In late July 2025, Astra — a young AI sales-tech startup backed by Perplexity AI founder Aravind Srinivas — shut down just four months after having raised funds. The closure wasn’t an isolated blip; it captured the growing pains of India’s AI ecosystem, as it moved from hype to hard reality.

Astra’s cofounder and CEO Supreet Hegde was candid in his exit note. Disagreements with cofounder Ranjan Rajagopalan over growth pace, long enterprise sales cycles, and a lack of trust from potential customers weighed the company down, according to Hegde. 

The sudden rise of competing AI agents only added confusion for buyers.

“Working with larger companies meant navigating lengthy sales cycles, especially as an early-stage startup asking clients to trust us with sensitive data from platforms like Salesforce, G-drive, Slack, and CLM,” Hegde wrote. 

“The current surge of interest and confusion surrounding AI agents added yet another layer of complexity, with many clients unsure of whom to trust or how to evaluate these AI agents,” he added.

Founded in 2023, Astra had pitched itself as the “Chief of Staff for every account executive,” promising to automate 80% of AE activities and boost deal execution quality. 

It landed two major clients and faced no direct competitors in its niche. But it never scaled beyond beta.

The Reckoning of 2024–25

Astra’s challenges mirror a broader reckoning in Indian AI. In 2024–25, the industry stopped being a story about boundless promise and became a test of who could build something that worked — and sell it repeatedly.

Many AI founders say endless unpaid proofs of concept are killing early-stage startups. “AI founders finally skipping selling to Indian customers after doing PoCs after PoCs and then being requested for even more ‘free’ PoCs. There is a limit to this… enough is enough,” Vaibhav Domkundwar, CEO of Better Capital, had said earlier.

Read: Free PoCs are Killing Indian AI Startups

Some of the most talked-about names ran into the same wall. Hyderabad-based Subtl.ai, which had beaten OpenAI benchmarks and counted the State Bank of India as a client, shut down in July 2024. Founder Vishnu Ramesh summed it up saying that they had spread themselves too thin.

InsurStaq.ai, which built the specialist InsurGPT model and had the kind of backers most startups dream of, folded when scaling as competitive pressure outpaced traction.

These weren’t failures. They were the predictable result of companies built in a period that rewarded speed and fundraising over sustainable revenue.

Funding Still Flows — But to Fewer Hands

The wider ecosystem also felt the shock. Citing Tracxn data, the Financial Express published that over 28,000 startups shut down across 2023 and 2024 — 15,921 in 2023 and 12,717 in 2024.

In AI, capital still came in, but to a narrower set of winners. Indian AI startups raised $780.5 million in 2024. 

Krutrim AI, founded by Bhavish Aggarwal, became India’s first AI unicorn in January 2024 after a $50 million round for India-first LLMs that understand 22 scheduled languages and generate content in 10.

Kore.ai pulled $150 million. Atlan raised $105 million for data governance. Neysa secured $50 million for AI cloud infrastructure. Sarvam AI raised $41 million for Indian-language LLMs. Nurix AI, led by Mukesh Bansal, raised $27.5 million for enterprise AI agents.

Despite these and a few others, the funding for AI startups was barely there. New startups continue to raise small amounts of money, but late stage investment is not there. And it gets even worse in 2025.

How to Change This?

A recent Nasscom report shows India’s AI startup count grew 3.7x in a year, crossing 890 ventures, with a 2.8x jump in new formations and a 1.7x rise in patents. Over 83% of these are application-focused, building vertical AI and SaaS tools for faster commercialisation.

In the first half of 2025, the sector raised $990 million, up 30% year-on-year. But high compute costs have now overtaken talent shortages as the biggest scaling barrier.

Arpit Mittal, founder and CEO of edtech startup SpeakX, told AIM that 2024-25 rules from SEBI now ask angels to prove higher net-worth and go through extra accreditation. 

“Many casual angels don’t want that paperwork, so they have paused investing, while the seasoned folks are simply cutting ticket sizes from ₹1-2 crore to ₹50-75 lakh per deal,” he said.

Also, agentic AI is emerging as the next big frontier. According to an earlier Tracxn report, there are around 109 agentic AI startups in India. But most of them are building products for users that don’t exist.

In India, getting paid for a proof of concept (PoC) is becoming a rare win. Most early-stage startups find themselves in endless sales loops where potential clients demand increasingly elaborate demos, only to ghost when it comes to commercial discussions.

For that to happen, India still needs better compute infrastructure, regulatory clarity, and production-ready talent, and most importantly finding the right use cases.

“GenAI startups have the potential to shape the future of AI innovation for emerging markets and beyond,” Rajesh Nambiar, president of Nasscom, said in the report. But this might take more than just building good tech.

The companies weathering the storm aren’t chasing a multipronged strategy. They pick a vertical and focus on it with the right GTM strategy. Enterprise AI, Indic-language models, AI infrastructure, and industry-specific solutions are faring better than broad horizontal plays.

The lesson from setbacks like that of Astra is to start with a customer-facing problem, not a model. Stay in the market long enough to figure out how to make money and build to stay relevant, not just for the next funding round.

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