India’s startup ecosystem is undergoing historic growth. According to recent data released by the Department for Promotion of Industry and Internal Trade (DPIIT), there are over 2.07 lakh officially recognised startups in India, which have directly created over 21.9 lakh jobs. What used to be a playground for the high-stakes game for venture capitalists is slowly becoming the domain of everyone.
Furthermore, the government is encouraging young people to start their own ventures, from India to the world. In February 2026, the Union Cabinet officially approved Startup India Fund of Funds 2.0 of Rs. 10,000 crore to mobilise the long-term domestic capital for deep-tech and manufacturing ventures.
Due to this great growth potential and government support, these startups and unicorns are becoming an attractive option for investors. In this blog, we will explore the benefits and risks of investing in India’s startup space.
Benefits of investing in startups and unicorns?
With the introduction of free demat account opening, it has become easy for investors to invest in the Indian financial markets. Some benefits of investing in startups and unicorns are:
- Exceptional growth potential: The primary draw of startup investments is the sheer upside potential. Investing in an early stage in a fundamentally strong company that seeks to disrupt an existing traditional industry can pay out exponentially on initial investment.Â
- Portfolio diversification: Startups and unicorns are independent of the daily sentiment-driven volatility. Thus, incorporating them in a portfolio can provide investors with a hedge against broader macroeconomic downturns.
- Pre-IPO value discovery: Savvy investors often seek to take advantage of the immense value an unlisted company offers prior to its going public. For example, closely following a highly anticipated consumer brand, like the Lenskart share price before it went on an IPO, would enable early investors to understand the institutional sentiment and capitalize on the company’s growth well before the stock market debut. At present, the stock is trading above Rs 530.
- Supporting innovation: Beyond financial returns, investing in startups enables investors to directly support visionary founders who are working towards solving real-world problems and boosting the Indian economy.
Risks of investing in startups and unicorns?
While the rewards of investing in startups and unicorns can be life-changing, it’s important to balance enthusiasm with reality. Some of the risks of investing in startups and unicorns include:
- High failure rate. The harsh truth is that most startups at the early stages fail. Unlike established companies with a stable cash flow, startups burn through capital quickly and are then faced with a number of risk factors such as execution, regulatory and competitor.
- Illiquidity: When investors invest in a startup, their investment is locked in. They can’t just click on a sell button if they need emergency cash. They are dependent upon future liquidity events such as a buyout, merger, or IPO for returns on their investment. Such events may take a few months to several years to materialise.
- Information asymmetry: Publicly traded companies are mandated to post quarterly financial information and corporate governance reports. Startups in the unlisted space operate with less transparency, making it difficult for a retail investor to get a true picture of a company’s real financial health and fair valuation.
The bottom line
Investing in startups and unicorns is exciting, but it carries its own benefits and risks. Investing in startups is a high-risk and high-reward investment option for investors seeking to invest in new and emerging companies. Thus, it is important to conduct thorough due diligence, market research, competitive analysis, and management team evaluation in order to mitigate the risks.
