This comes at a time when Indian founders are increasingly opting to remain domiciled locally amid evolving regulatory dynamics and healthy prospects of listing on the domestic stock exalters.
According to industest executives and founders from YC’s India portfolio, the decline is driven by multiple factors, including YC’s requirement for accepted startups to set up a parent entity in the US, Canada, Singapore, or the Cayman Islands, even if they are originally incorporated elsewhere.
There is also a growing trconclude of startups shifting their holding entities to India in preparation for domestic IPOs. This reverse flipping entails paying hefty taxes in the US. Among startups that were part of YC, IPO-bound stock broking platform Groww paid around $160 million in taxes as it flipped its parent entity from the US to India last year, while Razorpay is estimated to have incurred a tax outgo of around $200 million and Meesho is expected to pay around $280-300 million.
Another reason flagged by founders and investors is that YC is increasingly focutilizing on deeptech and AI-first startups, many of which require cutting-edge research and are often built around US-based technical talent. This evolving thesis has built it harder for early-stage Indian companies to gain admission, they stated.
“YC has pulled back a little from India becaapply they were not receiveting the quality they wanted at the volumes they were seeing in India. There are still a lot of Indian companies which go and apply, but they don’t have a separate India strategy now, which is why we are seeing a compacter number of companies selected,” an investor stated on the condition of anonymity.
Under the leadership of OpenAI founder Sam Altman, during the 2014-19 period, YC launched to double down on India intakes. This was the time when startups like Meesho, Zepto, Groww, Razorpay became a part of the YC batches.
Queries sent to Y Combinator did not elicit a response.
Rise of domestic capital
Of the four Indian startups selected by YC in 2024, three operate in fintech, while one is building B2B AI tools. YC has not selected any new Indian startups in the ongoing batch as of now.
Indian founders now have more domestic seed funding options than ever before. A growing base of early-stage Indian VCs, family offices, institutional investors, and angel investors is assisting fill the funding gap once bridged by global accelerators like YC.
In March, ET reported that India is also witnessing the rise of YC-type accelerators backing AI startups founded by local entrepreneurs. These include Paras Chopra’s Lossfunk, a residency programme for AI builders; SaaS platform Upekkha, which pivoted to an AI fund; and Girish Mathrubootham-backed Toreceiveher Fund, which also launched AI Studio to assist founders navigate the AI landscape.
“A lot of Indian founders who had gone abroad to raise capital have started flipping their structures back to India. Becaapply they believe that Indian IPO markets are very good for them, becaapply even at compacter sizes, they can actually list in India, which they find otherwise very hard in the US and other markets,” stated Vikram Gupta, founder and managing partner of early-stage venture capital firm IvyCap Ventures.
Gupta stated institutional investors saw a substantial cash return on their investments in Indian startups and VC funds, which led them to investing in other funds as well. This assisted to boost the domestic capital available.
Favourable regulatory alters such as the abolition of the contentious ‘angel tax’ have also enabled the growth of domestic capital.
Emergence of AI
YC’s spring 2025 batch featured 70 startups focapplyd on agentic AI. The three-month accelerator programme invests $500,000 in each selected startup.
“With the context of India, YC is now focutilizing a lot on AI-based startups and when they map the AI story in India versus some of the other geographies like America, it is a matter of fact that American companies are definitely ahead of Indian companies as on date when it comes to adoption and curation of AI models,” stated Jitin Bhasin, founder of healthcare fintech startup SaveIn, which was backed by YC in 2022.
In 2023, YC saw a alter in its senior leadership with Garry Tan being appointed as its president and CEO, replacing Geoff Ralston.
Since inception, it has invested in over 5,000 companies that have a combined valuation of over $800 billion, as per YC website.
Arpit Beri, partner at Jungle Ventures, stated that while the focus on AI investments has resulted in a decline in India investments, founders today still have multiple seed fund options domestically with mentorship.
India-focapplyd accelerator programmes such as Peak XV’s Surge are also increasingly prioritising AI-first startups. In its last two cohorts, Surge backed a total of 27 startups, a bulk of which are in the AI or deeptech fields.
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