Karnataka startup funding slows as AI and deep tech take center stage

The Karnataka numbers confirm what many in the Indian ecosystem have been feeling anecdotally: the frothy, growth‑at‑all‑costs phase of AI investing is giving way to something more selective. $3.6 billion across 500 rounds is still substantial, but the capital is concentrating in startups with convincing AI or deep‑tech stories and a clearer line of sight to leverage India’s talent and data advantages.

For the global AGI race, India’s role is often framed as a source of engineering labor for US or Chinese labs. This report hints at a more nuanced future, where Bengaluru and other hubs become serious centers for applied AI products and possibly niche model development. A more disciplined funding environment weed outs me‑too “AI wrappers” and favors teams building infrastructure, tooling, and vertical systems that can plug into or compete with frontier models.

Over time, that could produce a cohort of Indian companies that own critical parts of the value chain—evaluation, agents, governance tools, domain-specific models—rather than just serving as offshore dev shops. That kind of ecosystem depth would make India a more consequential player in decisions about how advanced AI is deployed and regulated.