India Doesn’t Have a Deep-Tech Funding Problem. It Has a Capital Design Problem.
India’s ambition is no longer in doubt. The question is whether its capital and institutions can keep pace with the deep-tech demands.
India’s policy ambitions in semiconductors, space, defense indigenization, and climate technology are well established. Grant programs are expanding, deep-tech has entered the national vocabulary, and the startup ecosystem is maturing. Yet for most hardware and deep-tech founders, the journey from validated prototype to commercial scale remains precarious. Beyond early-stage grants and pilot projects, capital thins out quickly.
This central contradiction frames India’s challenge: if deep tech matters so much to the country’s future, why is there still hesitation among capital providers at pivotal moments of scaling?
The problem is not at the idea stage. India has become remarkably good at funding inventions. University labs, incubators, CSR-backed grants, and government schemes support the “0-to-1” journey, proof of concept, early prototypes, and foundational R&D.
The fracture appears later, when startups must cross the uncomfortable middle ground between science and business.
Shiva Shanker, Partner at Ankur Capital, describes this as a dual gap. The first and most acute is at Technology Readiness Levels (TRL) 4–6, where ventures must transition from non-dilutive grants to early-stage risk capital. “The funding pipeline isn’t broken here,” he explains, “but this is a critical juncture for startups to make the grant-to-equity transition.” Many don’t survive this handoff.
The second gap emerges later: the absence of patient growth capital and pre- or early-revenue Series A funding needed to move from a validated prototype to full commercial deployment (TRL 7–9). This is where capital intensity rises, timelines stretch, and conventional VC playbooks start to falter.
Vinay Chataraju, Co-founder of Kritsnam Technologies, a deep-tech IoT and AI-driven water management startup, points to a deeper structural issue. “While grants successfully fund invention, there is a structural vacuum for funding market creation,” he says. In India, deep-tech startups don’t just build products; they often have to build the market itself.
Hidden Cost of Market Creation
Unlike SaaS, where demand already exists, deep-tech hardware, especially in sectors like water, energy, and climate, faces what Chataraju calls a “market education tax.” Startups must convince customers, define standards, run pilots, and sometimes wait for regulation to catch up. All of this burns scarce seed capital, even though it creates public good for the entire ecosystem.
This leads to what many founders describe as pilot purgatory. From an investor’s perspective, there is no repeatable sales engine yet, only pilots, trials, and slow procurement cycles. Series A and B investors, trained to look for velocity, hesitate.
Worse, once a startup has spent years de-risking its technology and maturing a segment, large incumbents often step in. “Established conglomerates that sat on the sidelines during the risky R&D phase often swoop in once the market is ready,” Chataraju notes, sometimes acquiring startups for IP rather than long-term business value.
Is India under-funding hardware, or misunderstanding it?
There is a common narrative that India underfunds hardware because of capital constraints or a lack of conviction in long-gestation innovation. Several ecosystem leaders push back on this framing.
Zaran Bhagwagar, Founding Member and Vice President at Biome, a full-stack venture studio, argues that the issue is neither. “Hardware is a completely different business model with different capital needs and scaling laws,” he says. Until recently, India simply didn’t have institutional capital at scale that was designed for such journeys.
That is changing. “Founders are starting much more mature businesses, investors have built these around deep-tech, and dedicated pools of capital are finally available,” Bhagwagar notes. “Beyond early grants, we are now seeing institutional capital come in.”
Rishi Srivastava, Co-founder of Offgrid Energy Labs, offers another perspective: optics versus reality. Software startups have historically accounted for over 90 percent of India’s startup universe, reflecting the country’s strengths in IT services and SaaS. Against that backdrop, hardware appears underfunded. “It’s more of a supply issue than a demand issue,” he says. “Most investors today are actively looking for hardware- and manufacturing-led startups.”
Shanker frames the problem as imperfect alignment, not scarcity. “The money exists, but it hasn’t traditionally been structured for the techno-commercial journeys of deep-tech ventures,” he says. Encouragingly, public policy and private capital are beginning to align, treating deep science as a viable asset class rather than just a high-risk bet.
Patient Capital Paradox
Still, conviction remains uneven. Many Indian VC funds operate on 7–10 year cycles, shaped by fast exits in consumer internet and fintech. Deep-tech hardware, which may need three to four years just to complete R&D and pilots, clashes with these timelines.
As Chataraju observes, deep-tech is often treated as diversification rather than a core thesis. Funds allocate 5–10 percent of capital to “moonshots,” offering shallow support. When inevitable manufacturing delays arise, diversification investors retreat, while conviction investors double down.
There is also a persistent unit economics fallacy. Software metrics, monthly growth, and CAC/LTV ratios are applied to hardware businesses, while proprietary IP, defensibility, and long-term strategic value are undervalued. Until domestic capital develops the expertise to price IP and hard assets appropriately, deep-tech will remain misunderstood.
Despite these challenges, there is a sense that India is at an inflection point. Bhagwagar sees the past decades as foundational. “Our first decades went into building early winners. Now we are poised for deep tech,” he says, pointing to new funds and institutional capital entering the space. “We look forward to 2026 and 2027 with great excitement.”
Shanker echoes this optimism, highlighting the upcoming RDI Fund, which could reshape how patient capital interacts with deep science startups. New pools of private capital are beginning to underwrite risk across the full technology readiness journey, not just at the edges.
From High-Risk Bets to Deployed Assets
The final question is structural: how does India stop treating hardware startups as speculative bets and start seeing them as engines of long-term value?
Interestingly, Bhagwagar cautions against over-nationalizing the narrative. “At the end of the day, a business is a business,” he says. Hardware startups should be supported because they solve real problems and create value, not because they are deemed strategic assets.
Others argue that the ecosystem must change how risk is shared.
Shanker points to the importance of the government as an anchor customer. Schemes like iDEX show how procurement, not just grants, can create bankable startups. When the government pilots, purchases, and supports supply chains, private capital follows.
Srivastava outlines three critical shifts: sustained patient capital across all stages, stronger focus on IP creation and monetization, and a move away from L1 (lowest-price) procurement toward value-based purchasing. Today, price-driven procurement often pushes Indian deep-tech startups to global markets, leaving domestic deployments dominated by commodity solutions.
Chataraju goes further, advocating a “buy, don’t just fund” approach. A government purchase order, he argues, does more than any grant. He also calls for sector-specific co-creation funds, in which government, industry, and investors share the burden of market maturation, setting standards upfront so startups aren’t forced to lobby for policy change with venture capital.
A Question of Maturity, Not Intent
India’s deep-tech funding gap is not a story of apathy or absence of capital. It is a story of ecosystem maturity, of capital structures, procurement norms, and risk frameworks that evolved for software and are only now being retooled for hardware.
This transition has begun, but remains insufficient.
Until patient capital is mainstream, procurement rewards value, and IP is rightly valued, deep-tech founders will face challenges, regardless of national ambition.
