How AI is shaping India’s SaaS story

How does AI fit into India’s $50 billion software-as-a-service (SaaS) story?

It must fit in, say investors — adding that it’s crucial for early-stage software startups to show how they’re leveraging AI in their products to attract fresh investments in 2024, reports The Economic Times.

An early-stage SaaS company today needs to leverage AI in a fundamental way to build, or others could enter their space with a product that’s 10x better, Rajan Anandan , MD of Peak XV Partners and Surge told The Economic Times.?

This report comes amid a tightening SaaS funding environment, with deals plunging to 111 in 2023 from 182 in 2022, and funding shrinking to $482 million from $1.89 billion during the same period, according to YourStory research.

“The future of India's SaaS industry is closely tied to AI's impact. Utilising generative models and AI integration can be a strategic differentiator, helping businesses thrive in challenging times,” says Ashwani Nandani, Senior Vice President at GlobalLogic.

Her advice to SaaS founders? “Strategically integrate AI, focusing on enhancing their value proposition. In uncertain economic climates, it's crucial for founders to adopt agile methodologies, prioritise customer experience, and seize new market opportunities.” AI integration also allows for a more customised and intuitive user experience, efficiency in operations, trend predictions and delivery of scalable solutions to have first mover advantage, she adds.

?? ?See Ashwani Nandini’s post on integrating AI into SaaS

AI integration is critical for SaaS firms and key to long-term sustainability of the sector, according to the SaaS Outlook 2023 report by Upekkha . The new Generative AI era will make AI integration a must-have for most B2B SaaS products to escape obsoletion, it adds.?

However, the journey of implementing this AI-driven SaaS vision isn’t a smooth one.?

The lack of domestic AI talent and pricey open models are making the technology an expensive investment for domestic SaaS firms, according to The Economic Times report. Smaller startups are expected to be on the front line of the pressure of retooling AI, and the affair requires extensive retraining and investment, adds the report.?

All amid a funding crunch.?

“If you are a SaaS founder struggling to raise venture capital, you are not alone. SaaS funding has dried up in the last 12 months,” says Pushkar Singh , co-founder of Tremis Capital. Traditional VCs use the capital efficiency ratio to evaluate the health of SaaS businesses, but now they also want to know the AI roadmap of SaaS companies, he adds.

“It's a double whammy for Indian startups. By automating a lot of low-end work, AI is eroding India's cost advantage. On the other hand, the country lacks the top talent to employ AI to augment product development,” says Pushkar Singh , co-founder at Tremis Capital.

Is there a solution to this problem? There’s no quick fix, says Singh. He foresees the best young engineers becoming adept at using AI — although it will take time —? and SaaS startups fighting for the top AI talent. He adds that founders with unclear AI roadmaps will struggle to raise money and stay afloat.

?“The smartest engineers see this as an opportunity to upskill themselves,” he notes.

??? See Pushkar Singh’s post on India’s AI x SaaS story

• More money for AI startups: Artificial intelligence startup Krutrim — founded by Ola’s Bhavish Aggarwal — announced last week that it has raised $50 million at a valuation of $1 billion, reports businessline.? Enterprise conversational and generative AI platform Kore.ai also secured $150 million, reports The Economic Times, while Wizr AI secured $500,000 in angel funding, reports businessline.

• Startups looking to ramp up hiring: Indian startups are scaling up recruitment and also hiring more from campuses, reports Business Standard. Zepto has onboarded 200 people for engineering roles over the last 29 months, and Meesho recruited over 150 people in 2023 across roles like product, analytics, finance, and HR from campuses including IIT Bombay and Madras, and the Indian Institute of Science. More than 65% of tech startup founders said they were hiring in 2023, according to a Nasscom-Zinnov report.

• The state of India’s IT recruitment: In the first three quarters of FY24, hiring fell at IT giants Tata Consultancy Services, Infosys, HCL Technologies, and Wipro —the worst decline in headcount in at least five years, reports Livemint. Meanwhile, five mid cap IT firms — Tata Elxsi, Cyient DET, Birlasoft, Persistent Systems and Tata Technologies saw a spike in headcount during the October to December quarter, reports Financial Express.

?? Head of AI Services (GenAI and Healthcare) at Google Nitin Aggarwal shares how Gen AI implementation is evolving this year:

?? When should a startup be shut down? Founder at Eximius Ventures Pearl Agarwal shares her take:

??? Vinit Bhansali shares his insights on product-market fit for Indian SaaS startups:

Reported by: Isha Chitnis

Community Manager: Raunak Ramteke