Indian VCs Pile Up On SaaS Deals In Chase For AI Gold

In the face of global geopolitical shifts, Indian VCs and startup investors are increasingly seeing AI and SaaS investments as the moat for the Indian startup ecosystem in competing against big tech giants globally.

As international markets grapple with supply chain disruptions and economic uncertainties, India’s SaaS sector in particular has the opportunity to become a symbol of resilience and innovation. We are already seeing signs of an AI and SaaS convergence, thanks to newer and improved large language models emerging from AI giants such as OpenAI, Anthropic, Google and Meta.

But the entry of DeepSeek and smaller language models has upended the competitive landscape a fair bit, and added more fuel to the AI fire, particular for SaaS-focused VCs in India.

The integration of GenAI models into SaaS has not only enhanced product capabilities, but also attracted significant venture capital interest, bringing a new wave of deals for Indian startups in the enterprise tech segment.

Indian SaaS VCs Raise The Ante

More than 35 deals have been recorded in the first two months of the year in the SaaS and enterprise tech space, with the likes of Darwinbox and healthcare SaaS giant Innovaccer leading the way with mega rounds.

Among other prominent deals were the investments for SaaS startups such as Spotdraft, Atomicwork, SuperOps and TrueFoundry.  And each of these companies is banking on AI to unlock the next phase of growth.

This past week, US-based venture capital firm Bessemer Venture Partners closed its second India-focussed fund with a corpus of $350 Mn (INR 3,052.3 Cr) to support early stage startups. The global VC firm is looking to invest in startups across sectors like AI-enabled services and SaaS, fintech, digital health, consumer brands and cybersecurity.

A large part of the capital raised by these SaaS players would be deployed for AI/ML ops, development of in-house models and training, and this will be the case with every SaaS company in 2025, says a Bengaluru-based fund manager.

Some might argue that every business is heading in this direction, with even new-age giants such as Paytm compelled to look at AI for a measure of efficiency in unit economics and operations.

Every large company is thinking about the build vs buy decision in AI. Some such as Zomato (now called Eternal) have taken on the challenge head-on by launching SaaS products in AI, while others are tentatively testing the waters.

In a similar vein, Alok Goyal, a partner at Stellaris Venture Partners, observed earlier that while the fund’s  investment approach remains sector-agnostic, it is hard to ignore AI. GenAI and AI have become a dominant theme in current deal flows for most VC funds.

This trend underscores the growing importance of AI in shaping the future of SaaS in India. We have even seen established SaaS giants pursue a new course of action for the AI world.

The AI Shift In SaaS

When Girish Mathrubootham stepped down as CEO of Freshworks last year, it marked the beginning of significant leadership changes at the Chennai-born SaaS giant. Since then, the company has seen a complete overhaul of its top management, including the chief technology officer (CTO), chief product officer (CPO), chief revenue officer (CRO), and even the India head.

A similar transition is being seen at Zoho. The Chennai-based SaaS giant is developing its own large language model (LLM), with a focus on Indian languages, its group CEO Shailesh Kumar Davey said recently, soon after taking over from founder and former CEO Sridhar Vembu. Vembu stepped down in January to take up the role of chief scientist and focus on the company’s R&D initiatives, with a focus on AI.

These transitions at large companies indicate a ground movement towards AI-first SaaS, a path that investors are also keenly following. The preference for vertical GenAI startups over general-purpose solutions is becoming increasingly evident among Indian VCs.

An Inc42 survey at the end of 2024 indicated that 84% of VCs favour industry-focused startups, reflecting a strategic shift towards specialised AI applications. This inclination aligns with the broader trend of integrating AI into SaaS offerings, enabling startups to deliver tailored solutions that address specific industry challenges.

As the global economic landscape continues to evolve, the question arises: Will the strategic focus on AI and SaaS enable Indian startups to maintain their competitive edge and attract sustained investments amidst geopolitical uncertainties?

The Bengaluru-based VC quoted above said that it would be impossible for Indian SaaS startups to function without a global presence. And this is why geopolitical issues may be a big red flag for some investors. “But at the same time, the reality is that India is the AI development hub of the world and this is the next big focus for all big tech giants in AI, whether it is OpenAI or Google or Meta. Now, can SaaS startups innovate, adapt, and deliver value to enterprises despite this competition?”

Beyond enterprise technology, AI-driven SaaS solutions are also seeing rising adoption in sectors such as healthcare, finance, and ecommerce. Companies are using AI to optimise supply chains, automate customer interactions, and enhance cybersecurity, making AI-powered SaaS an essential tool across industries. This diversification of use cases is another reason why investors see long-term potential in Indian SaaS.

Fintech exemplifies this trend in some ways, with investors showing heightened interest in AI-driven solutions. Startups like IDfy are revolutionising fraud detection through AI-based technologies, highlighting the transformative potential of AI in financial services.

Anirudh A Damani, managing partner at Artha Venture Fund, said that GenAI-led innovations can prove crucial for fintech companies looking to boost customer engagement and reduce operating costs.“GenAI is upgrading fintech by addressing inefficiencies across the credit cycle, from improving risk assessments to streamlining debt recovery. Beyond these applications, there is immense potential in fintech intersecting with niche areas to create innovative funding models,” Damani added.

Similarly, Agentic AI company OnFinance’s founder Anuj Srivastava believes that many financial institutions are still reliant heavily on outdated systems and manual intervention. This opens up a white space for GenAI startups to tap this segment.

“Creditworthiness assessment, for example, still relies heavily on traditional models that don’t always capture the full range of risk factors, leading to inefficiencies in lending and underwriting. Similarly, compliance processes often remain manual, time-consuming, and prone to human error, exposing firms to regulatory risks,” he added.

Vikram Ramasubramanian, partner at Inflection Point Ventures, also believes that there is potential for LLMs specialised in the pharma and healthcare space because the sector has its own nuances.

“We’ve got LLMs for people interaction and customer engagement. We will get LLMs for manufacturing, planning, scheduling, for data analytics or the management part of it. We will also get LLMs for the finance projections, forecasting, and more for the healthcare data science and the life sciences,” he told Inc42 earlier.

The confidence in SaaS and AI-driven businesses is particularly strong, but this optimism is not without caveats. High interest rates in global markets, increasing competition, and shifting trade policies could yet influence investment flows. While India’s startup ecosystem has proven resilient, maintaining investor confidence will require a continued focus on profitability, scalability, and product innovation.

As 2025 unfolds, the question remains: Can Indian SaaS startups leverage their AI advantage to cement their place as global leaders, or will macroeconomic pressures slow down their momentum?