Are you an aspiring student entrepreneur who wishes to set up your own startup? Then DeepTech may be your best bet, say investors.
“The best thing students can do is build a deep-tech enterprise. Rather than building an enterprise company, Software as a Service (SaaS) company or consumer company, focus on building deep-tech companies. There are much better chances of being successful,” says Suresh Narasimha of CoCreate Ventures, a VC fund that primarily focuses on campus entrepreneurs.
Narasimha was speaking at a panel discussion on ‘The Role of Deep Tech and Sustainability in Shaping Tomorrow’s Innovation’ at the Global Startup Summit held at IIIT-Bangalore by Oxfounders, a start-up community created by students at Oxford University.
Investments double
For some time, DeepTech – a larger umbrella term for businesses that use advanced science and technology to build solutions to complex problems – has been making waves in the start-up ecosystem evincing investor interest increasingly. According to a recent report by VC firm Ankur Capital, the total deep science tech investments in India doubled in the last three years and crossed $1 billion in the 2021-2023 period.
The capital pool available for Indian start-ups has grown over the past years. Meanwhile, more and more investors are being attracted to the deep-tech bandwagon which they feel have higher chances of success compared to other start-ups given how technology acts as a strong moat.
“Chances of success for DeepTech companies are higher than consumer-facing companies. Capital is not a constraint,” says investor and mentor Harikrishnan Govindarajan, who was part of the panel.
According to him, most start-ups struggle when it comes to scaling up. As the start-up tries to acquire more clients or to expand to more geographies, it might need to customise its product/service to suit the customer or the new market. This requires money and most start-ups turn to VCs or other financing options at this point.
“The kind of money required for DeepTech is not as high as that for a consumer facing company or a SaaS company. So, the probability of success is very high. Students, therefore, have a very good chance at Deep Tech,” says Govindarajan.
DeepTech has been making waves in the start-up ecosystem evincing investor interest increasingly. | Photo Credit: Freepik
More funds, more startups
While investors vouch for capital availability for DeepTech start-ups in India, the founders don’t always agree. Many have pointed out that VCs more than often hesitate to open their purses due to their lack of understanding of technology and higher gestation period of DeepTech start-ups. Akash Shukla, co-chair at Commonwealth AI Consortium and who was part of the panel reiterated the same.
The investors on the panel differed, nevertheless.
“There’s a lot more capital available in India today. As an entrepreneur your chances of raising capital in India are probably the same as that in the U.S. They have larger funds and a lot more entrepreneurs eyeing that. So, a lot more capital is required there,” said Mr. Narasimha.
Pointing out that funding follows a pattern he further added, “In DeepTech, if you think you need to go through 3-4 rounds of pivots before you decide the use case then funding is going to be hard. There are grants and angel investors today. It is the responsibility of the founder to ensure that with whatever money they raise, they get to a point where they atleast get their first customer.”
According to him, the ability of the founder to persist as well as to maintain a good team for long term is paramount.
“The founder’s ability to persist and sustain, to pivot in terms of solution and not in terms of technology, is very important. You also need to have a team that stays with you for long term. In a lot of DeepTech companies, they raise money and build a solution, but then they are not able to sustain team leads. Unless you are able to do all these things with the first cheque you take, then don’t take that cheque is what I would suggest,” he said further adding that it was also important for startups to choose an investor who could add value to the business and help them find the right acquirers and investors.
A fund for everyone
But how easy could it be for a student entrepreneur to raise money given their status as a student and lack of experience? Not that hard, say investors.
Ashwin Raguraman, co-founder and partner at Bharat Innovation Fund, point out that there is much more capital available today compared to a few years back and given the large number of grants and angel networks “there’s a bunch of easier ways to raise the initial 1-3 million.”
“Nobody discriminates based on whether you are a student or experienced. There are positives with different types of demographics,” he says citing the example of BIF investing in IIT-M start-up Detect Technologies when the founder was pursuing his Masters.
Narasimha, who notes that there are funds available at all stages for a start-up in India today, seconds this.
“If you are building a DeepTech company, from day-1 to day-n, each day you should be acquirable. Any day, someone should be able to acquire you for the team or for the technology that you are planning to build, have built or deployed,” he says.
Interest in India Story
According to Raguraman, there’s also increased interest from global funds in the India Story. Bharat Innovation Fund is now in the process of raising its next fund.
“A lot of capital that was earlier going to China, they are now looking at other options. I won’t say they are settled on India as a destination yet. But it is going to increase the amount of capital that’s going to be available here,” he says.
However, while there is significant capital availability today, the flip side is that the number of startups vying for that capital has also gone up, he remarks.
Challenges persist
That said, it’s not all hunky-dory yet for the DeepTech startups. One of the persisting challenges is the nature of the Indian market itself.
“We are a solid consumer market. I don’t think consumer markets need DeepTech as much as enterprise markets which are more amenable to them,” says Raguraman.
According to him, for a start-up founder looking to build and refine their product, the Indian market is a very good choice as the enterprise customers here are extremely demanding.
“However, if you are thinking of volume and velocity or velocity and scale it takes a lot more time in India to scale, because the absorption capacity of enterprises is still slow. Many of them are running accelerator programmes and trying to induct startups into their conversations, but the real paying customers are sitting elsewhere in the world,” says Raguraman, who nevertheless is optimistic that around five years down the line, the story would be different.
Co-creative infra
Yet another problem is the lack of cocreation infrastructure in India, points out Narasimha.
“In India, that layer where a CEO trusts the technology, understand it, understands its impact much better than the entrepreneur and cocreates the solution with them, is missing,” he says.
An optimistic Govindarajan, however, notes in the next 10-20 years India would see bigger startups and unicorns coming from the DeepTech side.
