AI Startups Are New Darlings for Tech Investors as SaaS Slips

India's venture capital funding has started shifting to startups with core products built on artificial intelligence (AI) from ventures that offer cloud-based software applications, marking a deeper reset in investor priorities.

- Priyamvada C. & Mansi Verma

Between January and June, AI-native startups raised $454 million across 65 deals, surpassing software-as-a-service (SaaS) firms, which drew $432 million over 52 deals, according to data from Venture Intelligence. Some overlap exists as SaaS companies adopt AI features.

"AI-led startups are commanding 3-4x valuation premiums over traditional SaaS businesses, thanks to their potential for faster scalability and deeper, more transformative use cases," said Abhinav Chaturvedi, partner at Accel.

The trend is pushing established SaaS companies to retool quickly. Many of them are now streamlining operations and aggressively investing in artificial intelligence, according to multiple industry executives.

"If SaaS companies don't integrate AI, they are unlikely to survive the next 2-3 years," said Nitin Bhatia, managing director at DC Advisory. "We're seeing the switch happen where pure-play SaaS startups don't exist anymore. AI is becoming a fundamental part of what they offer—whether it's to enhance customer experience or product capabilities."