Illustration: Chaitanya SurpurT
he global definition of deeptech focuses on technologies rooted in fundamental sciences or advanced engineering principles aimed at tackling potentially large unsolved market needs. However, this definition doesn’t seamlessly translate to the Indian context due to nuances in venture capitalist’s (VCs) investment outlook.
In lieu of a one-size-fits-all definition, categorising Indian deeptech into strategic buckets proves beneficial for guiding VC investments. These buckets align along two axes—the ecosystem to develop and the ecosystem to deliver. The ecosystem to develop refers to India’s capability to develop and validate deeptech, influenced by the resources and innovation of premier institutions like the IITs and IISc, access to specialised talent, and government support. The ecosystem to deliver represents India’s ability to commercialise and scale deeptech businesses, considering market adoption and willingness to pay.
There’s a prevalent VC expectation for deeptech to be made in India for the world; however, what succeeds in India may not necessarily thrive in the US. Prioritising ‘Building in India for India’ is a viable model, given the potential demand volume and the increasing nationalistic pride around domestic innovation and production.
Lastly, rebranding Indian ‘deeptech’ as ‘emerging tech’ might ease VC apprehensions. For seasoned VCs, this nomenclature subtly shifts the narrative, suggesting a stage of development that feels more immediate and actionable, potentially accelerating investment momentum in the Indian context.
Discipline versus Fluidity
The VC landscape is divided on the merits of a structured investment thesis for Indian deeptech. VCs like Blume Ventures and Pi Ventures embrace robust theses, shaping their long-term strategies. For instance, Blume Ventures has outlined their views in reports on battery innovation and investment outlook and the electric vehicles (EV) ecosystem. Pi Ventures follows suit
, evident in their DeepTech Shifts 2026 report. In contrast, Athera Venture Partners prefers a more fluid approach. They opportunistically identify startups while maintaining disciplined investment strategies, as seen in their backing of leading deeptech startups like Pixxel, Euler Motors, Playshifu and Ati Motors. Clearly, there’s no definitive winning approach; proven investment track records distinguish successful VCs.
The second vector, portfolio allocation, presents two distinct approaches. Smaller homegrown funds (sub-$100 million), like Pi Ventures and Speciale Invest, write initial institutional checks (sub-$500,000) to validate and de-risk technology after government grants. However, achieving a 3x return on invested capital over a decade with a purely deeptech portfolio poses challenges.
Mid-sized generalist funds (sub-$500 million), including Blume Ventures, Athera Venture Partners, and Chiratae Ventures, allocate 20 to 30 percent of their portfolio to deeptech while diversifying the rest into consumer or enterprise tech investments. They invest post-product or upon early product-market fit indicators to mitigate risks. Large global generalist funds, such as Peak XV Partners, Accel Partners and Lightspeed India Partners, are even more conservative in their investments.
There’s no one-size-fits-all strategy for investment thesis and portfolio allocation. A hybrid approach may be more beneficial for VCs:
- Start with a disciplined thesis to shape the portfolio, but maintain flexibility for opportunistic investments to adapt to this evolving industry.
- Adopt a staged investment philosophy, beginning with smaller starter checks for a large deeptech startup portfolio, followed by additional investments in promising winners.
Furthermore, fostering collaborations among startups, established enterprises, and strategics with deeptech corporate VC arms can validate technology and provide access to additional capital, reducing investment risks.
Growing The Deal Flow
In both consumer and enterprise tech sectors, VCs employ well-defined sourcing strategies. They engage in entrepreneurial ecosystems, participate in accelerator and incubator demo days, utilise platforms like PitchBook or Crunchbase, and leverage networks to find potential investments.
However, these strategies have limitations in deeptech, which is marked by its early stage and technology/knowledge barriers. This results in unique deeptech founder personas that significantly influence VC sourcing:
- Academics from top-tier institutions like IITs or IISc with dedicated incubation cells.
- Former technical staff of multinational corporations’ R&D centres who generate novel ideas.
- Serial tech founders addressing societal issues with deeptech solutions.
To effectively access this specialised talent pool and foster a robust deeptech deal flow, VCs should diversify their approaches:
- Immerse themselves in the ecosystem through workshops, research collaborations, expert panels, WhatsApp groups, and founder/investor mixers. For instance, Speciale Invest’s Deep Tech Mixer with IIT-Delhi’s DS Centre of Entrepreneurship.
- Encourage commercialisation using a venture builder model. VCs can identify problems, assemble diverse founding teams, and provide capital.
Bridging Capital Gaps
Indian deeptech startups face two critical funding challenges: The first emerges during the transition from concept to product, and the second in the early-revenue growth phase.
After conceptualisation, government grants like the Biotechnology Innovation Fund, SIDBI Fund of Fund Scheme, BIRAC SEED fund, C-CAMP, and the Technology Development Fund often provide initial funding. Also read: Three VCs on how they are changing India's deeptech landscape
This differs from consumer and enterprise tech sectors, which have ample angel and institutional investors as first-check writers. Smaller deeptech-focussed local funds exist but are seen as audacious by many investors, hindering many deeptech ideas.
If startups navigate the first hurdle and secure funding up to Series B, they encounter another obstacle—a scarcity of local growth capital for Series B through Series C, limiting scale despite developed technology and business models.
Two short-term solutions are:
- VCs favour founders who can navigate these challenges independently, like serial entrepreneurs, those with strong founder-market fit, or connections to strategic investors.
- VCs actively expand connections with foreign investors.
However, these strategies aren’t long-term fixes, as they don’t address the core issue of insufficient local growth capital. Currently, 98 percent of funding for Indian deeptech originates overseas, according to the NDTSP.
In the long term…
To cross the first valley, VCs need to learn from their successes and failures in early-PMF deeptech investments and develop robust underwriting frameworks so they can participate in deals at even earlier stages with fewer proof points.
To span the second, as successful mid-sized homegrown VCs raise larger funds, not only will their allocation to Indian deeptech proportionately increase, but their ability to follow on at Series B through Series C stage will also increase, if they get LP buy-in, educating them and turning them into ecosystem advocates.
‘Value add’ is somewhat overused in the VC industry, but it holds unique importance for Indian deeptech startups, from both the technical backgrounds of the founders and the absence of established business models for these technologies.
VCs must shift their role from offering technical support and connections to crafting and validating bespoke business models suited to the technology at hand, innovating alternatives to those that propelled Indian consumer and enterprise tech startups to success. Also read: Celesta Capital: At a sweet spot in India's deep tech startup landscape
For instance, the EV industry exemplifies the need for innovative business models. Companies like Ather Energy and Euler Motors have embraced vertically integrated models, reminiscent of Tesla’s approach in the US. This contrasts sharply with the Original Design Manufacturer (ODM) to franchisee models prevalent in the Internal Combustion Engine (ICE) industry.
Similarly, other deeptech sectors, such as health care, defence, aviation, and space tech may necessitate business models centred around government payers.
To secure a distinctive right to win, VCs might bring together strategic flexibility with an understanding of the unique characteristics of the Indian deeptech landscape. Aligning on defining Indian deeptech, bridging capital gaps, crafting localised investment theses while staying flexible, portfolio balancing, strategic sourcing, and value-adding through business model innovation are all crucial steps to craft a successful right to win.
(This story appears in the 20 October, 2023 issue of Forbes India. To visit our Archives, click here.)