Investing in India’s deeptech startups isn’t new; venture funds have been doing it for a while. Now, the startup ecosystem is seeing the rise of deeptech accelerators, where generalist funds help and handhold fledgling firms.
Global funds like Accel and Lightspeed Venture Partners have launched deeptech programmes in India in the last six months. The India Deeptech Alliance, which was formed in September last year, has partnered with the University of Chicago to steer IIT-affiliated early-stage deeptechs through a 10-week programme.
Does this mean India’s deeptech ecosystem has turned the corner? Or are investors trying to secure early access to scarce frontier intellectual property? Mint explains.
Why are generalist venture funds launching deeptech accelerators?
In the past couple of years, many deeptechs founded in the mid- and late-2010s have turned commercially viable and revenue-generating. In manufacturing, aerospace and defence, many companies are preparing for launch, witnessing an influx of customers, or have gone public.
Precision manufacturer Aequs went public last year, while deeptech manufacturer Sedemac’s initial public offering was approved by the markets regulator. Agnikul Cosmos and Skyroot Aerospace plan commercial rocket launches this year, while hyperspectral imaging company Pixxel has been taking more of its satellites into orbit. While not all fit a single definition of deeptech, they reflect a broader shift: hardware-heavy, R&D-intensive are now reaching commercial milestones.
The rise of such startups has given Indian venture capital investors confidence that the sector is maturing. This, in turn, has them hunting for startups that could be the next billion-dollar business. And an accelerator programme is a pathway to finding that company early.
How are deeptech accelerators different from regular accelerators?
Accelerator programmes are usually best suited for companies that have developed a minimum viable product ready to be taken to market. A programme, which can last anywhere form two days to six months, helps connect founders with industry experts and insiders. These connections help them understand the landscape where they’re building, what they’ll need to do to stand out, how to raise money, and even how to run a business. Regular startups in an accelerator programme are usually tech-first businesses with high margins and easy scalability.
However, in a deeptech accelerator, investors are fully aware that it has higher and patient capital requirements. Deeptech accelerators are often structured around technical validation and milestone tracking, rather than purely market validation. The focus is on keeping the company alive till it achieves its next breakthrough and fundraise.
For the deeptech startup itself, research and breakthroughs require time, regardless of how much access to capital they have. Monetization comes much down the line with revenue sometimes beginning through pilots, grants or enterprise contracts before scale-level profitability is achieved.
What’s in it for investors beyond early equity?
Whether a fund is deeptech-specific or not, the principles of early-stage investing remain the same. When a venture capital fund backs a company early, it may commit $250,000-$5 million, and pick up 10-20% stake.
This gives therunning the accelerator more opportunities to create the next unicorn that justifies the entire fund’s investment. With deeptech, investors look more for strong intellectual property and defensibility than scale. These can translate into high-margin businesses should the startup succeed. Apart from that, should a larger entity look to make a buyout, investors often see high multiples on their investments because the valuation jumps on account of their tech and proof of scale.
A deeptech accelerator gives venture firms insight into what the ecosystem is building, allowing them to double down on early investments if they’re performing well or scout for new opportunities in emerging sectors. They also get access to proprietary deal flow without having to work with an investment banker or having to compete with other venture funds.
What do founders gain and what do they give up?
Accelerators help deeptech founders in a couple of ways. Among the key benefits is that it gives them institutional backing. Especially when a well-known VC fund is involved, the startup’s fundraising efforts can become slightly easier.
Most deeptech founders have science backgrounds, with little or limited business knowledge. This is especially true of first-time founders. Accelerators teach them how to run a business as well. What’s more, an gives deeptech startups access to a venture fund’s network of existing companies which can be potential revenue sources or even provide them with resources to scale and grow their business. For example, winners of Lightspeed’s India Ascends programme also got access to compute credits from Amazon Web Services, Google and foundational AI company Anthropic.
Similarly, founders joining Accel’s Atoms X programme get additional institutional backing from Dutch tech investor Prosus as well, in addition to cloud credits.
Accelerator deeptechs often have to give up large chunks of equity early. At the end of the programme, they may get a fixed cheque and secure a specific valuation, which could be less than what they would have raised if they independently pitched to various investors. However, that route also means going longer without funding and more uncertainty for their business.
As deeptechs mature, deals arebecoming more competitive and valuations are creeping up. However, founders in the sector should be aware that their businesses could still take 7-8 years before generating revenue. This means they should know which investors to approach and who will invest with long-term thinking as opposed to quick returns.
Can accelerators enhance India’s deeptech success rate?
At a surface level, deeptech accelerators, like their names suggest, speed up how many companies actually make it to the market. More companies in the market means that there is higher likelihood of more than one company finding success.
If are looking to add more deeptech startups to their portfolios, it means that overall, the industry has faith in its potential. Companies that emerge from accelerator programmes may also benefit from signalling value, showing that investors have done their due diligence, making it easier to convince later-stage investors to come on board.