Last week, India's startup ecosystem reached another milestone as EV company Ola went public, joining the ranks of several other firms that have made similar moves in recent years.
The momentum in India's startup scene is undeniable, with over 100 unicorns regularly making headlines.
For years, India's venture capital landscape has been dominated by sectors like e-commerce, FinTech, and SaaS. These industries, with their quick paths to market and clear revenue models, have produced a multitude of unicorns, cementing India's status as a global startup hub.
However, a significant shift is underway as venture capitalists (VCs) in India begin to turn their attention towards a less crowded and more challenging space - deep tech.
"Certainly, the interest in deep tech is much higher than before," explained Satya Gupta, President of VLSI Society. "If we talk to key VC firms, they are actively looking for good startups in this area, which we did not see before. I would say the interest is higher."
The changing landscape of venture capital
Historically, deep tech has been somewhat of an underdog in the Indian startup ecosystem.
"This has a lot to do with the evolution of technology in India," said Bhaskar Majumdar, managing partner at Unicorn India Ventures. "Most of the technology in India today is second-generation from the IT services world, which is heavily focused on manpower, revenues, and time-and-materials models. Companies like TCS and Infosys never ventured into product-led technology because they feared it would put them in direct competition with their clients. As a result, tech and product-led companies in India struggled to grow."
Deep tech startups often require longer development cycles, more significant upfront investment, and a much higher tolerance for risk. For VCs, the promise of quick returns was far more appealing than the slow, uncertain journey that deep tech often entails.
This narrative is now seeing a change. For instance, Majumdar said that they have already started investing along this line and announced several closures. Around 60 percent of the fund may be dedicated to deep tech, which they expect to close by the end of the year.
"Over the last four or five years, we've seen a shift," Majumdar said. "For example, our fund's investment thesis has evolved over time. Our first fund, around 2015-16, focused on the India Stack—investing in FinTech, e-commerce, health tech, and other sectors that benefited from India's digitization story. The second fund in 2020 shifted focus to global SaaS companies, realizing that the next wave wouldn't be classical IT services but new-generation SaaS companies. Now, with our third fund, we're seeing a shift toward IP-driven models, particularly in areas like space tech, semiconductors, and health tech."
Why Deep Tech? The drivers behind the shift
Several factors are driving this newfound interest in deep tech among Indian VCs. First and foremost is the realization that deep tech represents the next frontier of innovation. While consumer tech has its place, the breakthroughs in semiconductors, energy, and biosciences are likely to define the technological landscape of the future.
Another driver is the increasing recognition of the importance of patient capital. Narendra Bhandari, general partner at Seafund, said that the concept of patient capital—funds that are willing to wait for long-term payoffs—is gaining traction in India.
"The deep tech landscape changes dramatically," said Bhandari. "For example, in our fund, we invested in a robotics startup, which builds robots to clean sewers, at a time hardware investments were considered risky, but we saw potential. We've also invested in logistics companies using drones and companies developing automated battery replacement systems for large commercial fleets."
Bhandari added that his company is planning to make more investments in clean energy, semiconductors, and mobility over the next few months.
Additionally, there is growing support from the Indian government and large enterprises, which are increasingly investing in deep tech initiatives. Government policies aimed at boosting innovation in semiconductors, clean energy, and other critical sectors have provided a more conducive environment for deep tech startups.
The challenges that remain
While the shift towards deep tech is promising, it is not without its challenges.
Evaluating deep tech startups is inherently more complex than assessing consumer tech companies. The technologies involved are often highly specialized, making it difficult for investors to gauge their potential.
"Evaluating deep tech startups is more challenging, as there are fewer industry parallels to draw from," Bhandari said. "We rely on our experience, partners, and experts to project future trends and make informed bets. In deep tech, it's not just about the numbers—it's about understanding the addressable market, the founder's vision, and the potential for success. We look for founders who can give us the conviction to move forward, regardless of their age or background."
Moreover, deep tech founders often require more than just capital - they need strong advisory networks and access to industry expertise.
VCs also need to adapt their investment strategies. In deep tech, the traditional metrics of success—like quick scaling and early profitability—often don't apply. Instead, VCs must be willing to bet on the vision of the founders and the potential of the technology, even when the path to market is unclear.
"It's not easy for everyone to evaluate these startups or their ideas, especially when it comes to funding," Bhandari added. "For example, someone might approach a VC with a product idea that won't generate revenue for 18 months but is valued at $15 to $20 million. That's a difficult conversation to have with investors who may not understand why a company without immediate revenue potential would be valued so highly. It will take time for the landscape to change, but the pace of change is encouraging."
Finally, Gupta pointed out that Indian Deep Tech startups should also up their game. Government initiatives like Design-Linked Incentives (DLI) have given a good boost to some startups, but most of the funded startups have been around for 4-5 years already.
"For instance, we don't have any significant AI companies that have been approved by initiatives like DLI," Gupta said. "There may be small things here and there, but no breakthrough ideas yet. So as an industry, academia, and other stakeholders, we need to create quality proposals that VCs can invest in."
The future of Deep Tech investment in India
The increasing focus on deep tech among Indian VCs signals a significant evolution in the country's startup ecosystem. As more funds are allocated to sectors like semiconductors, clean energy, and biosciences, India is attempting to position itself as a strong player in these critical industries.
This shift could accelerate in the coming years if the successes of early deep-tech investments inspire more VCs to follow suit. For deep tech startups, this is an exciting time. With the right support, they can drive innovation in areas that will shape the future of technology.
