GenAI, fintech, green tech, EVs, SaaS, hot bets for investors in 2024

In India, GenAI startup ecosystem is unfolding with remarkable speed, signalling a new era of technological advancement and investment opportunities, according to top inventors

Generative artificial intelligence (GenAI), climate technology, and financial technology sectors are some of the hot bets that founders and investors at the world's largest venture capital firms are expected to pursue next year. Other such areas include electric vehicles, space technology, cybersecurity, logistics, and supply chain.

However, the biggest theme that is expected to emerge is the application of GenAI in different sectors. It is a type of artificial intelligence technology that can produce various types of content, including text, imagery, audio, and synthetic data. It is expected to disrupt industries such as healthcare, finance, transportation, manufacturing, entertainment, and retail. This includes the entire marketing stack and drug discovery process and creating various ‘co-pilot’ opportunities across different verticals.

“We're excited about how AI will fundamentally change how businesses are built,” said Prayank Swaroop, partner, Accel. “The rise of AI is as pivotal as the invention of electricity, the internet, and the cloud. Foundational models and AI and machine learning toolchains are undergoing rapid innovation as we speak.”

It has just been over a year since ChatGPT, an AI chatbot that uses natural language processing to create humanlike conversational dialogue, was released by OpenAI. Accel is seeing massive user adoption. Companies are experimenting heavily with AI in areas such as marketing, sales, design, and communication.

“We are looking for companies that are using AI innovatively for core business applications as well as firms that are building development tools for the AI ecosystem,” said Swaroop of Accel.

For example, Accel invested in Effectiv earlier this year, a real-time platform that enables financial institutions and financial technology firms to prevent fraud and reduce risk. AI has long been a focus for Accel globally. Its team has partnered with companies including Synthesia, AssemblyAI, Rasa, ScaleAI, Spyne, Dubdub.ai, Mihup, Effectiv, and Akridata.

The year 2023 brought a mix of highs and lows. Many companies worked to reduce their expenses and stretch their capital further. However, founders continued to start companies in new areas like GenAI, according to Dev Khare, partner, Lightspeed. Lightspeed has backed many companies in this area in the US, Europe, Israel, Southeast Asia, and India.

“We capitalised on this trend with investments in promising companies like Sarvam, Thena, Portkey, and Gushwork in the AI domain,” said Khare.

Experts said that about 25 billion dollars have been invested into building GenAI globally. But a lot of that capital has not yet come to India, opening up huge opportunities for startups in the country.

In 2024, the technological landscape is poised for transformative shifts, with GenAI leading the charge, according to Gaurav Sharma, head of Private Equity, India at Investcorp. He said that the potential of AI to contribute significantly to the global economy is immense, with consulting firm PwC estimating a 15.7 trillion dollar addition by 2030. This technology is revolutionising how we interact with machines, offering tools like GPT-3 by OpenAI, RunwayML, and DeepArt.io, which are just the tip of the iceberg.

“In India, the GenAI startup ecosystem is unfolding with remarkable speed, signalling a new era of technological advancement and investment opportunities,” said Sharma of Investcorp. “The growth and potential of these startups are substantial, driven by a unique blend of innovation, talent, and entrepreneurial spirit.”

One such Indian startup is Sarvam AI, founded by Vivek Raghavan and Pratyush Kumar. It recently raised 41 million dollars in a Series A round. This funding, led by Lightspeed and supported by Peak XV Partners and Khosla Ventures, represents the largest raise at this stage for an Indian AI startup.

Sarvam AI’s ambitious plan is to develop the ‘full-stack’ for generative AI. This ranges from research-led innovations in training custom AI models to an enterprise-grade platform for authoring and deployment. The company believes that this full-stack approach will accelerate the adoption of GenAI in India. There is a huge need for that as enterprises see the potential of GenAI but are grappling with how to leverage it for their business.

Sarvam AI will also focus on India’s unique needs. This includes training AI models to support the diverse set of Indian languages and voice-first interfaces. The company will also work with Indian enterprises to co-build domain-specific AI models on their data. Finally, the company aims to create population-scale impact by layering GenAI on top of the highly successful India stack specifically for public-good applications.

“We need companies like Sarvam AI to develop deep expertise for building AI in and for India,” said Vinod Khosla, a pioneer in Silicon Valley AI investments, including his early support for OpenAI.

Looking forward to 2024, Khare of Lightspeed anticipates continued momentum in GenAI. He said the sector is still in its early stages, presenting ample opportunities for the emergence of new companies, particularly at the application layer. While the platform layer may remain concentrated among big tech providers in terms of models and data, Lightspeed foresees significant potential for innovation at the application level.

“Our commitment to empower this sector further will continue in 2024,” said Khare. “We look forward to further exploring and investing in applications embedded in specific models and workflows within the GenAI sector.”

Additionally, Khare said Lightspeed’s investment focus will continue to be directed towards the core segments. These include consumer, financial technology, enterprise, and e-commerce. It would also explore emerging sectors that show significant promise such as climate, electric vehicles, enterprise, consumer supply chain, space technology, and business-to-business spaces.

Another big opportunity is India’s software-as-a-service market. A report by Bessemer Venture Partners forecasts an impressive growth trajectory for the Indian SaaS industry, projected to reach 50 billion dollars by 2030. The Indian SaaS centaurs and unicorns will generate revenues of 20-25 billion dollars by 2030.

In the dynamic landscape of 2024, Anant Vidur Puri, Partner, Bessemer Venture Partner, said the venture capital firm envisions a transformative journey for Indian companies, driven by their efficiency advantage. This would pave the way for global leadership. Puri said that the emergence of new cloud infrastructure will power traditional financial services, while the Unified Payments Interface's influence will create diverse SaaS and infrastructure opportunities. Additionally, Indian Pharma will move forward on the wheels of cloud software.

“AI-first companies from India are set to lead the global productisation of services, as evidenced by the surging adoption of artificial intelligence among Indian developers,” said Puri.

With 46 per cent already incorporating AI into their tools, Puri said India stands as the second-highest country globally in AI utilisation. He said that 84 per cent of Indian developers have plans to integrate AI into their development process, claiming the top spot globally.

India’s gross domestic product is expected to surpass 5 trillion dollars between 2026 and 2028 and secure its place as the world's third-largest economy. The digitalisation of enterprises and small and medium businesses in India is a key driver in this. Venture capital firm 3one4 has been focused on this theme. The utilisation of Indian software and technology is becoming instrumental in enhancing efficiencies in various sectors. This includes areas ranging from agriculture and manufacturing to logistics and distribution.

“Looking ahead to 2024, we foresee promising opportunities. The ongoing trend of mass formalisation and digitalisation sets the stage for continued growth, particularly in the technology sector,” said Pranav Pai, founding partner and chief investment officer, 3one4 Capital. “Also, as more startups prepare for initial public offerings, investors can capitalise on the burgeoning market.”

Vikram Chachra, Founding Partner, 8i Ventures said that 2023 was a transition year between the maturation of the mobile era (that started in 2010) and the rise of the AI era globally and the emergence of the DPI (digital public infrastructure) era in India.  

He said that GenAI is still in its foundational stage and dominated by large LLM platforms funded by big tech and super large chequebooks. 

Meanwhile in India, Chachra said there is a dawn of a new era, led by the expansion of these open frameworks into key sectors such as finance, retail, mobility, logistics, healthcare, and education. 

Unlike the established digital ecosystems dominated by tech giants in the US and China, Chachra said India is carving a path defined by open digital platforms, exemplified by the success stories of Aadhaar and UPI.

“Just as UPI spawned early fintech leaders such as PhonePe and Paytm, we anticipate these DPI frameworks will foster the next generation of digital winners in India,” said Chachra. “We will be investing in the emerging DPI eco-systems around AA (Account Aggregator), ONDC and the other promising stacks that are getting created at this time.”

Rethinking strategies

Also, 2023 was a wake-up call for India's tech scene, according to Sheetal Bahl, partner, Merak Ventures. “The shake-ups caused by Sequoia and Byju's were not just ripples – they signalled a tidal change,” said Bahl. “This shift has prompted a realignment in our ecosystem, driving everyone to rethink their strategies and approaches.”

In this evolving landscape, Bahl said that GenAI stands out as a wildcard for 2024. He said that its rapid evolution turns every prediction into a gamble. Yet it's this very unpredictability that spells enormous opportunity for the bold and the prepared.

As we look to 2024, Bahl said Merak’s guiding principle remains unwavering: a commitment to insightful, long-term investments, driving growth that outlasts fleeting trends. The broader market trends corroborate its strategy. Public markets are emerging as reliable platforms for capital raising and providing exits for early investors. “We're witnessing a notable improvement in the financial health of companies post-listing, a trend we anticipate will continue,” said Bahl. This signals a maturing ecosystem where quality takes precedence.

Simultaneously, the venture capital world is poised for a recalibration. Bahl said the days of mega funds might be numbered, giving way to more strategically sized investments. This means some funds will need to adapt, streamline, or even cease operations. “It's a natural evolution towards a more effective and sustainable venture capital environment, aligning perfectly with our ethos at Merak: to invest wisely and for the long haul,” said Bahl.