Indian Deeptech Startup Trends To Watch Out For In 2023

2022 may go down as a watershed year for deeptech companies. Over the last three years, we have seen a 100% YOY increase in deeptech startups which includes space tech, EV, robotics, AI automation, and climate change. 

Macros have had an exaggerated role play in 2022, with the Russia-Ukraine crisis playing havoc with the oil prices, spurring the adoption of EVs to an extent in India. The lack of Russian rocket launch infrastructure could lead to more business for Indian space tech startups like Agnikul.  

The Russia-Ukraine war has also shifted dynamics and created an urgent need for an ‘Atma Nirbhar’ Bharat. This has resulted in multiple grant and support programmes by both the defence ministry and armed forces, such as IDEX grants, all of which lead to more deeptech startups.

IN-SPACe (Indian National Space Promotion and Authorization Center), established by the government, has had a significant impact on the space sector and related companies, and the drone policy framework is clear. The DGCA has begun developing a policy framework for flying taxis. ISRO has opened its facilities for private launch and testing for space startups.

The government also relaxed restrictions on the use of satellites for data, GIS, and mapping in a variety of applications. All of these are good policy statements from government events, and there has been a shift in public perception of climate change. It is now being taken more seriously, which has implications for how the entire deep tech sector will play out over the next two to three years.

Key Deeptech Sectors In Focus

The key sectors that we think will work for companies are climate tech, space, and electric vehicles (EV).

Spacetech

From both funding and milestones achieved, the spacetech sector has performed exceedingly well in 2022. We’ve had startups such as Skyroot and Pixel, getting to test their first versions of the product launched.  

Agnikul is also expected to do a test launch shortly. Not only have each of these companies achieved significant milestones but many have started attracting large capital pools compared to the past. 

EV Adoption 

EV adoption peaked in 2022 (9,42,756 2W sold in the previous 12 months), and the industry is transitioning from the early adoption phase to the next stage in the adoption curve. Mass adoption is only a matter of five to six years. 

This has led to advancements in battery management systems (BMS), material science and thermal management, and BLDC motors. Over the next few years, significant investments will be made in all aspects of EVs. Exponent energy, log8, Race energy, and other well-known companies are examples. 

Battery charging infrastructure will also require significant investment in the coming years, and the government of India’s standardization of batteries for swapping will be a significant milestone in 2023, increasing adoption.

Climate Tech 

Climate technology, like the nascent internet in the 1980s, is a horizontal play that will be adopted across all verticals.  Climate technology will encompass EVs, electric/solar drones, electric planes, water management, carbon capture devices, green hydrogen, industrial chemicals, agriculture, and alternative proteins as a whole.   This will, hopefully, have a positive impact on our lives and the planet in the long run.  

Furthermore, the responsibility of investors shifts from simply being money managers who provide high returns to providing sustainable businesses with high returns.  This would be a funding paradigm shift that we expect to see over the next decade, with 2020 as the starting point.

Expected Deeptech Trends In 2023

IP Creation Will Be The Most Crucial Factor

An inherent advantage for most deeptech companies is IP creation, which is valued beyond the immediate revenues and profits.  This leads to the creation of knowledge and IP, which will lead to a virtuous cycle in the coming decades to build a strong nation. 

Unit Economics Will Drive The Deeptech Sector

Deeptech companies inherently create IP, and IP creation takes time. However, for most businesses, once they’ve proven themselves and their product is proven to be viable, profitably becomes a matter of 2-3 years. 

We do not expect them to be profitable in 2023, but we believe there is a good chance that some of the mature ones will become unit economics positive in 2023. 

Deeptech Will Be A Long-Term Play On The Global Stage 

A sector like deeptech is global in nature from day one because it’s not geographically tied, typically. So, globally, given the urgency of climate action, deep tech is a long-term play that is here to stay. 

We may see a slowdown in funding for the sector in the short term, but deep tech companies will do well in the medium to long term because they are doing fundamental innovation with atoms (hardware) rather than bits (software). 

Funding Will Remain Stable, Too Early For M&As 

Funding should be stable for pre-seed/seed-stage startups in deeptech. It is too early for M&As; the sector must mature and develop the missing middle in the deep tech sector, which is the availability of Series B+ funding.  

We need a couple of companies to demonstrate that profitable businesses can be built in the industry, and we need growth-stage investors to jump on the deeptech bandwagon. Deeptech also needs to be better understood by some of the country’s larger investors. Perhaps it will take a few years for some of these larger VCs to join and play this game.  

Deeptech Unicorns Will Emerge

In the next two years, the next boom cycle, we should see the emergence of unicorns in this space. The talent pool in the sector is limited, so we don’t expect large layoffs for these companies. 

In the next five years, the market is large enough to support ten or more unicorns in deeptech.  In the next decade, we will truly see India open up to the rest of the world, with world-class companies emerging in this sector.