Funding in generative AI rose to around $400 million last year, from $250 million in 2023, as more AI-enabled applications and platforms found product-market fit within enterprise work flows, a report by Bain & Company and Indian Venture Capital Association said.

Generative AI is a type of artificial intelligence that uses generative models to create new content such as audio, code, images and text.

The funding includes capital infused in Gen AI-native companies and investment into software and AI-native companies that develop Gen AI. About 70% of this funding was for applications and platforms, driven by a greater supply of quality Gen AI application assets in India, while global funding favoured capital-intensive foundational models, with large deals for players such as OpenAI, Anthropic and X.AI.

“Funding for less capital-intensive generative AI applications surpassed generative AI infrastructure and foundational models, reflecting greater asset availability,” the report said.

Funding in startups building foundational AI models in India shifted to fewer but larger deals, driven by broader addressable markets, downstream applications and higher valuations. For example, Ola’s Krutrim AI had raised $50 million at a unicorn valuation in January 2024.

Overall, 33 deals in Gen AI funding happened in 2024, compared with 17 in 2023. However, the average deal size shrank to $11.8 million from about $15 million. The growth in funding was also driven by rising interest in no-code platforms such as Kore.AI and domain-specific large language models (LLMs) such as Jivi AI’s medical LLMs and BFSI LLM ‘Sesame’ by Setu.

Going ahead, the deal momentum in Gen AI will shift towards growth and late-stage funding, as enterprise adoption scales and India’s engineering talent and India-specific training data continue to drive investments. This will be aided by funds which have earmarked capital for AI-focused deals.

Including Gen AI, the funding in overall software and software-as-a-service (SaaS) sector rose 1.2x to $1.7 billion, fuelled by customer spending on development and testing tools, maturing international go-to-market strategy for leading players and availability of quality scaled assets, the report said.

Besides software and SaaS, funding in traditional sectors, such as BFSI, surged 3.5x to $1.1 billion, driven by NBFCs in affordable housing, while that in consumer/retail companies grew 2.2x to nearly $1 billion, with the focus being on food & beverages and fashion. Rising discretionary spending, demand for premium products and asset-light business models drove this growth.