Why This AI VC Firm Loves the Indian Middle Class

Whether they pick AI for India or AI for Bharat, one thing is certain, the VCs betting on India’s AI ecosystem are focusing on the largest segment that will benefit the most from such innovations: The great Indian middle class. 

Seattle-based Capria Ventures is one such capital firm that identified this opportunity over a decade ago and has been capitalising on this aspirational segment ever since. The 12-year-old firm invests in early-stage and early-growth tech startups in the global south.

Why Middle India Matters

“We look at the rising middle class of India, often referred to as ‘Middle India’, which aspires to have and do more,” said Will Poole, co-founder and managing partner of Capria Ventures, in an exclusive interaction with AIM. 

Poole explains how the aspirational middle class, comprising roughly 600-700 million people, forms a cornerstone of their investment strategy. “This market is largely underserved or less served but represents a very large opportunity,” he said. 

With increasing incomes and growing aspirations, Poole believes that this demographic drives demand for innovative solutions across sectors such as healthcare, education, and technology. The firm recognised this trend early. “We started doing this before anybody else was doing it,” he remarked. 

With decades of experience as an investor and entrepreneur who founded eShop, which was acquired by Microsoft in 1996 and was part of the ‘Windows’ growth, Poole has witnessed the advent of mobile technology firsthand during his tenure at Microsoft in 2003. 

“The power of the mobile revolution happened fast in India,” he noted, drawing parallels to the current wave of digital and AI-driven innovations.

Poole also highlighted the role of generative AI in addressing challenges specific to Middle India, such as language diversity. By leveraging AI for multilingual solutions, businesses can expand their reach and improve operational efficiency. 

“Generative AI is an equaliser in the world of language,” he said, adding that it reduces the burden of linguistic diversity for businesses aiming to scale.

With India set to become the world’s third-largest economy within the next five to seven years, the opportunities for VC-backed startups are immense. “We’re very bullish on India,” Poole stated.

Capria began operating in India about five years ago, followed by Southeast Asia, Africa, and North America. Since then, the company has invested in several Indian AI startups. Its core team is located in Bengaluru. 

Healthcare, finance, agritech, are some of the verticals Capria has invested in, with prominent customers leveraging their solutions. For instance, 5C Network, a telediagnostics company, leverages AI to analyse radiological images, improving disease diagnosis and radiology efficiency. With over 11 million images analysed and 250 regulator-approved disease detectors, 5C serves clients such as Manipal Hospital. 

BetterPlace is an HR management platform that supports frontline workers across India and Southeast Asia. It integrates AI for multilingual training, enhancing employee productivity and reducing training costs. Reliance is among its key customers, managing over a million employees through the platform.

Challenges in the Indian Ecosystem

Despite its promise, investing in India’s startups comes with unique challenges, with cost management being a significant hurdle. Poole shared an anecdote about a founder who implemented GPT-4 for customer service but had to downgrade to GPT-3.5 to manage costs. 

“You’d never find a US customer service startup worrying about API costs like this,” he said.

Poole noticed that access to cutting-edge technology is another challenge in our ecosystem. Indian startups often lag behind their counterparts in the US in accessing state-of-the-art tools and developments. “Our role as VCs is to help them sort through the noise and identify the gems they can use to scale their businesses quickly,” Poole explained.

Capria is also clear in its investment philosophy of investing in startups that leverage existing technologies to build scalable businesses rather than those building their own AI models or competing with heavily funded incumbents. 

This pragmatic approach extends to identifying startups with proprietary access to data, which Poole sees as a critical competitive advantage. “Data helps them build rapidly and maintain an edge over competitors,” he said.

What About Others?

It’s not just Capria Ventures. According to the recent trend, many VC firms are investing in AI startups that aim to address problems at various levels in the country, especially through language applications. Sarvam AI, backed by Peak XV Partners and Khosla Ventures, for instance, has built Indic language models. 

Similarly, Accel is supporting AI startups through its Accel Atoms 4.0 program. This program will offer up to $1 million in funding for startups focusing on AI and Bharat, specifically catering to middle-income households in Tier 2, 3, and rural India. 

Capria Ventures is looking to launch a new fund focused on applied generative AI that addresses the unique needs of middle India. “We’ve been doing this for a dozen years now, and we’re excited about the next dozen,” concluded Poole.