Published on
May 12, 2026
Surge in Startup Mergers in India Amid Regulatory Changes and Funding Challenges
India's startups are consolidating as funding tightens and regulations ease, prompting a wave of mergers.
Indian startups are increasingly turning to mergers as a strategy for survival and growth in the face of tightened funding and evolving regulatory landscapes. Once considered an opportunistic move, consolidation has now become essential for many companies navigating a challenging ecosystem.
Funding Crunch Drives Consolidation
The Indian startup sector, despite its global reputation, has been grappling with significant funding shortfalls in recent years. Venture funding plummeted from approximately $25 billion in 2022 to just $10 billion in 2023. Although 2024 saw a modest recovery, reaching $11.3 billion, the distribution of funds has largely favored a limited number of companies. Many startups have been forced to rely on multiple bridge funding rounds at flat valuations to sustain operations, as access to primary growth capital remains restricted.
Adding to the challenge is the lack of strategic buyers in India. Unlike the United States, where mergers and acquisitions (M&A) account for 40-50% of venture exits, India lags significantly, with M&A representing just about 10% of exits. As a result, startups seeking growth and survival are increasingly pursuing mergers as a practical alternative when external buyers cannot be found.
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Regulatory Reforms Accelerate Deals
Recent regulatory changes in India have significantly streamlined the M&A process, making it faster and more cost-effective for startups to consolidate. In August 2024, the Reserve Bank of India (RBI) updated foreign exchange rules, allowing cross-border share swaps under the automatic approval route. This reform has minimized administrative delays and eased dealmaking processes.
In September 2024, further improvements were introduced by the Ministry of Corporate Affairs (MCA). The revised company rules under Section 233 allow foreign parent companies to merge with their wholly-owned Indian subsidiaries through a fast-track process, bypassing the need for National Company Law Tribunal (NCLT) approval. This reform has reduced merger timelines from 8-12 months to just 90-120 days, effectively removing a significant barrier to cross-border and domestic consolidations.
High-Profile Mergers and Associated Risks
The Indian startup ecosystem has already witnessed notable mergers that underscore this trend. In early 2024, HomeLane and Design Cafe completed an all-stock deal valued at approximately $400 million, combining resources to expand product categories, enhance leadership, and accelerate profitability. Another key example is the merger of Power2SME and Jiraaf, which joined forces to create a more robust platform for asset creation and distribution.
Publicly listed companies have also participated in high-profile deals, such as Zomato's $568 million all-stock acquisition of Blinkit in June 2022. The transaction has proven valuable for Zomato, with Blinkit now a critical component of its operations.
However, not all mergers yield success. Byju's serves as a cautionary tale, having spent nearly $2.5 billion on acquisitions, including $950 million for Aakash and $300 million for WhiteHat Jr. Despite these significant investments, Byju's valuation has suffered, exemplifying the risks of overpaying, poor integration, and failing to address core business issues. As the article notes, "Acquisitions can't fix a business with core problems."
To ensure successful mergers, fair share swap ratios, clear agreements between founders, and detailed integration strategies are critical. These steps, however, are often neglected in the rush to close deals, leading to pitfalls such as missed synergies and value erosion.
Scaling Through Consolidation
The push for consolidation is fueled by the need to achieve scale and market leadership - factors increasingly prioritized by public market investors. Companies like Mamaearth and Awfis have demonstrated that larger, unified operations attract greater investor confidence. For many startups, mergers represent the most viable path to achieving the scale necessary for sustained growth.
While the conditions are ripe for a surge in mergers - characterized by a crowded startup landscape, reduced regulatory hurdles, and investor preferences for larger exits - success will depend on meticulous planning and execution. "The coming years will show if India's startup ecosystem can merge its way to lasting growth and successful exits", the article concludes.
As India’s startup ecosystem continues to evolve, the ability of founders and investors to navigate this consolidation wave effectively will likely shape the sector’s trajectory in the years ahead.
