I have shared this in private with a few people. Unfiltered thoughts below.

  • India SaaS has always been hard. Compare the money that has gone into India SaaS with the actual outcomes for these companies. We still gave it our best. The advantage was price arbitrage. A lot of the cost was GTM and people. You could set up a cold outbound center here, hire a big engineering team here, start selling in India, then try to sell in the US. It worked for a while. But when the price of software shifts from twenty dollars per seat to replacing people, relationship driven sales start to matter a lot. In that case, you need to do more in person sales. And now the India salary arbitrage does not work either. Indian salaries have gone up. Instead of fixed API costs, you have variable foundation model costs, and a lot of your topline revenue going to these foundational model labs. So you cannot build another Freshdesk from India with the same playbook. Look at the revenue growth of Indian SaaS startups, how much funding they have raised in the last two years, and which startups are getting invested in.

  • Oh, but horizontal SaaS works, why don’t we try that? Actually, even in the US it is mostly AI SaaS, and the SaaS startups there are also getting gobbled by PE, listing at lower multiple, and most investments are now in AI. When every idea has 50 copycats, what matters is capital accumulation and narrative building. Say you do an AI design tool from India and raise 1 million from an Indian VC, you build in Bengaluru, and a startup with a similar idea and similar ability of the founding teams appears in the US, but your competitor is ex Figma, a second time YC founder, and manages to raise 10 million from a16z. Now a16z is adding them in their market maps, not you. Garry Tan is shilling them not your startup every week. Your Indian VC is now panicking. First they were saying grow fast, then only you will get your next round, now seeing you burn 3x of your revenue in Claude API costs, they are asking you to become profitable instead. The same schizophrenic behavior based on market cycles, except cycles are like monthly now, driven by narratives you cannot control. Do you think Cursor would ever get funded in India? No. Windsurf got exit liquidity thanks to Google. Being in the US helps. Network helps. So no horizontal AI SaaS? What do you do?

  • If the main cost for AI SaaS companies is foundational model cost, then the only ones that can survive without getting copied by the labs at their app layer or burning their runway are the companies that replace employees or cut opex. You cannot do seat based pricing where you charge $20 but spend $60 each month, hoping nonusers make your business model work like in a fitness gym. Power users in AI SaaS will always consume heavily and pick the best model, so churn will stay high and much of today’s revenue is still experimental, with a power law at work. If you switch to usage based pricing, you are essentially reselling Claude credits, and your burn ends up two to three times your revenue again, because power users will always choose the best model. So no seat based pricing and no usage pricing. You have to sell outcomes: do the same work with 10 people instead of 50, and pay us $2K per user per month. I am sure a $200 Claude subscription will become $2,000 soon. This is why vertical SaaS is where most Indian builders and VCs will focus: financial copilots, AI doctor, AI nurse, AI accountant, direct job replacement, so you can make $10K per month and break even. But you have to sell in the US. There is a reason Indian VCs tell founders to move to the US right after the pre-seed round. VCs in India are mostly investing in vertical SaaS for the US. In India, if you try to say sell an AI QA tool, companies will laugh you out of the room; they would rather hire fresher QAs than pay more for an AI tool. Indians just throw bodies at problems. We are not supply constrained. So you cannot have replacement-based pricing. The only option is moving to the US and selling there.

What works then? What should Indian founders build?

  • Vertical SaaS for the US. Have one founder based in the US, hire most of the team in India for cost arbitrage, sell AI copilots to US customers, run a cheaper GTM from India, and keep the core engineering team here.
  • Cost-arbitrage companies. Find experts in India and do data labelling, put trained teams in the field to collect data for robotics companies, and pursue other arbitrage opportunities across the AI stack. There are plenty.
  • AI services companies. No matter what people say on Twitter about AI as an enabler, you still need people. With AI, employee productivity is now 10x, so you can do software services with far fewer people, supercharge software delivery with AI, get better margins, and make good money. Think design agencies and MVP-building studios. VC scale? Maybe not. But many micro Infosys 2.0 businesses will be built over the next few years.
  • Sovereign AI. I sincerely believe this. The future looks more chaotic, with more tariffs, sanctions, blocs, and protectionist leaders. No country can rely fully on foreign companies for AI. Imagine India not getting the latest models, like China not getting the latest GPUs. Anthropic has already stopped giving Claude access in China. Regardless of who is in power, sovereignty will drive policy and every layer of the AI stack will be reimagined. People said India could not do a moon mission or build a nuclear program, yet we did. When there is no alternative to remaining independent, policies change, money follows, and the nation does what it must. China did it the hard way. India will have to do the same.

Not just AI. I think a lot of money and energy will flow into deep tech too. It is not a question of if but when.

In the last four months since I left my job, I have worked with or met at least 20 to 30 companies, and I can speak to the margin structure of most AI businesses. I have met enough VCs as well, and I think most would privately agree that this is an accurate read of the situation here in India.