Although funding for AI startups has slowed in recent years in India, venture capitalists remain optimistic about AI growth. Overall tech funding in Karnataka dropped 46% year-on-year to $633 million in the first quarter of 2025, compared to the same period in 2024, according to a report by Traxcn.
However, AI-related startups have secured some backing in the early-stage rounds.
Anoop Meno, principal of investments at Chiratae Ventures, believes deep tech and AI are significant current focuses. Given the momentum open platforms have demonstrated over the last two to three years, Anoop says AI is where the attention is.
“The focus among Indian investors has been on finding entrepreneurs who can rapidly build application-layer software,” Menon added. “When you consider the amount of capital drawn towards the infrastructure layer, it’s evident that establishing an India-based infrastructure play will require significantly more time and capital.”
Menon emphasised that there is considerable appetite in the market. Bangalore’s AI space, particularly the space tech sector, has gained traction over the last four months, accelerating toward commercialisation.
This is where specialised funds, which better grasp the inherent risks of deep tech, tend to step in as the first believers and anchors for a few projects, Menon highlighted.
He mentioned that Chiratae Ventures has supported several robotic and material science startups performing well in the ecosystem today. It’s worth noting that “it took them four to five years to find their product-market fit before they could accelerate their growth,” he said.
Optimistic Investors Despite Plunging AI Funding
According to Traxcn, five companies have successfully secured funding in recent evaluations of the artificial intelligence sector. These companies collectively raised $207.3 million as of April 2024, reflecting a significant investment trend in the AI industry.
Sarvam AI leads the funding chart with $53.6 million raised, showcasing strong investor interest in its innovative solutions. Following closely, Krutrim has attracted $50 million, reflecting its promising advancements in AI technology. With $41.7 million secured, Skit.ai is making strides in enhancing conversational AI capabilities. SigTuple, raising $38 million, is recognised for its contributions to medical AI applications, enhancing diagnostic processes. Senseforth has garnered $24 million in the top five, focusing on AI-driven customer experience solutions.
The most frequent funding round among these companies was the Series B round, which indicates growing confidence from investors in the scalability and market potential of these businesses.
The funding data highlights the growing interest and investment in AI companies, particularly those in more advanced funding stages, signalling a solid optimism for future developments in the field.
Looking beyond Bengaluru, experts say that cities like Pune and Hyderabad have shown growing interest and momentum in AI. However, this does not detract from the fact that Bangalore remains the technology capital, at least for now.
Growing AI Interest in Indian Cities
Menon said that cohorts and alums, especially from IITs, tend to gravitate towards specific organisations that have become grooming grounds for entrepreneurial talent, such as major tech companies like Microsoft, Meta, and Amazon.
In 2024, Chiratae Ventures launched a cohort of its flagship seed investment initiative, Chiratae Sonic. This program aimed to accelerate decision-making and streamline the investment process for early-stage tech startups.
He also explained that the market will invariably find many individuals from both talent pools in major cities like Bangalore, Mumbai, and Delhi. Additionally, some service talent remains concentrated in Hyderabad, Bangalore, and Chennai. Thus, one can observe two key quadrants for technology talent in the country: one for technology product talent, another for technology services talent, and another for engineering talent.
According to data from Traxcn, Bengaluru consistently led in total AI funding volume and the number of funding rounds from 2020 to 2024. The city attracts multi-million dollar investments each year, with 2 to 5 funding rounds annually.
In 2022, Tamil Nadu experienced a significant surge in funding, securing an impressive $402 million, surpassing Pune and Telangana’s funding during the same period. However, the number of funding rounds in Tamil Nadu remained moderate, ranging from 2 to 4.
Pune’s AI funding has been relatively modest, with total financing falling below half a million dollars in recent years and experiencing fewer funding rounds. The data suggests that while Pune has a smaller AI investment ecosystem, it is steady.
Data for Telangana is sparse, limited to a recent overview from 2023-24. It shows relatively low funding levels, indicating that the AI investment activity in Telangana is still emerging or in its early stages.
Menon believes India will develop its foundational models, but the country will focus on solving today’s larger problems, particularly related to applications. “A significant amount of the costs that today’s users incur, be it the premise of affordability, accessibility and availability, will all get neutralised when AI is playing out there in the application layer,” he noted.
Menon further emphasised that Indian entrepreneurs have an immediate opportunity to focus on developing solutions within that domain.
As the industry matures and adoption rates rise, the amount of data available for building, training, and maintaining foundational models will also increase. This will likely lead to a new generation of entrepreneurs creating these foundational models, including those explicitly tailored for the Indian market in the medium term.
Many Indian AI entrepreneurs now use DeepSeek-supported training models to reduce training costs. This has narrowed the technology gap between India and countries like the US and China. However, in sectors like healthcare and cybersecurity, the industry in those countries remains significantly higher in maturity.
“India will catch-up to introduce AI as a layer to take that step, jump or leapfrog,” Menon said, adding that the time has shrunk significantly given that the same set of resources or level of capital needed in the past to replicate some of those success parameters is not required anymore.
