If you’ve been reading articles here before you know how bad the startup ecosystem has been this year. We’ve covered so many startup failures and the lessons to be learnt from then in UNFILTERED. India’s startup ecosystem was heavily impacted by a harsh and unsettling reality in 2025. In today’s article we’ll be covering how more than 11,223 startups ceased their operations, which is a staggering 30% increase from 2024. This was not just the usual turnover of businesses. It signified a total change in the way startups had to work if they wanted to live.
The contradiction? India’s economy was still going strong, with GDP growth expected to be between 6.7% and 6.9%, as stated by Deloitte. Still, startups were going bankrupt in large numbers. The main reason is that the era of “growing at any cost” had ended. But if you’re curious how it has been replaced let me tell you. It was replaced by a strict requirement for profitability. Let’s unfold How many startups fail in India and why it’s happening in 2025
Where the Money Dried Up
Venture capital funding actually crashed across 2025:
- Overall funding was down 18%: The drop was from $10.6 billion (Jan-Sep 2024) to only $8.6 billion in 2025, as reported by TICE.
- Q3 2025 was the quarter with the steepest drop: The plunge in funding was 32-38% compared to Q3 2024. This stat and the following stats are taken from INC 42.
- Late-stage funding went down 54%: There were almost no large funding rounds for mature startups
Investors were no longer willing to fund companies that deliberately burned through their cash to grow. Just 3% of them had faith in late-stage startups. Therefore, 58% of them decided to focus on early-stage ventures, particularly AI startups, which are currently 20% of the investment portfolios. This whole shift has been nothing short of shocking.
The message was clear: Show us profits, not just user growth.
| 2024 | 2025 | Change | |
| Startup Closures | 8,633 | 11,223 | +30% |
| VC fundings(Jan-Sep) | +30% | $8.6B | -18.9% |
| Q3 Fundings | $3.4B | $2.1-2.8B | -32% to -38% |
| Employee Layoffs | N/A | 5,649+ | —- |
The Industries With the Most Challenges
There were three sectors that accounted most of the closure:
- Internet-first brands (D2C): 817 companies closed due to the increase of the customer acquisition cost and the fact that their margins were very low.
- Healthcare booking platforms: 762 closures due to being defeated by regulatory complexity and incorrectly estimating consumer demand.
- Investment tech (FinTech): 579 shutdowns due to the combination of strict regulations and loss of trust. These stats have been taken from Financial Express’ Blog.
Why Did Startups Fail?
The funding drought exposes the defects of the startups that have been there all along, but money kept them hidden.
1. Making Products That Nobody Wanted
Many startup founders created products without really understanding what problems they were solving. They chose to ignore market research and completely misunderstood Indian customers’ needs and purchasing power. Without product-market fit, no amount of money spent on marketing could save them.
2. Excessive Reliance on Money from Investors
Startups were totally dependent on the inflow of investor money and as a result, they did not focus on generating sustainable revenue. In a wrong way, they quickly expanded their workforce, wasted money on marketing and used promotional activities that were not financially viable. Hence, when the next funding round was not available, they had a downfall within a short period of time.
3. Being Overwhelmed by Regulations
Strict regulations in healthcare, education, and finance sectors were beyond the capacity of the inexperienced founders. Those who were unable to deal with compliance requirements had no chance of survival.
4. Wrong Management
Leadership issues, lack of strong teams and poor governance led to loss of investor trust and decrease of growth which in turn, the companies eventually stagnated.
Two Devastating Shocks
The Gaming Ban Bombshell
In a sudden move in September 2025, The Indian Government made up its mind to prohibit real-money gaming. Companies that were operating primarily in this manner saw that their businesses had become illegal overnight.
- Hike Messenger decided to stop all its operations
- Mobile Premier League released 60% of its employees (over 600 people)
- Head Digital Works quickly changed its line of business, not related to gaming anymore
So, the story is: regulatory risk can wipe out billion-dollar companies in a matter of days. Which is so scary but something that all companies should be aware of and be prepared to tackle.
The AI Automation Wave
More than 5,000+ employees were made redundant due to AI automation in the first nine months of 2025. This was alongside the cutting down of employees caused by lack of funding.
The firms opted for robots instead of humans to result in faster profitability. And it’s safe to say that there has been a new wave of AI-powered robots.
What Startups Must Do Right Now
For Founders:
- Concentrate on unit economics first: The company should not lose money on any product.
- Market test your product in an extremely tough manner: Customer interactions should precede product development.
- Practice economical living: Limiting spending without going out of style is the survival mode.
- Make India your home market: Even if the concept is global, it won’t work without changing for Indian buying power.
- Implement automation in a well-planned manner: Make use of AI in cutting down on the cost and increasing the productivity.
For Investors:
- Disregard vanity metrics: The number of users is insignificant if money is being lost.
- Insist on profitability timelines: A startup should be able to demonstrate a clear way to profit.
- Regulate risk-price: Put on premiums for sectors that are under heavy regulation.
- Evaluate the quality of the team in charge: A strong leadership team is less likely to have governance scandals.
Hard and painful this purge was, but it got rid of those weak businesses that only lived artificially because money was cheap. Now the environment is smaller, stronger, and more oriented towards sustainability.
That is why the job market is flooded with thousands of skilled and seasoned professionals ready to create the new wave of efficient startups. The best founders will utilize this talent by recruiting them and then they will grow businesses that from day one will be making real money.
Concluding Remarks
The shutdown of 2025 was a tough lesson learned: growth without profits is simply a costly mistake. The Indian startup scene will have to show that they are able to build real, viable businesses instead of just going for another funding round. And I personally hope that I’ve unfolded the question How many startups fail in India and why it’s happening in 2025 in this article.
The time of throwing money around without any care is over. The time of smart, profitable growth is beginning from now on.
