How Indian startups are realigning their strategies amid global uncertainty and regulatory shifts

As global economic conditions grow increasingly fragmented, Indian startups are reassessing their strategic direction in response to evolving foreign direct investment (FDI) regulations, renewed protectionist trade measures, and a shifting investment climate.

Despite significant growth over the past decade, the Indian startup ecosystem remains heavily reliant on foreign capital, with over 85 per cent of funding originating from international sources. This dependence has exposed several sectors, particularly export-oriented businesses, to external shocks, including the reintroduction of US tariffs, which have disrupted pricing structures and access to overseas markets. In response, many startup founders are shifting focus from rapid international expansion to reinforcing domestic resilience.

Startups are increasingly investing in local supply chains, exploring regional trade linkages, and building intellectual property-driven business models to mitigate exposure to global trade disruptions. The recalibration also includes a stronger emphasis on India’s internal market and policy frameworks.

Changes to FDI norms are impacting how startups structure their operations, particularly in sectors such as e-commerce and quick commerce, where compliance hinges on the distinction between marketplace and inventory-led models. In many cases, startups are operating through layered corporate structures, with foreign-funded parent entities adhering to investment rules while domestically capitalised subsidiaries handle inventory and fulfilment functions. While such frameworks remain legally compliant, they have prompted renewed discussions around sector-specific regulations that better reflect the complexities of modern business models.

A significant development in this regulatory landscape is the growing focus on the Indian-Origin Control and Ownership Criteria (IOCC). For startups aiming to list on Indian stock exchanges, meeting IOCC thresholds has become a key requirement. This has led many firms to reconfigure their capitalisation tables by increasing domestic institutional participation or facilitating secondary exits for early-stage foreign investors. Indian public markets, once viewed as secondary to global listings, are now seen as a more stable and capital-efficient route for long-term growth.

While talking to WION, Roma Priya, founder of Burgeon Law, which specialises in handling legal aspects for startups said, "The evolving regulatory landscape and geopolitical shifts present both challenges and opportunities for Indian startups. Navigating these complexities requires a nuanced understanding of legal frameworks and strategic foresight. At Burgeon Law, we have observed that startups adopting proactive compliance measures and aligning their operations with domestic regulations are better positioned to attract investment and scale sustainably."

She added, "The emphasis on Indian-Origin Control and Ownership Criteria (IOCC) underscores the importance of structuring cap tables thoughtfully to facilitate domestic listings. In this dynamic environment, legal agility and informed decision-making are paramount for startups aiming to thrive."

Investor sentiment is adjusting rather than withdrawing. While foreign capital remains present, it is entering with more caution. In contrast, domestic capital—from institutional investors, family offices, and retail-linked entities—is becoming increasingly significant, particularly in late-stage funding rounds and IPO preparations. This shift is gradually changing the funding narrative from one dominated by global investors to a more India-focused capital structure.

Radhika Ghai, founder of kindlife.in, an online marketplace startup for new age beauty and wellness products said, "With over 85 per cent of Indian startup funding still coming from foreign sources, our ecosystem remains vulnerable to global shocks, be it US tariffs, shifting FDI norms, or investor sentiment swings. But this is also a wake-up call. India’s real strength lies in our vast domestic market, digital infrastructure, and a rising pool of homegrown capital. In 2025, startups that focus on building for Bharat, leveraging local supply chains, tapping into domestic funds, and aligning with national priorities like Make in India and Digital Public Infrastructure will not just survive, they’ll lead. It’s time we stop chasing capital abroad and start unlocking the immense potential within."

As 2025 progresses, Indian startups are expected to operate with greater focus on compliance, governance, and domestic market integration. The previous model of growth driven largely by foreign funding is evolving toward one built on internal alignment and strategic autonomy. Startups that adapt to these conditions are more likely to withstand external pressures and contribute to the next phase of India’s startup development.

Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.