India’s deeptech revolution: How founders, govt are building an ecosystem with limited funding

In the ever-evolving technology landscape, deeptech has emerged as a force that has fundamentally challenged every industrial norm. It is transforming every sector it touches and has opened up never-before opportunities.

Several investors have started focusing their attention towards deeptech and beyond the easy scale-up software provided to solving fundamental, real-world problems that range from climate change, newer fuels, building quantum computers, longer life and conquering debilitating diseases, accessing space cheaply and using those conditions to manufacture novel materials—the list goes on. AI, of course, is going to make all of these activities easier and cheaper, but one cannot escape the fact that we have to start taking bets on solving these complex, real-world problems.

The Indian government and policymakers are also playing a crucial role in formulating initiatives to build an enabling deeptech ecosystem driven by the pressing need to ensure India has a seat at the table for all fundamental technologies like AI, quantum computing, semiconductors, electric vehicles and key chemicals in diverse fields ranging from batteries to drug intermediaries.

India never had a lack of deeptech founders. What we lacked was an ecosystem that supported founders to move from the lab to the prototype stage through research grants and local money backing them. It seems like we have arrived at an inflexion point.

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So, let’s start by examining what are the initiatives for the deeptech sector that the policymakers are rolling out:

• India has put together the National Deeptech Startup Policy, a transformative initiative which targets frontier technologies like semiconductors, artificial intelligence and space technologies to catalyse innovation and economic growth.

• The National Research Foundation (NRF) is a significant initiative aimed at revolutionising research and innovation. The NRF has an outlay of Rs 50,000 crore over a five-year period (2023-2028). Its objective is to democratise funding for science projects and cultivate research across Indian universities and colleges.

• In the Interim Budget 2024, Finance Minister Nirmala Sitharaman announced a Rs 1 lakh crore corpus with interest-free loans for 50 years. This sizable financial allocation is committed to providing long-term funding for technological research endeavours within India, with the aim of incentivising the private sector to substantially augment its research and innovation efforts in emerging, cutting-edge fields.

• The Production Linked Incentive (PLI) schemes in India are strategic initiatives aimed at promoting industrial growth, encouraging domestic manufacturing, and attracting investments to create global champions in industries ranging from automobiles and auto components, consumer electronics, pharmaceuticals and medical devices, telecom and networking products, high-efficiency solar PV modules, and advance chemistry cell (ACC) batteries, among others.

• The India Semiconductor Mission (ISM) has a primary goal to build a vibrant semiconductor and display ecosystem, positioning India as a global hub for electronics manufacturing and design and provides guidelines for setting up both compound semiconductors/silicon photonics/sensors fab and discrete semiconductors fab and semiconductor assembly, testing, marking, and packaging (ATMP).

• The National Quantum Mission (NQM), approved by the Union Cabinet on April 19, 2023, is a transformative initiative led by the Department of Science and Technology, and has a primary objective to seed, nurture, and scale up scientific and industrial research and development in the field of quantum technology (QT), with a total budget outlay of over Rs 6,000 crore from 2023-24 to 2030-31.

• The India AI Mission is an ambitious initiative approved by the Union Cabinet with a budget outlay of Rs 10,371.92 crore. Its primary goal is to strengthen the AI innovation ecosystem in India and promote responsible AI development.

• The New Electric Vehicle Policy 2024 is a strategic initiative by the Indian government to position the country as a prime manufacturing hub for electric vehicles (EVs). The impact of global EV market leaders entering the Indian market will lead to an overall maturation of the EV ecosystem, in much the same way that Apple did when they began manufacturing in India. Their presence will set a technological benchmark for existing companies to emulate and set world class standards for suppliers, technicians and advanced robotics. It will also provide an excellent learning ground for the next generation of founders looking to set up their own ventures in critical areas like batteries, autonomous vehicles and the next iteration of EVs

These initiatives promise to provide support and incentives worth several billion dollars that will start trickling down to founders who want to start up in deeptech.

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Now let’s look at how this is driving investors to put their money where their mouth is.

According to NASSCOM, India is home to more than 3,000 deeptech startups. These startups have witnessed a cumulative growth of 53% over the past decade. NASSCOM’s report highlights the exponential rise in funds raised by deeptech startups, with AI and IoT accounting for two-thirds of the sector. The apex body, representing India’s tech sector reports, that the deeptech startup base has grown at a compound annual rate of over 40% in the four years leading up to March 2021.

In the previous year, deeptech emerged as the fourth most funded sector in terms of startup numbers and the fifth in terms of investment, totalling approximately $500 million, as per a BCG report. However, 2023 witnessed a significant setback in seed-stage funding, with the sector experiencing a 40% decline. Despite this, growth- and late-stage funding remained robust, attracting nearly $350 million in investment. The mushrooming of investor syndicates, networks, and individual investors, alongside the involvement of major VC funds, has provided capital to fuel our own indigenous deeptech revolution.

Founders have also sensed that this could be the start of something big. Until recently, engineers from our best schools would either hoof it to the valley and take up jobs with the Googles and Microsofts of the world, and if they stayed back in India, they would either work with the TCS, Infosys, and the likes, or do an MBA. But we are seeing a small set of engineers starting to tackle hard, complex engineering problems. Their resilience, innovation, and ability to thrive despite limited seed funding demonstrate that the future will belong to those who dare to explore the depths of technology. As the wave continues to swell, strategic investments and collaborations will propel these startups toward unprecedented heights

It is a small beginning but promises to bring India into the top three economies and into Amrit Kaal by 2047

(Mayuresh Raut is Managing Partner of SeaFund and comes with over 25 years of leadership experience.)