A significant step in the right direction — India’s very own deep tech startup policy!

Author: Sreyashee Das, Shikhita Gupta and Anish Tuteja

India has the 3rd largest startup ecosystem in the world, out of which, deep-tech start-ups account for only 12 per cent of the country’s overall startup ecosystem. Even though India has the ingredients needed to become a global driver of innovation, including market potential, talent pool and an underlying culture of frugal innovation but investment in deep-tech innovation is still a challenge. As India aims to become a global manufacturing hub gathering momentum, this can be a right time to support the in-house deep-tech innovations and provide them the right platform to reach the market.

Patient Capital can help in catalyzing the development of Emerging Technologies and enable a greater number of Indian innovators and deep-tech startups to develop, test, and enhance their products and services. There is an urgent need expand investment risk tolerance to truly unlock the value of India’s innovative potential. Research-based disruptive innovation, emerging from STEM (Science Technology, Engineering and Mathematics) are lying untapped in labs of research institutions. There is a huge scope in bring these disruptive innovations to the market!

Image Source: PSA, 2023

Understanding this need, the office of the Principal Scientific Adviser to the Government put out a draft National Deep Tech Startup Policy (NDTSP) which is a significant step in the right direction at the right time. We appreciate the Government’s dedicated focus on Deeptech startups and commitment of significant time and resources to the cause. The policy aims to support deep tech start-up research and development, simplify the intellectual property system for such start-ups, relax regulatory requirements, and suggest a variety of actions to support these businesses. The policy also includes resource-intensive policy approaches to attract global talent, and suggests the creation of an “Inter Ministerial Deep Tech Committee” to regularly review the requirements of enabling the deep tech ecosystem to function better which can be a game-changer. This policy will help in the expansion of the Indian deep tech startup ecosystem to a global level.

The policy is well intended and addresses some key areas, however its on-ground implementation would need some clarity and a special focus to address certain challenges like:

1. Policy Implementation

• There is a need to define some early priorities or focus areas of work for the initial years of the policy since the policy is very comprehensive. Having specific targets for the next 5 years will help to guide implementation and provide support to the deep-tech start-up ecosystem.

2. Funding

• The policy suggests setting up a dedicated ‘deep tech capital guidance’ fund in which the government, private limited partners, and foreign investors anchor certain commitments to a new fund or an existing fund in the form of a fund of fund (FoF) structure which can be a challenge. Instead, there could be a dedicated segment for Deep-tech within the existing FoF at SIDBI.
• Also, the funding needs during the development phase of deep tech start-ups will differ according to the specific technology they are working on. Establishing a rigid upper limit might not be practical for certain start-ups, as the complexity of their technology plays a significant role in determining their financial requirements.
• In 2023, the government proposed the creation of the National Research Foundation (NRF) to boost private sector contributions to research in India through their CSR corpus. But whether we will have a specialized focus to support R&D in the Deep-Tech sector is still not very clear and would require more policy intervention.

3. Support to Existing Ecosystem

• The policy also needs to provide more clarity on how it will pan out for other existing Start-up Schemes in the country like Innovations for Defence Excellence (iDEX), SUI-Start-up India Scheme, Atmanirbhar Innovation Challenge, National Initiative for Developing and Harnessing Innovations — Seed Support System (NIDHI — SSS) and NRF. The policy should also help to figure out how all these schemes will function in tandem with each other.
• The policy also needs to highlight the importance of Incubators and Innovation hubs which can play a critical role in assessing the innovation for commercialization and scalability from their experience of working in the innovation ecosystem.

4. Creating a Supportive Ecosystem for Start-ups

• There is a need to get some clarity on how the companies will be identified which will truly qualify as Deeptech and will be the right technologies for receiving the funding support. Incubators here can act as the primary screening committee for identifying these start-ups and assisting with the proper implementation of the policy on-ground.
• Along with funding support to deep-tech start-ups, there is a major need for hand-holding and mentorship support to help these start-ups stay on track with their milestones. Incubators can provide this support to start-ups making sure that deep-tech innovators do not lose sight of their goals and help them identify their customers to reach product-market fit.
• There is a massive wave of Indian start-ups flipping to other geographies, therefore the policy needs to suggest more strategic support to start-ups to scale up their operations while working with a minimum viable product.
• The ‘Government Purpose Rights’ and ‘March in Rights’ mentioned in the policy can appear as a risk to start-up founders; therefore start-ups might not go for Government funding under strategic sectors.

5. Onboarding Academia

• Offering incentives like appraisals to faculty members and researchers can indeed encourage support for entrepreneurial innovations. However, it is essential to recognize that not all intellectual research will necessarily translate into successful commercial ventures. Therefore, it is crucial to emphasize the need for guidance and thorough evaluation to ensure that the right projects receive the appropriate backing.
• Professors taking sabbaticals to work on research and innovation projects and turning them into start-ups should be incentivized.

6. Deeptech as a Climate Solution

• There should be specific recommendations around Climate Innovation and Clean technologies to understand the journey going forward and to become the global leader in the Climate sector.
• The policy can become a guiding document in helping Deeptech innovators take the lead to come up with technology-based solutions to help us reach our NDCs, and Climate targets, and transition to a sustainable and green future.

Sangam which is a Climate fund has been assisting Deeptech climate start-ups, our incubation facility AIC-Sangam has been assisting start-ups with funding and mentorship support. Through this policy, we would like to support our country in taking Climate innovations to the global platform and opening avenues for living in harmony with nature.

We are hopeful that this policy can help in setting up the right infrastructure and ecosystem support for Deep-Tech Innovators in the country who are expected to contribute an important part of the 5% to the GDP of our country in the next 5 years!

References:

1. National Deep Tech Startup Policy (NDTSP) — Principal Scientific Advisor. (n.d.). https://www.psa.gov.in/deep-tech-policy
2. P. (2023, August 15). Govt policies helped India become world’s 3rd largest startup ecosystem: PM Modi. The Times of India. https://timesofindia.indiatimes.com/business/startups/companies/govt-policies-helped-india-become-worlds-3rd-largest-startup-ecosystem-pm-modi/articleshow/102743801.cms?from=mdr
3. India’s DeepTech Start-ups — Poised for Impact | nasscom. (n.d.). https://nasscom.in/knowledge-center/publications/indias-deeptech-start-ups-poised-impact
4. Shankar, V. (2023, February 5). Indian Deeptech Startup Trends To Watch Out For In 2023. Inc42 Media. https://inc42.com/resources/indian-deeptech-startup-trends-to-watch-out-for-in-2023/
5. Hingorani, N. (2021, December 11). Increasing Patient Capital to catalyse the development of Emerging Technologies: A call to action for Indian venture capitalists. ORF. https://www.orfonline.org/expert-speak/increasing-patient-capital-to-catalyse-the-development-of-emerging-technologies/
6. Sharma, S. (2019, October 29). Patient capital a must for deep-tech funds and startups: Hemendra Mathur, Bharat Innovation Fund. Techcircle. https://www.techcircle.in/2019/10/29/patient-capital-a-must-for-deep-tech-funds-and-startups-hemendra-mathur-bharat-innovation-fund
7. India, E. (2023, March 15). How the start-up ecosystem is thriving in India with the help of private capital. www.ey.com. https://www.ey.com/en_in/india-at-100/how-the-start-up-ecosystem-is-thriving-in-india-with-the-help-of-private-capital