By Mr. Varun Chawla
When OpenAI’s ChatGPT made its first appearance as part of a free research preview in November 2022, little did anyone know how soon artificial intelligence (AI) would become an intrinsic part of the global tech domain. While most people were busy worrying AI would cost them their jobs, several venture capitalist (VC) firms had the foresight to spot the latent potential of this new-age technology and harness its capabilities across sectors.
Today, with the influx of generative AI like Google’s Bard and ChatGPT, large language models (LLMs) have become the mainstay of digital and technological transformation across businesses, with use cases ranging from coding to customer service to copywriting. And this paradigm shift has directly translated into a boom in the number of startups in the AI sector.
According to a June 2023 Bloomberg report, the global generative AI market is likely to grow to $1.3 trillion by 2032, from just $40 billion in 2022.India, in fact, is home to at least 6200 AI startups, with over 28 having secured series D funding, highlighting the fixated VC interest in the space.
Indian GenAI startups have already raised over $760 million in VC funding in the first two quarters of FY 2024-25. The figure is highly likely to cross the $1.1 billion total funding the sector saw in the previous fiscal.
Aligning With Contemporary Trends
With responsible capitalism picking up steam among VCs, AI with its extensive potential use cases has emerged as a key factor driving the growth and scalability of impact startups – ventures that prioritise profit AND purpose equally.
Most impact enterprises choose to tackle social and environmental problems in line with the UN Sustainable Development Goals (SDGs), while complying with the environmental, social and governance (ESG) norms; and many are increasingly integrating AI into their processes to enhance products and services. This is particularly common among startups working on AI-enabled climate tech and green mobility, and is slowly picking up in healthcare, education and agriculture sectors as well.
With the possibilities extending beyond LLMs and GenAI, to more sophisticated solutions, the AI sector is poised for increased VC participation and comprehensive support to develop cutting edge solutions.
Strategic Interventions
As AI becomes increasingly indispensable, early-stage investments in the domain are picking up pace with VC firms working to identify scalable startups operating or developing AI-enabled solutions. Their support in ideation, PMF achievement, marketing and funding is proving to be a critical enabler of the ecosystem, a fact corroborated by funding statistics in India and abroad.
According to global consultancy giant Ernst and Young, in 2023, AI startups across the world received VC funding to the tune of $21.3 billion, with $15.3billion coming from mega investments made by Microsoft and Amazon in OpenAI, Anthropic and Inflection.
The figure has already touched $3 billion in the first quarter of the current financial year and is forecasted to touch $12 billion by the end of it. Barring the mega investments noted above, this represents a nearly 100% increase over the last year.
In an interesting twist, a March 2024 Gartner report suggests AI-driven data analytics is likely to drive over 75% of VC and early-stage investments by next year, as investors increasingly turn to data-backed insights for decision-making instead of relying solely on gut feeling.
The objective of these early-stage investments is to create a diverse, well-balanced portfolio of new-age companies with robust exit strategies. With governments also taking a keen interest in adopting AI across sectors for development, welfare and inclusivity, VCs are uniquely positioned to transform the ecosystem by leveraging collaborations, and fostering innovation for purpose and profit, keeping in line with the ethos of responsible capitalism.
Conclusion
GenAI has emerged as one of the most disruptive yet transformative technological advancement in decades, and sectoral growth is on a steep trajectory thanks to unprecedented public interest and high early adoption rates.
With increased participation from corporations, angel investors and authorities, the AI sector is picking up pace and the scope of work is extending beyond the tip of the iceberg. Despite 2023 witnessing some mega funding rounds in excess of $100 million, the GenAI space continues to be largely nascent, with over 75% of startups in early stages or not fundraising yet.
This promises to hold a host of new opportunities for VCs worldwide, giving them a chance to play influential roles in early stage ventures, establish benchmarks and create state-of-the-art technology that is not only profitable but also ensures the comprehensive development of society.
(The author is Mr. Varun Chawla, founder of build3, and the views expressed in this article are his own)
