As artificial intelligence (AI) continues to reshape industries, the race to gain a competitive edge has led to a rise in acquisitions and partnerships between large enterprises and nimble early-stage AI startups. Over the last two months, several deals were inked which underscore how traditional companies and mature startups are increasingly leaning on smaller AI innovators to fast-track their transformation efforts.
The urgency to integrate AI-powered solutions, particularly those that offer conversational intelligence and business process automation, has driven legacy players and late-stage startups to seek out acquisition opportunities. Earlier this month, Tiger Global-backed CleverTap snapped up rehook.ai, a Y Combinator-incubated startup. Rehook.ai offers automation tools for managing promotions, loyalty programmes, and referrals, capabilities that now bolster CleverTap’s AI-driven customer engagement suite.
Around the same time, NIIT, a skills and talent development major, acquired a 70% stake in Coimbatore-based iamneo.ai. The latter provides an AI-powered deep-skilling SaaS platform targeted at undergraduates and early professionals in global capability centres (GCCs).
Tata Consultancy Services (TCS) also joined the bandwagon earlier this month, entering into a strategic partnership with Vianai Systems to boost its conversational AI offerings.
According to Tracxn, 56 startups across various sectors have been acquired so far, with more than 12 possessing advanced AI capabilities. Many early-stage AI founders told FE that they have been approached by at least two potential buyers in recent months. The interest, they say, is not only persistent but growing rapidly.
Experts believe this pattern marks a departure from the earlier narrative of AI startups, pushing towards unicorn valuations independently. Instead, many are now opting for acquisition or partnership routes to scale their solutions and secure resources that are otherwise scarce. “Few people truly understand AI and fewer still can deliver viable products. Keeping up with AI’s rapid evolution is incredibly challenging,” said Hitesh Jirawla, founder and CEO of Cubictree, a legal tech firm offering AI-driven data analytics.
According to Deloitte India partner S Anjani Kumar, the trend is likely to deepen as companies move from experimental phases to full-scale AI deployment. “Acquiring specialised startups allows organisations to quickly enhance customer experience, improve productivity and drive innovation,” Kumar said. He added that India’s ambition to capture a $20-22 billion share of the global AI market by 2027 makes it imperative to leverage the country’s startup ecosystem for co-development.
For startup founders, the decision to be acquired often comes down to practical challenges. “Being independent is difficult because of the high costs associated with computation and the fierce competition for top AI talent,” said Rashmi Kulkarni, co-founder and director of IndoAI Technologies. Joining forces with larger players provides access to better research infrastructure, market channels, and funding.
The trend has also emerged as a reliable exit strategy for investors. Venture capitalists are finding that while many of their portfolio companies have strong AI capabilities, scaling remains a significant hurdle. Bhaskar Majumdar, managing partner at Unicorn India Ventures, cited boxx.ai, a startup from their first fund, as an example. Although it had a solid product and clientele, it failed to scale due to budgetary constraints at client firms. Eventually, it was acquired by martech company Netcore, giving investors a return while integrating a niche AI product into a broader offering.
This growing appetite for AI-led acquisitions mirrors long-standing trends in the US, where tech giants like Apple, Microsoft, Alphabet and Meta have consistently topped the charts for AI-related M&A activity. In the US alone, AI mergers and acquisitions more than doubled in the past decade, from 225 in 2014 to 494 in 2023, according to the Centre for Security and Emerging Technology (CSET).
India, which now ranks sixth globally in the number of generative AI startups, is clearly following suit. With more than 240 such ventures launched by the first half of 2024, as per a Nasscom report, the country is fast becoming a fertile hunting ground for acquisition-hungry tech firms.