The AI Exodus: Indian Startups Seeking Greener Pastures in the US

Chasing Capital and Customers

A wave of Indian AI startups is crossing the Pacific, setting up shop in the US in pursuit of savvy investors and a closer proximity to their target market. This echoes the SaaS boom of previous decades, but with a distinctly AI twist.

This migration promises a front-row seat to rapid-fire innovation in the buzzing AI sector, along with increased access to crucial risk capital and top-tier talent, according to several founders who shared their insights.

Risky Business: The Funding Gap

Startups like Smallest.ai (voice agents), Composio (AI agent integration platform), and Genloop (custom LLMs for enterprises) are establishing US headquarters while maintaining tech teams in India. They're driven by a desire for investors who understand the transformative potential of AI.

"In the US, investors bet on the future shaped by this technology. Few Indian investors share that vision," explains Sudarshan Kamath, co-founder of Smallest.ai, citing lengthy fundraising cycles, risk aversion, and a technological understanding gap as key reasons for the move to San Francisco.

Ayush Gupta, founder of Genloop, echoes this sentiment, contrasting the "low patience for long-term bets" among Indian investors with the deeper tech understanding and willingness to back bold ideas found in the US.

Even hardware-focused AI startups face challenges. Dhananjay Yadav, co-founder of NeoSapien, an AI wearable company, highlights the lack of understanding from Indian investors regarding hardware ventures, a limitation stemming from the relative scarcity of hardware companies in India.

Beyond SaaS: A Fundamental Shift

Unlike the SaaS boom, AI represents a paradigm shift in business operations, with the epicenter of innovation firmly rooted in the US.

Naganand Doraiswamy of Ideaspring Capital emphasizes the need for a technologically advanced ecosystem for GenAI innovation, something India currently lacks. While Indian institutions like the IISc and IITs contribute to research, "everything happens in the (Silicon) Valley," he observes.

Even leading Indian AI startups like Krutrim and Sarvam, focused on Indic language models, have established US research teams. Sarvam recently launched Sarvam Labs in San Francisco, further underscoring this trend.

Hybrid Teams: The Future of AI Development

The rise of hybrid teams, with leadership in the US and tech teams in India, is expected to accelerate. Beatoven.ai exemplifies this model, while other founders split their time between both countries to serve customer needs effectively.

Sudhir Reddy, co-founder of Divyam.ai, reveals plans to establish a US team to tap into the customer base and attract strategic investors.

The Investor's Perspective

Indian venture capitalists admit to a perceived lack of innovation within the local AI startup scene, leading to a cautious approach and a preference for backing only the stand-out performers.

Rajiv Mehta of Athera Venture Partners acknowledges the understanding gap and encourages founders to actively engage with Indian VCs to foster the growth of the entire AI ecosystem.

Mohamad Faraz of Upsparks Capital confirms the appetite for AI investment in India but notes the difficulty startups face in securing Series A funding and beyond. This funding bottleneck further incentivizes the US migration.