India’s AI ecosystem is on fire. This year alone, all our feeds were filled with announcements from AI startups raising funds or launching innovative products and solutions. Surprisingly, the number of AI unicorns in India is still just one – Krutrim.
Can that change? Rahul Agarwalla, managing partner at SenseAI Ventures, definitely believes so.
In a recent podcast, Agarwalla said that he is witnessing major growth in India’s AI ecosystem. “Over the past six months, we have seen over 500 AI startups. That's a phenomenal amount of innovation that is going on in the country,” he said, adding that this gives him the belief that India will give birth to around 100 AI unicorns in the next decade.
The message sounds motivating, but should be taken with a grain of scepticism. Agarwalla was talking about all AI startups, including the ones using existing infrastructure or barely building applications on top of others. But India, which is often dubbed as the AI use case capital of the world, is largely struggling with innovation in the AI realm, at least at the moment.
Similarly, Arjun Rao, partner at Speciale Invest, the firm which recently made three investments in the space, told AIM, “We are bullish about many successful AI companies being built from India, but making number predictions is fraught with risks. It is fairly clear that we're in the very nascent stages of this AI revolution. Each year we'll make progress and will need to iterate and solve problems along the way.”
Apart from the names like Sarvam AI, Krutrim, TWO.AI, Project Indus, SML, and a few others, Indian AI startups are largely powered by jugaad, and not the VC money. This is something that needs to change fairly quickly.
Speaking with AIM, Prayank Swaroop, partner at Accel India, said that the 27 AI startups his firm has invested in in the past couple of years will be worth at least five to ten billion dollars in the future, which also includes wrapper-based startups. “A majority of people can start with a wrapper and then, over a period of time, build the complexity of having their own model. You don’t need to do it on day one,” said Swaroop.
AI Soonicorns on the Rise
According to AIM Research data, Indian AI startups raised a total funding of $560 million across 25 rounds in 2024, which is a decline of 49.4% compared to the previous year. When it comes to global AI startups, the funding was around $27 billion from just April-June this year.
Despite the slowdown in India, AI remains the hottest theme for investors as the demand from enterprises is increasing. “The numbers around AI investing need to be taken with a pinch of salt… AI today is like the cloud – almost every new startup is utilising it to varying degrees,” said Alok Goyal, partner at Stellaris Venture Partners. About 50% of the firm investments over the last 12 months were around AI-first startups.
As several Indian AI startups are slowly moving towards building foundational AI solutions, it is necessary for them to raise funds in billions to keep up with the infrastructure cost and acquiring the necessary talent.
Apart from that, for VCs, the opportunity also lies in several AI applications startups as mentioned above. But betting on AI startups to become a unicorn in a decade is still a risky bet for them as the generative AI landscape keeps changing with the release of new products from the big-tech companies.
“Deals are also being announced later as startups are building in stealth. We are aware of at least 15 AI investments which are yet to be announced,” said Agarwalla from SenseAI.
Dry Powder is All You Need
The dream of 100 AI unicorns over the next decade is somewhat achievable given the amount of money the investors are sitting on. Rajan Anandan, the managing partner at Peak XV Partners, recently spoke about this. He sees potential for growth and innovation, and foresees India making a significant impact on the global stage.
At the Global IndiaAI Summit, Anandan said, “Our firm has over INR 16,000 crore of dry powder. We just want more people starting up in AI.”
He added that Peak XV has invested in 25 AI startups so far. Emphasising that capital availability is not a problem, Anandan mentioned that the VC ecosystem has $20 billion ready to be invested in Indian startups. He also noted that AI is currently the most significant theme, with investors showing strong enthusiasm for startups in this field.
Antler, a VC firm, recently announced a $10 million investment in early-stage Indian AI startups. Rajiv Srivatsa, partner at Antler, shared the news on X, emphasising: “NOW is the best time to build a startup in India!”
With incubators and startup programmes like Google, NVIDIA, and JioGenNext, along with the government procuring GPUs from NVIDIA specially for Indian AI startups, it seems like the prediction might be true.
At the same time, investors have also become wary about who they are investing in. Earlier, it was said that many VCs don’t have a thesis for AI startups, but now, the questions during pitches are extremely detailed. Though they are risk averse, the understanding of AI is now within their grasp.