investors in India commonly obtain protective rights over management decisions, and those legacy protections often determine how much room the company has to agree to new terms with an incoming investor.

There is likewise no fixed market position on joint versus separate counsel. In smaller or less contentious rounds, documentation may be negotiated in a relatively streamlined way, but in a larger round with a new investor, it is common for the company and the new lead investor to have separate counsel, and for a significant existing investor to retain separate counsel as well if its rights, economics or governance position are materially affected. Internal fund processes can also affect the cadence of the round, particularly where the new investor requires formal investment committee approval, enhanced diligence sign-off or deviations from standard form documents.

Approval mechanics in India often lie at the heart of the real process complexity. In some rounds, the existing documents permit the company to proceed with board approval plus majority or supermajority shareholder approval. In others, specific investor or class consents are required due to reserved matters, pre-emption rights, anti-dilution mechanics, class rights, or bespoke protections negotiated in earlier rounds. Further, under the Companies Act, a special resolution requires votes in favour to be at least three times the votes cast against. Alteration of the articles requires a special resolution. Further issuances to selected persons on a preferential basis are also routed through the special-resolution framework and private-placement requirements. Where the round varies class rights, for example, by changing the economic or conversion terms of compulsorily convertible preference shares (CCPS), the Companies Act separately requires written consent of holders of not less than three quarters of the issued shares of that class, or a special resolution passed at a separate meeting of that class, and if another class is affected, three quarters consent of holders of that class is also required.

For foreign investors, an Indian company issuing equity instruments to a non-resident must comply with the applicable entry route, sectoral caps and attendant conditions, as specified in 3.1 Due Diligence. That means foreign investment analysis can affect structure, timing, pricing, instrument choice and document sequencing from the outset.

Accordingly, a new investment round is not governed by a single process template. It is usually shaped by four variables:

• the company’s preparedness;
• the rights package already set out in its constitutional and shareholder documents;
• the leverage of the incoming and existing investors; and
• whether the transaction involves any foreign investment or regulatory complexity.

In India, venture financings are not typically structured as “common stock” (in the Indian context, typically known as “equity shares”) rounds. While equity shares may be issued to founders, under employee stock option plans and in certain very early or founder-led transactions, institutional early-stage rounds are more commonly undertaken through CCPS and, more selectively, through compulsorily convertible debentures (CCDs).

For the purposes of foreign direct investment, the prevailing Foreign Investment Regime recognises equity shares, compulsorily convertible debentures, compulsorily convertible preference shares and share warrants as “equity instruments”, and permits optionality clauses subject to compliance with the foreign investment pricing guidelines and the prohibition on an assured exit price.

CCPS

CCPS remain the preferred instrument in mainstream venture capital rounds in India. As shares issued on the date of issuance, CCPS carry statutory priority over equity shares with respect to dividends and the distribution of surplus on a winding up, and integrate naturally into the shareholder-governance architecture of a venture-backed private company.

In a private company, the default statutory rules governing kinds of share capital and voting rights may be modified through the articles of association by virtue of the exemption framework under Section 462 of the Companies Act. For this reason, CCPS are customarily granted voting rights on an as-if-converted basis under the constitutional documents. Indian market practice accordingly treats CCPS not merely as preference capital, but as the principal vehicle through which investors obtain shareholder-level economics and control rights, including liquidation preference, anti-dilution protection and voting on an as-if-converted basis.

CCDs

CCDs are deployed more selectively, and ordinarily for a distinct commercial purpose. A CCD remains a debenture until conversion, and the Companies Act provides that no company may issue debentures carrying voting rights. CCDs, therefore, do not confer shareholder voting rights prior to conversion and are less naturally suited to a standard priced venture capital round than CCPS.

The principal use case for CCDs in venture practice is bridge or unpriced rounds, where the commercial objective is to defer valuation until the next qualified financing event. In that setting, conversion is typically linked to the price discovered in the subsequent priced round, frequently with the benefit of a discount and, in certain cases, a valuation cap and/or floor. For non-residents, conversion price/formula must be fixed upfront, and conversion cannot be below fair market value at the time of issuance.

Further, convertible notes occupy a narrower position in the Indian venture financing landscape. They are available only to start-ups that have obtained recognition from the Department for Promotion of Industry and Internal Trade (DPIIT) and remain more relevant to seed-stage, bridge or very early-stage transactions than to fully priced institutional rounds. Convertible notes are structured as debt instruments that convert into equity shares upon agreed-upon trigger events, typically the closing of the next priced round, and are attractive when valuation is deferred. A material limitation, however, is that convertible notes must convert into equity shares rather than preference shares. This constraint is a significant reason sophisticated financial investors often prefer CCPS- or CCD-based structures.

Standard Rights

Beyond the baseline entitlements conferred by the relevant instrument under the Companies Act, no market-standard rights arise solely from the nature of the security. In Indian venture practice, the substantive rights package is negotiated in the shareholders’ agreement and, thereafter, to the extent necessary, hard-wired into the investee company’s articles of association. The standard suite of rights for a lead or significant investor in a venture financing will typically include the following:

• information rights and inspection rights;
• pre-emptive rights over new issuances of securities;
• right of first refusal and/or right of first offer over transfers of shares by existing shareholders;
• tag-along rights and, where applicable, drag-along rights;
• board representation or observer rights, together with quorum and reserved-matter protections at board and shareholder levels;
• anti-dilution protection (typically on a broad-based weighted average basis);
• liquidation preference (participating or non-participating, as negotiated, but typically non-participating);
• negotiated exit rights, including qualified-IPO triggers, subject in the case of foreign-held instruments to the RBI’s pricing guidelines and the prohibition on an assured exit price; and
• founder-specific restrictions, including vesting schedules, lock-in periods and permitted-liquidity limits on transfers of founder shares.

These rights are calibrated by reference to shareholding thresholds, round size and relative bargaining strength, rather than by any uniform statutory template.

Secondary Components

Secondary components are not a typical feature of a true early-stage financing in India, where the principal objective remains the injection of growth capital into the investee company. They are, however, increasingly prevalent in later-stage, growth-stage and pre-IPO rounds, where a primary subscription is combined with a secondary sale to provide partial liquidity to founders, holders of vested employee stock options or early-stage investors, while simultaneously introducing a new institutional investor.

Secondary liquidity remains relevant in India’s venture market, particularly for later-stage and mature-company financings. Bain VC Report 2026 indicates that the overall exit environment was broadly steady in 2025, with the mix shifting towards IPO-led liquidity and a rebound in strategic sales. Against that backdrop, primary-plus-secondary structures remain a recognised feature of mature financings in India, although they are still uncommon in seed and early-stage rounds.

The documentary framework for an Indian venture or growth financing round is broadly consistent across transactions. The process begins with a non-binding term sheet (or letter of intent) that sets out the principal commercial terms for the definitive documents. The definitive documentation is then divided into the following categories.

• Transaction documents – The primary issuance is documented through a share subscription agreement (SSA), addressing the subscription amount, instrument type, pricing, conditions precedent, representations and warranties (with a corresponding disclosure letter), covenants, indemnities and use-of-funds restrictions. The inter se rights and obligations of the shareholders and the investee company are then governed by a shareholders’ agreement (SHA), which contains the governance architecture, board rights, reserved matters, transfer restrictions (ROFR/ROFO, tag-along), information rights, anti-dilution, liquidation preference and exit arrangements. In a number of transactions, these are combined into a single share subscription and shareholders’ agreement (SSHA). Both models are well recognised in the Indian market practice. Where the round includes a secondary component, the transfer of existing shares is documented through a share purchase agreement (SPA) or individual investor SPAs. Founders in India are often asked to join the SSA/SSHA both for covenants and for liability allocation, not just the investee company.
• Constitutional documents – Since shareholder rights are enforceable at the company level only to the extent reflected in the constitutional documents, the terms of the SHA or SSHA are hard-wired into amended and restated articles of association. Adoption of the restated articles is a standard closing condition.
• Corporate approvals and closing deliverables – The documentary package is completed by board and shareholder resolutions (including the special resolution under Section 62(1)(c) of the Companies Act, 2013), the private placement offer letter (Form PAS-4) and record of private placement (Form PAS-5), updated capitalisation tables, and valuation reports for Companies Act, income tax and, where applicable, requirements under Foreign Investment Regime. The package may also include side letters to document investor-specific arrangements.

There is no Indian equivalent of the NVCA model documents. Market practice relies on investor-side and counsel-side precedents, informed by the investee company’s existing round documents, stage, investor mix and legacy rights. The documentary architecture, including the term sheet, SSA/SPA, SHA or SSHA, restated articles, and closing deliverables, is recognisable across deals, but the drafting is customised on a deal-by-deal basis to reflect the requirements of the Companies Act, applicable foreign investment regulations, tax considerations and the specific commercial bargain.

In the Indian venture capital landscape, downside protection operates on two planes. In a contractual liquidity event (trade sale, merger, or other negotiated “liquidation event” under the transaction documents), investors rely on liquidation preference provisions in the SHA/SSHA, which are hard-wired into the investee company’s articles of association. These confer a priority claim on proceeds ahead of founders and other holders of equity shares, with inter se economics among investor classes structured pari passu, by seniority or on a hybrid waterfall basis, as negotiated.

In a formal insolvency or winding up, the statutory waterfall under Section 53 of the Insolvency and Bankruptcy Code, 2016, overrides contractual arrangements. Insolvency costs, workmen’s dues, secured and unsecured creditors, employee wages and other creditor classes all rank ahead of shareholders. Preference shareholders then rank ahead of equity shareholders. Investors holding preference instruments, therefore, secure statutory priority over founders and employee equity, but do not outrank employees in respect of statutory wage claims.

The prevailing market position remains a 1x non-participating liquidation preference. The investor takes the higher of its preference amount (typically 1x invested capital, plus accrued but unpaid dividends) or its as-converted pro rata share. Stacked senior waterfalls, capped participation and fully participating structures are legally permissible and do appear, but remain departures from the baseline rather than the default.

Anti-dilution and pre-emption are both highly prevalent and form part of the standard investor rights package. Anti-dilution is typically implemented through conversion ratio adjustments to CCPS or other convertible instruments, with a broad-based weighted-average calculation as the predominant formulation. Full-ratchet protection is available but functions principally as a stress or leverage term. Where instruments are held by non-resident investors, the adjustment mechanics must be structured at the conversion-formula level to remain compliant with the FEMA/NDI pricing framework. Pre-emption rights entitle the investor to subscribe for its pro rata share of new issuances, subject to customary carve-outs (eg, ESOPs, conversion of existing instruments).

The market has shifted towards more selective, profitability-led investing, and investors have, in certain cases, sought stronger downside economics than the earlier customary position. However, participating liquidation preferences, cumulative or compounding preferred returns, and similarly aggressive terms have not become the market standard across Indian VC financings. More aggressive economics appear mainly in stressed, late-stage or highly negotiated rounds, not as the market baseline.

The standard Indian venture model does not contemplate investors exercising day-to-day operational control. Rather, investor rights are structured as negative controls, preventing the company from taking specified actions without investor consent, coupled with visibility and board-level participation that together afford meaningful strategic influence. Day-to-day management is left to the founders and management team.

The market-standard governance package for a lead or significant investor typically comprises the rights described at 3.3 Investment Structure.

While the formal rights architecture is predominantly negative in character, rights geared towards active influence are observed in practice, particularly where the investor is the lead or significant institutional holder. An investor with board representation, budget approval rights, consent to senior management appointments and extensive access to information can materially shape the company’s strategic direction, financing decisions and governance culture, even when its formal rights are framed as oversight and veto rather than direct management. This influence tends to become more pronounced in later-stage, underperforming or heavily negotiated rounds, or where the company is dependent on a concentrated group of institutional investors for follow-on capital.

Representation and Warranties

The representation and warranty package is contained in the SSA or combined SSHA and is driven primarily by contract. The company and founders/promoters typically give:

• fundamental warranties on authority, capacity, valid incorporation, title to shares and capital structure;
• business and operational warranties covering regulatory compliance, financial statements, material contracts, assets, licences, litigation, insurance, employees and intellectual property; and
• tax warranties addressing filings, payments, exposures and disputes.

These are qualified by disclosure schedules, which, in Indian practice, operate as exceptions to the warranties (matters fairly disclosed being carved out of warranty liability). Where a diligence finding is specific and material, a targeted indemnity is typically negotiated in addition to the general warranty package.

Investor representations are narrower and include:

• due organisation and authority;
• power to transact;
• no conflict with constituent documents or applicable law; and
• compliance with sanctions/KYC requirements.

In foreign-led rounds, representations on residency, beneficial ownership and the investment route are material under the Foreign Investment Regime.

Covenants and Undertakings

The covenant package typically includes general ongoing undertakings such as compliance with applicable laws, agreed use-of-proceeds restrictions and observance of the rights and obligations under the SHA and the articles of association, as well as transaction-specific covenants. The latter commonly include:

• pre-closing conditions precedent, requiring the company to cure identified diligence findings before closing (cap table clean-up, IP assignments, ESOP regularisation, regulatory filings, and corporate approvals) as agreed;
• interim conduct covenants, restricting specified actions between signing and closing without investor consent; and
• post-closing undertakings, covering completion of corporate filings, issuance formalities, implementation of governance rights and remediation of issues identified during the diligence exercise that the parties have agreed to address as post-closing undertakings.

Recourse

Remedies are typically layered. For a pre-closing breach, the investor may refuse to close until the relevant condition precedent is satisfied or waived. For post-closing loss, the principal remedies are contractual indemnity and damages, usually subject to negotiated limitations. Specific performance, injunctive relief and other statutory remedies may also be available where monetary compensation is inadequate. Certain event-based recourses are discussed under 6.1 Investor Exit Rights.

Government support for start-up financing in India is most visible at the seed and venture fund level, with later-stage effects generally flowing indirectly through ecosystem development and fund mobilisation. The principal long-standing programme is the Fund of Funds for Startups, administered by SIDBI under the Startup India initiative, with an approved corpus of INR10,000 crore (1 crore equals 10 million). That programme operates through SEBI-registered AIFs rather than through direct investment into start-ups. At an earlier stage, the Startup India Seed Fund Scheme supports proof of concept, prototype development, product trials, market entry and commercialisation through approved incubators. More recently, the government approved Startup India FoF 2.0, notified on 13 April 2026, also with a corpus of INR10,000 crore, to mobilise venture capital for deep-tech, technology-driven manufacturing and early-growth start-ups. Separately, the RDI Scheme approved in July 2025 is a broader INR1 lakh crore (1 lakh equals 100,000) research and innovation financing programme that includes scope for a deep-tech fund-of-funds structure. These measures are complemented by ecosystem platforms such as Startup India Investor Connect and BHASKAR.

There is no general VC-specific tax regime for portfolio companies in India. Absent a start-up-specific incentive, the company and its investors are taxed under the ordinary Indian corporate and shareholder-level tax framework. The main departures are targeted and eligibility-based. Eligible start-ups may seek a profit-linked tax deduction, subject to the statutory conditions and the Inter-Ministerial Board process, and may also benefit from a relaxed loss carry-forward regime despite changes in shareholding, subject to the applicable continuity conditions. In addition, the angel tax regime on premium issuances has been sunset from assessment year 2025–26. These measures are meaningful, but they do not amount to a general preferential tax regime for venture-backed companies.

India’s governmental role is better understood as ecosystem-building than direct financing. Beyond the funding measures discussed at 4.1 Subsidy Programmes and the tax measures noted at 4.2 Tax Treatment, Startup India and DPIIT recognition function as the main institutional gateway to benefits such as easier compliance, IPR facilitation and access to government-backed start-up support mechanisms. The practical effect is to reduce some of the friction around formation, compliance and early-stage scaling. Digital platforms such as Startup India Investor Connect and BHASKAR are also intended to improve visibility, matching and connectivity across the start-up ecosystem. Private capital remains the primary source of venture financing, but these measures have helped deepen the ecosystem and improve access to capital at earlier stages.

Long-term commitment is secured through a combination of equity-linked alignment and contractual restrictions. Founder equity is typically subject to reverse vesting, claw-back or repurchase mechanics and good leaver/bad leaver treatment, with outcomes differentiated by reference to cause, voluntary resignation (with or without consent) and death or disability, among others. Founder shares are also commonly subject to lock-in periods, board or investor consent for transfers, and limits on early liquidity and investments. Key employees are retained principally through time-based and/or performance-based vesting of ESOP grants, which serve as the primary retention and recruitment tool in Indian start-up practice.

Service agreements reinforce these arrangements through:

• confidentiality;
• IP assignment;
• non-solicitation; and
• conflict-of-interest undertakings.

Non-compete obligations during employment are generally enforceable, but post-termination non-competes must be approached with caution, given the prohibition on agreements in restraint of trade under Indian law.

Employee stock options (ESOPs) are the default instrument for employee incentivisation in Indian private companies, governed by the Companies Act. ESOPs are documented through an ESOP scheme and individual grant letters, with standard terms covering:

• grant;
• vesting (time-based and/or performance-based, subject to a statutory minimum one-year cliff);
• exercise price;
• exercise window; and
• lapse or forfeiture on cessation or leaver events.

Key drafting themes include:

• acceleration upon exit or change of control;
• good-leaver/bad-leaver treatment; and
• transfer restrictions on exercised shares.

Recognised alternatives include sweat equity shares, which may be issued at a discount or for non-cash consideration such as know-how or IP, and phantom options or stock appreciation rights, which deliver economic upside on a contractual basis without immediate share issuance. Founder’s shares are more commonly locked in through reverse vesting, transfer restrictions and leave-based claw-back on restricted shares than through standard employee option mechanics.

ESOP taxation in India generally involves two taxable events. At exercise, the difference between the fair market value of the shares on the date of allotment and the exercise price is taxed as a salary perquisite at the employee’s applicable rate. On a subsequent sale, the employee is taxed on the resulting capital gain, with the applicable treatment depending on the nature and holding period of the shares. Given that the perquisite charge can arise before any liquidity event, employees may face a cash-flow mismatch, which often affects plan design. For employees of eligible start-ups, the tax on such perquisite may be deferred, subject to the applicable statutory conditions. The tax becomes payable within 14 days of the earliest prescribed trigger event, which includes the following:

• expiry of the deferral period;
• sale of the shares; and
• cessation of employment.

The ESOP pool and the financing round are closely linked. In market practice, the pool is created or expanded before closing, so that the resulting dilution is absorbed in the pre-money capitalisation and borne by existing holders rather than the incoming investor. The pool size, typically 5–10% on a fully diluted basis around an early institutional round, is negotiated as part of the round economics, not treated as a separate employment matter. The financing round accordingly prices the company on a fully diluted basis, inclusive of the ESOP pool.

From a process perspective, the company must settle the pool size, the resulting fully diluted capitalisation table and the requisite corporate approvals in parallel with the transaction. ESOPs are implemented through a board-approved and shareholder-approved plan under the Companies Act. Any subsequent pool expansion must be analysed both as a corporate approval exercise and as a dilution event, and investors typically negotiate consent rights over future expansions under the reserved-matters framework in the shareholders’ agreement and the articles of association.

Exit rights are negotiated in the shareholders’ agreement and reflected in the articles of association. The standard exit package includes:

• IPO co-operation rights (requiring founders and the company to support a listing process within agreed parameters);
• strategic and third-party sale mechanics;
• tag-along rights enabling investors to participate in a promoter or majority sale resulting in change of control;
• drag-along rights permitting investors to compel a sale in agreed scenarios; and
• in some structures, put/call optionality.

The principal liquidity routes remain:

• IPO;
• trade or strategic sale;
• buyback (subject to Companies Act constraints); and
• increasingly in more mature companies, a combination of primary and secondary liquidity events.

For foreign investors, any put/call or optionality-based exit remains subject to the Foreign Investment Regime, which permits optionality but prohibits an assured exit price.

Investor transfers may be subject to a set of restrictions set out in the shareholders’ agreement and the articles. These may include ROFR or ROFO obligations (usually in favour of the major investors and, in certain cases, the promoters) and prohibitions on transfers to the investee company’s identified competitors. Minor or angel investors are often brought within the same transfer-control framework once institutional capital has entered the company.

Exit triggers are defined both by reference to time and to events. The time-based trigger is ordinarily the failure to achieve a liquidity event within an agreed investment horizon, typically four to six years, although this may be revisited or effectively reset in a subsequent institutional round. Event-based triggers commonly include a change-of-control sale, a negotiated liquidity event as defined in the transaction documents, or a material breach or an event of default that gives rise to accelerated exit rights. It is also common to see a narrower housekeeping drag to facilitate a clean exit, restructuring or listing preparation where minority hold-outs would otherwise frustrate the process. The availability of real liquidity pathways affects how exit rights are relied upon in practice, though not the underlying legal architecture. In periods of active IPO and M&A markets, investors place greater practical weight on co-operation mechanics and sale process provisions; when exit markets are weaker, there is typically greater focus on time-based triggers, drag enforcement and bespoke liquidity protections.

Prevalence

An IPO is now a credible and increasingly important exit route for scaled Indian start-ups, although it remains selective and largely available to companies that have achieved meaningful scale, governance maturity and public-market readiness. The Bain VC Report 2026 records that IPO-led VC/growth exits expanded by approximately 30% over 2024 levels, that public market exits remained the dominant exit route in 2025 (accounting for over 65% of total exit value), and that the number of USD100 million-plus IPO exits increased from two in 2024 to five in 2025. Key VC-backed IPOs in 2025 included Groww, Lenskart, Dr Agarwal’s Health Care, Urban Company, Pine Labs, Bluestone, Meesho and Wakefit. A strong pipeline of further VC-backed listings is expected to sustain this momentum into 2026.

Timeline Considerations

The formal IPO process, from transaction kick-off through filing of draft red herring prospectus (DRHP), SEBI review, updated DRHP, red herring prospectus and listing, spans approximately nine months to one year under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. In practice, however, the real timetable is driven less by the formal regulatory calendar than by the company’s state of pre-IPO readiness. The principal timeline drivers typically include:

• readiness of restated financial statements and any stub-period financials, corporate governance migration to listed-company standards, internal controls, and disclosure systems;
• resolution of corporate housekeeping, litigation, compliance and diligence issues;
• capital and legal structure clean-up, including treatment of convertibles, legacy shareholder rights and promoter group identification; and
• the company’s ability to access an acceptable market window, price band and anchor book.

Regulatory reforms, including increasing anchor investor allocation from 33% to 40% and extending timelines to meet minimum public shareholding thresholds, have further improved execution certainty for issuers and existing investors.

Listing Venues

India has two recognised stock exchanges: the Bombay Stock Exchange (BSE) (established 1875) and the National Stock Exchange (NSE) (operational since 1994). Indian law also recognises the SME Exchange and the Innovators Growth Platform, and two international exchanges operate at GIFT City (India INX and NSE IFSC). However, the prevailing practice for venture-backed growth companies seeking a full-scale exit or partial liquidity event is a main board listing on the BSE and NSE. All offer documents are vetted and cleared by SEBI prior to launch, and only SEBI-registered merchant banks may lead-manage or underwrite IPOs in India.

Offering Structures

An Indian IPO may comprise a fresh issue of shares by the company, an offer for sale (OFS) of existing shares by selling shareholders, or a combination of both. For venture-backed growth companies, the combined fresh issue plus OFS structure is the most common because it allows the company to raise primary capital while enabling founders and financial investors to achieve partial liquidity through the OFS component. That structure aligns capital raising with staged investor monetisation and is consistent with the broader trend towards planned liquidity outcomes observed in the current Indian exit landscape.

There is a tangible but selective market need for pre-IPO liquidity in India, particularly where:

• early investors are beyond their original hold period;
• employees and ESOP holders seek partial monetisation; or
• the company wishes to rationalise its capitalisation table ahead of listing.

The most common pathway is a privately organised, company-facilitated secondary process, sometimes alongside a primary round, sometimes as a standalone pre-IPO exercise, rather than an open secondary market.

The principal challenges are structural. Transfer restrictions in the articles of association and shareholders’ agreement (ROFR/ROFO, investor consent, competitor prohibitions and ESOP-plan limitations) must be navigated or waived. Where the transaction involves foreign buyers or sellers, the Foreign Investment Regime governs transfer pricing, reporting and optionality constraints, prohibits an assured exit price, and permits deferred consideration or escrow arrangements only within defined limits. Any company-facilitated tender offers are a controlled liquidity tool used selectively for cap-table clean-up and employee/early-investor liquidity, but require careful handling of transfer restrictions, price discovery, tax and mechanics under the Foreign Investment Regime.

A fresh issue of securities in a venture financing is ordinarily structured as a private placement and preferential allotment under Sections 42 and 62(1)(c) of the Companies Act, rather than as a public offer. Section 42, read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014:

• limits the offer to identified persons (not exceeding 200 in a financial year, excluding qualified institutional buyers and ESOP employees under Section 62(1)(b));
• requires the offer to be made through Form PAS-4;
• mandates that subscription monies be received through banking channels;
• requires allotment within 60 days of receipt of application money; and
• restricts the use of monies until allotment and filing of the return of allotment.

A non-compliant issue exceeding the prescribed number of persons is treated as a deemed public offer. Following the 2018 amendments, Forms PAS-4 and PAS-5 must be issued and maintained internally but are no longer required to be filed with the Registrar of Companies.

For unlisted companies, Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 adds the preferential issue requirements. The issue must be:

• authorised by the articles;
• approved by special resolution (with prescribed disclosures in the explanatory statement);
• supported by a valuation report of a registered valuer; and
• completed within 12 months of the special resolution.

For convertible securities, Rule 13 permits the conversion price to be determined either upfront at the time of issue, or at a later date (not earlier than 30 days before the holder becomes entitled to apply for shares) based on a registered valuer’s report obtained within the prescribed period. The company must elect between these approaches at the time of the offer. The common market practice of fixing the conversion ratio upfront in a priced CCPS round is accordingly a matter of deal design, not the only route permitted by the statute.

Where the investor is non-resident, the Companies Act framework is overlaid by the Foreign Investment Regime. The price of equity instruments issued to a person resident outside India cannot be lower than the fair value determined in accordance with an internationally accepted pricing methodology on an arm’s length basis, duly certified by a chartered accountant, SEBI-registered merchant banker or practising cost accountant (for unlisted companies). For convertible equity instruments, the price or conversion formula must be determined upfront at the time of issue, and the price at conversion cannot be lower than the fair value at the time of issuance under the Foreign Investment Regime. The issue must also comply with the applicable entry route and sectoral cap, be completed within 60 days of receipt of consideration, and be reported through FC-GPR filing within 30 days of issue.

ESOP issuances are legally distinct from the investor issuance and are governed by Section 62(1)(b) and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014, for unlisted companies. ESOP offerees are excluded from the 200-person private placement cap, but a large employee-holder base remains relevant for cap table management, corporate approvals and pre-IPO execution.

For foreign investment into an unlisted growth company, the principal route is foreign direct investment (FDI) under the Foreign Investment Regime. The main restrictions are sectoral prohibitions, caps and entry-route conditions, together with pricing and instrument rules. Equity instruments issued to a non-resident generally cannot be issued below fair value, convertible instruments must comply with the applicable pricing framework, assured exit prices are not permitted, and downstream investments must satisfy the same route, cap and conditionality rules. Foreign investment in investing companies that are not RBI-registered NBFCs, and in core investment companies, also requires prior government approval.

A separate sensitivity arises under the land-border investment regime. Investments from entities or citizens of countries sharing a land border with India, and investments that trigger the beneficial ownership test under the consolidated FDI policy, require approval under the government route. Recent policy changes have clarified the meaning of “beneficial owner” by reference to the prevention of money laundering framework and by linking the test not only to threshold ownership but also to control and ultimate effective control.

The FVCI route remains a specialised SEBI route for registered foreign venture capital investors. It offers greater flexibility in certain cases, but it is narrower in scope and does not displace the core FDI framework. The foreign portfolio investment (FPI) route is generally peripheral to mainstream venture investment in unlisted companies. For listed companies, FPI holdings must remain below 10% of the total paid-up equity capital on a fully diluted basis; otherwise, the holding must be reclassified as FDI. Recent changes have therefore made route selection, beneficial ownership analysis and compliance planning more important at the structuring stage, rather than merely as a post-closing filing exercise.