Deeptech is a term for businesses using advanced science and technology to find solutions for complicated problems across over a dozen sectors and spread across sub sectors such as space technology, electric vehicles, semiconductors, and cleantech.
“Since these businesses are at the edge of cutting-edge innovations in many ways…historical precedence does not align,” said Shreyas Shibulal, founder and director of Micelio Mobility that funds clean mobility startups. “But we expect the capital available for transformational deeptech businesses to continue to expand,” he added.
Schemes such as the recent National Deep Tech Startup Policy, Green Hydrogen Mission, subsidy for clean mobility, Indian Space Policy, and Indian Semiconductor Mission combined with various production-linked incentive (PLI) schemes to support innovation and manufacturing in India – besides the phenomenal interest in generative AI after the release of ChatGPT and other chatbots based on large language models (LLMs) – have led to significant interest by investors in deeptech, experts said.
The year 2023 also saw the successful launch of lunar spacecraft Chandrayaan-3, making India the fourth country to successfully land on the moon and the first to land near its south pole.
Deeptech has a unique set of attributes.
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In cleantech, for instance, there is a social urgency with growing concerns around climate change.
ETtechAs per Tracxn data reviewed by ET, seed stage funding in semiconductors and spacetech surged to $6.9 million and $4.5 million, respectively, in 2023 from $680,366 and $3.7 million, respectively, in 2022.
Early-stage funding in spacetech went up from $111.2 million to $114.7 million during the same period, while it rose to $214.2 million from $195 million for EVs and in semiconductors, it continued to be in the 2022 levels of $2.4 million.
In the late stages of funding, however, all sectors of EVs, cleantech and overall deeptech saw deal values plummet, Tracxn data showed.
“We are so early here that the data will be disparate, it won’t show you any broad trend,” said Vishesh Rajaram, managing partner at deeptech-focused investor Speciale Invest. “…the insight in deeptech here is in the micro and not the macro. It’s all bottoms up approach in opportunities here,” he said.
Rajaram expects investments to continue to go up in semiconductors and artificial intelligence startups since there is active policy making happening in these spaces. In the spacetech sector, he said, the value will increase but not the volume. “In climate tech, there has been a fair flow of capital across its areas but nuanced plays around decarbonisation and carbon financing will attract investments,” he said.
He bucketed companies in the deeptech space into generation I, II and III.
“Gen I of a sector is when it does not do well, gen II is when it does well, and gen III is when it matures,” Rajaram said, adding that the country is gen II in spacetech, climate tech and semiconductors. “You will see big numbers playing in gen III even as deal volume goes down,” he said.
Investors also laid a strong emphasis on indigenisation of critical technologies such as semiconductors will be a defining theme within deeptech next year.
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Widening interest
Sector-agnostic funds, too, are spending more time studying these niche spaces now because early signs of success such as public programmes and subsidies have started to show.
Peak XV Partners made investments into companies such as Mindgrove and InCore in the semiconductors space, Newtrace in the green hydrogen space, and in spacetech startup Digantara. Startups in this space also led the ninth cohort of the firm’s accelerator programme Surge.
“The business applications in many of these businesses got increasingly clear,” said Shailesh Lakhani, managing director of Peak XV. “As a group, as we see more of these companies, we get more comfortable with what is possible. Building a satellite was very difficult and only a few people could do it 10 years ago. That has changed now,” he told ET.
Arpit Agarwal, partner at early-stage investor Blume Ventures, said with successes in the ecosystem, more entrepreneurs have their ambitions fuelled, and investors have “become more enthusiastic”.
“An Ideaforge probably is going to snowball to a lot of funding in defence companies in 2024. Everyone is now seeing a path to success in deeptech,” he said.
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Early days
Lakhani of Peak XV said a lot of credit and respect should be given to early incubators and investors who believed in these categories early on, when these spaces were much less proven.
Priyanka Chopra, chief operating officer and managing partner of CIIE.Co, an IIM Ahmedabad startup accelerator, said, “Because we come in much early where there is no viability of the product, valuations are not focused on any revenue multiples. But even later, we have seen tremendous valuation bump-ups without a single rupee coming in as revenue because of the promises behind the technology.”
CIIE.Co has invested in companies such as Ideaforge – which later raised funds from Qualcomm Ventures and Celesta Capital as well – and spacetech startup Agnikul.
However, the focus on a clear line of commercialisation stayed distinct even as early iterations around technology or product-market-fit may fail.
“The commercial conversations around spacetech-like opportunities are substantial… These are not your $5,000-10,000 projects, there are much more substantial dollar value contracts,” Peak XV’s Lakhani said.
Investors are optimistic about funding India’s “gen III” startups in deeptech during 2024 – at a time when the more glamorous cousins in ecommerce, fintech and the likes undergo a market correction.
