Despite an overall rise in startup investments, the fintech sector saw a 33% drop in funding last year. While digital lending platforms continue to dominate in terms of attracting capital, the next wave of innovation is emerging in AI-driven financial infrastructure. This includes AI-powered underwriting, risk assessment, and embedded finance solutions.
According to Kabir Narang, founding general partner at B Capital, the investment landscape in fintech is shifting. “While lending remains a key part of the ecosystem, it is increasingly a balance-sheet-heavy play, making it more suited for private equity and structured credit investors,” he told FE.
Narang and his firm are now focusing on AI-led solutions that promise venture-scale returns. Areas of interest include AI-driven underwriting models, decentralised financial infrastructure, and next-generation financial APIs.
B Capital, the US-based venture capital firm co-founded by former BCG executive Raj Ganguly and Facebook co-founder Eduardo Saverin, has been an active investor in India. The firm closed its $750 million Opportunities Fund II in March last year and has backed startups such as Meesho, PharmEasy, Mswipe, Yubi, Dailyhunt and edtech player Bhanzu.
The firm is particularly optimistic about AI’s role in alternative credit scoring, fraud detection and hyper-personalised financial products. Alternative credit scoring leverages non-traditional data sources beyond credit bureau reports to assess borrowers’ creditworthiness. AI’s ability to analyse large datasets in real time makes it a game-changer for financial decision-making.
However, Narang acknowledges that AI startups have been commanding significantly higher valuations compared to non-AI sectors, many of which have seen valuation corrections over the past two years. A prime example is Ola’s AI subsidiary, Krutrim, which achieved unicorn status within just six months of incorporation.
On the rising valuations of AI-driven startups, Narang noted that investors are increasingly prioritising companies that can demonstrate tangible returns on investment, scalable distribution, and seamless enterprise integration. “The companies that stand out are those with proprietary data advantages and deep vertical expertise. While the past decade was about SaaS companies achieving scale, the next phase is about Indian AI-first companies emerging as category leaders — not just in India, but globally,” he said.
Beyond fintech, B Capital is also placing bets on robotics, space technology and advanced manufacturing in sectors such as electric vehicles, defence, and aerospace. The firm’s multi-stage investment approach spans key industries, including fintech, health-tech, and climate-tech, across Southeast Asia, India, China, Europe, Africa, and the US.
From a broader perspective, the exit market has been a strong differentiator among emerging economies. Last year, venture capitalists realised about $4 billion in public market exits, bolstered by a series of tech IPOs. However, Narang said that the mergers and acquisitions (M&A) ecosystem still needs further development to facilitate mid-sized exits in the $500 million–$2 billion range.
Source: https://www.financialexpress.com/business/sme-ai-powered-fintech-the-next-big-bet-3753295/