India’s frontier technology ecosystem, which focuses on deep tech startups and innovation, remains underfunded with a significant portion of capital directed towards consumer internet businesses, said a report by venture capital firm 3one4 Capital on Thursday.
Even as the government has launched several programmes to boost deep-tech and frontier technology along with numerous innovation hubs and venture capital funding is also steadily increasing in deeptech startups, the report highlighted the need for more ‘patient’ capital from both private and government stakeholders to support long development cycles and high infrastructure needs.
The lack of substantial funding and state-of-the-art research facilities has contributed to a significant brain drain of research talent to the US and Europe. While the recently established National Research Foundation seeks to counter this trend, it “requires substantial funding to achieve meaningful impact.”
The report also urged for more robust policy reforms including tax benefits, streamlined regulations and a clear long-term policy vision that can attract private investment in deeptech startups.
“India’s deep-tech sector is no longer a niche—it is maturing into an investment-ready, policy-backed, and globally relevant opportunity. While the foundation is strong, scaling deep-tech innovation into commercially successful, globally competitive businesses will require sustained capital, ecosystem collaboration, and patient execution,” said Pranav Pai, Founding Partner & Chief Investment Officer, 3one4 Capital.
Importantly, the draft deeptech startup policy, which was released by the government in July 2023 to boost deeptech startups in the country, promises streamlined regulations, regulatory sandboxes, increased R&D expenditure, a deeptech capital guidance fund structured as a fund of funds, collaboration between academia, research labs and industry, and more.
The policy, however, is waiting for cabinet approval, FE had reported last year.
Meanwhile, the reported highlighted three high-impact sectors where India is gaining a global edge: first, contemporary healthcare where AI is transforming diagnostics, preventive care, and hospital automation, making high-quality healthcare more scalable and cost-efficient; second, clean mobility wherein companies like Exponent Energy are addressing the challenge of charging infrastructure and battery efficiency; and third, fabless design and semiconductor manufacturing ecosystem.