India is now home to more than 3,600 deeptech start-ups, with over 480 being established in CY2023, 2X higher than the number established in 2022, according to a new report by Nasscom.

Of these 480 start-ups launched in 2023, over 100 are inventive deeptech firms that have developed intellectual property or innovative solutions in new domains. Notably, 74 per cent of the deeptech start-ups established this year have concentrated on AI, a significant increase from 62 per cent in the period from 2014 to 2022.

This comes even as the global downturn in start-up funding has also seen an impact on the Indian deeptech start-up ecosystem. In CY2023, Indian deeptech start-ups secured $850 million in investments (a decline of 77 per cent over CY2022), with AI start-ups garnering a majority share of this.

Funding Slump

Both early and late-stage deals have witnessed a reduction of over 60 per cent this year. This downturn is primarily attributed to smaller average investment sizes at both the seed and late stages and investors remaining cautious largely due to the extended gestation periods typical of these ventures. 31 M&A deals were reported in CY2023, a decline of about 45 per cent as focus shifted to accelerate tech capabilities that provide the AI edge.

The DeepTech start-up ecosystem is also witnessing an increased thrust on building solutions that are sector-focused. The report highlights four sectors that are of strategic importance, including space and defence, healthcare, automotive, and industrial manufacturing. 500+ start-ups across these four sectors are building solutions for electrification, industrial robotics, surveillance and drones, satellite imagery, propulsion systems, cancer diagnostics, etc.

Although the majority of DeepTech start-ups have traditionally been concentrated in established hubs, owing to a mature ecosystem and talent access, there is growth in emerging hubs being witnessed. 110+ DeepTech start-ups were incepted in emerging hubs in 2023 — a twofold increase from 2022 and the highest growth in the last five years, driven by an expanding talent pool, cost advantage, supportive ecosystems, and proactive policies enhancing innovation in these areas.

Key challenges

The report also highlights the key challenges for the deeptech ecosystem and the need for an integrated approach to accelerate its growth. While India is ranked 3rd in the technology start-up ecosystem, it is in the 6th position for deeptech start-ups.

Sharing her views on the Indian deeptech start-up ecosystem, Kritika Murugesan, Head, Nasscom Deeptech, said, “For India to be in the top 3 DeepTech start-up ecosystems, key areas that need support are: access to patient capital for DeepTech start-ups to build and scale their products; strong R&D partnerships with academia for nextgen innovation; streamlining government procurement for startups to build India-specific solutions; and implementation of the DeepTech Policy that was tabled in 2023.”