According to the report, India will see a surge in deep tech startups in 2023, with 480 new ventures being born, making it the third-largest pool of companies in the world.
But a report by tech industry body Nasscom and global consulting firm Zinnov highlights worrying trends in the funding winter, posing major challenges for these startups.
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The “Dawn of Deep Tech in India: Moving Forward” report also states that raising funds to scale, attracting and retaining talent, and expanding globally are the top three challenges faced by startups in deep tech innovation.
“India currently has over 3,600 deep tech startups, of which 480 were founded in 2023, nearly double the number of deep tech startups founded in 2022,” the report said.
However, India’s deep tech prospects are hampered by a lack of funding.
“Compared to startups in other leading deep tech ecosystems, Indian deep tech startups receive only a fraction of the average investment at any stage. This lack of funding limits the scaling up of promising deep tech startups and undermines India’s competitiveness in the global deep tech race,” the report said.
Indian deep tech startups have raised around $10 billion in the last five years.
The total amount raised in 2023 alone is $850 million, which is 77% down from the $3.7 billion raised in 2022. Meanwhile, the number of deals in 2023 is 25% lower than in 2022, the firm said.
“India needs a multi-pronged approach: increased funding at an early stage, a market ecosystem to help scale, and a strong commitment to support commercialization.”
Artificial intelligence (AI) has emerged as a founder favorite, with 74% of deep tech startups founded in 2023 centered around AI. AI is also an investor favorite, with 86% of startups raising funding in 2023 having an AI focus.
According to the report, AI plays a central role in patent applications, accounting for 41% of all deep tech patent applications, followed by IoT and neurotech at a distant second.
Venture capital firms say the biggest challenge they face in investing in deep tech is the long lead time.
“Joint investment programs and government support measures are necessary efforts that the government should take to make the investment climate more favorable,” the report said.
The number of investors participating in funding rounds of Indian deep tech startups fell by over 60% in 2023 compared to 2022. The absence of many large global investors that have historically driven fundraising also contributed significantly to this decline.
“Average seed and late stage investment amounts reached their lowest levels in four and five years, respectively. Average early stage investment amount reached its highest level in five years, but this was not enough to offset the overall decline in fundraising. The lack of large investments in 2023 compared to nine large investments in 2022 highlights investors’ declining emphasis on large investments,” the report noted.
Funding volumes fell further as investors preferred to invest in seed-stage deep tech startups, which have smaller investment amounts and relatively lower risk.
Nasscom recommended the government to “identify and strengthen innovation clusters, promote access to patient capital and robust computing infrastructure, expedite implementation of the National Deep Tech Start-up Policy (NDTSP), improve IP frameworks and strengthen the overall supplier ecosystem (including the talent pipeline).”
Deep tech startups involve early-stage technologies based on scientific or engineering advances that create and own intellectual property (IP). These startups are characterized by long development times and high capital intensity, as well as significant technological uncertainty that poses significant opportunities or risks depending on whether they are successful.
Some of the Indian deep tech startups include Clairco, Ishitva, GetVu, UptimeAI, HealthPlix, Cloudphysician and Veative Labs.
