The number of deeptech start-ups will be increased from over 3,600 to nearly 10,000 by 2030. Currently, India hosts the world’s third-largest deeptech ecosystem
India’s deeptech sector has caught the attention of investors and government policies in the past few years, with the average seed chieque size increasing 5.3 times. A recent report predicted that the number of deeptech start-ups will be increased from over 3,600 to nearly 10,000 by 2030. Currently, India hosts the world’s third-largest deeptech ecosystem.
The sector has witnessed almost three-fold increase in funding, that is, from $484 million in 2021 to $1,212 million in 2022. Vishesh Rajaram, founding partner of venture capital firm Speciale Invest told Economic Times that the deeptech startups should also opt for alternative funding options like asset financing, venture debt, and project financing during their early stages to address the science risk.
Investors stated that different funding options can bridge the gap depending on the start-up's growth stage because the defensibility of technology, and an unclear path to monetisation due to long gestation periods pose significant challenges for them.
"VCs typically raise and deploy funds within 3 years, followed by 2–3 years to provide liquidity and return capital to investors. Conversely, DeepTech startups require 18–24 months to develop a product and another 18–24 months for commercialisation. By the time these startups generate $1–1.5 million in revenue, they are 3–4 years into their development, coinciding with the point when VCs begin considering exits," said Pearl Agarwal, Founder & Managing Partner, Eximius Ventures.
Specificlly speaking about venture debt funds, she consider it as a "practical option" during the commercialisation phase, but it carries higher risks for start-ups in earlier stages. According to her, venture debts suit companies with revenue visibility or collateral to secure the debt.
Sharad Bansal, Managing Partner at Warmup Ventures suggested that a deeptech start-up should begin with government grants, then move ahead with venture capital and debt funds along with asset financing for capex requirements such as manufacturing facilities, machineries, or working capital for large enterprise orders which saves the founder from dilution and grow the value for shareholders.
"The ideal funding strategy for Deeptech start-ups depends on their stage of growth. In the early stages, government grants, accelerator-supported programs, and non-dilutive equity are the most viable options. As the startup moves toward commercialisation, a blend of equity and debt financing becomes feasible. During the scaling phase, debt financing, such as invoice financing, revenue-based financing, or traditional bank loans, becomes ideal for high-margin products with a strong profitability trajectory," Agarwal explained.
India is emerging as a global powerhouse in the deeptech landscape, as the Speciale Invest report claimed it will drive the nation toward a projected $7 trillion economy by 2030. It also highlighted that the country has the potential to capture 10 per cent of the $700 billion global space economy by the end of this decade.
A VC firm Kalaari Capital stated that deeptech is important for India’s economic trajectory. The country’s deeptech sector is majorly driven by space tech, climate tech, semiconductors, Evs and mobility, and cyber-physical systems.
The Government of India has launched several initiatives, including National Deep Tech Startup Policy, India AI Mission, and others to support the deeptech start-ups. India’s G20 Sherpa and former NITI Ayog CEO Amitabh Kant asserted that the deeptech sector can help India in increasing its GDP by nine times.
Despite this growth and government support, the sector faces significant challenges such as market adoption risks, technology validation hurdles, and high capital requirements. Deep technology involves intersection of Science, Technology, Engineering and Mathematics (STEM) faculties with design thinking resulting in path breaking innovations.
Deep technology holds the promise to transform aero-space, defence, synthetic biology, robotic applications, quantum computing, future of mobility, agri-tech, and many more.