India's startup journey has long been driven by software-led growth, with thousands of ventures building SaaS tools, consumer apps, and IT platforms. But now, a quiet shift is underway.
A new class of deep tech ventures is emerging — those building complex hardware-software solutions in semiconductors, space, robotics, and more. Anil Joshi, Managing Partner at Mumbai-based Unicorn India Ventures, believes India is entering a new phase that will take time but could reshape the country's innovation story.
"India traditionally had been building ventures around software-led product and services and have mastered the game. However, it lacked in building deep tech product ventures mainly due to lack of infrastructure and availability of patient capital," says Joshi.
That's changing, he notes, thanks to recent policy reforms and targeted government initiatives. "Things have begun to change due to some past actions at the policy level like opening up of the sectors in defense/space and encouraging investments in semiconductors and also the availability of investments for the same.
The government has taken a few initiatives like Design Linked Incentive to promote ventures in semiconductors, announcing fund of funds for deep tech and space tech and also offering product linked incentives to encourage manufacturing of products."
India's dependence on foreign fabs will take time to change
While India's policy environment is shifting, the country still depends heavily on Western fabs, IP cores, and EDA tools. That's unlikely to change overnight.
"The dependence on western fabs or IP core is high currently due to non-availability of homegrown facilities and IP, India will continue to explore availing the same till the time some capacity is built within the country," Joshi says.
However, with two large fabs already announced, there is momentum. "Two large fabs have been announced, which will take time to get operational as the investments are in billions of dollars and are green field projects hence it will take time to get them operational. Considering the current development, we expect in the next 5-6 years India would start building a deep tech with indigenous capabilities and capacity," he says.
Even now, Joshi notes, India is seeing innovative work in niche deep tech areas. "We are witnessing interesting startups getting built in India even today like the design of Edge AI SOC or building a satellite to refuel satellites in space, which will be one of its kind first in the world. Exciting time ahead."
Valuing frontier tech without comps
Investing in deep tech brings its own set of challenges, especially when startups are pre-revenue and building entirely new categories. Joshi acknowledges the high cost of innovation.
"World over the initial capital needed for developing any single SOC would cost around US$8-10 million and the first-time success is not guaranteed, considering the quantum of money needed to build IP, the deep tech ventures would be priced higher," he explains.
He adds that while risk is higher than in software startups, investors often look at potential IP use cases. "Currently, a lot of emphasis is given to use cases of IP even if the main product doesn't turn out the way it was anticipated and one that helps in building some rationale on valuation. However, such ventures do carry the risk of requiring a lot of capital for building a successful IP and product."
Some sectors are funded, others remain capital-starved
Joshi sees huge variance in funding levels across deep tech sectors in India.
"India is the third largest startup nation in the world and thousands of startups getting started every year across various verticals. Currently, AI/ML/space tech/Semicon ventures are certainly the flavor and have gained investors' interest," he says.
"While AI/ML ventures are fairly funded and valued, the ones in semiconductor or space tech are reasonably underfunded, considering the amount needed to launch a successful satellite in space, Indian companies are underfunded but with time it should correct."
National security is not enough for VCs — yet
Countries like the US, China, and the EU are explicitly tying deep tech to strategic autonomy. So is India's VC ecosystem prepared to do the same?
"This is an encouraging development to build solutions around national security. However, it is unlikely the investors would back the venture only for this reason, the very basic criterion for investment is to make decent ROI on the investment, and that will continue," Joshi says.
What would help encourage investment in such a cause is favorable policies from the government encouraging the participation of private capital.
"The Indian government has come up with a new policy and has encouraged startups to build solutions for defense tech or space tech or even semiconductor and this move has generated interest from investors backing such ventures," Joshi added. "Once there is visibility of decent volume and scaling of the ventures, the investors would certainly be encouraged to explore investments in the ventures building products and services with sovereign capability."
Article edited by Jack Wu
