[Yojana June Summary] Deep-Tech Start-up Ecosystem – Explained, pointwise

Introduction

India has a vibrant start-up ecosystem with supporting infrastructure (incubators, development grants, angel venture investors, mentors) and a conducive policy environment. The Economic Survey of India 2021-22 says that there are 61,400 registered startups in India, making it the 3-largest start-up ecosystem in the world behind China and the US. However, India lacks deep-tech start-ups as they constitute less than 1% of the number of start-ups. This is far below what a fast-growing, complex, and large economy like India should have.

What is the current status regarding Start-ups in India?

Around 14,000 new start-ups were registered in India during Calendar Year (CY) 2021. Over the past decade, Indian start-ups have created 6.6 lakh direct jobs and 34 lakh indirect jobs.

Indian start-ups raised US$ 24 billion in CY21, compared to US$ 10 billion in CY20. There has been a significant localisation and diversification in the investor pool for startups in India over the past decade. There were more than 750 institutional investors in India in CY21, 80% more than in CY20. The number of angel investors grew in CY21 by 20% to about 2,400. More than half the investment deals in CY21 had an India-based investor. 

Over 250 corporates have engaged with Indian start-ups in some way, including by running 80+ open innovation programmes for startups in CY21.

What is a deep-tech start-up?

The phrase ‘deep-tech start-up’ does not have a precise definition, but there is a broad consensus on what constitutes deep-tech. Deep-tech startups arise from research-based, disruptive innovations from STEM labs of academic, research institutions and solve hard problems and challenges. Some examples are: (a) Recycling sewage to get clean water at an affordable cost; (b) A low-cost solution at scale for curing blindness; (c) Affordable solutions for treating diseases such as diabetes, dementia, cancer, etc.; (d) Creating an alternative to Lithium-ion batteries; (e) Low-cost satellite launching systems.

According to NASSCOM, Active tech start–ups that create, deploy or use advanced technology in their product or service are considered as deep-tech start–ups. Such start-ups work in the domains of (not limited to) Artificial Intelligence/Machine Learning, Internet of Things (IoT), Blockchain, Big-data, Augmented/Virtual Reality (AR/VR), Robotics etc.

The payoffs of successful deep-tech startups are tremendous as seen in the case of Microsoft, Google, Apple, Intel, Tesla, Moderna, SpaceX, etc. They are large corporations today, but they started as mere technology bets not very long ago.

What is the need to have deep-tech start-ups in India?

First, the absence of deep-tech start-ups harms India considerably by weakening her capability to meaningfully address complex socio-economic challenges that afflict the society in multiple sectors. This includes agriculture, healthcare, transportation, education, energy, etc. India’s development challenges are so unique that innovators from developed countries, not familiar with local context or cost structures, will not be able to provide solutions. 

Second, the solutions that address the UN’s Sustainable Development Goals would necessarily have to be radically new and disrupt existing industries and business processes. Thus, requiring deep-tech start-ups.

Third, in India’s population of 130 crores, only the top 25% (affluent and middle-class) benefit from the fruits of technological progress. In contrast, the remaining 100 crore people do not get enough or are substantially bypassed. This is because most of the hi-tech goods and services are designed in the developed world for rich people and can’t be bought by the poor.

Source: NASSCOM

What are the challenges faced by Deep-Tech Start-ups?

First, they need a longer gestation for development than other start-ups. The latter might need from 1-3 years to reach revenue, while deep-tech start-ups need 5-8 years.

Second, they require more capital, specialized talent, and expert knowledge in more than one domain to develop and validate a science-based innovation.

Third, the risk of failure is high at every stage for a deep-tech start-up, usually higher than in the case of other types of startups. It is because the start-up has to work backwards and find a real-life problem that is worth solving using its technology. After this, it has to validate the adequacy and nature of the market demand for the innovation.

Fourth, there are several venture funds in India, but most pursue relatively ‘lower risk’ investment opportunities. They are mainly interested in start-ups that exploit India’s growing consumption economy or those making cloned products.

Fifth, academic researchers in India lag in their potential to convert research into deep-tech start-ups. They lag because: (a) They aspire to convert their inventions into enterprises but do not have the mental make-up (the entrepreneur’s mindset). They lack the knowledge of how to organize what they have and collaborate with others to get what they do not have/know; (b) With their limited budgets, incubators face a tough challenge to nurture start-ups to scale their revenues and attract investments; (c) There is inadequate appreciation amongst policymakers and university administrators for the need to build capacity on what entrepreneurship entails and what commercialisation of research means. 

What steps have been taken by the Government to support start-ups?

The Central and State governments in India have actively supported the startup sector over the past decade. 

Start-up India platform: It started in 2016 and has been instrumental in encouraging startups and integrating them with the corporate and investment community. 

State Specific Policies: Over 26 States in India have a startup policy. Recently, Delhi Cabinet has passed an ambitious Delhi Startup Policy which it hopes would turn the capital into an international startup hub.

Source: Mint

What more can be done going ahead?

First, India should introduce Customer Discovery and Customer Development programmes to develop deep-tech start-ups from academic/ research institutions in India.

In 2013, the US Government through the National Science Foundation’ introduced the I-Corps programme’ to commercialize academic research in US universities. The I-Corps program uses experiential education to help researchers gain valuable insight into entrepreneurship, starting a business or industry requirements and challenges. Similarly, The Gopalakrishnan-Deshpande Centre for Innovation & Entrepreneurship (GDC) at IIT Madras has successfully run its I-NCUBATE programme which is inspired from the I-Corps program.

Second, the Government should inculcate a culture of entrepreneurship in students by adding the subject in the school curriculum of schools. For instance, the Delhi Government introduced entrepreneurship classes and a Business Blasters Program for students.

Third, the Government should also provide monetary and non monetary incentives to start-ups. Monetary includes reimbursement on lease rentals, reimbursement grants for filing patents, reimbursement for exhibition stall/rental cost etc. Non-monetary includes facilitating participation of companies for subsidized subscriptions of technology offerings, organizing fundraising events, relaxing government procurements process for start-ups etc.

Conclusion

Data would be the driving force of the 21st century world which shows the immense relevance of establishing deep-tech start-ups. Keeping this in mind, India should work relentlessly to become Atmanirbhar in commercializing domestic science and technology for solving our complex problems.

Source: Yojana June 2022, Mint, NASSCOM