India has secured its position as the sixth-largest deeptech startup ecosystem in the world, despite facing a significant funding downturn, according to a recent study by Nasscom and Zinnov. The report, titled “India's Deeptech Dawn: Forging Ahead,” highlights the resilience and growth of the sector, with a notable increase in the number of deeptech startups and a concentrated focus on artificial intelligence (AI).
Significant Growth in Deeptech Startups
As of 2023, India is home to over 3,600 deeptech startups, with 480 new startups established in the calendar year alone. This is double the number established in 2022. The report indicates that over 100 of these startups have developed intellectual property or innovative solutions in emerging domains. AI has become a significant area of focus, with 74 per cent of the deeptech startups established in 2023 concentrating on AI, up from 62 per cent between 2014 and 2022.
Funding Challenges and Market Adjustments
Despite the growth in the number of startups, the Indian deeptech ecosystem has not been immune to the global funding slowdown. In 2023, Indian deeptech startups secured USD 850 million in investments, a steep 77 per cent decline compared to the previous year. This decrease is attributed to smaller average investment sizes at both seed and late stages and a cautious investor approach due to the extended gestation periods typical of these ventures. Early and late-stage deals both witnessed a reduction of over 60 per cent this year.
“Both early and late-stage deals have witnessed a reduction of over 60 per cent this year. This downturn is attributed to smaller average investment sizes at both the seed and late stages and investors remaining cautious largely due to the extended gestation periods typical of these ventures. 31 M&A deals were reported in CY2023, a decline of about 45 per cent as focus shifted to accelerate tech capabilities that provide the AI edge,” the report noted.
Sector-focused Innovations
The report also highlights a growing emphasis on sector-specific solutions within the deeptech ecosystem. Four sectors have emerged as strategically important: space and defense, healthcare, automotive, and industrial manufacturing. Over 500 startups in these sectors are developing solutions for electrification, industrial robotics, surveillance and drones, satellite imagery, propulsion systems, and cancer diagnostics.
Emerging Hubs and Regional Growth
While the majority of deeptech startups are concentrated in established hubs due to mature ecosystems and talent access, there is significant growth in emerging hubs. More than 110 deeptech startups were launched in these emerging areas in 2023, marking a twofold increase from 2022 and the highest growth in the last five years. This expansion is driven by an expanding talent pool, cost advantages, supportive ecosystems, and proactive policies enhancing innovation in these regions.
Future Potential and Strategic Needs
“For India to be in the top three deeptech startups ecosystem, key areas that need support are access to patient capital for deeptech startups to build and scale their products, strong R&D partnerships with academia for next-gen innovation, streamlining government procurement for startups to build India-specific solutions, and implementation of the deeptech policy that was tabled in 2023,” said Kritika Murugesan, Head of Nasscom Deeptech.
India’s deeptech ecosystem is at a critical juncture. Despite the funding crunch, the sector shows promising growth and innovation, particularly in AI and sector-specific solutions. The report underscores the need for strategic support and investment to maintain and enhance India’s position in the global deeptech landscape. As the ecosystem evolves, a focus on sustainable growth, innovative solutions, and supportive policies will be crucial in driving the next phase of development for India's deeptech startups.
