Missing winners or missed opportunities? Global, domestic VCs split on India's AI moment

Missing winners or missed opportunities? Global, domestic VCs split on India's AI moment

India's artificial intelligence ecosystem is attracting more capital than ever before and spawning a new generation of startups. Yet even as activity accelerates, a debate is emerging over whether India is producing enough meaningful AI innovation.

While some of the world's most influential investors - including firms like Lightspeed Venture Partners and Y Combinator - argue that India still lacks breakout AI companies and founder urgency, domestic investors say the more important story is unfolding much earlier in the startup lifecycle, where founder activity, capital deployment and company formation have surged over the past 18 months.

"The US ecosystem is built to chase trillion-dollar companies. Investors there are not looking for $10 billion outcomes. If you judge India by the same yardstick, you'll inevitably conclude that opportunities are missing. Every ecosystem evolves differently and has to play to its own strengths," said Ashish Kumar, general partner at F2A, a newly launched Rs 2,000 crore deeptech and AI-focused investment platform, backed by Infosys founder and Aadhaar architect Nandan Nilekani.

For many global investors, however, the question is not whether India has AI talent. It is whether that talent is translating into enough globally significant companies.

"I think we are not seeing as many great AI companies coming out of India as we think there should be given how much talent there is in the country," Jared Friedman, partner at Y Combinator, told Moneycontrol in May this year.

For Friedman, the issue was less about access to capital and more about founder ambition and conviction around the opportunity.

"It's not a question of capital. I think it's a question of ideas. It's a question of not enough people really believing that AI is going to create enormous opportunities and wanting to spend all their time learning about the latest AI tools and technologies and building with that," he added.

The criticism comes despite a surge in investor interest. Venture Intelligence data shows Indian AI startups raised $1.62 billion across 227 deals in 2025, up 71.4 percent from $946 million across 194 deals in 2024. Funding momentum has continued into 2026, with AI startups attracting $725 million across 113 deals between January and May.

In fact, as many as 16 AI-focused venture capital funds closed their fundraise and secured a total of $1.87 billion in 2025, compared with just five funds that raised $358 million in 2024, Moneycontrol reported earlier.

Yet funding alone has not fully addressed concerns around founder intensity and execution.

In an interview with Moneycontrol earlier this year, Lightspeed partner Bejul Somaia said AI could become a transformative force for India, but argued that founder urgency remains lacking.

"What's surprising is the lack of urgency among Indian founders. We're not yet seeing the same energy or intensity to build on this shift as we did during the internet wave of 2012-14," Somaia said.

While acknowledging that enthusiasm has picked up, particularly on the consumer side, he added that "the broader entrepreneurial energy around AI still feels lacking. It's picked up meaningfully over the past year -- but it should be 10x from here."

A different story on the ground

Domestic investors, however, argue that their global peers are mistaking a young ecosystem for an underwhelming one.

"There is certainly meaningful innovation happening in India today, particularly around AI...The ecosystem is currently in a foundational phase where the building blocks for long-term innovation are actively being created," said Abhishek Srivastava, general partner at Kae Capital - a deeptech focused VC firm.

"That is why much of the activity and innovation today is concentrated at the seed and Series A stage. Founders are building foundational technologies and infrastructure businesses, while the ecosystem itself is still maturing," he added.

The funding data paints a similar picture. According to Venture Intelligence, early-stage AI startups raised $766 million across 173 deals in 2025, up from $364 million across 148 deals in 2024. Momentum has continued this year, with early-stage companies accounting for 82 of the 113 AI deals recorded between January and May, attracting $459 million in funding.

A similar view is emerging among other domestic investors, who point to improving founder quality and growing engagement with frontier AI technologies.

"Engineers and product managers here are working on vanguard technology. They are very close to how the latest models are being used and deployed. It's not for nothing that OpenAI, Anthropic and ElevenLabs are spending time here — a lot of usage for these products is happening here," said Krishna Mehra, AI Partner at Elevation Capital.

Mehra acknowledged that India remains at a disadvantage in areas such as foundation models, given constraints around research talent, GPUs and data centre infrastructure. "But if you look beyond pure scaling laws and think about architectural unlocks, I do believe Indian founders are well positioned," he said.

For some investors, the more important question is not whether India can build the next OpenAI, but where it can create category-defining companies of its own.

"What we need to do is our own critical infrastructure, and it doesn't necessarily have to be horizontal. It could be vertical. There is no prize for being number two. You have to define what your area is and become number one there. Whether it is defence, space, robotics, semiconductors or energy transition, these are areas where India has a greater right to win," Kumar of F2A said.

Investors backing AI applications make a similar argument, saying India's opportunity lies less in building foundational models and more in solving market-specific problems.

"You can say India has not built an OpenAI or an Anthropic. That's true. But that doesn't mean we're not going to build multiple breakouts at the application layer," said Natasha Malpani, founder of AI-focused VC fund Boundless Ventures.

"How can an American company come and build to help tutor the next generation of students studying for NEET? They can't and they don't want to. The Indian consumer story is unique, and global AI companies are unlikely to solve India's education and healthcare problems. There's definitely an opportunity there," she added.

Plenty of startups, few scaled winners

While early-stage AI activity has accelerated sharply, India is yet to produce many scaled AI companies that can match the visibility of global leaders such as OpenAI or Anthropic.

Venture Intelligence data shows early-stage AI funding rose 62 percent to $459 million across 82 deals between January and May 2026, compared with $283 million across 63 deals a year earlier. In contrast, growth-stage funding fell 49 percent to $266 million across 31 deals from $525 million across 33 deals during the same period.

The challenge is compounded by the sheer scale of capital flowing into frontier AI globally.

As Moneycontrol reported earlier, Anthropic's recent $65 billion funding round alone exceeded the total venture capital invested in Indian startups between 2022 and May 2026, underscoring the widening gap between global AI leaders and the rest of the ecosystem.

For domestic investors, however, that comparison misses the point. They argue India's AI opportunity may lie less in building the next OpenAI and more in creating AI-native products, infrastructure and services tailored to local markets. Whether that ultimately produces globally significant winners remains the question.

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