Why Indian VCs aren't investing (like crazy) in Gen AI startups
Catch-22
As of now, $8.5 billion has been invested in Gen AI startups this year - while Indian AI startup funding is very well below $400 million.
Why? Many blame Indian VCs' lack of risk appetite for not going all-in on Gen AI startups - but there is another side of the story that needs to be told.
Let’s zoom out and consider the Indian SaaS space. Between 2015 and 2024, Indian SaaS startups raised over $7 billion. Yet, how many notable exits do we have? How many have gone public?
Beyond Freshworks, major exit stories are rare. Sure, there have been decent ones—Minjar, Qubole, etc.—but investors are still waiting on big returns from the likes of Druva, Capillary, Chargebee, Postman, MoEngage, BrowserStack, CleverTap, and WebEngage etc.
These are great businesses, no doubt. But the near-term exit pipeline is dry. With current market sentiments, meaningful exits could still be 2-3 years away.
So, where does that leave Indian VCs?
Middle of nowhere.
They're playing it safe.
The big bets are on serial entrepreneurs with proven track records—think Ola’s Krutrim AI or Mukesh Bansal’s enterprise AI startup.
And here’s the catch-22:
Ambitious founders are heading abroad to raise capital from global VCs, while Indian VCs are stuck with a pipeline of “average” startups.
I am very much in touch with a lot of early stage founders and most seem to be pissed off with the lack of excitement and imagination among Indian VCs when it comes to Gen AI startups. And most VCs tell me that there isn’t anything exciting being done in India - largely true, but the great stuff is now moving to US.
Look at the recent PeakXV batch announcement —most India-based investments are D2C, while the promising AI startups are from Australia, Singapore, or elsewhere.
So..what should I do as a founder?
Raise where your network is strong.
Gen AI is moving too fast to sit around waiting for local investors to get onboard. If you can convince Indian investors - go ahead, else go after the global ones (time+effort will be lesser pitching to global VCs as compared to desi ones).
What should investors do?
Maybe it’s time to drop the bias that Indian founders can’t build world-class, product-led companies? I see a lot of pre conceived notion (this is how sales is done / an Indian SAAS company selling to mid-market is DoA) - and GenAI is going to negate all of those.
Thoughts? Opinions?