(MENAFN- Live Mint)

Despite early excitement, India's fashion tech sector has yet to deliver meaningful scale or investor returns. Most start-ups remain at seed stage, struggling to move beyond experimentation with artificial intelligence (AI)-driven tools such as virtual try-ons, stylists and aggregators. A few players are showing promise by combining AI with commerce, but the market remains fragmented and capital-shy.

Investors see potential in AI-led discovery and personalization, yet question whether these innovations can overcome the supply chain, funding and scale challenges that have long plagued fashion start-ups in India.

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Of the top 50 fashion tech start-ups in India, only one has reached a Series B funding round, one has been acquired, just three have reached a Series A cheque, while 35 have raised seed funding, according to data from startup intelligence platform Tracxn. The others remain unfunded.

However, investors are keeping an eye out for start-ups at the confluence of fashion and AI, while larger consumer tech firms are making a play in the space.

A standout example is Glance AI, an AI-assisted commerce platform, built by consumer tech company Glance. The company's parent entity, InMobi Group plans to invest $200 million into Glance AI that will go towards product development and geographical expansion. Glance declined to share specifics on how the money was being allocated.

“If you look at the rise of AI conversation, which means AI companion apps, consumers' openness to chat with a bot about their own preferences in life and fashion has been one big tailwind," said Rahul Chowdhri, partner at early stage venture capital firm Stellaris Venture Partners. While the firm hasn't made any fashion AI bets yet, it is actively scouting for start-ups trying to change how consumers shop.

In late 2023, Elevation Capital led a $3.1 million seed round in Alle, an AI-based personalized fashion stylist app. Similarly, former Flipkart vice-president Ranjith Boyanapalli launched Flash, which aggregates prices, reviews and product specifications across ecommerce platforms back in 2022.

So far, Flash has raised $12.5 million in total, a seed cheque of $5.8 million from Global Founders Capital, White Venture Capital, Zinal Growth, and then another $6.7 million from Blume Ventures in 2023. While the company initially started as a one-stop inbox for all e-commerce orders and deliveries, Boyanapalli pivoted the platform to become an aggregator with Flash AI, which launched only five weeks ago.

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“I think from before a user buys a product, there are two use cases emerging, one where discovery happens through a conversational agent, and the second is value-addition in combating decision fatigue," he said.

Building for the fashion conscious

For the young shopper-think GenZ and millennials-AI seems like an obvious decision. The former already comprises a significant chunk of online shoppers, accounting for 40% of the base, according to Bain & Co's 'How India Shops Online 2025' report. What's more-70% of them discover what they want to wear, carry and strut around, online.

Glance has already seen it playing out on their app. Its audience comprises“digital natives, who love discovering new styles, experimenting with self-expression, and engaging deeply with AI-driven experiences," said Mansi Jain, chief operating officer at Glance in a written reply to Mint's queries.

The company claims Glance AI has over 5 million users, who browse products across 400 brands. Glance declined to share its daily active user and monthly active user numbers, which are considered a more accurate metric of user engagement on a platform or app.

For Flash, which initially launched in the US, the traction has really only picked up back at home.“We've managed to create about 650,000 threads from 300,000 users," said Boyanapalli. 'Threads' are when consumers put a link into the Flash app which then aggregates reviews, product specs and prices across e-commerce platforms. Once a product is 'threaded', Flash doesn't have to make LLM calls to generate a fresh thread for the same product, saving them money.

Monetization is on the company's roadmap through two channels, premium subscriptions and conversions from the Flash app to e-commerce platforms.

Like many consumer platforms, Flash plans to monetise with a freemium model. It's when basic platform features are offered for free, but extra ones are locked behind a paywall, usually with a monthly subscription plan.

It's not that AI in the front-end is not working at all. Myntra 's try-on feature for its beauty products has seen“strong traction", according to the company.“It's driving a 2x increase in conversion rates and a 1.5x uplift in product consideration among users who engage with it," said Lakshminarayan Swaminathan, vice-president, product management & design at the company.

Investor sentiment

Investors are less confident about the viability of a business to consumer (B2C) company in the segment, but they agree that shopping experience is being redefined.“It's going to be about changing the fashion experience. But the question here is that is the innovation-is the AI-shift-more or as important as all the other complexities that come with running a fashion start-up," Prashanth Prakash, partner at global venture capital firm Accel, pointed out.

In some ways, fashion AI start-ups are similar to the new breed of fashion quick commerce firms such as Slikk, NEWME and Knot. They may have changed how consumers shop, but there are still the logistics and supply chain roadblocks to figure out.

Others, like Chowdhri of Stellaris say a marketplace play is inevitable.“Traditionally, affiliate revenue models were not very large since the backend supply is controlled by a couple of large ecommerce marketplaces. An ad-based platform has never created a very large outcome. So the obvious answer is to take full control of the transaction and become a marketplace."

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Chowdhri, however, maintained that an affiliate business isn't entirely out of question.“As the supply side becomes fragmented with the rise in the number of D2C companies, a large affiliate company can also be built in future," he added.

Making the value play

It's worth pointing out, that of the top 50 fashion start-ups mentioned above, only 12 are consumer-facing (B2C), while the rest are targeting businesses (business-to-business).

Some business facing companies are also getting into a B2C play. StyleMind, which helps brands create virtual try-ons and personalize shopping for customers, recently launched a chrome extension for web shoppers to drive curiosity and engagement.“Our core business is B2B, but the B2C play is to generate interest," said founder Ankush Banik. The company is currently trying to get its technology in the hands of online clothing retailers in India and in North America.

The flipside of B2B is that it inevitably heads towards becoming a SaaS product, making differentiation hard in an already crowded market, both in India and abroad. And if they're trying to make a marketplace play against incumbents such as Amazon, Myntra and Flipkart, who have retention schemes such as loyalty programmes and offer stronger supply chain and logistics, it's a rough road to a building billion-dollar businesses.

“It's difficult to say right away because if a start-up can get backing from a large player like a Jio, they have access to scale. It depends on funding, your technological advantage and whether rivals can copy you or not," said Tarun Pathak, research director at Counterpoint Research.

Prakash of Accel is a little more blunt.“Does the tech layer disruption have enough value to overcome all the moats that bigger companies have built on all other aspects of that business is something that we, as investors, will have to wait and watch."

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