In the previous article, I wrote about the requirement of PhDs for India to be Aatmanirbhar in DeepTech (includes Deep Scinece). In this article, I would like to discuss the second important aspect- Capital.
The VC/PE in industry in India I would say is about 15 years young and it really has taken off in the past decade. Compare this with US which is more than 50 years old. In addition, we are still a $3.5T economy compared to US which is around $27T. These numbers are worth mentioning only from the perspective of capital (“Money”) availability.
DeepTech requires lot more capital than what a typical product startup working on SAAS requires. It is well known that its typically a 7-10 year journey for before any visibility on the outcome. What I mean by outcome is feeling confident that a “Product Market Fit” (PMF) exits. Compare this to 2-3 years for a typical SAAS product.
The implication of this is availability of patient capital as well as larger pool of capital. In India, we are in the very early stage of both these aspects. Most of the VC fund cycles are less than 10 years and most of them are below $75M. According to data from Venture Intelligence, there are only 95 funds in India whose size is more than $75M.
These numbers are very important as the average investment required in a DeepTech company to get to a PMF is a minimum of $12-$15M. This implies a VC fund (assuming syndication) must invest at least $4M to get to PMF visibility and here lies the problem. This rules out any fund that is less than $50M in size due to VC investment dynamics. We must either have larger funds in India or we need to attract external capital i.e. foreign capital.
Unfortunately, it has been very hard to attract foreign capital for India domiciled startups in the range $5-$15M. This is due to multiple factors- ease of business that includes statutory hurdles, unknown market, unproven outcomes for DeepTech startups. We have early beginnings in the space startups which have attracted foreign capital at the series A stage. It is very important for these startups to prove our capability build scalable startups. This in turn will increase the trust factor in our ability and enable us to attract more capital.
In multiple conversations with US based VCs, there is an inherent fear on the M&A process and the regulatory hurdles it poses. Some of it is real and some of it is perception. If is very hard to change perceptions. This can only change when there are successful outcomes. To solve the capital issues, there has to active engagement at two levels- attract foreign capital to invest in India based VC funds and attract VC funds of invest in early stage Indian DeepTech startups. There has been greater acceptance to invest in India based VC funds and SEBI AIF and IFSC AIF are aiding this significantly. The policy measures taken in attracting and distribution of capital has helped significantly.
However, VC Funds investing in India domiciled DeepTech Startups is an unsolved problem. If we have to solve the capital issues for DeepTech startups this issue needs a resolution. It will be very hard to build DeepTech startups in India without it.
India will produce DeepTech startups and we already have shown this capability. However, to accelerate this, there has to be concerted effort from the government and the ecosystem to attract early stage VC capital into India for us to be Atmanirbhar in DeepTech.
Naganand Doraswamy is an entrepreneur turned investor. He is the founder and managing partner in Ideaspring Capital focused on early stage deep tech and product investments.
Disclaimer: The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.
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