The decline in the April-June quarter of this year was 91% compared to the previous quarter and 82% compared to the same period last year.
 "Market uncertainty and policy issues drive down funding for Indian AI startups")
Abhijeet Kumar New Delhi
This follows a sequential increase in funding of about 110 percent in the previous quarter, and a 56 percent increase in the quarter ending December 2023, according to the report.
Click here to connect with us on WhatsApp
Additionally, the round also includes equity investments in AI infrastructure and AI-as-a-service technology startups. The business daily quoted Tracxn co-founder Neha Singh as saying that the significant fall in funding was primarily due to investments in a highly volatile market that is being affected by geopolitical tensions and rising interest rates. Singh also said that she expects the sector to grow once the market stabilises.
In the June quarter, AI startups accounted for just 0.3% of the roughly $3 billion in total funding for tech startups. But globally, AI startups are resisting the “funding winter” that has hit startups in the wake of the pandemic, the report added. In the U.S., for example, AI startups secured $27 billion in funding from April to June, accounting for nearly half of the country's total startup funding in the period, The New York Times reported, citing data from Pitchbook.
For the first time this quarter, AI startups emerged as the largest segment, according to Crunchbase.
Investors pull back amid uncertainty
So far this year, Indian AI startups have raised around $96 million, up 61% compared to the same period in 2023, but down 82% compared to the first half of 2022, when AI funding peaked at $560 million for the year. Investors are pulling back after initial enthusiasm for AI technology in India due to the lack of clear, profitable use cases amid a fragmented investment landscape with a plethora of AI startups, the business daily said, citing industry experts.
Additionally, uncertainty regarding investment priorities and costs associated with scaling AI solutions has dampened enterprise demand.
Funding for AI startups surges in the US
In contrast, a recent Reuters report found that investment in U.S. AI startups surged to $24 billion from April to June, more than doubling from the previous quarter, based on Crunchbase data, signaling growing interest in the technology.
Overall, startup funding grew 16 percent quarter-over-quarter, reaching $79 billion last quarter, driven primarily by investments in AI, which became the largest sector for the first time, followed by healthcare and biotech.
Of the major funding rounds, five of the $6 billion rounds were secured by AI companies. Notable deals include Elon Musk's xAI raising $6 billion and AI infrastructure provider CoreWeave securing $1.1 billion. Other notable deals include autonomous driving company Wayve and data preparation company Scale AI. Outside of the AI space, cybersecurity company Wiz raised $1 billion in its latest funding round.
