AI Startups in India

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Artificial intelligence dominated a large part of this year- in news, innovations and entrepreneurial ventures. However, most commercial businesses come down to one crucial step- having the necessary funds to invest. In today’s article, we look at how the AI startups in India performed in the venture capital space over the past year

Fall in funds raised through VCs

According to reports from Venture Intelligence, Indian AI startups raised $747 million in 2024, which was 26% lower than last year, despite the number of deals rising to 121 vs 78 in the previous year. This points to the possibility of higher magnitude of low-value deals as opposed to the previous years when funding was limited to select companies for higher valuations. Is that a positive trajectory or not? The answer is not as clear, so instead we’ll offer you the driving reason behind this trend.

Possible reasons for low- value deals

Developments in the software space can be classified into two broad categories- developments in the infrastructure and the application layers. Imagine the infrastructure layer to be the base or architecture on which the application layers can be built. As a result, the infrastructure layer is where most intensive technical innovations come up. Currently, Indian AI startups are mostly operating in the application layer, due to relatively lower capital requirements and India’s inherent advantage in this area. As a result, VC fundings also remain concentrated in horizontal and vertical application developments.

Way Forward for AI startups

However, this is not to say that the infrastructural layer would not develop or present sufficient opportunity. This is because the two layers do not a sequential relationship, it is more of a back and forth. To put it more simply, imagine version 1 of an app based on version 1 of the infrastructural layer. Once this app is released to the market, several enhancements might come up, which could then lead to a need for further developments in the infrastructure layer, which completes the loop we referred to. The possibility of AI startups to pivot to this layer is indeed unfolding as we write!

As the AI industry continues to evolve, Indian AI startups can unlock growth through tapping into opportunities for building services to ensure adoption of AI apps across the world and innovating for India- specific use cases, which present a very unique market and could play a pivotal role in India emerging as one of the global leaders in the AI space.

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