India's DeepTech: Cash-Strapped Genius or Next Big Thing?

India's innovative spirit is legendary, from ingenious "jugaad" hacks to pioneering DeepTech breakthroughs in Artificial Intelligence (AI). However, a major roadblock threatens India's DeepTech ambitions: funding. Despite brimming with talent and ideas, a lack of sufficient financial backing is crippling many of these innovators. India, depsite having the potential to take global leadership in Deeptech, lacks significantly.

A NASSCOM-Zinnon Report on highlights, "Availability of talent fuels India’s DeepTech potential, but broader ecosystem support, which is vital for global leadership, lacks significantly. India has one of the largest DeepTech talent pools in the world. However, more than half of this pool is focused on AI. To unlock more of its DeepTech potential, India needs a talent pool that works at the intersection of AI with other technologies or disciplines like blockchain, quantum, robotics, and IoT among others."

'India's DeepTech Dawn: Forging Ahead' report also said funding for scaling, talent attraction and retention, and global expansion are the top 3 challenges faced by startups in deeptech innovation.

India has a history and DNA of Deep-Tech

Despite boasting a vibrant tech scene and a coveted #6 spot in the global DeepTech rankings, India isn't quite headlining the show yet. But the stage is set for a dramatic rise. Fueled by a surge of DeepTech startups, India's tech landscape is undergoing a metamorphosis. These visionary ventures aren't just cracking complex tech problems; they're wielding technology as a force for good, tackling critical social and economic issues.

India currently has 3600+ deeptech startups, out of which 480 were established in 2023 itself, nearly 2X more than the number of deeptech startups established in 2022.

While India has traditionally dominated IT services and consumer tech, DeepTech startups represent a bold leap into uncharted territory. From wielding AI to disrupt industries to leveraging cutting-edge technologies like blockchain, IoT, and drones to solve societal problems, Indian startups are spearheading innovation and shaping the future of tech.

Talent & Potential: The Bedrock of India's DeepTech Ecosystem

India boasts a massive DeepTech talent pool, a significant chunk specializing in AI. A NASSCOM-Zinnov report highlights that over half of India's DeepTech workforce is in AI, showcasing the nation's strength in this crucial domain. But to truly unlock DeepTech's potential, India needs expertise at the intersection of AI and other emerging technologies like blockchain, quantum computing, robotics, and the Internet of Things (IoT).

Why Deeptech Matters for India?

The NASSCOM-Zinnov Report says, "Indian DeepTech ecosystem has startups operating across a range of sectors tackling problems of strategic importance for India, just like their global counterparts By embracing DeepTech, India can address its unique challenges, leapfrog traditional development models, and emerge as a global technological leader. With its vast pool of talent and growing entrepreneurial ecosystem, India has the potential to become the next hotbed for DeepTech innovations."

The deeptech startups are important for -

• Addressing India’s Unique Challenges

With a rapidly growing population projected to reach 1.6 billion by 2050, India faces a distinctive set of challenges. Resource scarcity threatens water security and food production, while energy insecurity impedes sustainable development. Additionally, issues such as inadequate sanitation and persistent hunger require innovative solutions.

• Enhancing Economic Competitiveness

To compete globally and achieve its economic aspirations, India must modernize its infrastructure and industrial practices. By bypassing outdated methods, India can become a leader in innovative and efficient manufacturing. This modernization will help address labor challenges, upskill the workforce, and meet global demands for sustainable practices.

• Bridging the Digital Divide

India is confronted with a vast digital divide separating its bustling urban centers from the millions residing in remote villages. This disparity limits access to essential services like healthcare, education, and basic internet connectivity. Building a digital bridge for the next generation is critical to overcoming this challenge and ensuring inclusive growth.

Funding: The Bottleneck Gripping Growth

Despite having the third largest pool of DeepTech startups in the world, India sees a funding gap in this ecosystem that limits the scalability of its DeepTech startups.

The report exposes a harsh reality: over 70% of Indian DeepTech startups identify funding as their biggest hurdle. Compared to leading DeepTech ecosystems, Indian startups secure significantly lower investments at every stage, hindering their ability to scale.  India's median funding ticket sizes are the smallest globally across most funding stages, underlining the urgent need for more financial muscle.

While Indian DeepTech startups raised a cumulative $10 billion over the past five years, with $850 million secured in 2023 alone, this reflects a concerning 77% drop from the $3.7 billion raised in 2022. The number of funding deals also plunged by 25% in 2023 compared to the previous year, indicating a worrying decline in investor interest.

Intellectual Property & Regulatory Hurdles

Owning intellectual property (IP) rights is paramount for over 80% of venture capital firms evaluating DeepTech startups. Yet, nearly 40% of startups grapple with IP strategies due to lengthy patent filing processes and inadequate infrastructure at Indian patent offices. Additionally, over 70% of startups report that access to regulatory sandboxes is crucial for accelerating DeepTech R&D, highlighting the need for government intervention to create a supportive regulatory environment.

The Rise of AI and the Quest for Diversification

AI reigns supreme in the Indian DeepTech landscape, with a staggering 74% of DeepTech startups established in 2023 being AI-driven. AI dominance extends to patent filings as well, accounting for 41% of all filings in the DeepTech sector. Other technologies like IoT and neurotech lag significantly, indicating a need for broader technological diversification.

Despite the challenges, the Indian DeepTech ecosystem is experiencing phenomenal growth. In 2023 alone, a whopping 480 new DeepTech startups emerged, nearly doubling the number from 2022. This exponential growth underscores the sector's dynamism and potential. However, the funding gap remains a critical barrier to realizing this potential.

The report highlights that CY 2023 saw the number of new DeepTech startups in India more than double over that in 2022, primarily due to a sudden growth in the number of AI-backed DeepTech startups.

Strategic Solutions for a Flourishing Future

The NASSCOM-Zinnov report offers a roadmap to address these challenges, outlining recommendations for the government and industry stakeholders:

• Forging Innovation Clusters: Identifying and nurturing innovation clusters can create ecosystems where DeepTech startups can flourish through collaboration and shared resources.
• Facilitating Patient Capital: Providing long-term investment options can help startups navigate the extended development cycles characteristic of DeepTech projects.
• Boosting Compute Infrastructure: Ensuring startups have access to robust computational resources is crucial for advancing their R&D endeavors.
• Fast-Tracking the National DeepTech Startup Policy (NDTSP): Swift implementation of this policy can provide a structured framework for supporting DeepTech innovation.
• Revamping the IP Framework: Streamlining patent processes and bolstering patent office infrastructure can empower startups to protect their innovations more effectively.
• Building a Robust Supplier Ecosystem: Developing a strong pipeline of skilled talent and supporting industries can provide the necessary scaffolding for startups to scale and thrive.

India's DeepTech ecosystem teems with promise, brimming with talent and a burgeoning number of innovative startups. However, to evolve from a regional powerhouse to a global leader, India must bridge the critical funding gap and establish a comprehensive ecosystem for support. By implementing targeted strategies and fostering a nurturing environment, India can unlock its full DeepTech potential and solidify its position as a global leader. The future of India's DeepTech sector is bright, but realizing this vision necessitates a concerted effort and strategic investments.

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