The AI-ceberg of innovations: Meet AI-first startups shaping India’s tech future

Would ChatGPT have stumped even Jeeves? Much like the seemingly know-all gentleman’s gentleman from the pages of the master PG Wodehouse, ChatGPT seems to have all the answers on its fingertips, and has become as much a topic of drawing-room conversations as are Bollywood weddings and cricket in India, ever since the tech was unveiled late 2022. Since then, a new generation of AI-driven software-as-a-service (SaaS) and AI tooling companies have been emerging and gaining traction, boosting prospects at the world’s third-biggest start-up ecosystem. And going forward, this is also something that should draw large financial commitments when a grim funding winter recedes.

It is natural, therefore, that investors are bullish on AI, even as other technology areas of unproven commercial prospects struggle for financing. While the is at a nascent stage right now, are sure it is poised for growth in several areas, which could even have a global impact. A new generation of Indian AI-first or could be catering to the world in the coming years.

“In India, it is a very exciting time, but it’s still early,” said Rajan Anandan, managing director of firm PeakXV Partners and seed platform Surge. “Despite all the conversation and the fair bit of funding, I’d say we are still on Day 1 of AI innovation globally and also in India. ” He added that two years from now, India could have hundreds of globalfocused AI companies, growing very fast and with very compelling value propositions.

“The opportunity is enormous,” he said. The year gone by also saw the release of several ‘AI for India’ large language models, whether it is Ola founder Bhavish Aggarwal-backed Krutrim AI’s Krutrim model that understands 10 Indian languages, or Sarvam AI’s OpenHathi Hindi model. So, while efforts are clearly on to build , Indian startups are also making for the world.

According to the technology industry apex body , India now has over 100 and the ecosystem has cumulatively raised $700 million in the last three years, ET reported on January 4. As per Nasscom’s Generative AI Startup Landscape in India report 2023, around $8 billion was invested in AI startups from 2013-2022, with $3. 24 billion in 2022 alone, across over 1,900 Indian AI startups.

“We think AI is a long-term, very secular investment opportunity,” said Arpit Maheshwari, principal at Stellaris Venture Partners. He added that there are two broad areas in AI seeing traction. First, the application of AI to create significantly better and more intuitive consumer experiences when dealing with software; and second, content generation.

“Both categories of use cases are very well applicable on both the enterprise as well as the consumer side,” Maheshwari said, adding that AInative SaaS companies are seeing tailwinds. Venture capital firm Lightspeed believes the SaaS ecosystem is standing at the cusp of innovation-led growth with the advent of technologies like generative AI. “Over time, most categories in SaaS have gotten crowded and new players compete on things outside of core R&D, like product experience, pricing, service, packaging, brand, etc,” said Hemant Mohapatra, partner, Lightspeed India and a celebrated author in entrepreneurial and technology space.

“These are more GT M-led differentiations, which is why a lot of sales cycles in SaaS now are more elongated. Customer loyalty has also reduced a lot, pricing has become the primary lever of winning a deal, and so on and so forth,” Mohapatra added. “Thanks to recent developments, a new generation of AI-first SaaS is going to come up, which will bring the focus back to R&D and innovation.

This is what investors like Lightspeed really look for — new products that are very different looking and insights driven,” he added. Lightspeed has pioneered most early-stage investments in Indian AI startups, including conversational AI platform Yellow. ai, content marketing startup Pepper Content, and the video creation platform Rephrase.

ai which was acquired by Adobe. In 2023, Lightspeed backed AI startups like Indic LLM creator Saravam AI, LLMOps platform Thena and on-demand AI workforce provider Gushwork. SenseAI Ventures believes AI tooling or shall emerge to become one of the growth areas, as businesses move towards increased AI adoption.

“We shall see multiple unicorns emerge from this segment and at least one global 50 firm,” said Rahul Agarwalla, co-founder of SenseAI Ventures. “We are optimistic about this sector because we believe every company will use AI and thus will need the tools and infrastructure to build AI. ” The firm has recently announced the launch of its Rs 200 crore SenseAI Fund I dedicated to invest in 18-20 AI-first startups at Seed/Pre-A stage.

It has made four successful exits previously and currently holds a portfolio of 12 AI SaaS, AI B2C, and AI Tools companies, with Cureskin and Skit. ai reaching Series B. Nasscom said that nearly $700 million has been invested in Indian gen AI startups till date, with around 70 per cent of the funding coming in 2022 alone.

But around 70 per cent of Indian gen AI startups continue to be unfunded, compared to only 33 per cent of their global counterparts who are without funding, the report said. For Anandan, most of the value will be generated not from startups building foundational models, but those building on top of them. Promising areas include companies that focus on AI tooling and infrastructure or ‘LLMOps’, those developing gen AI-based personalised content generation applications, and vertical AI companies building for specific domains.

“We think India is going to be a very exciting place from which global vertical AI companies will come… India is going to have hundreds of these,” Anandan said. PeakXV is backing AI tooling and infrastructure startups like True Foundry and Inferless, vertical AI companies like Bengaluru-based medical coding startup Arintra and Noida-based Attentive, which focuses on outdoor services, and personalised video creation genAI company Gan. ai among others.

It also invested in Sarvam AI. “The new SaaS founders are building it AI-first,” Anandan said, adding that many of India’s funded SaaS companies across segments will also become . According to Ashish Bhatia, founder and CEO at seed-stage startup accelerator India Accelerator, startups working on AI in healthcare, finance, cybersecurity, enterprise AI and generative AI are attracting funding.

“While these areas are thriving, other AI startups face difficulties securing investments,” Bhatia said . Companies developing specialised hardware for AI applications, startups focused on robotic solutions requiring significant capital investments and those whose businesses are reliant on complex hardware infrastructure face issues, he said. Long-term research-focused firms, such as those conducting fundamental research in AI with unclear commercial applications or startups exploring unproven or nascent AI technologies with long development cycles, also struggle to attract investments, Bhatia said.

Besides venture funds, even tech giant Google has been bullish on AI prowess of startups emerging in India. For the eighth batch of its startup accelerator program, Google has shortlisted 20 AI-first startups in their seed to Series A stage. Some of these include video personalisation platform Gan.

ai, engaging slides maker Presentations. ai, deep tech fashion e-commerce company NeuroPixel. ai and music creation platform Beatoven.

ai. The accelerator offers a three month equity-free programme where selected startups get mentorship and support across areas such as AI/ML, cloud, user experience, Android, web, product strategy and growth. The fact that India’s startup ecosystem is diverse, ranging beyond AI and software to consumer products, healthcare, financial services etc, means the investments are not concentrated in AI unlike they can be elsewhere, according to Anandan.

“This year, the total startup (investment) going into India will be maybe $8-10 billion. It (the amount going into AI startups) is probably less than 10 per cent of that,” he said. “The percentage of startup funding in the US this year that has gone into AI will be very high.

Whereas in India, it’ll be a mixed bag. It won’t be the single largest by far, like what you’ll see in the US,” he added. But then, these are early days, and India is just getting started.

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