In 2023, India ranked sixth among the world's top 9 deep tech ecosystems, with over 3,600 startups, according to a Nasscom report. However, a weak supporting ecosystem limited its growth potential and first-mover advantages. In the past five years, Indian deep tech startups raised USD 10 billion, but only USD 850 million in 2023— a dramatic 77 per cent drop from USD 3.7 billion in 2022. This decline reflected investor concerns about potential returns.
Deeptech startups, focused on early-stage technologies driven by scientific advancements, aimed at creating their intellectual property (IP). These startups face significant technical uncertainty, presenting risks and opportunities. Many innovations falter due to a lack of funding beyond initial grants.
High Risk And Long-term ROI
Technological advancements require time for research and may not always achieve the intended success. Often, they need further development to address problems and become commercially viable. While deep tech founders understand their innovations and their economic potential, they often lack knowledge of the venture capital ecosystem and how funding works. Venture capitalists typically seek returns within three to five years, which all founders must recognise.
Navin Honagudi, Managing Partner at Elev8 Venture Partners, said, “Deeptech requires a significant period as well as considerable amounts of resources to mature. Due to this, the investors are more hesitant and thus find it less appealing, since their focus is on waiting for quick returns in this fast-paced market.”
The invention of semiconductors initially fueled the rise of venture capital, but the focus quickly shifted to internet and software ventures due to their lower risk and higher returns in shorter timeframes. Honagudi added, “The decline in deep tech investments, besides AI, is largely because of the high risks involved.”
Apart from that, a significant knowledge gap exists between deep tech founders and investors. Although many investors have backgrounds in software, banking, or finance, few can accurately assess the potential of groundbreaking deep tech. This leads them to seek external expertise.
Additionally, the medium to high risk-to-return ratio makes many venture capitalists hesitant to invest in unproven technologies, resulting in numerous innovative ideas being sidelined during the fundraising process rather than evolving into viable products or services.
Himanshu Maradiya, Founder and Chairman, CIFDAQ, said, “Founders, who typically possess deep technical expertise, may struggle to effectively communicate the potential value and return on investment of their innovations. This disconnect can hinder the establishment of trust and lead to misaligned expectations, impacting the willingness of investors to engage.”
Strengthening India’s Deeptech Landscape
Startups face significant challenges, including the need for growth capital, talent acquisition, and international expansion. They often deal with lengthy development timelines, collaboration requirements, and investor concerns about exit strategies. Additionally, issues related to intellectual property and data management are common, while academic institutions struggle with securing long-term funding and establishing strong collaborative networks.
To address the issue, Chairman Maradiya gave the idea of corporate partnerships and project financing. He stated, “Establishing alliances with large corporations can validate a startup’s technology and provide crucial resources, bridging the credibility gap and aligning development with market needs. While for later-stage deep tech companies, project finance can be instrumental in aligning funding with specific milestones, offering targeted support as the company progresses.”
Besides, India's deep tech startup ecosystem requires a more strategic approach that includes industry-academia collaboration, tax incentives, robust intellectual property rights, and government support. Even, developing innovative credit strategies, such as venture debt, can provide flexible financing options tailored to the unique needs of deep tech startups.
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