How to fuel the growth of the deep tech sector in India

The Indian startup ecosystem has a lot of unicorns, but it still lags in bringing new innovative technologies to the world. Here's an analysis of factors behind the slow pace and remedies to fuel the

By Tathagato Rai Dastidar

Last Updated: Sep 06, 2023, 13:03 IST4 min

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In the last two decades, India has moved forward in leaps and bounds to secure a place of pride in the global startup landscape. The Government agency Invest India statistics show 108 unicorns of Indian origin as of May 31, 2023. Yet, a lingering perception persists about Indian startups. They are seen as more consumer-facing technology-enabled businesses rather than technology pioneers. Innovative business models are the need of the hour. But are we lagging behind in bringing new innovative technologies to the world?While, as a MedTech entrepreneur, I cannot opine on every aspect of deep technology, my own experience with technology for medical devices in India agrees with the above viewpoint. There are just too few of us around. This reality dawned on me painfully earlier this year when I had the opportunity to participate in the largest conference and trade show for diagnostic laboratory technology in North America. This expo has around a thousand companies putting up their stalls, with the world's largest companies in this space competing to outshine each other. What pained me during this visit was the dearth of Indian companies at this global forum. Less than five Indian companies were displaying their technology. Contrast this with the participation from other countries known for their tech prowess—Israel, South Korea, China and Japan had a huge presence here. The diagnostic equipment and reagents industry rakes more than $100 billion annually. Why is India's contribution to innovative product development in this industry so low?Several factors can be attributed to this. The first one is investment or the lack of it. Venture capital has flowed into consumer technology starting in the early 2010s. Fortunately, we saw a few runaway successes in this field. This fuelled investments in this area and led to a virtuous cycle. One of the reasons for investor interest in this space is the ability to scale quickly. Unit economics continue to bleed for many unicorns, but they can grow the top line quickly. Compared to consumer tech, the investment into true deep technology in India has been abysmal. Deep tech is fundamentally different from a technology-enabled business. There's a long gestation period. Developing and perfecting the technology itself takes a considerable amount of time. Revenue growth doesn't start from day one. But when it starts, the unit economics are typically positive, and the growth curve is usually hockey stick. The limiting factor is the gestation period. Patient capital, ready to wait through this period, is hard to find in India. If we look at the US, for instance, a vast number of VC firms are focused explicitly on deep tech, not so much in India. During the gestation period or the early commercialisation stage, valuation and investments cannot be based on revenue multiples.

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The second factor, in my opinion, is suitable talent and infrastructure availability. Many deep tech companies are not pure software. Their products involve building physical objects as well. Engineering talent in India tends to gravitate towards software engineering after graduation. The number of engineering graduates pursuing careers in their core engineering disciplines like mechanical, electrical, engineering physics, and so on is very low. This creates a talent shortage, especially for highly innovative hardware product development. Even if a startup builds a good team, rapid prototyping and iterating on hardware products is difficult in India. There are way fewer incubation setups for hardware startups in India than needed. The manufacturing support system here also needs to catch up to countries like China. As a result, many components need to be imported, resulting in much higher costs and long lead times—both being a bane for rapid iterations. How can we improve this scenario? If we look at venture investments, they were low even in the consumer technology space in India's first decade of this century. What changed the trend was a few runaway successes. The same needs to happen in the deep technology space as well. A few such hits will change the outlook of the investment community to look more favourably at deep tech. I believe this will also start a virtuous cycle, which will alleviate the problems on the talent front as well. If the deep tech space grows in India, jobs in core engineering will also become more abundant than they are today. That will motivate more talented engineers to stick to jobs in their core disciplines. Improving the infrastructure will require a lot of support from the government. We see signs of that happening, with many schemes being announced for small and medium manufacturing businesses. With global giants setting up manufacturing plants in India, the surrounding ancillary industries will also thrive. But this support from the government needs to continue for a long time for India to reach a level where it can take on other manufacturing powerhouses of the world. The writer is founder & CEO of SigTuple.