IT industry body Nasscom on Wednesday said that the total number of start-ups in the generative artificial intelligence (GenAI) space in India has increased from over 66 in the first half of 2023 to over 240 in the first half of 2024, adding 174 start-ups in one year.

However, the cumulative funding growth in the GenAI start-ups was relatively slower, rising from around $608 million in H1 2023 to $758 million in H1 2024.

The funding also has been skewed with higher quantum and fewer rounds and only select start-ups drew investor interest. The average per round funding grew marginally from $5.3 million in H1 2023 to $5.5 million in H1 2024. Around 74 per cent of the overall investor mix in H1 2024 comprised domestic private equity and venture capital firms, showing relatively lesser interest among foreign investors.

“This growth in the number of start-ups is primarily fuelled by the launch of 17 native GenAI language models in India, a 4.6 times surge in GenAI services and a significant increase in the number of start-ups offering GenAI assistants comprising nearly 80 per cent of the newly added start-ups over the year,” Nasscom said in a statement.

Since the second half of 2023, several homegrown GenAI start-ups such as Krutrim, Sarvam.ai, Nurix and Zeko AI have emerged, spanning infrastructure, services and applications. Nearly 70 per cent of the start-ups surveyed by Nasscom are expanding their offering by delivering industry-specific solutions across sectors such as IT and communication, retail, healthcare, BFSI, education, media and entertainment.

Geographically, Bangalore remains the hub of GenAI start-ups in the country, housing 43 per cent of all the start-ups. But Ahmedabad, Lucknow, Surat and Calcutta are also growing fast, representing around 18 per cent of the ecosystem.

“Over the past 12 months, India’s GenAI landscape has undergone seismic transformation. With a wave of innovative product launches redefining industry standards and highlighting new focus areas such as managed LLMs (large language models) and data-driven services,” said Sangeeta Gupta, senior vice-president and chief strategy officer, Nasscom.

“We must prioritise funding for high potential GenAI start-ups and focus on attracting and developing top tier AI talent. Equally crucial is building trust in the AI systems by implementing responsible AI frameworks,” said Gupta.

Highlighting the main areas of concern, Nasscom said that the GenAI start-ups are facing challenges such as lack of patient capital, limited compute capacity affecting scalability of enterprise GenAI beyond proof of concept, customer hesitation and shortage of skilled AI talent.

Nasscom also said that around 75 per cent of the GenAI start-ups were generating revenue as of H1 2024, a jump from 22 per cent as of H1 2023.

In the global context, India ranks sixth in the share of GenAI ecosystems after the US, the UK, Japan, Israel and EU.