Artificial Intelligence (AI) is gradually transforming the landscape and operations of software startups by enabling innovation, improving decision making, and automating their business processes. However, software startups in the least developed countries (LDCs) like Uganda face a number of challenges that have hindered their abilities to adopt AI in their processes, products and services. In this study, we investigate the current state of AI in software engineering startups and explore challenges and opportunities of AI adoption in software startups in LDCs with a case study of Uganda. we used a mixed method approach that included interviews and online surveys involving 30 software startups operating in various sectors, including FinTech, EduTech, AgriTech, HealthTech, and e-commerce. Findings from our research highlight critical challenges affecting these startups in their pursuit of AI adoption such as limited access to funding, high cost of AI implementation, limited access to skills and technical expertise, lack of awareness and understanding of AI, and regulatory challenges. The study concludes by giving recommendations, best practices and future research for AI adoption in software startups in LDCs.