Venture Dislocation
Welcome to folks who’ve subscribed since our last piece! The following is a note we had originally written about the state of venture, and investing in AI companies, to the LPs of our fund Untitled Ventures.
Over the last decade, the Indian and broader American venture ecosystems have often moved in lockstep. Growth in venture in India in the last decade largely mirrors the west with the cloud and mobile eras largely looking similar in both counties. In the latter parts of the 2010s, building enterprise software companies had largely become commoditized resulting in these companies being able to be built from anywhere i.e India. As a result of this, Indian firms started underwriting companies being able to exit in America as American companies and started increasing their fund sizes that start to look more similar to their American counterparts.
This combined with the fact that the new company formation in the country has grown significantly slower than capital availability has resulted in much larger round sizes and valuations almost mirroring America as well. This all changed in the aftermath of the pandemic - the AI wave has taken off massively in America with India lagging behind severely. Thus, there has been an impact on the outcomes that capital allocators in each market are underwriting (i.e what is the terminal value of these companies) and their ability to deploy that capital (i.e how much can we invest in these companies).
With Anthropic raising at a $183B valuation and OpenAI being marked at $500B, the venture game in America has changed dramatically. We are now seeing a cohort of private companies being valued at $100B to $500B and this becoming the new benchmark that investors investing in private technology companies are chasing. In America, companies can seemingly also choose to stay private for much much longer with there being enough capital to provide liquidity to early investors and employees. But as a result, venture capital firms (or firms investing in private companies) have and are also rapidly scaling up their fund sizes to be able to deploy billions in individual companies - Thrive’s exposure to OpenAI alone is in the billions, and when Lightspeed led a $3.5B round into Anthropic earlier this year, I can only assume they deployed a billion dollars or more into that company.
On the other hand, in India we’ve seen many firms retreat to investing in more traditional businesses (banks, NBFCs, CPG companies, QSR chains, offline healthcare) with there not being enough private technology AI companies being present who can absorb the large funds that Indian firms have raised. In 2025 alone there have been 24 companies in the US who have raised a $100M round, while India still does not have a single AI company that can absorb even $50M in a round.
Hence the conversation around venture in the US has become - “How do we find and back the next $100B to $500B company”, while the question in the Indian domestic market still remains - “How do we find and back the next $1B to $5B company”. The benchmark for a successful exit in America is now polls apart from a successful exit in India, however the fund-sizes of American and Indian firms still have worked in lock-step which is where this dislocation of venture is happening. It becomes very hard to impossible to return a multiple on a $1B fund if the top outcomes in your portfolio are only worth $1B to $5B - even if a firm owns 20% of a $5B company that’s a 1x return on their fund. Finding multiple of these companies in a portfolio becomes very challenging, especially in a market like in India where there are still very few meaningful IPOs and M&A outcomes. It would not be feasible to assume an early-stage firm with a portfolio of 30 companies over 3 years would eventually have 5 $1B+ IPOs.
Therefore the multi-stage platform firms in India have two options: 1) drastically reduce their fund sizes to an amount where they can reasonably return a multiple investing in the Indian market alone; 2) go truly global and try to compete with the best in the west for the $100B outcomes. Drastically reducing one’s fund size or future fund size is not a very appealing prospect to most firms, primarily because it would mean reducing their management fees drastically. A venture firm organization runs its payroll and operations basis its’ management fees (typically 2% of the fund size annually) but if that were to be halved they would likely have to make major changes across the organization primarily impacting their personnel.
Hence trying to “crack it” in America has become the option many firms like Peak XV, Elevation Capital and Z47 have chosen. An interesting call-out here is that while these firms and their fund sizes might be outsized for the Indian market they would be considered mid-sized firms in this market, which only makes competing for the best companies even harder. It however isn’t impossible - Nexus Venture Partners has been focused on Indian & cross-border investments from its inception in 2006, partnering with technical founders leading early rounds for companies like bolt.new, fingerprintJS and firecrawl (all companies with no Indian connection). It is yet to be seen how the other Indian firms stand out and compete in the US long-term, though they all seem to have a fairly predictable entry-point - attending YC’s Demo Day and backing companies they meet there.
I am slightly concerned about Indian firms’ ability to be competitive for top AI companies in the US when top AI companies from India are picking American firms over Indian firms for capital. Composio recently raised $25M in a Series A round led by Lightspeed US (I have anecdotally heard how Indian firms gave better offers to the team who still chose an American firm), and GigaML has raised a previously undisclosed $40M Series A round led by Redpoint (there are a couple more but I’m not in a position to announce these rounds). Results, too, won’t appear quickly so I just hope these firms are thinking about venture in America from a lens where they can truly be competitive - either by bring on new local talent on the team or creating a niche for themselves where they can excel.
I am also yet to see a large firm who wants to be contrarian in this era and choose to not fund any companies building outside of India. There might be some fund-size restrictions but there does seem the possibility of building a top-tier institution only focused on domestic company creation backing companies from early-stage to IPO.