India's startup ecosystem is expected to attract $1 billion in new venture funding in 2024 and around 25 percent of software investments are going towards AI-focussed startups, said a report by Bessemer Venture Partners.
This surge reflects growing investor confidence in segments like Software-as-a-Service (SaaS) and Artificial Intelligence (AI).
“AI is taking over SaaS and blurring the line between Software and Services…Compared to 2023, the funding momentum for SaaS startups have also picked up. We expect the funding to touch $1 billion by the end of 2024,” said Anant Vidur Puri, Partner, Bessemer Venture Partners.
As per the report titled ‘The Rise of Cloud AI in India 2024' published on August 5, a substantial portion of this investment is anticipated to flow into AI-focused startups, which continue to offer promising growth opportunities.
“AI-focused companies are capturing a significant portion of venture investment, with approximately $175 million flowing into Indian AI startups in 2023,” the report said.
The report also said that India’s SaaS ecosystem would reach $50 billion of annual recurring revenue (ARR) by 2030.
“The $50 billion is not in addition to the effect that AI startups and AI SaaS startups will have on ARR. We believe it is too early to predict that. There may be upside to this number in the coming years,” Puri said.
While 2023 had zero unicorns or startups with a valuation above $1 billion, 2024 minted two technology unicorns, namely Krutrim and Perfios under Bessemer Ventures’ portfolio.
SaaS firms like Amagi, LeenaAI, Everstage, Rocketlane, PepperContent, and Shopdeck have continued to demonstrate strong growth year-over-year and have clocked an ARR (Annual Recurring Revenue) of $100 million and more, the report said.
SaaS and AI-SaaS
Highlighting some trends within the startup ecosystem, the report said that the lines between traditional SaaS and AI-enabled software are blurring rapidly.
“Our survey of early-stage software startups in India revealed that a staggering 90% have launched at least one AI feature in the past year. More than 60% of these startups, previously pure SaaS companies, are now evolving into AI-enabled SaaS providers,” the report said.
The report also said that AI-first service companies achieving 65%+ gross margins are rivaling traditional software firms and are far surpassing the 30-40% margins typical in traditional services.
Cybersecurity software gaining momentum
As per the report, the domestic cybersecurity market in India, valued at $6 billion in 2023, is projected to reach $13.6 billion by 2025.
Despite economic headwinds, nearly 50% of Indian enterprises have increased their cybersecurity spend by 5-12% in 2024 alone.
“This growth presents a significant opportunity for Indian cybersecurity firms to serve both domestic and global markets,” Puri said.
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