Iran war threatens fund-raising plans of India-focused PE, VC funds

The ongoing conflict in West Asia involving Iran, the US and Israel is beginning to dent fund-raising prospects for India-focused private equity (PE) and venture capital (VC) funds, industry sources said. Funds that traditionally draw significant capital from high-net-worth individuals (HNIs) and sovereign wealth funds in the Gulf are seeing heightened investor caution and a reduced appetite for committing to alternative investment vehicles, while currency depreciation is further complicating risk-return calculations.

“Attracting foreign capital for VC and PE funds is going to be challenging owing to current inflation levels and global uncertainty. VC investments are driven by long-term commitments,” said V. Balakrishnan, Chairman of Exfinity Ventures and former CFO of Infosys.

Fund managers and industry observers point to a combination of geopolitical risk and macroeconomic pressures. Asian-focused fund managers have already been contending with a fundraising slowdown: a Bain & Company report cited in industry commentary shows Asia-focused private equity firms raised just $58 billion in new funds "last year," the lowest level in more than a decade. Fundraising by Asia-focused PE funds stood at $92 billion in 2024, down from $119 billion in 2023, with the post-pandemic peak occurring in 2021 at $180 billion.

Where the capital has come from

• Sovereign wealth funds such as the UAE’s Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company and the Qatar Investment Authority (QIA) have been among the most active backers of India’s startup and growth ecosystem.
• Mubadala’s India portfolio has included investments in Jio Platforms, Reliance Retail, Avanse Financial Services and Manipal Health Enterprises.
• ADIA has backed companies including Lenskart and HDFC Capital Advisors.

While these sovereigns have been prominent investors, industry sources expect their activity to moderate in the near term as geopolitical tensions and economic uncertainty weigh on decision-making. Currency moves are another headwind: rupee depreciation alters expected returns for investors who measure outcomes in stronger foreign currencies, making long-duration VC commitments less attractive.

“Investors prefer to sit on cash during uncertain times. With the West Asia conflict and rupee depreciation, raising money for VC funds will not be easy,” said a source familiar with the matter.

Outlook

For India-focused PE and VC firms, the near-term outlook is for tougher fund-raising conditions. Managers that rely on HNIs and Gulf sovereigns will likely face longer sales cycles and potentially smaller first-close targets as investors adopt a wait-and-watch posture. At the same time, established funds with track records or sector-specific theses may still close mandates, but at a slower pace and with greater scrutiny on currency hedging and exit timelines.

Industry participants will be watching how sovereign wealth funds such as ADIA, Mubadala and QIA recalibrate allocations, and whether broader stabilisation in West Asia or currency markets restores some investor confidence in committing fresh capital to India-focused PE and VC strategies.