India can unlock AI’s untapped potential for digital services: Stellaris

We have started to realise the impact of artificial intelligence (AI) in our everyday lives, whether through AI assistant chatbots or personalised social media feeds. In India, some small-scale farmers are now using AI-powered weather forecasting tools to make agricultural decisions while airlines like Air India are integrating the tech into their flight booking systems.

However, AI’s potential is still largely untapped and Alok Goyal, Partner at Stellaris Venture Partners, believes India is best poised to harness the opportunities arising from the technology.

“We have a massive opportunity in front of us over the next couple of decades,” Goyal says in conversation with Shradha Sharma, Founder and CEO of YourStory.

In an exclusive interaction, the partners of Bengaluru-based venture capital firm Stellaris Venture Partners, including Goyal, Rahul Chowdhri, Ritesh Banglani, and newly-promoted partner Naman Lahoty, discuss the future of AI in the country and the role of AI and deeptech, particularly in the context of startups in the country.

Lahoty highlights that AI is disrupting both the creation and distribution of digital products and services, enabling the development of previously impossible offerings while significantly reducing costs and accelerating creation.

He cites the example of GoodScore, a company in Stellaris’ portfolio that offers a hyper-personalised financial education product to delinquent users to improve their CIBIL score, which would not have been possible without AI.

On the distribution side, he explains that AI is breaking down language barriers, making created content more accessible to a wider audience. Additionally, AI is reducing production costs, making products and services more affordable and accessible to the next 300 million consumers in India.

Chowdhri notes that in India, AI can be beneficial across sectors such as financial services, healthcare, education, content, entertainment, and media, with potential use in numerous industries.

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AI in education

“We are very bullish and we are actively seeking companies using AI to deliver education,” remarks Chowdhri.

“The challenge with education and edtech has been that while we have had a good number of users who started using, companies have been built, funded, efficacy is still not been delivered compared to what you can get in the offline world,” he adds.

For example, people prefer online shopping, he notes, because the experience is far better than going to a retail store—it’s more convenient, offers a wider selection, and better pricing.

Unfortunately, edtech has not been able to tilt things in its favour, Chowdhri notes, adding that while on paper it seems like everyone can access the content, it is not interactive. Students, especially in the 12th grade and in K-12 and test prep segments, don’t have many incentives or aren’t disciplined enough to continue learning online.

On the other hand, professional upskilling has worked because students aged 23 and above have an incentive to learn, allowing them to engage with asynchronous content effectively.

He explains that AI can enable learning without a highly skilled teacher by engaging with 15- to 18-year-olds as a mentor. It can create videos, respond to questions in real-time, based on the user’s progress, and build a knowledge graph to identify gaps in understanding. If a student struggles with a concept, AI can pinpoint simpler related topics to revisit, guiding them to the right content.

“So that is the promise of AI, which I feel can almost make you feel like you are being taught by a real teacher,” Chowdhri adds.

Stellaris has a company that teaches biology, physics, and chemistry to students preparing for their 11th and 12th board exams without the need for a human instructor.

SaaS

Speaking about the software-as-a-service (SaaS) sector, Goyal explains that in recent years, too much capital has flowed into SaaS, with people forgetting that it is actually a relatively linear business.

“Most software is sold and if it’s sold, you require a sales machine, you need to hire salespeople, you need to sell. It’s a relatively linear ramp-up that you have to go through. If you plonk too much capital, that doesn’t help,” he notes.

He adds, “Thoughtful building and utilising the capital well has not happened in the last few years, but we are seeing people rethink the way they are building today and we are very bullish on the evolution of SaaS from India.”

Goyal elaborates that when Zoho and Freshworks were founded, many questioned their business model. However, over the past 15 years, their experience has helped build significant talent and know-how on how global software companies can be built from India.

According to him, on the enterprise side, three major opportunities in AI can endure over the next one to two decades.

One, almost every enterprise process will be rethought and reimagined using AI. An example of a company that Stellaris has funded is OrbitShift, which is rethinking the role of a salesperson in a large deal environment.

The second big space is that the way software is written is being rethought, from design and coding to testing, maintenance, and deployment—all of these phases are being reimagined.

In fact, in its recently launched third fund, the VC firm has already made its first commitment to a company rethinking how test automation for mobile applications is done using AI.

The third, which is of particular interest to Stellaris, is the merging of software and services.

“We have historically thought of these as two different spaces. But we think that AI is reimagining software that needs some services, and services that can be done by software. And that’s an area where India has a very unique advantage,” says Goyal.

On funding

Last month, Stellaris closed its $300 million Fund III, aimed at leading seed and Series A investments in 25–30 startups over three years. Staying true to its investment thesis, the firm will focus on consumer tech, AI, SaaS, and financial services. It has backed startups in sectors like B2B commerce, education, mobility, and healthcare as well.

Speaking about funding startups, Banglani shares that a few years ago, he analysed his entire deal flow and found that only 2% of companies succeed, implying 98% fail—contrary to the commonly stated 90%. For funded companies, the failure rate is still 80%, but this means the success rate increases from 2% to 20%, reflecting a significant improvement.

“The job of the VC is actually not to reduce the risk. The risk only reduces a little bit from 98% to 80%. But our job is to generate the upside and the probability of generating that upside goes up when a startup gets funded,” remarks Banglani.

“Which is why we do not see our role as that of risk reduction, we see our role as finding in those hundred startups, the 10 that have a 10X better chance of success than the others,” he adds.