70% of India’s 31,000 tech startups have leveraged AI: report

Over 70% of India’s 31,000 tech startups have leveraged artificial intelligence (AI) in their business, a report by industry association Nasscom said. 

The report highlighted that 65% of the startups are pursuing generative AI and 30% have identified generative AI use cases. 

‘The Indian tech start-up landscape report 2023’ revealed that despite microeconomic headwinds, dystopian valuations in addition to IPO races, and regulatory shifts, India has managed to retain its status of being the third largest tech startup ecosystem with the addition of more than 950 new tech startups this year. 

With this, the number of total startups in the country went up to 31,000 and cumulative funding to more than $70 billion.

The prime areas for Indian tech startups in 2023 are retail tech, BFSI (banking, financial services, and insurance), and enterprise tech.

Published by Nasscom with global management and strategy consulting company Zinnov, the report stressed that deep-tech startups are prominent and claimed a 14% share of the cumulative funding over the last five years. 

AI startups dominate the space by accounting for 55% of the share, followed by big data (17%), IoT or Internet of things (5%), and blockchain 2%. The report highlights that enterprise tech (23%), BFSI (17%), supply chain management and logistics (11%), and health tech (9%) are the top sectors adopting deep technology.

Generative AI has become a leveler for startups, creating an unparalleled ability to innovate, automate, and scale by offering a cost-efficient solution for resource-constrained new businesses and propelling them ahead in competitive markets.

Zinnov, in partnership with Nasscom, surveyed 100+ start-up founders and found that over 65% of start-ups are already pursuing opportunities in generative AI – leveraging the technology to drive innovation and gain competitive advantage, Vikalp Sharma, Engagement Manager at Zinnov told Press Insider “It is unsurprising given that 70% of tech start-ups have integrated AI into their business models, and 30% have identified implementable Generative AI use cases. As DeepTech and AI gain prominence, access to capital, cost of the technology, and the use cases driving top-line and bottom-line efficiencies are rapidly unraveling.”

He further added, “Over two-thirds of start-ups are expected to funnel funds towards AI to unlock transformative business outcomes across sectors. This, coupled with a vast pool of technical talent, robust governmental support, and a burgeoning start-up ecosystem, position India at the forefront of AI development- not just as a market for AI solutions but as a primary innovator and contributor to the global AI narrative.”

The report finds that in 2023, tech startups raised more than $6 billion in funding. Out of the total financing, $500mn was raised by deep tech startups alone, and 40% of newly added startups were from emerging locations. Tech startups raising the first round of funding had a 39% share in the total $6 billion funding raised this year, with four tech startups announcing their IPOs in 2023.

Indian startup ecosystem ranks second in startup activity, fourth-largest in enabling ecosystem players, and the third-largest ecosystem overall. Despite weathering macroeconomic uncertainties and heightened investor caution, the Indian tech startup ecosystem continues its ascent, supported by the availability of STEM talent, supportive government policies, and the support of incubators and accelerators, the report mentioned.

The two countries with the highest number of startups are the United States (167,000) and the United Kingdom (34,000), the report noted. 

In 2023, global investors re-evaluated startup valuation on two critical aspects: efficiency and profitability. This trend mirrored in the case of Indian startups that suffered a 67% decline in funding over 2022 levels of $18 billion. Overall, global funding experienced a jolt following unfavorable macroeconomic factors ranging from soaring federal interest rates, geopolitical uncertainties, and rising inflation. This year, edtech (16%) startups emerged as the top trending tech startups, followed by enterprise tech (12%) and BFSI (10%), unlike last year’s retail tech (13%), followed by edtech (11%) and BFSI (10%).

In 2024, 67% of tech startups are expecting an increase in their revenue, 46% are optimistic about the funding environment, and 56% of funded tech startups are looking for collaboration.

Nasscom and Zinnov’s report further highlights that the democratization of technology has led to the emergence of tier-II and tier-III locations as innovation hubs.

With targeted government interventions around innovation labs, technology, and business mentorship opportunities, access to market, capital, and infrastructure, the next wave of disruptive innovation will emerge from tier-II and tier-III hubs, the report said.