India’s startup ecosystem has been criticized for its focus on consumer-facing services rather than deep tech and manufacturing. Commerce Minister Piyush Goyal recently highlighted this issue, contrasting Indian startups with their Chinese counterparts. While Goyal’s assessment of the sector’s focus is accurate, the blame lies with the Indian government’s failure to create a supportive environment for manufacturing and innovation in crucial sectors.
The lack of government support has resulted in a business environment that favors consumer-facing services over deep technological advancements. The difference in government policies between India and China has been a significant factor in this disparity. China has heavily invested in creating robust infrastructure and supportive policies for manufacturing and technological innovation, while India has lagged behind.
This strategic focus has enabled Chinese startups to surge ahead in sectors critical for long-term economic growth and technological advancement. For India to catch up, significant reforms are necessary that foster innovation and support manufacturing. This involves creating policies that incentivize deep-tech research, providing easier access to funding for startups focused on innovation, and developing infrastructure that can support manufacturing industries.
Despite being the third-largest globally, India’s startup ecosystem disproportionately favors consumer tech over deep tech innovations like AI and semiconductors. Over 60% of VC funding is directed toward consumer-facing ventures, which hinders long-term national competitiveness. Atul Rai, CEO and co-founder of Staqu Technologies, emphasizes the need for a more balanced approach to venture capital allocation.
Indian startups need manufacturing support
While consumer-tech startups continue to thrive, sectors critical to the country’s technological advancement remain underfunded. There is a growing conversation about the need for strategic government interventions, such as tax incentives, to redirect investments toward deep-tech domains.
As discussions around policy adjustments gain momentum, stakeholders must rethink investment strategies to ensure that India’s startup landscape is not only expansive but also diverse and future-ready. Deep tech investments have picked up significantly compared to last year as venture capital firms adjust their approach to this segment. Funding activity reflects this shift, with 24 deeptech startups raising around $169 million from January to March this year, a significant increase compared to the same period in 2024.
Investors are gaining access to longer windows to support follow-on rounds and focusing on specific sub-segments within deeptech. This bespoke strategy marks a departure from the traditional one-size-fits-all approach to funding. Ashish Taneja, Founding Partner and CEO at growX Ventures, explains, “If you take our Rs 400 crore fund, Seed and Series B funding, we need a commitment period.
A large part of our deeptech seed space will happen in year one and year two to ensure we get the longest part of the tenure.”
Despite the longer timeframes required for these companies to achieve product-market fit, the deeptech segment remains one of high risks and high rewards. Arjun Rao, Partner at Speciale Invest, reinforces this by stating, “If you take five or six years to build a complex, cutting-edge product, you have higher demand and pricing power in the market. Your revenue uptake after commercialisation will be very fast.”
As the Indian deeptech ecosystem matures, VCs are adopting more calculated, patient strategies to tap into a segment poised to deliver groundbreaking innovations and substantial returns.
However, challenges remain, particularly for deeptech companies at the pre- or early commercialization stage, who struggle to raise subsequent funding rounds.
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