If said preceding year 2023 was a year of deeptech startups, it would certainly not be wrong! There was a significant surge in the deeptech startups in 2023 as we witnessed 480 new ventures emerging into the market, making India the third largest pool globally, a report titled ‘India’s DeepTech Dawn’ by nasscom and Zinniv said. It further highlighted the worrying trend of a funding winter, posing a major challenge for such startups.
As per the report, funding for scaling, talent attraction and retention, and global expansion are the top three challenges faced by startups in deeptech innovation. However, India’s deeptech promise is stunted by a funding gap. “Compared to startups across some other leading deeptech ecosystems, Indian deeptech startups receive a fraction of the median investment at every stage. This lack of funding restricts the ability of some promising deeptech startups to scale, thus hindering India’s ability to compete in the global deeptech race,” the report pointed out.
Indian deeptech startups raised about $10 billion in the last five years. Out of which, $850 million was raised in 2023 itself, which is 77 per cent decline over $3.7 billion raised in 2022. Meanwhile, the number of deals too declined by 25 per cent in 2023 when compared to 2022. Interestingly, India currently has over 3600 deeptech startups, out of which 480 were solely established in 2023, which is about 2X more than from 2022.
According to the report, India requires a multi-pronged approach to increase funding at an early-stage, supportive market ecosystem for scale-ups and robust initiatives to aid commercialisation.
A(I)’m favourite
Artificial Intelligence (AI) emerged as a founder’s favourite, with 74 per cent of deeptech startups established in 2023 driven by AI. AI was also investor’s favourite as 86 per cent of the startups who raised funding in 2023 have an AI focus. AI-driven startups have also taken the centre stage in patent filings with 41 per cent of all patent filings in deeptech, followed, with a large gap, by IoT and Neurotech.
Notedly, the number of investors participating in funding rounds for India’s deeptech startups dropped by over 60 per cent in 2023 compared to 2022. The absence of many large global investors, who had previously driven funding, also contributed significantly to this decline.
As per venture capital firms, long gestation periods are the biggest challenge facing them while investing in deeptech. “Co-investment programmes and government-backed instruments are necessary initiatives to be taken by the government to make the landscape more favourable to invest in,” the report explained. In addition to this, median ticket size across seed-stage and late-stage reached their four-year low and five-year low respectively. Although early-stage median ticket size reached a five-year high, it was not enough to offset the overall decline in funding. The absence of mega deals in 2023 as compared to nine mega deals in 2022, underscores a declining investor emphasis on large-ticket investments.
The report further noted that investors preferred investing in seed-stage deeptech startups with low ticket sizes and relatively lower risk, further declining the funding volume.