Indian deep technology start-ups have become the most sought after bets for angels and venture capital (VC) funds for their potential to scale up rapidly and be able to offer an opportunity for early exit for the investors.
From the last one year, there is a lot of excitement in the investor community to back deep tech companies working on engineering innovation using augmented reality, machine learning and artificial intelligence (AI). While all other start-ups are eagerly looking for funds, investors are searching for AI start-ups that achieved meaningful traction and scalability.
Dinakar Munagala, CEO of deep learning and vision processing start-up Thinci, said: "Global corporate firms and VCs are lining up to invest in our company. We are regularly getting calls from genuine investors seeking investment opportunity. As we have raised a substantial amount from Denso International America and others last October, we may not require funds for the rest of this year."
Deep tech entrepreneurs have raised millions of dollars in the past six months and most of these investments are for a long term. This mega trend will definitely continue for more time due to the high returns at the time of exits, according to industry observers.
The trend of investing in deep tech companies started globally from the first quarter of 2016 when IT giants like Microsoft and Salesforce acquired start-ups such as Genee and MetaMind. This trend gained momentum in India from the past six months after Apple acquired Hyderabad-based AI and machine learning start-up Tuplejump.
Hyderabad Angels is evaluating several AI start-ups from the last one-and-half years. "We are planning to finalise a couple of them in the next 2-3 months," the angel network investment director P S Sreekanth said.
The sector and location agnostic investor believes in product - market fitment and committed team with deep domain knowledge.
According to Sreekanth, most of the investors have not seen exits in India. Deep tech is the future of the start-up ecosystem in the country as the investors may exit at a higher valuation. These start-ups are expected to play a huge role in the healthcare, fintech and e-commerce domains.
He said, "We are identifying the promising AI start-ups which are currently operational and have on-ground presence. The angel network will be investing up to $1 million in a pre-series A round of funding and up to $150,000 in a seed round."
Hyderabad-based early stage VC firm Endiya Partners is very closely looking to invest in deep-tech companies. Recently, it has invested in a Bengaluru-based healthcare AI start-up SigTuple. It will be making more investments in similar start-ups in this year. Another early stage investor pi Ventures is also looking at AI-driven start-ups.
IDFC Parampara, an early stage fund, is in the final stage of evaluating two machine learning start-ups each in healthcare and cyber security domains. The deals may close in few months, Parampara Capital general partner Venkat Vallabhaneni said.
AI and machine learning can be applied to a variety of verticals and business cases. Most of these start-ups are focussing on consumer, healthcare, security and marketing sectors. Endiya Partners director Abhishek Srivastava said that investors have funded around 80 start-ups in this space during last year, and this number is likely to double this year.
According to the Markets and Markets report, global AI market is growing at 53.65 per cent to 5.05 billion by 2020 from $419.7 million in 2014. It is estimated to create $47 billion revenues and replace five million jobs by 2020.