Not many AI startups worthy of investment

There are two things happening with regard to AI. Firstly, if you look at the US, many innovative use cases are getting built on AI. Nvidia is getting so much demand because of their innovative chips. In India, though innovations are happening, that is not as great as the US - V Balakrishnan, Chairman, Exfinity Ventures, & former CFO of Infosys, tells Bizz Buzz

Bengaluru: All the rush about investing in AI (artificial intelligence)-powered startups seen in India amid a prolonged funding winter may not result in providing better returns to investors.

According to fund managers and technology sector veterans, the level of innovation coming out of Indian startups on AI is less qualitative than their US counterparts. Therefore, investors should be choosy about investing in those AI-based startups that are solving bigger problems.

“Market has got a herd mentality. Today, AI is the fad and anything related to AI is generating interest from the investor community. There are two things happening with regard to AI. Firstly, if you look at the US, many innovative use cases are getting built on AI. Nvidia is getting so much demand because of their innovative chips. In India, though innovations are happening, that is not as great as the US,” V Balakrishnan, Chairman of venture capital fund Exfinity Ventures & former CFO of Infosys, told Bizz Buzz.

He said that for supporting innovations, India needs risk capital, which the country doesn’t have for betting on high-risk ideas. Despite the ongoing startup winter, AI-powered ventures have defied the trend. Especially, generative AI-focussed startups have been able to raise money from private equity (PE) and venture capital (VC) firms.

Generative AI (GenAI) startups have bucked the trend, raising a record $10 billion in 2023, according to a report by GlobalData. This marks a 110 per cent increase compared to 2021.

Last month, Krutrim, an artificial intelligence (AI) venture co-founded by Bhavish Aggarwal of Ola, achieved Unicorn status after raising $50 million from notable investors, such as Matrix Partners India. Unicorn is a company whose valuation touches $1 billion or more.

According to data intelligence platform Tracxn, Indian startup ecosystem has seen a decline of 72 per cent in the total amount of fund raised in 2023 as compared to previous year. Indian startups raised around $7 billion in 2023, a steep decline compared to $25 billion in the previous year. Things have not changed for better in 2024 so far though fund raising activity in the AI-powered startup space has picked up in the first two months of current year.

“Things have not changed much as far funding environment is concerned. It is likely to prolong as the interest rates in the US have not come down. There is not easy money available in the system. Another thing is that investors have lost a lot of money. So, it will take a lot of time to get the confidence the back and start investing again,” Balakrishnan.