VCs & Founders Urge Govt To Introduce Tax Breaks To Spur Deeptech

Deeptech and semiconductor startups, along with top venture capitalists (VCs), yesterday urged commerce minister Piyush Goyal to introduce targeted tax incentives to spur investments in the deeptech sector.

The demands came during a roundtable in Bengaluru, which saw representatives of 35 deeptech startups and over 30 leading VC firms interact with Goyal. 

The startups also underscored the need for extending Startup India recognition benefits for deeptech ventures beyond the current 10-year limit and bring further clarity around FCRA-related rules for R&D funding. 

They also emphasised the need for flexibility in fund regulations and reforms in Department of Scientific and Industrial Research (DSIR) registration norms to enable early-stage deeptech ventures to avail R&D-linked benefits.

The roundtable saw participation from representatives of 35 deeptech startups, including QpiAI, Nabhdrishti Aerospace, EtherealX, Exponent Energy, SignalChip and QNu Labs. VCs such as Celesta Capital, Blume Ventures, Avaana Capital, Peak XV Partners , Creagis, and 3one4 Capital also attended the event. 

As per an official press release, the attendees shared perspectives on supporting long-term deeptech innovation and exploring avenues for co-investment. They also discussed policy frameworks that could help strengthen India’s position in global technology value chains.

Meanwhile, Goyal said that the Centre was committed to strengthening India’s deeptech ecosystem, enhancing ease of doing business, reducing compliance burden, and promoting innovation and entrepreneurship. 

He also emphasised the importance of scaling domestic capital, nurturing homegrown funds, and encouraging startups to develop frontier technologies in India.

The minister’s comments come amid growing clamour for building frontier technologies, such as large language models (LLMs) and quantum computing, indigenously. However, these emerging technologies are fraught with challenges. 

For starters, these emerging sectors have long gestation periods, require multi-decadal capital and need regulatory push. While India-centric VCs have grown in scale, they still largely operate on conventional fund cycles and expect returns within a decade – something that is at odds with long R&D cycles.

There is also a lack of testing infrastructure and a dearth of talent and trust, slowing adoption and collaboration. Due to these headwinds, homegrown advanced hardware and technology startups managed to raise a mere $311 Mn in the first six months of the ongoing calendar year.

That said, the situation seems to be on the mend. The Centre recently selected thirteen startups to build indigenous AI models and has rolled out incentives to build semiconductor plants in the country. Earlier this year, the Union cabinet also approved INR 1 Lakh Cr R&D fund. 

On the capital front, eight prominent India and US-based VC firms recently banded together to launch ‘India Deep Tech Alliance’ (IDTA) to infuse more than $1 Bn in the country’s deeptech startups over the next decade.