The Conundrum

In early November, Nasscom President Debjani Ghosh kicked off her keynote at an event with a video featuring Tesla's Optimus Robots, walking and carrying out menial tasks against the possible backdrop of a Gigafactory. The subtext of this video in the keynote was clear: India harbours ambitions to rival the very best of deeptech endeavours. 

However, realising these aspirations demands robust support from stakeholders, including investors, policymakers, entrepreneurs and tech enthusiasts. Unfortunately, the current level of support is inadequate, leaving innovators to navigate the choppy waters of lacklustre funding and suboptimal policies – sometimes for years and even shut shop eventually. 

Deeptech Funding In India

Consider Tamil Nadu-based startup Adiuvo Diagnostics, a company that is crafting a technology that excels in early disease detection. Boasting eight patents, both international and national, Adiuvo has pioneered Autofluorescence Imaging, a breakthrough method crucial for preventing amputations by detecting infections in wounds. 

Source: Nasscom-Zinnov Report

The significance of this innovation becomes apparent in India, particularly in smaller towns and cities as even in the advanced stages of limb amputation, patients are often prescribed basic antibiotics like Azithromycin without precise knowledge of the infection type. In the normal course of diagnosis, a doctor would collect a wound sample, send it to a microbiology lab, and await results, a process which takes 3-7 days to yield definitive outcomes, which often means lesser time for treatment in advanced stages of amputation. During the Nasscom event, Adiuvo Diagnostics Founder and MD Geethanjali Radhakrishnan noted that these results are only 53 per cent accurate and often identify commonly available bacteria. 

In contrast, Adiuvo's handheld device swiftly captures approximately 15 multispectral images in under four seconds, using AI to predict the bacteria type in real time—all done noninvasively. Despite this scalable solution, Adiuvo has secured a mere $1 million in its eight years of existence. Radhakrishnan revealed a striking comparison, highlighting that a US-based company with similar technology garnered a staggering $100 million in grant funding alone.

Similar is the case of Hyderabad-based deeptech startup Centella AI, which is looking to bring about 60 per cent reduction in drug discovery costs through its innovations. But it, too, has been able to raise just Rs 30 lakh in funding so far and the startup’s team has itself invested Rs 1 crore to build its product and IP. 

“The next task for us is to raise around $2 million, which we would utilise to strengthen our technology and asset pipeline in terms of targets and diseases we address,” says Riyaz Syed, Founder and Chief Scientist, Centella AI.

Groundbreaking research-based technologies (deeptech) need a unique breed of funding imperative, referred to as “patient capital.” This type of investment is characterised by its willingness to wait for returns on investment (RoI) over an extended period, typically spanning 3-8 years. The rationale behind this extended timeframe lies in the nature of such technologies, which necessarily take time to mature, identify viable business use cases, gain global adoption and generate revenue gradually. But venture capitalists show limited enthusiasm for investing in deeptech startups due to the extended RoI horizons associated with deeptech ventures. 

Government And Public Grants 

However, this is precisely where government and public grants play a pivotal role and they have had a significant impact on economies like the US. Centella AI, as previously mentioned, stands as a notable beneficiary of government support in India. However, the challenge lies in the scarcity of government and public grants, particularly when confronted with the needs of more than 3,100 deeptech startups in the country, all vying for support.

“There is a problem there, in the sense that we don't have enough grant money in India to go around. And even if there is, the quantum is much smaller,” said Ramkumar Narayanan, Chair at Nasscom deeptech council and VP Technology & Managing Director, VMware India.

Nasscom, the non-profit technology industry association, according to Narayanan, is working with the government to formulate ways to channel disparate pools of money available in the Indian ecosystem to benefit the deeptech ecosystem. Narayanan told BW Businessworld that Nasscom wants to help 10,000 deeptech startups by 2030.

During one of the panel discussions at Nasscom’s deeptech-focused November event, Krishnakumar Natarajan, Managing Partner at Mela Ventures, expressed a perspective divergent from the US approach of grants, aligning more with Israel's model. “I’m more aligned to the approach of what Israel followed. Israel really gave a grant to anybody who has a great idea. You experiment with a grant and if it doesn’t work then you can go back to your job. I think innovation will happen when you support people in navigating through risks. I think the government needs to play a role like that,” he said.

Natarajan further opined that in a resource-constrained economy like India, private capital will also play a pivotal role. He suggested encouraging private capital to establish numerous incubators, each focusing on specific, narrow niches—a strategy he believes would contribute significantly to nurturing innovation.

The Dreaded ‘Winter’

The Indian startup ecosystem boasts around 28,000 technology-focused startups and deeptech commands a noteworthy slice, constituting approximately 10-11 per cent. However, in the midst of the funding winter, the latest data exposes a troubling decline in funding for tech startups in India. The third quarter of 2023 saw a substantial drop in funding to $1.2 billion—a 20 per cent decrease from the preceding quarter and a remarkable 50 per cent plunge compared to the same period last year.

Of particular alarm is the pronounced decline in deeptech funding during the first nine months of 2023, plummeting 66 per cent compared to funding levels observed in the corresponding period of 2022. But investors like Natarajan stay optimistic.

“[..] what I keep telling my team is the Indian IT industry became $300 billion industry over 30 years. And I think, there’s a real opportunity for deeptech-based startups to create another $300 billion industry in the next 10 years,” said Natarajan.

Despite the substantial year-on-year (YoY) decline in deeptech funding in 2023, AI-led startups in BFSI and enterprisetech secured over 60 per cent of the funding in this category, underscoring the escalating interest among investors in AI. However, during another panel discussion at the Nasscom event, Deep Nishar, Managing Director at General Catalyst, pointed out that a significant number of Indian startups are not sufficiently delving into generative AI—an area currently drawing considerable attention from venture capitalists. 

BW Businessworld conducted a brief survey involving 10 venture capitalists and the unanimous consensus among them is that startups specialising in AI and generative AI within the deeptech domain are poised to attract funding. They opined that the trend will persist despite the challenging funding climate in the near-term, mainly because these startups would offer quicker return on investments.

“There is a problem there, in the sense that we don't have enough grant money in India to go around. And even if there is, the quantum is much smaller.” -  Ramkumar Narayanan, Chair at Nasscom deeptech council and VP Technology and MD of VMware India

"Indian deep tech entrepreneurship has absolutely nothing lacking when it comes to ambition and capabilities. Indian entrepreneurs, today, are ready to compete globally if they get the support that is needed." -Top of Form Debjani Ghosh, President, Nasscom