India bridges funding gap to back high-innovation, long-gestation startups

India's technological landscape is bridging the investment gap needed to support high-innovation and long-gestation startups

Indian Angel Network (IAN) recently committed ₹25 crore to D-Propulse Aerospace, an indigenous propulsion systems startup. The investment aligns with IAN’s strategy to back companies in strategically important sectors and reflects a broader venture capital (VC) trend prioritising home-grown innovation and technological self-reliance. 

As many as 47 homegrown deep-technology companies raised $997 million in January and February this year, up from $162 million across 57 firms in the same period last year. Companies raised $1.65 billion in 2025. 

Deep tech is an umbrella term referring to startups founded on substantive scientific discoveries or meaningful engineering innovations that require significant R&D to commercialise. It is attracting investor interest in several sunrise sectors, including space, defence, semiconductors, biotechnology, energy security and transition, quantum technologies, robotics, and artificial intelligence (AI). 

Deep tech investment is shifting, reinforced by both market opportunity and policy design. VC firms now sit on the investment committees of government-backed fund managers, including the Biotechnology Industry Research Assistance Council (BIRAC) and the Technology Development Board (TDB), nominated under the ₹1 trillion Research, Development and Innovation (RDI) fund. 

Saurabh Srivastava, cofounder of IAN Group, chairs TDB’s investment committee. Other VC representatives include Gopal Srinivasan of TVS Capital Funds and Debashish Bhattacharya of Lionstead Ventures. Startups approved by TDB and BIRAC must raise at least 50 per cent of their capital from private sources, establishing a co-investment pathway for venture funds. TDB and BIRAC have received ₹2,000 crore each to invest in deep-tech and biotech startups, respectively.  Funding spree 

Alongside, VCs applying to become second-level fund managers through alternative investment fund structures can raise a portion of their corpus from the government, provided the remainder is raised from limited partners. To qualify, these funds must demonstrate a strong track record and a clear commitment to deep-tech investing.

 

Accordingly, several firms are launching dedicated vehicles. 3one4 Capital, currently deploying a $200 million fund with an approximate 20 per cent allocation to deep tech, has applied under the RDI and proposed a dedicated deep-tech fund. Speciale Invest has also applied for a ₹1,400 crore deep-tech growth fund.

 

Consistent with its deep-tech focus, IAN has invested in nearly 18 companies from its $100 million fund — including Dhruva Space, Morphing Machines and Brainsight AI — with plans to back 30-35 such startups by next year.

 

Other venture funds are sharpening their focus along similar lines. Anirudh Damani, managing partner at Artha Venture Fund, said, “Our investment thesis is concentrated on themes (including deep tech and applied AI) which we believe will structurally outperform the broader economy through 2035. These sectors sit at the nexus of India’s most powerful structural tailwinds.” Artha Venture has invested in Agnikul Cosmos, Raana Semiconductor, Calligo Technologies, TakeMe2Space, and GalaxEye.

 

Good Capital recently closed a $30 million fund and is considering launching another of similar size. “Our thesis has strengthened the belief that the next generation of breakout Indian companies will emerge at the intersection of AI, infrastructure and global ambition,” said Arjun Malhotra, the firm’s general partner.

 

Aavishkaar Capital is preparing a ₹2,000 crore fund targeting high-potential deep-tech startups. Meanwhile, 360 One Asset has raised a ₹1,000 crore fund focused on defence and space.

 

Every VC firm interviewed confirmed it is actively scouting opportunities aligned with the country’s evolving technological priorities. Transition VC is targeting electrification, mobility, energy storage, industrial decarbonisation, alternative fuels, power electronics, and next-generation manufacturing. Unicorn India Ventures is backing semiconductors, climate tech, robotics, drones, and space technology through its ₹1,200 crore fund. All In Capital is prioritising deep tech and applied AI, while Cornerstone Ventures focuses on AI-driven enterprise applications.

 

Sneh Vaswani, cofounder and chief executive officer of robotics firm Miko, noted that at the company's 2015 launch, institutional capital primarily favoured consumer internet ventures, showing little appetite for long-gestation deep-tech bets.

 

“There was a time when there was absolutely no capital in India for a pre-revenue [deep-tech] company. With the RDI fund, the way it has been set up, it is going to trigger a tsunami of opportunities that can be backed at various stages so that capital is not the reason why a company cannot go to the next stage,” said Vaswani. Miko has applied under TDB’s first call for proposals.

 

Likewise, Fermbox Bio, a Bengaluru-based synthetic biology company, has applied under BIRAC. Subramani Ramachandrappa, the company’s founder, noted that biotechnology is an asset-heavy sector where high capital expenditure often leads to significant promoter dilution, limiting flexibility when strategic investors provide exits. Over time, he added, this can shift a company from being entrepreneur-led to strategically controlled, noting that the RDI fund is likely to address such challenges.  Patience for returns 

Startups aside, investors see compelling return potential. Siddarth Pai, founding partner at 3one4 Capital, noted that deep tech can generate market-equivalent returns with significant upside. “Predicting equity returns is unfeasible, given the illiquid nature and high risk, but deep tech offers a compelling return range that can exceed traditional VC returns when done right,” he said. “It can also end up lower due to market nascence and novelty. However, deep tech offers value preservation through intellectual property, which can generate value even if the business proposition is not strong.”

 

Ramachandrappa added that investors remaining committed for six to seven years could potentially see tenfold returns.

 

“Now, investors don't mind being patient for 10-15 years before they end up seeing large-scale outcomes. That patience has come in,” said Pai. “The talent has become more courageous, and VCs have become experienced and adept at their craft, with greater appetite for risk. It's a combination of these factors and RDI has been the icing on the cake.”

 

As venture funds must raise a portion of their capital from limited partners after securing RDI funding, Arjun Rao of Speciale Invest noted that selection under the RDI fund provides credibility when raising private capital. “The advantage of applying to that fund is that it’s a vote of confidence,” Rao said. “Raising capital is never easy, for startups or funds, but government participation accelerates that process.”

 

Regarding exits, Pai and Rao stated that mergers and acquisitions would dominate, followed by public listings. Rao added that across three funds and 35 portfolio companies, Speciale has seen six to eight M&A exits to date.