AI-native startups edge out SaaS in investor playbooks as tech shift accelerates
Between January and 4 June, AI-focused startups raised $454 million across 65 deals, slightly surpassing SaaS firms, which drew $432 million over 52 deals, according to data from Venture Intelligence. While some overlap exists as SaaS companies adopt AI features, the trend points to a deeper reset in investor priorities.
'AI-led startups are commanding 3–4x valuation premiums over traditional SaaS businesses, thanks to their potential for faster scalability and deeper, more transformative use cases," said Abhinav Chaturvedi, partner at Accel.
Also read: 10 Indian AI startups and products to watch out for
Blurring boundaries
However, to stay competitive with pure-play AI startups, many SaaS companies are now streamlining operations and aggressively investing in artificial intelligence, according to multiple industry executives.
This trend is pushing established SaaS companies to retool quickly.
'If SaaS companies don't integrate AI, they are unlikely to survive the next 2–3 years," said Nitin Bhatia, managing director at DC Advisory.
'We're seeing the switch happen where pure-play SaaS startups don't exist anymore. AI is becoming a fundamental part of what they offer—whether it's to enhance customer experience or product capabilities."
This transition is also shaping the investment strategies of venture capital firms such as Stellaris Venture Partners, Bessemer Venture Partners, and Accel, who see the convergence of AI and SaaS playing out across their portfolios.
Accel's Chaturvedi pointed to SaaS portfolio companies like Chargebee, which is exploring newer monetisation models like usage-based pricing, and BrowserStack and Testsigma, which are embedding AI to automate testing—showing how legacy players are not just adapting but helping shape this transformation.
Some of the largest AI-linked fundraises this year include Netradyne's $90 million, SpotDraft's $54 million, and Infinite Uptime's $35 million rounds, according to Venture Intelligence data. The narrowing gap between AI and SaaS deal volumes underscores growing investor appetite for pure-play AI models.
Deal data reflects this shift: in 2024, there were 193 SaaS deals versus 145 AI deals. A year earlier, SaaS saw 159 deals compared to just 96 in AI. While SaaS still leads in terms of overall capital raised, AI startups are quickly gaining ground with more focused, domain-specific solutions.
Also read: Meta in talks to invest nearly $10 billion in artificial intelligence startup Scale AI
Even within traditional SaaS portfolios, companies are recalibrating.
'Our existing SaaS portfolio companies are investing aggressively in AI capabilities. From Whatfix in the digital adoption space to Factors in marketing automation, most of our portfolio companies are already using AI to add features, increase convenience and reduce cost for their customers," said Ritesh Banglani, founding partner at Stellaris Venture Partners.
According to Banglani, more than 80% of Stellaris' B2B SaaS deal flow is now led by AI-centric solutions. 'This shift will transform every process within an enterprise from marketing and sales to accounting and finance," he added.
A generational shift
Industry veterans believe the shift marks a generational reset for Indian software startups.
SaaS inflows have dried up, Zoho founder Sridhar Vembu said last week, attributing it to rising investor appetite for AI and growing profitability pressure on SaaS firms. He noted that artificial intelligence is now superseding traditional SaaS models in funding priority.
Still, the broader outlook for SaaS remains strong—with a caveat. In August, Bessemer Venture Partners projected that the Indian SaaS market could generate three times more revenue by 2030 compared to today, driven in large part by the infusion of AI. In 2025, Indian SaaS is expected to clock $25 billion in annual recurring revenue.
Bessemer also expects India to see a similar shift as the global SaaS wave of the late 2010s—with AI software exports playing a bigger role in the $400 billion global services market.
As the Indian startup ecosystem matures, the once-clear boundaries between SaaS and AI are dissolving—with capital, innovation and talent increasingly flowing toward platforms that can do both.
Also read: Boom in AI fuels a flurry of startups
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