At a time when chatbots like ChatGPT, Google Bard, and Microsoft’s AI-powered Bing are taking the world by storm, back home, artificial intelligence start-ups, too, are attracting investors by the droves. 

Venture capital investors, in particular, appear to have a larger appetite for AI-driven companies. 

Data from Venture Intelligence shows that since 2018, VC investments have grown rapidly. The most notable jump came between 2021 and 2022, when VC investments recorded 129 per cent increase to $2.26 billion. 

Private equity (PE) investments have been growing steadily, too, albeit slowly over five years. As per Tracxn data, after a 204 per cent growth between 2020 and 2021, PE investments in AI start-ups reached a peak of $3.37 billion in 2022. 

Flood of investments 

According to the data from Tracxn, total funding received by AI start-ups also saw an overall positive trend, excluding the slight dip in funding between 2019 and 2020. Total funding jumped by a whopping 215 per cent in 2021 to $5.45 billion and stayed close to that level in 2022 too. 

AI start-ups withstood the harshness of the funding winter witnessed by Indian start-ups relatively well. As per a PricewaterhouseCoopers (PwC) report on Indian start-up deals, the decline in start-up funding between 2021 ($35.2 billion) and 2022 ($23.6 billion) stood at 32.9 per cent. However, the decline in AI start-up funding in the same period was only 6.4 per cent. 

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In 2023, these start-ups have seen funding of $87.5 million in January (18 rounds), and $120.4 million in February (16 rounds).

Why the interest? 

Why have AI start-ups witnessed such a leap in funding over recent years? Shashank Randev, co-founder, 100X.VC, attributed this to a few reasons. “Since 2018, as the digital drive in India has increased, the ability to use tech-enabled solutions and AI platforms has improved, even reaching the general consumer. A major reason for increased funding in AI start-ups is these companies have developed quality products and solutions, along with the ability to increase their customer base.” 

Arpit Agarwal, Director, Blume Ventures, said, “AI definitely is a strong trend, companies are able to create differentiated applications. Uniphore and GreyOrange are great examples of how some things that were not possible without AI are now possible. They are creating new business value, and hence, more funding is likely to happen.”

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When asked about which start-up AI models and technologies are likely to get funding in the coming year, Agarwal listed a few: Natural Language Processing (NLP), computer vision, and AI for datasets. He also said, “Generative AI, unlike these, results in synthesis, not just analysis. Since the technology is relatively new, we have not seen much funding happen yet. In the next 18-24 months, however, many generative AI companies will get funding.” 

Top deals 

Data from Tracxn shows that the top deals in 2022 were by VerSe, a local-language platform, and Dailyhunt’s parent company, which raised $805 million in Series J funding, followed by Uniphore, a conversational AI and automation company, which raised $400 million in a Series E round.