Aug 12, 2025

That's four times the $129 million AI companies raised in 2021 and $475 million in all of last year. Leading the investment stakes are enterprise software companies such as Fractal Analytics, AtomicWork and TrueFoundry this year, according to the data. Most Indian venture capital firms have a strong focus on AI startups. Elevation Capital has closed 15-20 investments in the last two years, compared with an average five-six per year, said Krishna Mehra, AI partner at the VC firm. Investments include Composio, AdoptAI and Maxim. There's significant momentum in AI deal flows in 2025 compared with 2024, said Mohamad Faraz, managing partner, Upsparks Capital. This comes amid rising AI adoption by enterprises, which are looking to automate services that are not core to their business, verticalisation of solutions, and agentic AI platforms. The development is in line with global investment trends though the India numbers are relatively much smaller. According to the latest EY report, global GenAI startups raised $49.2 billion in the first half of 2025, up from $44.2 billion in all of 2024. This is a key moment for artificial intelligence startups focused on enterprise businesses ripe for automation and could unlock trillions of dollars in market value, said a Bengaluru-based investor at a large VC firm. “Unlike product-led startups such as Cursor, this (enterprises) is a messy business, where the Indian startups have a significant advantage. I'm starting to see the green shoots already. In the next 12 to 24 months, we will see more companies coming out of India,” he said. Multiple investors told ET that a key focus area is GenAI solutions that can disrupt the software services industry. Others seeing momentum include vertical specific solutions, voice AI and agentic AI. This apart, Elevation's areas of interest include middleware and infrastructure layer, and applied AI, Mehra said. An Indian founder currently building an AI model for healthcare said enterprises are looking for founders with deep domain knowledge. After dabbling with building a foundational model, he shifted his focus to one focused on healthcare, for which there is great demand from hospitals and insurance companies. The project is currently in stealth mode. This exemplifies a key shift from last year. Startups are now focused on verticalisation in areas such as finance, where functions such as payroll and invoice matching are being automated by startups built on specific domains, said Faraz. Global spending by enterprises on vertical AI solutions is expected to reach $47 billion by 2030, according to a report by Bengaluru-based AI accelerator Upekkha. That puts Indian AI startups at an advantage. Some vertical AI companies include Signzy (BFSI), Prudent AI (US mortgages), Dozee (healthcare) and Uptime AI (manufacturing), according to the Upekkha report. A challenge in AI adoption is lack of clarity about how technology is evolving, said Upekkha managing partner Thiyagarajan Maruthavanan recently. That is beginning to change and enterprises are opening up their purse strings, he said. Another shift is building for the global stage. “Unlike early 2024, every founder is focused on building for the global market. With such focus, we have seen some Indian founders able to reach $10 million annual recurring revenue in two months,” Faraz said. ET reported earlier that there has been a significant movement of founders to the AI epicentre, the US, followed by investors, who are now setting up there to help founders and spot trends early. This includes Blume Ventures and Peak XV, which already have investors in the US, and others like Z47 looking to expand in that country. VC firms are also hiring AI partners as they look to double up on investments in the space. Stellaris Venture Partners, Bessemer Venture Partners and Elevation Capital have hired AI experts in recent times. All this growth is not without challenges. While a section of startups is seeing success globally, the Indian AI startup ecosystem is yet to reach maturity. The quantum of investments barely registers when compared to the global total. Two founders, on condition of anonymity, pointed out that Indian investors continue to be risk averse. While significant investments flow into consumer startups in the country, late-stage investments in deeptech and research, requiring a long gestation period, are hard to come by. Venk Krishnan, founder of NuWare and NuVentures, said the biggest challenge for startups is the go-to-market strategy. The companies struggle to get customers on board. “We are yet to see path-breaking AI come out of India compared to companies in the US,” he said. This is further compounded by lack of access to key resources such as quality AI talent and compute access.