Pivot or Perish: India’s software startups get AI reality check from investors

For years, SaaS (Software-as-a-Service) startups followed a winning formula. Build software to solve a specific enterprise pain point, acquire enterprise customers, grow recurring revenue and scale steadily over time. Venture capital firms rewarded that playbook with copious capital and soaring valuations.

AI coding tools are now shrinking software development cycles from years to months, allowing smaller teams to build products faster and making it easier for competitors to replicate features.

The shift is also changing how software companies grow and make money. SaaS startups that once relied on Google search and inbound traffic are seeing discovery move towards AI assistants, while AI-native products are introducing compute-heavy, usage-based pricing models.

Across India’s startup ecosystem, investors are increasingly asking founders whether their products and business models can remain relevant in an AI-first world.

“The pace of change, especially in AI, has compressed feedback loops,” said Aakrit Vaish, founder of AI-focused fund Activate.

“What used to take 12–18 months to validate now becomes obvious in 6–8 weeks. Waiting too long is often a bigger risk than pivoting early,” he added.

Vaish previously founded Haptik, a conversational AI startup later acquired by Reliance Jio. Through Activate, he has invested in global AI firms such as ElevenLabs and is also likely to invest in Indian AI lab Sarvam AI.

Investors say one of the biggest disruptions lies in the collapse of traditional software defensibility.

“What has happened is people have realised that old known moats are evaporating — brand, network effects, UI,” said Thiyagarajan Maruthavanan, cofounder of Upekkha and head of AI at Kalmantic Agentic Lab.

“The reason SaaS companies are beginning to resemble media companies from 15 years ago is because their source of defensibility broke,” he added.

AI is also disrupting how software companies acquire customers.

“Inbound is practically getting killed. Indian SaaS companies used to live on inbound traffic,” Maruthavanan said. “Thirty to forty percent of traffic for many SaaS companies is disappearing because people are not searching the same way anymore.”

Naganand Doraswamy, founder and managing partner at Ideaspring Capital, said founders now need to rethink whether their products can survive in a market where software gets recreated far more quickly.

“The key question founders have to ask themselves is: if you were starting from scratch today, how different would your product look in the AI era?” Doraswamy said.

“If what took you two years to build can now be recreated in three months, then you’re screwed,” he added.

Founders are already feeling the pressure

Founders, especially at the pre-seed and seed stage, say investor conversations have changed sharply over the last year.

A pre-seed founder, requesting anonymity, said multiple investors had asked the company to rethink parts of its business model during fundraising conversations.

“We’ve pivoted twice already,” the founder said. “Every investor wants to know whether the product will still matter if OpenAI launches something similar six months later.”

The founder added that startups now face pressure to prove not just growth potential, but long-term relevance in an AI-first market.

Growth-stage founders say the challenge is less about dramatic pivots and more about rebuilding existing businesses while protecting current revenue streams.

“Our board isn’t asking us to pivot,” said Arvind Parthiban, founder and CEO of SuperOps. “But they are pushing us to make sure we’re building for where the world is going.”

Parthiban said AI is first disrupting product development, but the impact will spread much wider.

“AI is going to touch every part of how a business operates, how teams are structured, how decisions get made, how value gets delivered,” he said.

Ramesh Ravishankar, cofounder of Highperformr.ai, said investor conversations themselves have fundamentally changed.

“Investors used to ask about ARR growth and retention. Now they want to know how much of your product can be replaced by an AI workflow,” he said.

“The seat-based pricing model is the first thing breaking. Customers don’t want to pay for 10 seats when one AI workflow can do what those 10 people used to do manually,” Ravishankar added.

Ashish Sinha, founder of NextBigWhat, said AI is disrupting product development first, but the ripple effects are spreading quickly across pricing, retention and customer expectations.

“It has become dramatically easier to build products, but much harder to determine what exactly to build,” Sinha said.

“Customers now assume almost anything can be built in days, not quarters. That fundamentally changes expectations around responsiveness, customisation and iteration speed,” he added.

Sinha also said the shift is complicating SaaS pricing models.

Pivoting is becoming constant iteration

Investors say startups building horizontal SaaS products — broad tools used across industries such as HR, customer support and workflow automation — face the biggest pressure as large AI labs rapidly expand into categories once considered defensible.

In contrast, vertical SaaS firms focused on sectors such as healthcare, manufacturing or aerospace may retain stronger defensibility because of deeper operational integration and industry-specific workflows.

“In the last three to six months, the market is moving much faster,” said Manav Garg, founding partner at Together Fund.

“You literally have to be on your toes on a daily basis. Every week something new is coming up,” Garg said.

He argued that startups should stop treating pivots as occasional strategic shifts.

“Pivoting means you’re moving slow,” he said. “Now it’s iterations.”

Not every investor believes the answer lies in dramatic pivots. Alok Goyal, cofounder and partner at Stellaris Venture Partners, said most startups are instead using AI to deepen existing products.

“What we’re seeing far more of is startups using AI to significantly enhance their value proposition within the same problem space,” Goyal said. “It’s less about pivoting and more about accelerating.”

However, Goyal acknowledged that AI has fundamentally changed the pace at which startups operate.

“In the world of AI, velocity has become extremely critical,” he said.

Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

Find the best of Al News in one place, specially curated for you every weekend.

Stay on top of the latest tech trends and biggest startup news.