India’s artificial intelligence (AI) investment landscape has shifted sharply in just two years, with venture capital moving from infrastructure and foundational models toward application-layer innovation.
"Two years ago, 20 percent of enterprise deals we saw were AI," Hemant Mohapatra, Partner at Lightspeed India, told Moneycontrol.
"Of those, nearly 80 percent were infra-focused, e.g., foundation models, GPU optimisation, APIs, or LLM security companies. But now, 70-80 percent of the enterprise deal flow is AI, and the vast majority of that, around 70-80 percent, is application-level AI," Mohapatra added.
The development assumes significance as they come at a time when India is aggressively pitching to build its sovereign AI foundational model.
The VC, which is an early backer in Indian foundational layer startup Sarvam, believes that the lower layers of the AI stack, including model training, compute infrastructure, and foundational architectures, are already beginning to commoditise.
In his words, "The foundational layers are now a lot more stable and will get to commodity scale and price over time, and the innovation is therefore shifting upwards to the application layers."
Mohapatra's comments echo a perspective by Infosys co-founder and Aadhaar architect Nandan Nilekani, who has consistently advocated for India to focus on building AI applications rather than competing in the foundational model race dominated by Silicon Valley giants.
Nilekani has previously argued that the country should “let the big boys build the LLMs” while India leverages its strengths in software and services to create impactful solutions.
Mohapatra reinforces this view, noting that innovation, developer interest, and investment are rapidly shifting to the application layer and emphasising that India's decades-long experience as an "application-heavy" economy uniquely positions it to lead in this space.
He likens the change to historic shifts in tech infrastructure, such as the dominance of Transmission Control Protocol/Internet Protocol (TCP/IP) or x86 chip architecture: once a standard wins, the focus shifts up the stack.
That's exactly what's happening now with AI.
TCP/IP is the foundational communication protocol suite that enables computers to connect and exchange data over the internet. TCP handles the reliable transmission of data, while IP manages addressing and routing.
Established Software Capabilities
Mohapatra emphasised that India is poised to lead in application-layer AI precisely because of its established capabilities. "We’ve been an application-heavy country from the beginning," further saying, "For 20-25 years, we've been building applications for global companies from here."
Lightspeed's investment strategy closely aligns with the views of its partner and IIT-Bombay alumnus.
The firm was an early backer of companies like Yellow AI and Rephrase AI, when generative AI was not even a known term in the world.
Also read: TCS, Infosys, HCLTech, Tech Mahindra partner with Yellow.AI for automation solutions
Moreover, it has recently made bets in verticals like healthcare, research, and agent-based enterprise tools, all built on top of foundational models.
"The number of companies that win in the infra layer is small, given this layer has high barriers to entry. But the application layer, that's where the excitement is shifting to, where the founders are building, and where investors are also shifting to accordingly," the former partner at Silicon Valley-based VC Andreessen Horowitz added.
Era of Indian AI
With foundational models increasingly commoditised and the tools to build on top of them maturing rapidly, India's startup ecosystem is entering a new phase, one where value creation is shifting from compute to creativity.
The next breakout AI companies from India won't be chasing GPU clusters or building yet another model. They'll be solving real-world problems in hospitals, warehouses, call centres, and consumer apps, using the powerful engines that already exist.
India's strength lies in building scalable, real-world applications. "That's what we know how to build, sell, and support," Mohapatra said, and that's exactly where the market is heading.
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