India’s AI startups are at a tipping point

Photo credit: Matan Segev from Pexels

There’s a growing pipeline of high-caliber founders – who have “been there, done that” – taking the startup plunge with artificial intelligence (AI) and machine learning (ML) tech in India. On the other hand, startups with shallow applications of AI are quickly finding out that investors and clients alike have become more discerning.

For example, Zoogaad raised US$500,000 back in 2014 to provide personalized news powered by AI. But, unlike Toutiao in China, it did little to push the boundary beyond Google alerts, and had to shut down.

At the other end of the spectrum is Bangalore-based SigTuple, which ticks most of the boxes for the new wave of promising AI startups coming out of India. SigTuple applies AI-powered analytics to visual medical data, such as blood smear slides that go under a microscope. This improves the speed and accuracy of diagnosis.

The startup’s founders had worked together at American Express’s big data lab. One of them is SigTuple’s chief scientist officer Tathagato Rai Dastidar, a computer science PhD who was the director of the Amex lab. So they had the competence and experience to become deep-tech entrepreneurs.

A younger startup in Bangalore, AskSid, has chosen to focus on women’s fashion. Its AI-powered bot helps brands get into meaningful conversations with their customers while helping them shop online. After successful pilots, topline brands like Wolford have deployed the bot in multiple countries. AskSid’s founders come with rich corporate experience from India’s IT industry.

Number crunching

Bangalore-based incubator Excubator counts 2,312 AI and ML startups globally. According to its number-crunching engine Excube360, the count began to pick up from 2007 and reached a peak in 2015, when 456 startups were founded to leverage advances in the field. The number dips to 359 in 2016, and falls to 87 in 2017.

The pattern follows a similar trajectory in India, with nearly 186 AI startups being founded in 2015 and 2016, but only 42 last year, according to data from venture capital analytics firm Tracxn. What gives?

Excubator founder and CEO Guhesh Ramanathan offers an explanation. “There is definitely a trend toward support for more mature startups in this space,” he tells Tech in Asia.

In other words, the days of all-and-sundry startups trumpeting AI/ML in their pitch deck to catch a VC’s eye are gone. Investors are looking for differentiation and deeper applications of AI/ML in solving real-world problems in the enterprise as well as broader consumer markets.

Number of AI startups founded in the last few years. Image credit: Tracxn

VC funding in the Indian AI space rose from US$15 million in 2015 to US$67 million last year despite the steep fall in number of AI startups being founded, shows Tracxn data. The average deal size rose from US$0.8 million in 2015 to around US$1.5 million, as series A and B rounds began to kick in over the last couple of years.

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