The deeptech ecosystem in India has been gaining momentum. Recently, India’s G20 Sherpa and former NITI Ayog CEO Amitabh Kant said that deeptech can drive India's GDP up by 9 times.
Nasscom's Sangeeta Gupta talked in detail about the emergence of geopolitics in deeptech, the current deep tech funding scenario, and more
The deeptech ecosystem in India has been gaining momentum. Recently, India’s G20 Sherpa and former NITI Ayog CEO Amitabh Kant said that deeptech can drive India's GDP up by 9 times.
The number of deeptech start-ups in the country also surged in 2023 with the emergence of 480 ventures, as per a NASSCOM report released in June this year. However, a concern in the ecosystem has been the 77 per cent drop in funding in 2023.
It dropped from $3.7 billion in 2022 to $850 million in 2023. In an interaction with Outlook Business, Sangeeta Gupta, Senior VP & Chief Strategy Officer, nasscom, said that to drive more deeptech capital, India needs to explore increasing access to government grants, which, though available, tend to be small in scale.
Gupta talked in detail about the challenges the deeptech ecosystem faces, the emergence of geopolitics in deeptech, and more. Gupta mentioned that while AI has definitely emerged as the keyword in the segment, a challenge that remains for founders is to define how AI is actually integrated into their products and solutions.
Can you shed some light on the current deeptech funding scenario, especially after the June report by Nasscom, which mentioned a drop in funding? How has the funding ecosystem been for deeptech start-ups throughout the year?
Deeptech funding continues to be a challenge in India. A few weeks ago, we released the "GenAI Startup Report" that highlighted how funding for deeptech start-ups, while growing, is still significantly smaller compared to global markets.
Deeptech start-ups require patient capital because product development, IP creation, and commercialization take years. In India, this kind of long-term investment is limited. Most venture capital firms prefer quicker returns, which makes deeptech investments less attractive.
Read: 2024 Wrap-Up: Record Funding Propel Indian Start-ups; Deeptech & Sustainability Key for 2025
To drive more deeptech capital, India needs to explore increasing access to government grants, which, though available, tend to be small in scale. If we want to see substantial growth in deeptech innovation in India, the funding needs to be at a much larger scale, supported by both the government and domestic capital.
Is the gestation period the only challenge for deeptech funding, or are there other factors at play that are stalling progress? Additionally, how can we incentivize venture capitalists and the private sector to increase funding for deeptech start-ups?
The gestation period is a significant challenge, but it's not the only factor. The limited size of funding rounds is another issue. Many deeptech start-ups in India struggle to secure funding for long enough to develop their products.
This results in either failure or the need to pivot to global markets, where there's more funding available. To incentivize venture capitalists (VCs) and the private sector, we need innovative funding models. For instance, the government’s "Fund of Funds" model, where it co-invests alongside VCs, has been effective for other sectors, but deeptech requires a specialized approach.
Read: VC Asks Deeptech Start-ups to Explore Asset Financing, Venture Debt Options
The VCs focused on deeptech must have a long-term vision and a deep understanding of the sector. Collaborative funding models involving the government and private capital could encourage more investment in deep tech.
Are deeptech start-ups looking at alternative funding sources, such as venture debt or asset financing, to overcome funding challenges?
While alternative funding sources like venture debt and asset financing are gaining traction in other sectors, deeptech start-ups in India are still more reliant on bootstrapping or small government grants. Most deeptech start-ups are not yet tapping into these alternative financing models at scale, as they may not have the infrastructure or track record to secure such funds. However, with the rise of AI and other advanced technologies, there may be more opportunities for start-ups to access non-traditional funding.
Over the past year, have you observed any specific trends in the deeptech ecosystem?
Yes, AI has indeed become a major focus. While AI itself has been around for decades, in the past year, it has gained foundational importance in almost every field. The pace of technological innovation has been exponential, and AI is at the center of this transformation. It’s not just about how AI is applied in enterprise tech but also in everyday operations like communication, government functions, and small business productivity. Additionally, there’s a growing focus on the geopolitics of technology, with nations increasingly recognizing AI and technology sovereignty as crucial for their future growth. India, for example, is positioning itself strategically within global technology supply chains.
With AI being a buzzword, how are start-ups and founders differentiating their use of AI? Are they clear about how they’re using AI in their solutions?
AI has become a buzzword, with almost every company claiming to use it in some capacity. However, the challenge for founders is to clearly define how AI is actually integrated into their products and solutions. The focus is not just on using AI but on its real-world applications and return on investment (ROI). Enterprises are no longer blindly adopting AI; they want to understand how it improves their productivity and outcomes. This caution is being reflected in both investor and customer approaches, where companies are experimenting with AI models but ensuring that they are measurable and outcomes-driven.
How do you see geopolitics influencing the future of deeptech and AI in India? Is India at risk of getting caught in the crossfire of global tech tensions, like those between the US and China?
Geopolitics is increasingly intertwined with technology, and I agree that technology will play a central role in future geopolitical strategies. As seen with the US-China tensions over companies like Nvidia, India, too, is navigating this landscape. While India has yet to develop its own core technologies, such as foundational AI models or chips, it is well-positioned due to its focus on data applications, services, and inclusive innovation. India’s strategic partnerships, like those with the US and the Middle East, enhance its role in global tech supply chains, reducing the risk of being seen as an adversary. India’s position in geopolitics related to technology is likely to evolve, but it’s more about integrating into global ecosystems rather than competing directly with established powers.
What other sectors have gained prominence in the deeptech ecosystem this year besides AI?
Apart from AI, cybersecurity has become increasingly important due to the growing digital transformation. As more businesses move online, the need for robust cybersecurity solutions is critical. While cybersecurity may not get as much attention as AI, it's becoming a vital component of technology innovation. Additionally, IoT, cloud, and data technologies are now more mature and widely implemented. Another area that has seen growth is climate tech, where India is starting to see innovative deeptech start-ups focusing on sustainability and climate solutions.
Infrastructure for AI, particularly in terms of large language models and computing power, is often cited as lacking in India. How has India progressed in this area over the last year, and what are the key areas of improvement?
Infrastructure, particularly in compute power and data, is indeed a critical area for AI development. India has made progress with initiatives like the AI mission, which includes building publicly available data sets and improving access to subsidized compute resources for start-ups. These developments are encouraging and are expected to help foster innovation in the deeptech sector. However, adoption still remains slow, especially when it comes to implementing AI in government services or enterprise solutions. While India is progressing with projects like the "Bharat" language initiative, more needs to be done to streamline access to technology and make adoption more efficient. The slow pace of procurement and commercialisation of academic innovations also remains an area of concern.