A new wave of AI-first startups is drawing strong interest from leading venture capital firms as they seek to back companies revolutionizing traditional IT services. Firms like Peak XV Partners, Stellaris Venture Partners, Accel, and Elevation Capital are actively scouting early-stage startups that leverage artificial intelligence to reshape sectors such as application development, infrastructure maintenance, software testing, and customer support.
“AI is making IT services non-linear and it opens up opportunities for startups to deliver services faster, cheaper and at a higher quality,” said Rajan Anandan, managing director at Peak XV Partners. The firm has reviewed multiple companies using AI agents to automate application maintenance, a segment with significant annual spending. According to him, the goal isn’t to replace existing IT services overnight but to build leaner, AI-driven firms from the ground up.
“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,” Anandan added. Peak XV is focusing on both horizontal startups offering cross-sector AI capabilities and vertical firms developing AI-first solutions tailored for industries like banking, insurance, healthcare, and retail.
Stellaris Venture Partners has already invested in two startups automating core IT functions. Founder Ritesh Banglani noted that AI is also disrupting knowledge process outsourcing (KPO) areas such as accounting, wealth management, and legal support. “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 said. Stellaris expects AI-first services startups to build distribution faster than incumbents can evolve technologically.
Accel India shares this optimism. “By being able to price for the outcome, AI-first services companies can charge like services but earn like software,” said Anagh Prasad, vice president at Accel. The firm is particularly interested in full-stack AI startups in verticals like accounting, legal, and insurance, as well as late-stage companies embracing AI transformation.
Elevation Capital’s AI partner Krishna Mehra highlighted that the IT services sector’s transformation is underway and accelerating. “We expect action across BPO, KPO, knowledge work, and customer support. Winners and losers will significantly change,” Mehra said, adding that legacy IT firms might face buyouts or AI-driven turnarounds.
While startups race ahead, incumbent IT services companies are also integrating AI rapidly. Banglani noted, “Incumbent ITeS majors are hardly sitting out of the AI transition. Most companies are not only helping clients implement AI, they are also using it extensively themselves to improve productivity and speed of delivery.”
Backing teams that combine AI expertise with deep IT services domain knowledge is a priority for investors. Reflecting AI’s growing impact, Nasscom data shows the IT industry’s revenue grew 5.1% in FY25 while headcount rose just 2.2%, signaling a shift toward tech-driven, less labor-intensive operations.
“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,” Mehra concluded.
