A deep dive into the deeptech sector in India

Deep tech, at a high level, refers to technology and innovation that has the potential to disrupt and transform the world, and has a deep impact on the society. In the context of software / hardware, entrepreneurs are building new business models using recent technological advances in areas such as artificial intelligence (AI), machine learning (ML), big data, augmented reality (AR) / virtual reality (VR), blockchain, industry 4.0, robotics, cyber security, internet of things (IoT) and others. When utilized optimally, these technologies and the associated IPs can create significant entry barriers for any startup, giving them an edge over competition. For example, finding a cure to a disease, IoT sensors with analytics to increase the yield in agriculture, making smarter credit decisions in finance, or developing clean energy solutions are some of the areas that deep tech is finding real-world applications.

18% of all startups now leverage deeptech

Indian deep tech ecosystem has been developing in earnest since the last 5–7 years, with the advent of new-age B2B enterprise software companies and select B2C / B2B2C startups as well. We have seen various such deep tech startups across industries in the last 3–4 few years, which have come up with truly unique solutions that solve society’s pressing problems and receive good commercial traction, not only in India but also in developed markets like USA, Europe and Japan.

A couple of interesting themes that have emerged over the last 2–3 years are the rise of space-tech companies and API-led infrastructure technology companies, which have been scaling globally.

Opportunities in the Indian deep tech startup ecosystem are present in various sectors. Some of these sectors are:

(i) Healthcare (e.g., AI-ML based medical devices and software solutions for automated diagnosis of cancer and other ailments),

(ii) Cybersecurity (e.g., external threat as well as insider threat),

(iii) Consumer (e.g., home automation, AR / VR based virtual try-on),

(iv) Industrial (e.g., Industry 4.0, IIOT solutions, robotics),

(v) Finance (e.g., AI based risk modelling, fraud detection),

(vi) Education (e.g., AR / VR based educational toys, usage of AR / VR based content in curriculum),

(vii) Agriculture (e.g., robotics, AI based predictive inputs, insights) and others.

Last year’s Nasscom-Zinnov report on India’s startup ecosystem had reported there are 1600+ deep tech startups in India. This number has been growing at a CAGR of 40% since 2014, and is expected to grow even further going forward, as more and more startups are leveraging deep tech.

The next big wave: The shift we see in the sector

India is world’s fifth-largest economy by nominal GDP and the third largest by purchasing power parity (PPP). We also have very vibrant start-up ecosystem and are likely to become the world’s largest workforce by 2027. It is important for India to improve in areas of business governance, healthcare and education to boost the economic growth, and leveraging deep technology will play significant role in transforming these areas.

India has a major advantage with broadband availability and the smartphone adaptation in every corner of the country. Smart mobile with ubiquitous data connection can act as a bank card, provide education for children and offer healthcare to a common Indian citizen. Also, current agricultural reforms coupled with appropriate deep technology use cases can propel India’s real transformation.

Few of the other factors that have given rise to the growth of the deep tech ecosystem in India are — availability of a large engineering talent pool which has been supported by the entire IIT / BITS / IIM / IIIT / IISc ecosystem, senior industry leaders or second time founders starting new ventures; and regulatory support / liberalisation in terms of active policy making and capital availability. While India has always been known as amongst the top in the world for IT talent (particularly in services area), the shift we are now witnessing is young graduates from good academic institutions moving towards technology IP, innovation-based entrepreneurship, providing a boost to deep tech startups.

Inclusion of deeptech across the spectrum

Deep tech, still being a fairly new sector, is not as widely understood. There is a certain lack of awareness in the industry of the far-reaching impact / effect it could have overall. Consequently, companies leveraging deep tech in their products may find it more difficult to raise capital compared to their widely popular counterparts engaged in B2C e-commerce, aggregator or app-based business models.

Also, India as a target market is very shallow and not scalable for deep technology enterprise solutions. Indian small and mid-size businesses have a limited appetite to pay for software, and they tend to ignore the total cost of ownership as a key metric while evaluating the tech adaptation. But, with the increased focus on automation and digitization acting as a tailwind for economic recovery, we expect these challenges to soon turn into opportunities for startups in the deep tech ecosystem.

If Indian deep tech startups get good support from local industry titans, favourable government policies and timely availability of capital, we see no reason why India can’t produce some world class deep tech companies in the next 5 years like China did in the last decade. We believe the pandemic has created a very conducive environment for this to accelerate.