Industry Welcomes Draft National Deeptech Startup Policy But Highlights Implementation Concerns

Industry stakeholders have welcomed the draft National Deep Tech Startup Policy (NDTSP), 2023 but have also raised concerns about its implementation.

The draft was released for public consultation by the NDTSP Consortium on July 31. The proposal will be open for public feedback until September 15.

The recommendations cover nine themes, which aim to strengthen funding avenues and intellectual property (IP) rights to foster a conducive ecosystem for deeptech startups. The policy also aims to address various complex challenges and suggests necessary policy changes to fuel the ecosystem.

“… we welcome the Indian government’s new policy to spur further growth in this space, a move that reflects India’s great potential to blossom into the next global hub for deeptech. This is a natural next step to build upon the groundwork already laid by global tech companies, entrepreneurs, and many other leaders to develop the emerging Indian deeptech ecosystem,” said Arun Kumar, the managing partner of Celesta Capital, a deeptech-focussed VC firm.

Deeptech-focussed VC firm Speciale Invest has also welcomed the policy, saying that it holds immense potential to shape the future of technological innovation in India and will provide a strong foundation for deeptech startups to flourish in the country. 

Speaking with Inc42, managing partner at Speciale Invest Vishesh Rajaram said that the grant for product development and technology validation is a big plus because there’s not enough risk capital. Noting that the biotech department has been a lot more active in offering grants, he added that a similar offering for the deeptech space would level the playing field and offer more benefits. 

“I think we’ll just have to put this policy to play, start going through the implementation and then pick up on the learnings that come from it. The policy is actually very positive, and it takes a lot more attention, care, capital, systems, and guardrails to scale the ecosystem. So, any help is most welcome,” Rajaram added. 

Echoing similar sentiments, startup incubator T-Hub’s chief executive officer (CEO) Mahankali Srinivas Rao said, “Startups will reap the benefits of strengthened intellectual property rights, providing them with the confidence to push the boundaries of technology without fear of imitation. Access to funding will become more streamlined, facilitating the translation of groundbreaking ideas into tangible products and services that meet the needs of a dynamic market.”

However, quantum computing startup BosonQ Psi‘s Aditya Singh, while lauding the draft, said that the government could be looking at leveraging the deeptech boom to further economic growth and make the country technology-ready via the policy. 

Taking The Right Steps

The draft envisages a minimum grant of INR 2 Cr at the proof-of-concept stage and a minimum of INR 3 Cr grant at the prototype stage. 

On this, Singh flagged a slew of concerns saying that government grants in the country take anywhere between six to seven months at the minimum and involve a lot of paperwork. This, as per him, makes the process cumbersome compared to countries like the US and the UK where grants are processed much faster. 

Singh noted that deeptech technologies are expensive to build due to high talent cost and steeply-priced embedded hardware and software in prototypes. 

This is especially true for deeptech startups operating in the automotive and aerospace industries where the expenditure of a mere launch or building a product may cost millions of dollars. Singh said that it would bode well for the ecosystem if such grants come alongside collaboration with leading enterprises in the segment too. 

Speaking to Inc42, deeptech-focussed global market intelligence firm BIS Research’s Gaurav Gaggar termed the policy a step in the right direction. Noting that deeptech startups generally have a long road to commercialisation, Gaggar called on the government to establish a framework to ensure push for deeptech companies is not linked to their financial performance. 

“We should create a special exchange where shares of deeptech companies could be listed for smaller investors to partake in these companies, as opposed to waiting for VCs, which generally come very late into the picture,” added Gaggar. 

He also called on the government to learn from the mistakes of other countries which have also implemented similar policies. 

While highlighting the aspects of the draft related to creating favourable IPR regime in the country, Vaibhav Gupta, partner, Dhruva Advisors, suggested a tax exemption on the licence fee for domestically registered patents in a bid to incentivise homegrown intellectual property (IP) creation and ownership. 

“ESOPs (employee stock option plans) form an important part of the compensation and talent retention strategy at such startups. Given the longer road to commercialisation, deferring the tax on ESOPs to the point of sale may help bring in equity for employees,” Gupta added. 

He also called for expanding the list of AIFs (alternative investment funds) and investors exempted from Angel Tax for deeptech startups for a limited time frame to further fuel the capital inflow into the ecosystem. 

Reacting on the policy, the founder and lead investor at Capital A, Ankit Kedia, said it was important to invest in both hardware and software solutions to achieve sustainable deeptech solutions. 

“Investing in both hardware and software solutions should be viewed as a symbiotic relationship rather than a disjointed effort… Investors often overlook the significance of hardware development when allocating resources and investments. By focussing primarily on software solutions, we risk neglecting the foundation upon which these innovations are built,” Kedia added. 

At the heart of the development is the recently unveiled draft National Deep Tech Startup Policy. The draft document claims to be aligned to the existing Startup India policies, programmes and initiatives. 

Overall, the policy covers nine major themes: 

• Nurturing research, development and innovation
• Strengthening the intellectual property regime
• Facilitating access to funding
• Enabling shared infrastructure and resource sharing
• Creating conducive regulations, standards, and certifications
• Attracting talent pool and initiating capacity building
• Promoting procurement and adoption
• Ensuring policy and program interlinkages
• Sustaining deeptech startups

While many experts Inc42 spoke with called for greater collaboration between the government and the homegrown deeptech startup ecosystem, the way ahead appears peppered with challenges. With the policy yet to take shape, it remains to be seen what other changes are sought by industry stakeholders and implemented by the government.