There are many conversations across the world about how artificial intelligence (AI) could eliminate many professions and how some professionals will be affected more seriously than others. However, Padmaja Ruparel, co-founder of the Indian Angel Network (IAN) would like to think otherwise. 

She points out how when the banking sector was getting computerized during the early 80s, there was huge pushback that it would lead to job losses. But it didn’t and instead, clerks in banks don’t make entries in several registers, they do it online, which meant there was skill upgradation. 

She tells Outlook Start-Up that technology is a tool and as it develops it must offer business deliverables in terms of revenues to companies that adopt it. These revenues will come if customers can get a better, faster and more efficient proposition at a lesser cost. The same is happening with AI and generative AI (gen AI). There will be skill upgradation and productivity enhancement as it is no longer a nice-to-have technology, but a need-to-have one. 

Edited excerpts: 

Large tech companies have launched accelerators to support startups innovating with Gen AI. Given their agility, can these startups become a threat to IT and ITeS companies, especially with the backing of tech majors like Google, Microsoft or AWS? 

Startups are nimble and can quickly adopt to develop technologies at a low cost comparatively. They can creatively think out-of-the-box as they are not bound by the frameworks of large corporates. Hence, it is natural that young startups will adopt and innovate with AI and Gen AI technologies and soon they will become much more than startups. Today, Info Edge, Zomato or Swiggy are not the startups they were 15-20 years ago in terms of revenues or their workforce. 

Hence, while young startups will drive technological adoption, in the case of AI and Gen AI, this won’t be completely vertical but will be horizontal. This means it will be adopted across sectors like agriculture, healthcare, manufacturing, etc, opening newer opportunities for further innovation. 

Do you see large IT and ITeS companies acquiring these startups to grow inorganically and scale up their business faster? Also, are these startups likelier to focus on niche-gen AI applications that will assimilate better into legacy companies?

Israel’s tech ecosystem is built on mergers and acquisitions. They looked at the product portfolios of big companies like Microsoft and Google, identified a gap, built a company to offer innovative solutions and then got acquired. And I see this happening in India as well.  

We are already seeing this occur in medtech products; different products created in India cater to a larger market that needs them and these companies are then acquired by global majors. This model is not restricted to that sector but is used by everyone; look at the number of acquisitions that have occurred in the IT industry.

How mature is the investment community when it comes to backing gen AI startups? Will they get the kind of funding traction that e-commerce or fintech received for the past few years?

There are two issues here. One is that when an investor looking for GenAI and AI scratches the surface of the proposition, they actually don't find details of the tech. That is a concern, and therefore the overall investment we are seeing in India in this space is a little low, so I agree with you. 

Secondly, the tech world is geography agnostic. If an investor wants to back an AI or GenAI startup, they will look for where the real talent is sitting and where the development is. So, they are investing, but not necessarily in India. 

The underlying message is whether we have the talent. We have the raw data, but do we also have problems that need to be solved with this technology? 

Honestly, yes, we do have it. What we need are companies and talent that can do a bit of deep development, but not as much as some of the other countries are doing. The investor community is very excited about this sector because of what it can do in the next phase of technology development, morph how we do things, behave or deliver. 

Moreover, AI has some risks attached—we have seen things like deep fakes. But if you start thinking about AI as augmented intelligence, then it has a very powerful proposition as it augments human intelligence.

It processes data at the speed of light, which can give you answers, make your decision-making better and take away repetitive work. It can add wisdom to data analytics and information freeing up the human mind to think more creatively and take their business to the next level at a faster pace. 

You mentioned India has talent and enough problems that can be solved using AI and GenAI. So, what do you look for when you see an investment pitch from these startups?

When I'm looking at an AI or GenAI-enabled investment pitch, I'm not looking at how good the technology is doing. Instead, I look at an investment proposition using this tech to see how it can deliver a different level of wisdom in their business and move things faster. 

From my perspective, I am very clear about the two things a successful investment or business should deliver—top line and bottom line. Are these startups creating a portfolio of IP in AI and Gen AI, which we can then value and monetize as a business or are they creating top line and profits? This is the investment mantra that we've believed in for the last 17 years and what I will keep believing even with our IAN Alpha Fund (this second fund from the Indian Angel Network made a first close last December at Rs 355 crore) 

Hasn’t IAN invested around Rs 900 crore in around 250 startups to date with a cumulative valuation of around 75,000 crore?

IAN has been around for about 17 years as an angel group. Then we did Fund-I, followed by Bio Angels and now we are doing it IAN Alpha Fund, which is the second in the series of IAN Group VC funds. The first close of the IAN Alpha fund in December 2023 was at around 355 crore, which is a tad higher than the target corpus of the previous entire fund.

We are a very early-stage investor, which is a high-risk investment phase. Just as returns are important, it is also important how low your failures are. 

Overall, we have invested a little less than Rs 900 crore and the market value of our portfolio companies is about 10 billion or Rs 75000 crore or Rs 80,000 crores as you said. 

The IAN Fund I has over 11 companies that have raised more than Rs 100 crore, but we have only written off 14% of the capital invested. This is because we follow a very risk-mitigated strategy in our portfolio building, which is why e ge this kind of returns and low failure rate.  

Significantly, against the Rs 900 crores we have invested in startups, they have gone on to raise more than Rs 18,000 crores. So, the quality of companies that we've invested in obviously attracts a high quantum of strong investments. We are not investors who only look at valuation; we have three unicorns, with several others moving in that direction. 

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