Barriers to DeepTech Funding

When we talk about building and strengthening deeptech ecosystem, funding is an essential part of the discussion. A host of new startups are entering the space and several technologies are reaching inflection point. Though the enthusiasm is clearly visible, all is not hunky dory. Deeptech differs from other startups as the technical due diligence has to be done in a different way, the challenges differ due to the very nature of technologies.

Also, the market is wider and the appetite is increasing in other geographies. And with covid hitting us, what has been the impact of it? To address the topic of barriers in deeptech funding, the second edition of DQDeepTech Virtual Event invited Jatin Desai, Managing Partner, Inflexor Ventures, Shubham Sandeep, Principal, pi Ventures and Xavier Parkhouse-Parker, COO, Cambridge Future Tech for throw light on the subject.

How do funds identify startups developing technology with significant disruptive potential and large global market?

Desai believes the world is hungry for automation and innovation. Covid acted as a further catalyst for legacy industries to adopt change. “We define deeptech as any emerging tech with deep impact on society and it ranges from AI, machine learning, industry 4.0, space tech, etc. Two of the biggest risks associated with deeptech are: The startups haven't thought through commercially and scalability. We look for these risks to be minimal.

We also look at founder quality, level of tech IP, and has to solve a India problem for consumer SME domain and for enterprise solution we look at a global potential. We look at tech architecture and design,” he says.

Depth of technical due diligence and potential market sizing vis-a-vis other startups:

“From the market sizing perspective, the caveat is that there is a longer gestation cycle for deeptech startups thereby the variables are a lot less set in stone, so need to account for those. With respect to the technical due diligence, we do a series of deep dives structured as a brain storming session. If you outsource a lot of discussion, you are hit with an incumbent bias and that is stronger with deeptech.

We, at pi ventures, form a view internally using first principles thinking and the remaining gaps we go out and ask specific pointed questions. Otherwise, we might fall into a trap of incremental innovation,” Shubham says.

Barriers to deeptech funding and actionable points to overcome them:

Xavier opines that the tech might be incredible but the problem is getting stuck in research mindset instead of turning it into a product. “The challenge is nailing down what that product means in the future. Commercializing the application is a challenge.

Also, the cycle of getting from research to the product is a long time. You need to have investors and understand that it is a patient capital,” he adds.

“Indian universities are buzzing with talent and have the advantage of capital efficiency in deeptech product development. Indian universities are unable to support entrepreneurs early on which sometimes derails the path breaking innovation. The growth equity phase is where Indian deeptech startups fall away. There is no permanent pool of capital in the Indian ecosystem to support deeptech startups in the entire lifecycle,” adds Shubham.