Somewhere in India, roughly every ten minutes, a startup closes its doors. This is not a trend easing with time; it is accelerating.
India is home to over 737,171 startups,thereby placing it as the world’s third-largest startup hub. Of these, 34,900 are the funded companies which have collectively raised $630 billion in venture capital and private equity. For years, Indian entrepreneurship has shown a single facet of multiplying unicorns, mega-rounds closing in rapid succession. The country boasts 93 unicorns and over the past five years, $12.1 billion in funding has been raised by newly launched 94,060 companies. The startup ecosystem has also witnessed 5,273 acquisitions with 6,363 IPOs. However, another quieter story hushes beneath these flashy numbers, one never announced through funding press releases, only ever read in shutdown notices.
Between 2020 and 2022, funds flowed freely; investors gave founders 24 months of runway to chase growth, treating profitability as a future problem. Burning cash without a clear path to profitability wasn’t alarming; it was standard practice.
That era got over in 2025.
Investors started demanding a credible pathway to breakeven before making any commitment, and the figures show how sharp the turn has been: seed funding came down to $129 million in Q3 2025 alone, down 38 percent year-on-year. The ones that survived only on the promise of the next round are now shutting down. The safety net that once let escalation of commitment run its course, the extra funding round that paid salaries for the team or even settled its debtors, that margin now has effectively disappeared.
As of October 31, 2025, the Department for Promotion of Industry and Internal Trade (DPIIT) officially recorded 6,385 closures among the startups registered under the Startup India programme (Singhvi, 2026). The number is more of a jolt than an insight, and even that jolt undercounts, since it accounts for only the formally registered startups. Extend the lens to the entire ecosystem of registered companies, and 2025’s actual toll is roughly around 11,223, a 30 percent rise from the year before.
These aren’t competing statistics, rather two instruments reading the same event at different resolutions, one limited and official, the other unofficial and broad. What should unsettle the reader isn’t the number which points to accuracy but that both point in the same direction, sharply down, and picking up speed.
This decline can be traced back to 2023, now shorthanded as the beginning of the funding winter. Investors who during the pandemic years were investing in growth-at-all-costs ventures turned abruptly cautious, and the companies without sound unit economics, ones which lose money on every transaction, found the tap shut. By 2024, closure estimation was about 8,649, primarily led by failures in B2C e-commerce and enterprise software. Had this been simply a one-off correction for the pandemic years, the curve should be flattening by now. Three years later, it really isn’t. 2025 outpaced 2024, which alone suggests that this isn’t a shock working its way out of the system; it’s structural.
The geography sharpens the claim. Maharashtra alone accounted for 1,200 closures, followed by Karnataka at 845 and Delhi at 737. No closure comes without warning; by the end, when the final filing is signed, the decision has usually been brewing for months, sometimes years, hiding in plain sight. Somewhere between the first warning sign and the last filing lies the actual story.
The story has an intersection of two patterns: the business and structural conditions startups had been operating with, and the very human decisions unfolding inside boardrooms and founders’ minds as those conditions arise. Neither force can explain the story alone.
Their meeting point is where the Indian startup failure begins to make sense. To show that this crisis has a measurable trajectory and not merely an anecdote and headline fatigue. A 2023 study by Nayanjyoti Goswami, Ashutosh Bishnu Murti, and Rohit Dwivedi of IIM Shillong offers an important foundation on how little empirical research existed on Indian startup failure.
The study pointed out that financial failure topped the list as investor’s interest dried up and cash reserves quietly depleted. Sales and marketing failures followed next with founders capable of making strong products were unable to sell them resulting in bleeding money to chase growth and entering markets either too early or too late. Lastly, the very idea of the startup which the markets never materialised, or only existed more vividly in a founder’s vision than in a customer’s spending habits.
Why Founders Don’t Walk Away
The persistence to not disengage from a failing venture has a well-documented name and fits well in the current Indian Start-up ecosystem. In 1976, psychologist Barry Staw conducted an experiment and handed participants a failing venture, expecting them to cut their losses. However the worse the numbers got, the more they invested. Staw coined this as an “escalation of commitment”, and what lay beneath it had little to do with money but more with identity which also currently reflects in the Indian startup ecosystem (Białek et al., 2021).
Walking away is generally meant as conceding the original decision wasn’t right, a psychological cost that often outweighs the pain of a shrinking bank account. Dunzo illustrates this with ambiguity. Founded in 2015 by Kabeer Biswas, alongside co-founders Ankur Aggarwal, Dalvir Suri, and Mukund Jha, it initially ran as a small WhatsApp group running errands, laundry pickups, dropping off groceries, before turning into a full-fledged local-commerce platform.
Over the following decade it raised around $463 million across twenty funding rounds, with Google and Reliance among its top investors, leading at an $800 million valuation after Reliance Retail led a $240 million round in January 2022. That round marked the peak, with nothing following it. What followed wasn’t a simple failure but a slow institutional unravelling, driven as much by the leadership breakdown as by economics.
Competing against better-funded quick-commerce rivals forced Dunzo to shift from its lean, asset-light model to the far costlier infrastructure, dark stores, warehouses, delivery fleets, the primary requirement for speed focused demands, without the balance sheet to sustain it. Then layoffs followed. Salaries and vendor payments ran late. Several co-founders resigned as their morale broke down, an exodus signalling an accountable leadership vacuum as much as the depleting funds.
By early 2025 the app had gone dark; CEO Kabeer Biswas himself had taken a step back, for Flipkart’s own quick-commerce venture, the architect of the company leaving to help build the very rival that had displaced it. Reliance eventually wrote off its $200 million stake, thereby coming out as one of the largest such write-downs in Indian tech history.
None of this trails to a single misstep.
It was the cumulative effect of expanding into an infrastructure-heavy category. The company never had the resources for it, neither a cost structure that matched its revenue, nor the ability to match both financially or organisationally against its rivals. The common thread is the sunk-cost fallacy: the idea that already invested resources create an obligation towards the future, even when logic argues otherwise.
But why does persistence feel safer than surrender in the first place?
This is where Daniel Kahneman and Amos Tversky’s work finds its relevance. Their 1979 paper, showed that people don’t weigh equivalent gains and losses symmetrically: losing a sum causes more distress than the satisfaction by gaining the same amount. They coined this asymmetry as loss aversion, the cornerstone of prospect theory. Its most consequential implication concerns risk itself: when faced with a loss versus a gamble that might avoid it entirely, most people choose the gamble, even when it’s objectively the worse bet. Reverse the framing, a guaranteed gain against a bigger, riskier one, and the very people turn conservative. Identical odds, opposite instincts, solely depending on which side of zero the decision ends up. For a founder, shutting down their company is a certain loss. Staying operational, even while haemorrhaging cash, preserves the facet of the story that still feels unresolved.
Why No One Intervenes
Though Escalation of Commitment and Loss Aversion explain why a founder won’t let go, they don’t explain why nobody around them objects to it. The answer lies in Irving Janis’s 1972 research on groupthink. Studying a string of major policy failures, Janis found that people involved aren’t irresponsible; they functioned inside tightly-knit groups that had come to value consensus over accuracy. An illusion of collective infallibility took hold, the hushed rationalisation of warning signs, and self-appointed “mindguards” shielding the group from anything that threatened the united point of view.
Boards built around a single dominant investor with almost absolute control and veto power are fertile ground for exactly this setting: dissent doesn’t just put the company at stake, it risks exposing the board’s own misjudgement in supporting the founder to begin with.
None of this happens in a vacuum. A board’s willingness to keep investing in a failing venture, and a founder’s refusal to let it go, are both shaped by the surrounding environment. In India, it has been a decade-long government push to build institutional support to boost entrepreneurship. Initiatives like the Atal Innovation Mission, Startup India and Stand-Up India were announced to make funds, guidance, and markets accessible to founders who would otherwise find difficulty in reaching them (Kumar & Shobana, Government Schemes and Policies for Promoting Entrepreneurship in India, 2026).
On paper, the support looks generous. In practice, there is a wide gap between ideation and execution. Fund disbursement routinely spills over months which founders cannot afford to wait for. Entrepreneurs face excessive procedural formality, and incubation infrastructure is fragmented outside major metro cities, leaving founders in smaller markets with far less real access than the schemes promise. Even public-private partnerships intended to bridge these gaps have stumbled on poor transparency and accountability. The money that exists on paper; it’s the time period between announcement and disbursement that pushes a founder’s escalation of commitment and a board’s groupthink run longer than they otherwise would.
A Modest Proposal
Perhaps every unicorn pitch deck should be accompanied by a document no one will ever ask for: a candid account of the aftermath when the venture fails. Not as pessimism, but as routine maintenance. Every company that shut its doors this year had some version of that conversation in the boardrooms, usually after the capital which could’ve made the decision easier was already exhausted. Written early enough, such a document isn’t an admission of defeat. It’s simply preparation for the roughly half of outcomes everyone in the room already privately suspects are more likely than the pitch admits.
Until that changes, these shutdowns will rise in number. And perhaps the most telling detail of all is that even the failures are under-reported: 6,385 official, 11,223 real, with no statistical figures filling the gap between them. The ecosystem has built innumerable rituals for celebrating a company’s birth, and almost none for acknowledging its death. Somewhere in that gap lies a company only a few will ever hear of, one that raised funds no one wrote about, silently closing its doors this week without telling anyone at all.
