The Startup India database indicates there are 10,298 DPIIT-recognised startups classified across various sub-sectors within the larger deeptech space as of May 2023. However, there is no unicorn in the segment yet nor have these startups managed to raise significant funding. A NASSCOM report states that deeptech startups raised $2.7 billion in 2021, a year that saw Indian startups raise $37 billion in total. Last month, the Indian government unveiled its draft National Deep Tech Startup Policy that aims to create a favourable environment for the development and growth of deeptech startups. Highlighting the funding challenges faced by the segment, the policy wants to build on “existing initiatives” and address issues such as fragmented funds, the mismatch between gestation period and market expectations, and payment delays causing working capital issues, among others. Given this environment, Bharat Innovation Fund (BIF), an early-stage venture capital (VC) firm focused on deeptech startups in India, tells YourStory that it plans to increase its investment in the sector, which it believes is only getting “bigger and better” by the day. Bengaluru-based Bharat Innovation Fund was launched in 2018 as a $100 million deeptech-focused thematic fund launched by Ashwin Raguraman, Kunal Upadhyay, Shyam Menon, along with Sanjay Jain and Som Pal Choudhary. BIF has invested in around 17 deeptech startups, including CreditVidya, Shifu, Setu, Entropik, and Riskcovry.
Investment thesis and expansion
As of now, BIF invests around $1-3 million as the first cheque in early-stage deeptech startups and it is planning to increase this to $5 million. It also invests a total of around $8 million in each startup as part of its follow-on funding rounds. “Our investment ticket size is now bigger as there is greater maturity in the deeptech segment and we will have a portfolio of startups which is manageable,” says Ashwin Raguraman, Partner, BIF. Deeptech startups typically work on solutions along an unexplored pathway based on new knowledge within a scientific or engineering discipline or by combining knowledge from multiple disciplines. BIF will look at having around 23 deeptech startups under its portfolio as part of its $100-million fund, which will include both fresh investments and follow-on funding. It made the first close of $50 million in 2018. It is also exploring a second fund and has started initial conversations in the last few months. This is expected to be 1.5-2 times the size of the first fund but the talks are still in the early days.
Building from India for the world
Raguraman believes there is now a greater understanding of deeptech startups within the ecosystem and the numbers are growing largely due to three reasons. Firstly, artificial intelligence (AI) is being leveraged effectively by startups. Secondly, there is the availability of high-quality talent which has both business and tech acumen. And lastly, and perhaps the most important, is that India serves as the test market for products of deeptech startups. Typically, when a deeptech startup in India comes out with its first product, it approaches an Indian enterprise to test its product to know how it will perform by integrating its solution within companies’ framework. However, the real test comes only when the solutions are deployed in the actual market.