In red-hot AI space, funds for Indian startups cooling down: Traxcn

PE/VC funding down 71% in CY23; it has slowed further in this year

Venture capital (VC) and private equity (PE) funding for Indian startups in the artificial intelligence sector has seen a dramatic decrease with deal sizes shrinking, notwithstanding the buzz around the country’s potential as a major AI hub.

Data from research agency Traxcn, which tracks PE/VC investments, shows that total funding for AI startups in India, which started with a bang in 2022 at $599 million, dropped sharply in 2023 to $168.4 million — a decrease of over 71 per cent. Since January this year, startups have only managed to garner $31.9 million in three rounds.

However, that’s not the case globally. According to Crunchbase, AI startups worldwide raised $50 billion in 2023, up from $45.8 billion in 2022. In the first quarter of 2024, total AI funding stood at $12.2 billion.

The size of the funds raised by Indian AI startups is also becoming smaller. In 2022, the average deal size was $14.7 million, but it dropped to $7.1 million in 2023; it has slightly increased in 2024 (until May 3) to $10.6 million.

One of the largest fundraising in the AI space was seen in 2022 with Chennai and Palo Alto-based Uniphore Technologies raising over $400 million through series E funding, hitting a valuation of $2.5 billion. Incubated at IIT Madras in 2008, Uniphore is an enterprise AI platform built to learn human emotions and react in real-time. Its latest funding came from New Enterprises Associates and March Capital. The company was founded by Ravi Saraogi and Umesh Yadav and has offices across the US, Singapore, and Japan, among others.

In the same year, the second-largest investment went to Gupshup — an AI conversational messaging platform for businesses — which raised $200 million in a round led by Tiger Global (it has raised $486 million in eight rounds, so far), followed by MathCo, which raised $50 million from Info Edge, Brighton Park Capital and others.

In 2023, the largest fundraisers were far smaller — the biggest was by Bhavish Aggarwal’s AI venture Krutim, which raised $50 million from Matrix Partners but hit a valuation of $1 billion. The next big fundraising was of $41 million by Sarvam AI, in which Lightspeed Venture Partners and WestBridge Capital, among others, participated. The company is developing efficient large language models and enabling new-generation AI applications through enterprise models.

In 2024, so far, capital raising by AI startups is even smaller, with the biggest being from Neysa — which uses AI to transform modern enterprises. It raised $20 million from Matrix Partners and Nexus Venture Partners in a seed round. The other two among the top three are by Attentive.ai and RagaAI, which garnered US $7 million and US $4.7 million, respectively.