TLDR: Leading venture capital firms in India are heavily investing in AI-first startups, aiming to disrupt and redefine traditional IT services. This strategic shift is driven by the potential of AI to deliver services faster, cheaper, and with higher quality, impacting areas from application development to customer support and knowledge process outsourcing. While AI’s entry is expected to be disruptive to jobs, experts believe India holds a unique advantage in scaling these AI-led services globally.
A new wave of AI-first startups is rapidly gaining traction among India’s top-tier venture capital firms, signaling a significant transformation in the country’s traditional IT services industry. Firms such as Peak XV Partners, Stellaris Venture Partners, Accel, and Elevation Capital are actively scouting and backing these nascent companies, which are leveraging artificial intelligence to fundamentally reshape various aspects of service delivery.
Industry experts highlight that AI is making IT services ‘non-linear,’ creating unprecedented opportunities for startups to offer solutions that are faster, more cost-effective, and of superior quality. Rajan Anandan, Managing Director at Peak XV Partners, articulated this vision, stating, ‘AI is making IT services non-linear and it opens up opportunities for startups to deliver services faster, cheaper and at a higher quality.’ He further elaborated on their strategic approach, adding, ‘We have created a map of everything IT services companies do and view each line of business as an opportunity for a new AI-native company.’ Peak XV is focusing on both horizontal startups, which offer cross-sector AI capabilities, and vertical firms developing AI-first solutions tailored for specific industries like banking, insurance, healthcare, and retail.
The impact of AI is broad, extending across application development, infrastructure maintenance, software testing, and customer support. Beyond these, AI is also disrupting knowledge process outsourcing (KPO) areas, including accounting, wealth management, and legal support. Stellaris Venture Partners has already made investments in two startups automating core IT functions. Ritesh Banglani, Founder at Stellaris Venture Partners, emphasized India’s unique position, remarking, ‘Our belief is that India holds a special advantage in providing these AI-led services to the world. We know how to scale people-heavy operations and sell services – not just software.’ He anticipates that AI-first services startups will achieve distribution more rapidly than established incumbents can adapt technologically.
Accel India shares this optimistic outlook. Anagh Prasad, Vice President at Accel, noted the potential for new revenue models, stating, ‘By being able to price for the outcome, AI-first services companies can charge like services but earn like software.’ Accel is particularly interested in full-stack AI startups within specialized verticals and late-stage companies undergoing AI-driven transformations.
Krishna Mehra, AI Partner at Elevation Capital, confirmed that the transformation of the IT services sector is already underway and accelerating. ‘We expect action across BPO, KPO, knowledge work, and customer support,’ Mehra stated. While acknowledging the potential for disruption, particularly concerning employment, Mehra offered a balanced perspective: ‘The entry of AI in this sector would be very disruptive to jobs. There might be a lot of global rebalancing of the workforce but it’s not all gloom and doom from a jobs perspective.’
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Data from Nasscom underscores this shift, revealing that the Indian IT industry grew by 5.1% in FY25, while its workforce expanded by a comparatively modest 2.2%. This widening gap signifies a clear move towards more technology-driven and less people-intensive operations. The overarching goal for these venture-backed AI startups is not to immediately replace existing IT services giants but to build leaner, AI-driven firms from the ground up, poised to redefine the future of service delivery.
