The era of easy money and skyrocketing valuations in India's startup ecosystem has officially cooled, giving way to a new period of cautious, value-driven investment. This Deccan Herald report traces the journey from the "gold rush" of the 2010s—typified by SoftBank’s lightning-fast $1.4 billion bet on Paytm—to the sobering collapse of edtech giant Byju’s, whose valuation plummeted from $22 billion to near zero. These high-profile failures have fundamentally altered the venture capital playbook; total startup funding dropped from $20 billion in 2021 to just $4.2 billion in 2024, with median deal sizes shrinking by more than 60%.

As we enter 2026, the hype is being replaced by a focus on "real" value. While AI remains the primary catalyst for new ventures—with 89% of 2024 startups incorporating AI—investors are now "once bitten, twice shy," demanding clear paths to profitability and rigorous due diligence. The report highlights a shift in capital toward mid-sized deals and "sovereign AI," where India aims to develop its own foundational Large Language Models (LLMs) to ensure data ownership. Despite lagging behind the U.S. and China in AI infrastructure spending, India’s burgeoning developer community and the government’s IndiaAI Mission are positioning the country to move from "promise to performance." The current climate marks a structural evolution: from a system that rewarded burning cash for market share to one that prioritizes unit economics, corporate governance, and long-term sustainability.