India's deep tech sector is booming, with a record number of startups set to emerge in 2023. According to a NASSCOM and Zinnov report, 480 new deep tech ventures will be launched, nearly double the number in 2022, making India the third-largest deep tech hub in the world.
However, this promising growth is threatened by a lack of funding: the report notes that fundraising will fall 77% in 2023 compared to 2022, dropping the total amount raised to $850 million. The number of funding deals also fell 25%.
This lack of funding is a major obstacle for Indian deep tech startups, with the report citing three main challenges: accessing capital to expand, attracting and retaining talent, and enabling global expansion.
AI is the star of India's DevTech startup space
Artificial intelligence (AI) is the star of the show, reportedly garnering the most interest from both founders and investors: 74% of new deep tech startups were AI-focused and 86% of funded startups were AI-focused in 2023. AI is also leading the way in patent filings, accounting for 41% of all deep tech patents.
Venture capitalists say deep tech's long development times are a major barrier to investment, and the report suggests government initiatives such as co-investment programs and support for patient capital are essential to attract more investors.
The investor pool has shrunk significantly, with 60% fewer participants compared to 2022. The absence of large global investors is a major factor. Investors are now favoring smaller, seed-stage, deep tech ventures with lower risk profiles, further limiting overall fundraising.
NASSCOM recommends a multi-pronged approach to address these challenges: the report calls for government efforts to strengthen innovation clusters, provide access to patient capital and computing infrastructure, promote a National Deep Tech Startup Policy, improve intellectual property frameworks, and develop a strong talent pipeline.
Despite funding hurdles, the Indian deep tech sector is said to have immense potential. With continued support, these innovative startups can overcome these challenges and become global leaders.
