Founded in 2008, growx aims to support around 20-24 startups over the next two and a half years with its second fund, half of which will be deployed in deeptech startups
From a capital allocation perspective, 25% of the second fund go to the seed rounds and the rest 75% into Series B
I think 2025 is going to be a year where capital allocation will get rebalanced and rethought largely because of public market sentiments
India’s burgeoning deeptech — spacetech, AI, semiconductor, robotics and IoT — sector is calling for more venture capital (VC) money and government support. And deeptech VCs are answering this call.
Over the past year, we have covered the deeptech investment playbooks for some of the major funds in India, and joining this group is growX ventures, which recently launched its second fund with a target corpus of INR 400 Cr (about $47.12 Mn)
For growx ventures’ founder Ashish Taneja, India’s future is all about deeptech. Founded in 2008, the firm aims to support around 20-24 startups over the next two and a half years with its second fund, half of which will be deployed in deeptech startups.
The firm’s first SEBI-registered fund was launched in 2018 from which it invested in a total of 17 startups, eight of which were in deeptech, across segments such as spacetech, EVs, robotics, and cyber security.
In a conversation with Inc42, Taneja said that over the years, growX has focussed on deeptech investments, but at the same time, it also backed B2B, enterprise tech, and SaaS startups. But the second fund is almost entirely dedicated to the deeptech sector.
“What we have noticed is that the quality of entrepreneurs pursuing these deeptech dreams is now far wider. A lot more young graduates from institutions like IIT Chennai, BITS Pilani, or IISC are coming out with ambitious ideas at very early stages of their careers to build something unique. So, we remain excited. Gauging this great prospect in deeptech, our fund II will be dedicated to deeptech at the seed stage,” Taneja told Inc42 in a recent interaction.
Taneja’s optimism comes from his belief that India will see some truly path-breaking ideas coming out in the deeptech domain as well as large companies being created. But if there’s been one persistent complaint about deeptech VCs, it’s about the short horizons and untenable exit points that many seek. How will growX tackle Indian deeptech’s need for patient capital?
Edited excerpts
Inc42: We haven’t seen too many unicorns from the deeptech sector in India so far? Are investors wary of high multiples and valuations in this space?
Ashish Taneja: Honestly, when we talk about deeptech unicorns, I don’t think we should talk about valuations but rather from a value and revenue perspective.
For example, take spacetech as a sector, which has witnessed some significant developments over the last two years. If you look at the valuation of some of the startups here, I think the highest valuation today would be around $250 Mn-$300 Mn.
Do I expect a couple of those companies to become a billion-dollar company in the next 12-24 months? The answer is yes.
But the excitement for me is not a unicorn by valuation. These companies today have insignificant revenue, between nil to $10 Mn range. I want to see the first $100 Mn revenue company coming out soon in spacetech.
Given the kind of market opportunity available at a global level and the amount of headroom for Indian startups, we expect some of these promising young companies to go out and build a large business. We see startups like Pixxel, Agnikul, and Skyroot being ahead in this game and we expect these companies to make news around revenue as opposed to unicorn status.
There are a few others such as GreyOrange in robotics who are also contenders here. However, the deeptech sectors, like semiconductors, genomics, and cyber security, are still nascent.
And deeptech takes time to build. Five years from now, around 2030, we will see a bunch of these startups scaling up to become large-size companies.
Inc42: But deeptech is not your entire focus for the second fund, right?
Ashish Taneja: No, we are doing something called a stage diversified portfolio. For deeptech, we will be investing only in the seed stage. We will also invest in Series B companies from this fund, which will include the traditional B2B sectors like healthcare, financial services, supply chain and logistics.
Seed stage is what we have done in the past where we enter at a pre-revenue, often, pre-product or pre-launch level, take 8% to 12% ownership in those companies, and work closely with these deep tech founders to build it up.
Inc42: Will you keep supporting your existing portfolio startups in their Series B rounds or make new investments?
Ashish Taneja: Maybe 10% to 20% could be our existing portfolio companies who graduate to that level, but the rest are going to be new companies. In both buckets, we are looking to build a portfolio of 10 to 12 companies each.
From a capital allocation perspective, 25% will go to the seed rounds and the rest 75% into Series B. In terms of ticket size, it’s going to be INR 8 Cr on average for seed stage startups and INR 30 Cr on average for Series B.
Inc42: Within the vast deeptech sector, do you have a preference for any segments?
Ashish Taneja: Our realisation is that true disruption happens at the grassroots level, and it comes with the founders who are imagining these large companies of the future.
They are the ones figuring out which of these deeptech segments can be built right now. Our job is to read about those sub-sectors within deeptech. So today, we read a lot about defense and cyber security. We are also mapping opportunities in semiconductors, material science, and nuclear fusion etc.
We are preparing ourselves to be mentally ready that when a high-quality founder comes in and pitches to us, we must have the right questions and framework to evaluate these opportunities. We are not chasing them.
Inc42: During the most recent funding winter, growth stage startups have faced more difficulty in raising funds. Will this remain the case for deeptech as well?
Ashish Taneja: I think Series A today is more challenging, especially for a deeptech company. We have noticed that deeptech companies do not always reach product market fit in Series A. They are still at pre-revenue level, a product might be there but not fully ready, the clients are there, but not fully commercialised. So, the underwriting in Series A investments here is also based on the founders.
In general, the seed stage is mostly about the founders and how they are imagining a particular problem that they aim to solve. VCs get excited more about the founders and their nuanced approach to solving that particular problem. Series A also largely tends to be the same narrative.
Series B tends to be more data-driven, because by then there are clients, products, use cases, and we can draw up a growth trajectory and paint a better picture as to what to expect over the next two to five years. And that’s the big rationale for growX ventures to pick up Series B as an investment priority and not Series A.
Inc42: Do you think India has a dearth of patient capital, which is crucial to support deeptech innovation?
Ashish Taneja: Patient capital is absolutely required. Having said that, we have seen the needle move in India over the last decade or so. When growX ventures did its first deep tech investment back in 2014-15, the teams had to travel to China even to do the prototypes and get access to high-quality factories.
Today, there are labs and an ecosystem, and components are available. There is a supply chain that companies can rely on. People are now seeing success and they now understand what a deeptech venture truly is.
Therefore, there is an appetite to back this success, which essentially means that the amount of risk capital available has increased manifold. And people, through the journeys, have realised that this is a long gestation game.
Investors have to realise that sometimes these deeptech companies are chasing fundamental science-level breakthroughs or working with existing technologies, but building something very unique and novel. Investors can’t push the teams to deliver it in a short period of time.
So, I would say, first, India needs more domestic capital. And this means that more and more corporate venture arms will be set up and more corporations will start backing venture funds or entrepreneurs directly, which means there will be more balance sheet money. And balance sheet money tends to be more patient capital.
That change has begun. In fact, the approach that the Kamath brothers have taken through Rainmatter signifies more patient capital.
But investors can’t just put in capital when there is no demand. And, In India, supply happens after some significant demand is created. This is true across sectors. So, when people will see more high-quality founders coming in, capital will flow.
Inc42: How does 2025 look like for growX ventures from an investment perspective?
Ashish Taneja: I think 2025 is going to be a year where capital allocation will get rebalanced and rethought largely because of public market sentiments. People are going to realise that the public markets probably will not give the kind of returns we have seen over the last two to three years, and a lot of people, therefore, will open up their wallets towards private investing, which essentially means more allocation towards high-quality unlisted tech companies. That will be one fundamental shift.
The second piece is that there is going to be a preference for innovative ideas as opposed to “me too” ideas. Most investors are looking at high-quality founders building unique teams for the country and for the globe.
The good thing is the Indian startup ecosystem is maturing now. We have second-time and third-time entrepreneurs and people have seen exits. This will also make the founder’s ecosystem stronger. And we will continue to see a lot more of these.
Besides, sectors like defence and manufacturing will get more capital allocation helped by the government’s policy push.
[Edited by Nikhil Subramaniam]