Why is YC bullish on Indian AI startups?

While there are ongoing discussions about India becoming a top 100 AI unicorn in the next decade, it is interesting to note that investors in these startups are increasingly coming from the far West, with Y-Combinator playing a key role for many of them.

Bullish on India

Y Combinator is one of the world’s largest startup accelerators. Sam Altman’s first venture, Loopt, also got accepted into YC’s program in 2011.

As of early 2024, YC has funded over 4,500 startups with a combined valuation of over $600 billion, making the platform an attractive opportunity for many early-stage startup founders.

YC W24 selected 260 companies from more than 27,000 applications. “With an acceptance rate of less than 1%, this was one of the most selective groups in YC history,” said Garry Tan, president and CEO of Y Combinator.

Based on the demographics of the YC Winter 2024, the selected founders are: 36% white, followed by 25% Asian and 18% South Asian.

YC also saw a significant 45% increase in applications from India between Winter 2020 and Winter 2022. Many Indian startups were also selected for the program this year.

Typically held in two three-month increments (summer and winter), YC helps early-stage startups scale and succeed quickly by providing seed funding, mentoring, and access to an extensive network of industry experts, among other things.

Going by its previous track record, YC has seen impressive growth with several investments in Indian startups. The most notable one being online grocery platform, Zepto. Not only seed funding rounds but also an accelerator were part of their growth rounds.

“They were constantly in touch with us and saying, hey, you guys are growing really fast and you’re doing millions of dollars in sales now. Why don’t you talk to the growth people at YC,” Aadit Palicha, Zepto’s co-founder and CEO, said in an interview last year. The discussion paved the way for a $100 million Series C funding round led by YC.

Not only Zepto, but other Indian startups that achieved unicorn status, including Meesho, Razorpay, and Groww, have also received YC support.

Unique advantage of structure

Y Combinator’s unique accelerator program gives them an extra advantage going forward. YC invests $500,000 in the startup, of which $125,000 gives YC a 7% stake in the startup. The remaining $375,000 is covered by a special agreement that allows YC to convert it into shares as the startup raises more money.

The program also gives YC the right to invest in future funding rounds for startups. With such a structure, betting on promising Indian startups will only be a win for the Silicon Valley startup accelerator in the long run.

Artificial intelligence is a hot topic in India

Garry Tan, President and CEO, Y Combinator. Source: Getty Images

“A lot of the companies in this group, at least 50%, are building around AI in some form or another,” Tan said, referring to the current YC cohort. Interestingly, Indian founders are also building in the AI ​​space.

OBJECTIVE We had the opportunity to talk to a few Indian startup founders who were part of the 2024 program. Interestingly, we spoke to several of these promising startups well before they were introduced to YC.

AI software engineer Devik’s founder Mufeed VH, who founded Stition.AI, is now part of YC’s S24 batch. His startup works around AI cybersecurity to fix codebase vulnerabilities and has been rebranded as Asterisk, likely a cue from YC for better branding.

Arko Chattopadhyay, founder of Xylem AI, now renamed Pipeshift AI, was part of the current YC cohort. The startup is a cloud platform for tuning and running open-source LLMs, designed to help teams quickly deploy their LLMs to production.

A Bengaluru-based startup is also part of the accelerator group. Ragas, co-founded by Shahul ES and Jithin James, is building an open-source platform for evaluating RAG-based applications.

On the agency front, Indian co-founders Sudipta Biswas and Sarthak Shrivastava are building AI workers through their startup FloWorks.

On a mission to reduce SaaS spend with generative AI, YC-backed Indian founder Prasanna Naik is building CloudEagle. Similarly, to increase SaaS sales, Mica AI was co-founded by Achyuta Iyengar, Jai Yarlagadda, and Bharadwaj Swaminathan.

CodeAnt AI and GuardianAI are two AI startups in the DevOps and healthcare space, founded by Indians.

Encouraging for Indian founders

While YC will have the advantage of investing in startups that potentially fetch millions of dollars, YC’s programs are just as enticing for Indian founders. With no formal degree requirement or actual profits, YC simply puts its money on the founder and their idea.

Additionally, developing your own business through the YC program is made much easier because the accelerator even offers assistance in changing the country of registration of the startup.

Startup founders receive not only immediate funding, but also comprehensive support from the entire YC ecosystem, including guidance from notable figures like Sam Altman, Paul Graham, and Jessica Livingston.

Interestingly, YC is also planning to launch a new fall cycle for the first time to keep up with the influx of ideas and developments in the field of AI.

Source: X

History shows that most Indian companies backed by YC grow at incredible rates. As such, YC’s interest in Indian founders—and vice versa—will only continue to grow.