India has seen a significant surge in deeptech start-ups in 2023, with 480 new ventures emerging, making it the third largest pool globally, the report said. However, a report by technology industry body Nasscom and global consulting firm Zinnov highlights the trend of dwindling funding during the winter months posing a major challenge to these start-ups.
The report titled 'India's Deeptech Dawn: Forging Ahead' said that funding for scaling, talent attraction, retention and global expansion are the key challenges faced by startups in deeptech innovation. "India currently has 3600 + deeptech start-ups, of which 480 were founded in 2023, almost 2 times more than the number of deeptech start-ups established in 2022," the report said.
But India's deeptech future is in limbo due to lack of funding.
"Compared to start-ups across some other leading deeptech ecosystems, Indian deeptech start-ups receive a fraction of the average investment at each stage. This lack of funding limits the ability of some promising deeptech startups to scale, thus hampering India's ability to compete in global deeptech, "the report said.
Indian deeptech start-ups have raised nearly $10 billion in the last 5 years. A total of $850 million was raised in 2023 itself; this is a 77% drop from the $3.7 billion raised in 2022. At the same time, the number of deals fell by 25% in 2023 compared to 2022, the report said.
"India needs a multi-pronged approach: increased funding at the initial stage, a supportive market ecosystem for scale-ups, and robust initiatives to aid commercialisation. "
Artificial Intelligence (AI) has become a favorite component of founders.74% of deeptech start-ups established in 2023 are AI.AI is also a favorite factor for investors, with 86% of startups that raised funding in 2023 having an AI focus.
AI is responsible for 41% of all patent filings in Deeptech, with IoT and Neurotech lagging behind by a large margin, the report said.
According to venture capital firms, the biggest challenge they face while investing in deeptech is the delay in achieving financial returns.
"Co-investment programmes and government-backed instruments are necessary schemes to be adopted by the government to make the landscape more conducive to investment," the report said.
The number of investors participating in funding rounds for India's deeptech start-ups declined by 60% in 2023 as compared to 2022. The decline was also driven by the absence of several large global investors who had previously provided funding.
"Average funding across seed-stage and late-stage has hit a 5-year low. Although early-stage average funding reached a 5-year high, it was not enough to offset the overall decline in funding. The lack of mega deals in 2023 as compared to 9 mega deals in 2022 underlines the declining importance of investors in large investments, "the report noted.
Investors preferred to invest in seed-stage deep-tech start-ups with low funding and relatively low risk, which further reduced the funding volume.
NASSCOM recommended the government to identify and strengthen innovation clusters, facilitate patient capital and robust compute infrastructure, expeditiously implement National DeepTech Startup Policy, improve IP framework, and strengthen the overall delivery ecosystem (including talent pipeline).
A deeptech startup involves early-stage technologies based on scientific or engineering advances to create and own intellectual property (IP). These start-ups are characterized not only by extended development timelines and high capital intensity, but also carry a great deal of technological uncertainty that provides great opportunity or risk depending on whether it succeeds or not.
