Jul 9, 2025

Y Combinator’s India cohort shrinks amid local capital reshaping deals, AI focus By Synopsis Y Combinator's selection of Indian startups has decreased significantly. This decline is attributed to factors like YC's US incorporation requirement and the rise of domestic IPOs. Indian startups are shifting focus to local funding options. They find domestic markets favorable for listing. YC is also prioritizing AI-focused startups. This shift impacts Indian participation. Domestic capital is growing with regulatory support. Company Images The number of Indian startups selected by Silicon Valley’s famed accelerator Y Combinator (YC) has plummeted to just four in 2024 from 66 in 2021, marking a sharp decline in participation from one of its most active international markets in recent years, according to information sourced from YC’s website. 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 exchanges. According to industry 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 trend 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 focusing 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 made it harder for early-stage Indian companies to gain admission, they said. “YC has pulled back a little from India because they were not getting 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 smaller number of companies selected,” an investor said on the condition of anonymity. Under the leadership of OpenAI founder Sam Altman, during the 2014-19 period, YC began 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. 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 helping 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 Together Fund, which also launched AI Studio to help 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. Because they believe that Indian IPO markets are very good for them, because even at smaller sizes, they can actually list in India, which they find otherwise very hard in the US and other markets,” said Vikram Gupta, founder and managing partner of early-stage venture capital firm IvyCap Ventures. Gupta said 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 helped to boost the domestic capital available. Favourable regulatory changes 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 focused on agentic AI. The three-month accelerator programme invests $500,000 in each selected startup. "With the context of India, YC is now focusing 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,” said Jitin Bhasin, founder of healthcare fintech startup SaveIn, which was backed by YC in 2022. In 2023, YC saw a change 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, said 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-focused 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. Read more news on