India’s venture capital (VC) landscape has undergone a dramatic transformation over the past two years, with artificial intelligence (AI) emerging as the dominant force reshaping how investors think about startups, revenue models, and market opportunities. What started as cautious experimentation has evolved into a full-scale pivot that’s redefining the entire ecosystem.
The shift, especially in software-as-a-service (SaaS), has been so pronounced that some prominent investors have completely abandoned traditional SaaS models.
This was the primary takeaway of the panel, ‘AI Investments in India: Chasing Hype or Backing Real Disruption?’. The discussion was the inaugural one at the ET Soonicorns Summit 2025 in Bengaluru. The panellists were Rutvik Doshi, MD and General Partner, Athera Venture Partners; Manav Garg, Co-Founder and Managing Partner, Together Fund; Sanjay Swamy, Managing Partner and Co-Founder, Prime Venture Partners; and Manish Singhal, Founding Partner, pi Ventures.
Garg exemplified the dramatic pivot from SaaS to AI. His firm stopped investing in SaaS companies entirely in December 2022, prioritising AI-first investments by January 2023. The results speak volumes: his portfolio now includes 25 AI companies, with 10 already surpassing $5 million in annual recurring revenue.
“Fifty percent of our portfolio is now in tools used for building AI infrastructure, whether databases, integration layers for LLMs, or privacy tools for LLMs,” he said.
However, this rapid change comes with caveats. Investors are learning to ask tougher questions about revenue sustainability. The critical distinction lies between experimental spending and truly sticky, repeatable revenue streams. Companies building vertical AI solutions for specific industries tend to show more durability than general automation tools that may see rapid adoption followed by equally rapid churn.
The emergence of AI-native founders
Perhaps the most significant change is the emergence of what Garg called “AI-native citizens”: entrepreneurs aged 18 to 24 who think and build in AI-first terms from the outset. These founders possess an intuitive understanding of AI capabilities that often exceeds that of older generations, representing a fundamental shift in the entrepreneurial landscape.
This new generation of founders is also thinking globally from day one, a marked departure from the India-focused approach that dominated the startup ecosystem just a few years ago. The reduced costs of building and distributing AI-powered software have made it possible to create global-scale products from India while maintaining pricing strategies that work for both domestic and international markets.
India’s rising ambitions
The transformation extends beyond individual companies to India’s position in the global AI landscape. The country has moved from ninth in global GDP rankings to fourth, and this economic progress is reflected in its startup ambitions. After an initial six-month lag following ChatGPT’s launch in late 2022, Indian entrepreneurs have responded with remarkable vigour, generating more than 300 AI startup pitches monthly.
This surge includes meaningful participation in deep technology sectors, particularly defence, where startups are securing letters of intent with the government for research and development stage products. “In defence applications, the traditional pricing pressures that constrain many startups are less relevant: if you solve a critical problem, procurement follows,” said pi Ventures’ Manish Singhal.
A reality check
Despite the excitement and rapid growth, the panellists emphasised the importance of distinguishing between habit-forming and non-habit-forming products. Tools that simply increase productivity by helping users complete tasks faster or cheaper face different sustainability challenges than products that fundamentally change user behaviour and become indispensable to daily workflows.
“Also, the tough job for us VCs is really trying to understand: is this million dollars of annual recurring revenue (ARR), or part of an experimental budget?” said Athera Venture Partners’ Rutvik Doshi.
The consensus among investors is clear: while experimental revenue still has value, the ultimate measure of success lies in building products that users will rely on every day. As Garg noted, the new product-market fit test has become elegantly simple: “Raise your token price and observe user behaviour,” he said. “If customers still stay, you know you’re solving a real problem.”
India’s AI investment story represents more than just capital chasing the latest trend. It reflects a fundamental shift in how technology companies are built, scaled, and valued, with implications that extend far beyond the subcontinent’s borders.
The central theme of the fourth edition of the ET Soonicorns Summit was ‘From Research Labs to Revenue Models: The Billion-Dollar Blueprint for Scaling Indian AI Startups’. The event had over 50 speakers across multiple power-packed sessions that deciphered the future trajectory of India’s AI and soonicorns ecosystem. Dr. Sharan Prakash Patil, Karnataka Minister for Medical Education, Skill Development, Entrepreneurship & Livelihood, delivered the keynote.
