Bharat Innovation Fund looking to double investment in deeptech startups

The Startup India database indicates there are 10,298 DPIIT-recognised startups classified across various sub-sectors within the larger deeptech space as of May 2023. However, there is no unicorn in the segment yet nor have these startups managed to raise significant funding.

A NASSCOM report states that deeptech startups raised $2.7 billion in 2021, a year that saw Indian startups raise $37 billion in total.

Last month, the Indian government unveiled its draft National Deep Tech Startup Policy that aims to create a favourable environment for the development and growth of deeptech startups.

Highlighting the funding challenges faced by the segment, the policy wants to build on "existing initiatives" and address issues such as fragmented funds, the mismatch between gestation period and market expectations, and payment delays causing working capital issues, among others.

Given this environment, Bharat Innovation Fund (BIF), an early-stage venture capital (VC) firm focused on deeptech startups in India, tells YourStory that it plans to increase its investment in the sector, which it believes is only getting "bigger and better" by the day.

Bengaluru-based Bharat Innovation Fund was launched in 2018 as a $100 million deeptech-focused thematic fund launched by Ashwin Raguraman, Kunal Upadhyay, Shyam Menon, along with Sanjay Jain and Som Pal Choudhary.

BIF has invested in around 17 deeptech startups, including CreditVidya, Shifu, Setu, Entropik, and Riskcovry.

Investment thesis and expansion

As of now, BIF invests around $1-3 million as the first cheque in early-stage deeptech startups and it is planning to increase this to $5 million. It also invests a total of around $8 million in each startup as part of its follow-on funding rounds.

“Our investment ticket size is now bigger as there is greater maturity in the deeptech segment and we will have a portfolio of startups which is manageable,” says Ashwin Raguraman, Partner, BIF.

Deeptech startups typically work on solutions along an unexplored pathway based on new knowledge within a scientific or engineering discipline or by combining knowledge from multiple disciplines.

BIF will look at having around 23 deeptech startups under its portfolio as part of its $100-million fund, which will include both fresh investments and follow-on funding. It made the first close of $50 million in 2018.

It is also exploring a second fund and has started initial conversations in the last few months. This is expected to be 1.5-2 times the size of the first fund but the talks are still in the early days.

Building from India for the world

Raguraman believes there is now a greater understanding of deeptech startups within the ecosystem and the numbers are growing largely due to three reasons.

Firstly, artificial intelligence (AI) is being leveraged effectively by startups. Secondly, there is the availability of high-quality talent which has both business and tech acumen. And lastly, and perhaps the most important, is that India serves as the test market for products of deeptech startups.

Typically, when a deeptech startup in India comes out with its first product, it approaches an Indian enterprise to test its product to know how it will perform by integrating its solution within companies’ framework. However, the real test comes only when the solutions are deployed in the actual market.

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According to Raguraman, Indian enterprises are very demanding and generally seek a lot more features. In the process of meeting these requirements, deeptech startups further refine their product, which is then made ready for the global markets. However, Raguraman adds that Indian enterprises are not really high-paying customers.

“We are creating products for the world and it is no longer built in India for India,” he says.

BIF believes there is considerable traction for deeptech startups in the country and may soon reach a critical mass. Within the deeptech segment, software-related entities are larger in number, and it is not the same for hardware startups as funding into such companies is not very forthcoming. Lastly, there is much progress to be made in the deep sciences segment.

However, the expansion of the deeptech segment in the country has given rise to other segments like spacetech, biotech, and life sciences, which were almost non-existent around five years ago.

Raguraman says if there are some successes built from the deeptech segment, there is a good possibility of other VC firms looking more actively into these startups.

Optimistic about future

As of now, BIF has had two exits from its portfolio. CreditVidya, a fintech startup with AI offerings, was acquired by fintech unicorn CRED in November 2022 for an undisclosed value. CreditVidya’s automated credit underwriting tech stack is its main USP.

The other was merchant commerce unicorn Pine Labs acquiring Setu in June 2022, which is an API fintech startup that enables the former to get into the open banking space.

Now, BIF is looking at expanding its reach as it looks to invest in startups focused on providing digital solutions. This would mean leveraging the existing tech stack like Aadhaar and UPI to build solutions in areas such as supply chain and healthcare.

BIF helps its portfolio companies in three different ways. Firstly, it acts as a sounding board for the founders to address any of their challenges. Secondly, it leverages their networks in terms of markets and connections, and lastly, it helps them raise their next round of funding.

Given the strides the deeptech startup segment has made in India, BIF remains optimistic about the future. As the draft policy notes, deeptech startups are able to create and own intellectual property, which is its distinguishing parameter from non-deeptech startups.

“Deeptech entrepreneurs today are building with an early global outlook and this will be a catalysing factor for the entire segment,” says Raguraman.

(The story was updated to add the name of co-founders)