In Numbers: India's Deep Tech Start Up Ecosystem Is Booming

Investments in India’s deep-science technologies (tech) have consistently doubled or more every three years since 2010, surpassing $1 billion in the 2021-2023 period, according to ‘The India Deep Science Tech Report’.

Projections see investments in this space surpassing $10 billion by 2029.

The report, which provides “a ringside view into the Indian deep-science tech ecosystem”, was published on Tuesday (14 February) by Ankur Capital — an early-stage venture capital firm that invests in digital and deep-science tech companies — as part of its TechSprouts initiative.

They reckon that “the entire Indian deep science tech ecosystem is at an inflection point” currently and are, therefore, “excited to have a ringside view of the transformation".

The report, whose analysis is based on investment data from 2010 to 2023 sourced from Tracxn and media reports, finds that while the total number of investments in deep-science tech companies has been increasing steadily, the number of investment rounds exceeding $5 million has been growing exponentially — once again found to be doubling every three years.

Notably, there have been more follow-up investments than new funding rounds since 2017, showing investors’ commitment to scaling up.

“Deep-science tech companies” are those which are building on fundamental science breakthroughs in one of four technologies — artificial intelligence (AI), biotechnology, advanced materials, and electronics and photonics.

They are characterised by a reliance on “fundamental science innovation over business model innovation” and have a “strong IP strategy to protect the underlying breakthrough”, and must have either filed for or received patents for their technologies.

Deep-science tech ventures introduce groundbreaking products that set the stage for future mainstream technologies and, not to say it lightly, redraw the boundaries of what’s possible, for the better. For instance, over 97 per cent of these startups are currently focused on addressing at least one of the United Nations' Sustainable Development Goals.

“Deep science tech solutions come from fundamental breakthroughs and create paradigm shifts, thus the products from these innovations have the potential to unlock multiple billion-dollar markets worth of value,” the report says. There is an over $300-billion market for the taking in this cutting-edge space.

An example of deep-science tech innovation cited by the report is the development of lithium-ion batteries on the back of foundational research in chemistry in the two concluding decades of the previous century. The battery innovation has led to remarkable spin-off products — a characteristic of deep-science tech work — like electric vehicles.

Investment Trends In Deep-Sci Tech

The India Deep Science Tech Report looks particularly at the investment and other related scenarios for AI, biotechnology, advanced materials, and electronics and photonics in India. The analysis covers startups founded in or after 2010. Startups, rather than large corporations, are driving the deep-science tech wave, after all.

India is a relative newcomer in the global deep-science tech landscape, but investments are increasing rapidly, rising over 200 per cent since 2017. More than 80 per cent of these investments were directed towards seed-stage companies that are still developing their products.

AI and biotechnology have been the dominant sectors, accounting for 80 per cent of total investments since 2010, while advanced materials have been gaining traction in recent years, lapping up 22 per cent of the investments in 2022-23.

Follow-up funding for early AI ventures has notably risen of late, with 2022 seeing five investments surpassing $10 million. This trend highlights a growing interest in the sector, despite a slowdown in fresh investment.

Most of the AI-centred deep-science tech companies in the country seem to be leveraging AI for “image analysis from robotics, satellite and radiology data, as well as genomic data analysis for diagnostics and personalized medicine”. 

When it comes to biotechnology, funding has increased after the Covid-19 pandemic — naturally, as the need arose to find good answers rapidly to Covid-19. Investments in biotechnology startups between 2013 and 2023 was close to $900 million, with investors turning “bullish on the growth of the biotech industry in India” post-pandemic.

“The need to develop technologies against COVID or similar zoonotic diseases as well as Anti-Microbial Resistance (AMR) are key drivers in accelerating follow on growth investments into therapeutics and diagnostics, which form around 91% of the investments,” the report says.

In the advanced materials space, battery solutions companies are pocketing a large share of the investments.

As for the principal drivers of innovation in this area, the report says: “The energy transition, consisting of energy storage and other materials enabling the renewable grid, as well as space technologies have accounted for almost all of the investment activity in this space.”

The number of fresh investments in advanced materials innovation hit a high in 2021 and has slowed since, in line with the broader macroeconomic trends in 2022 and 2023. Strategic investments and joint ventures are on the rise in this sector.

Finally, the electronics sector in India has drawn plenty of attention in recent years. With the industry rising up the semiconductor value chain, a gradual trend towards later-stage investment in electronics companies has been observed since 2019. However, the quantum of investment has been relatively small.

“Average investment size in electronics & photonics has been $1.77M,” the report states, “as compared to an average of $8.2M across the other three technologies considered”.

There is a need especially for growth-stage capital if semiconductor startups are to create their own cutting-edge chips. A capital of over $10 million would be required for the purpose, as well as “investor participation and derisking beyond the seed (and soft IP) stage”.

Breakthroughs in these four areas “are each poised to unlock multi-billion dollar market opportunities” and lay the foundation for “solutions to the world’s most urgent problems”, the report concludes.

India’s R&D Thrust

India has been witnessing a greater research-and-development (R&D) push in recent years. Nationwide R&D spending has doubled from 2011 to 2021.

Various cutting-edge science programmes, like the India Semiconductor Mission and the National Quantum Mission, have been initiated. “Each of these initiatives is channeling over $1B into research, startups and industry-academia partnerships. This channeling of effort and capital is accelerating innovation and market access for new technologies,” according to the report.

Furthermore, the Anusandhan National Research Foundation (ANRF) came into force earlier this month. The ANRF aims to “…provide high level strategic direction for research, innovation and entrepreneurship in the fields of natural sciences including mathematical sciences, engineering and technology, environmental and earth sciences, health and agriculture, and scientific and technological interfaces of humanities and social sciences…”

The new research funding body, which gobbled up the Science and Engineering Research Board (SERB), will have a corpus of Rs 50,000 crore at the outset, with nearly Rs 36,000 crore projected to come from the private sector. For the financial year 2024-25, it received an allocation of Rs 2,000 crore.

“It’s the right time to build from India to the world - With government support, efficient capital use, a competitive talent pool, and large domestic markets, India offers an ideal ecosystem for developing and scaling deep science tech solutions, particularly in energy and spacetech sectors,” Ankur Capital said in a LinkedIn post sharing the report.

(Here’s the report in full.)