From metal to code: Indian defence startups embrace software for future growth

Software has become equally important because it's easy to adapt and scale, said Anirudh Sharma, founder and chief executive at Digantara. "Everybody in the intelligence and defence community wants interconnected systems."

Digantara, which started with a hardware platform in 2020, soon discovered that defence customers wanted direct, sovereign control over the software layer it had built. “Defence and intelligence agencies aren't interested in buying just a subscription. They want complete control over systems when it comes to a crisis scenario," Sharma said.

In response, it developed its surveillance platform into a full-stack capability—for which it now charges a premium, and one that intelligence agencies are eager to pay.

Digantara has gradually pivoted to a software-first approach, now that its hardware systems are operational. This focus allows it to retain defence contracts over the long term, as agencies no longer need to replace hardware—they can update it remotely.

It also spares them lengthy procurement cycles, making Digantara more than just a hardware provider; it is now a full-stack defence company, delivering integrated hardware and software solutions for space-based surveillance.

Yet, some startups are discovering that buyers aren't keen on the traditional software-as-a-solution (SaaS)-like model of recurring subscriptions.

Long trajectory

“Procurement and financial approvals still lean heavily towards hardware acquisitions," said Ankit Mehta, co-founder of ideaForge. While annual maintenance contracts are the bread and butter for hardware makers, software is the expected add-on, at least for the time being. “Eventually, we might offer annual maintenance contracts with embedded software upgrades as part of the overall stack."

Galaxeye, which specializes in space surveillance, has found that hardware refresh cycles are the only time when they can upgrade their software. “Software procurement is largely treated as an extension of hardware rather than a continuously evolving capability," said Suyash Singh, chief executive of the startup.

Nonetheless, venture capitalists see large defence conglomerates growing from the hardware launchpad.

“Hardware procurement is at the top of the list of priorities for India’s defence organizations. Think of hardware investments as the foundation on which you’ll see larger companies emerge," said Vishesh Rajaram, co-founder and managing partner at deeptech-focused venture capital fund Speciale Invest.

Locked and loaded

In the aftermath of Operation Sindoor, the Indian armed forces signed defence contracts worth nearly ₹2,000 crore under emergency procurement provisions for equipment such as drone-detection systems, short-range air-defence systems, remotely piloted aerial vehicles, low-level lightweight radars, and related capabilities.

Additionally, in October, the Union defence ministry unveiled the Defence Procurement Manual (DPM) 2025, setting a 25% procurement reservation for micro, small, and medium enterprises (MSMEs) and easing turnover, experience, and bidding norms for startups.

While the push for indigenization is fuelling defence startups’ ambitions, venture capital is also entering an industry investors had long avoided due to its ‘lumpy' or irregular revenue cycles.

The government procurement drive triggered the country’s biggest funding boom in private defence tech, with startups raising $329 million in 2025—surpassing the $256 million raised between 2020 and 2024, according to Venture Intelligence.

“I wouldn’t have imagined that venture capital would overcome its reservations about this industry and see defence tech as a source of the next wave of value-accretive businesses," said Mayuresh Raut, co-founder and managing partner at deeptech-focused fund Seafund.

Missing the horizon

While defence investments are clearly rising, variety—the spice of life—and the broader needs of the industry remain limited. Of the 78 defence startups founded between 2020 and 2025, over a third are focused on drone systems or unmanned aerial vehicles (UAVs), according to startup data platform Tracxn.

“It's simple: There's a low barrier to entry with drones, unless you have at least one best-in-the-world parameter. Otherwise, it's mostly just a matter of technology transfer or assembling," said Navneet Kaushik, a former Indian Navy commander and the founder of defence-focused early-stage venture fund Jamwant Ventures.

The fund has tried to steer away from drones, instead opting for companies like Spacefields, which is working on building propellant systems; Axiel Aero, which is developing flight simulators for helicopters and aircraft; and AstraYAN, which is building digital platform systems for smart ships.

Even many of the better-funded defence startups have focused on drones, with the most prominent example being ideaForge. Others include Raphe Mphibir, which raised a massive $100 million round led by General Catalyst in June 2025. In April 2025, Vayudh and Garuda Aerospace secured $10 million and $11 million rounds, led by Dharana Capital and Venture Catalysts, respectively. UNMANND received a $2 million pre-seed cheque from Speciale Invest and Accel, while NewSpace Research and Technologies, which develops kamikaze drones, is expected to raise a $50 million round.

Drone makers, however, acknowledge that the real differentiation lies less in hardware and more in the software surrounding it. “Future-proofing comes from owning the full software stack, especially electronic warfare resilience, edge intelligence, and network integration, because intelligence needs to evolve long after the hardware is deployed," said Mehta of ideaForge.

Wait and watch

India’s defence-tech ecosystem still has a long way to go before maturing into a full-fledged defence capability provider.

That's because policy and procurement incentives have pushed startups towards hardware-first strategies, which require longer gestation periods. Software, while modular and upgradeable, has been treated as an adjunct to hardware rather than a standalone capability—reinforcing early startup strategies that focused on building platforms before intelligence layers, explained Kartik Bommakanti, senior fellow with the Strategic Studies Programme at the think tank Observer Research Foundation.

Innovation has taken its own sweet time, too. It was only in 2001 that defence was opened to the private sector. Incentivizing innovation took even longer, with the Innovations for Defence Excellence (IDEX) programme being launched in 2018. However, there has also been an entrepreneurial problem.

“India's never had the same industrial complex access that entrepreneurs in the US have had," said Kaushik. “To build a pure-play software company in defence, entrepreneurs also need to know the ground realities of what the actual requirements are on the battlefield."

While the hardware opportunity is there and is only expected to grow, the software opportunity is something that founders haven't given much thought about, according to some venture funds.

Seafund is trying to catch the bus early and is currently in the process of developing its own playbook on what investing in defence-related software companies might look like. “Hardware and software go hand in hand, at least for the moment. There's a big opportunity to smarten legacy military hardware," said Raut. “Space and aerospace are big opportunities, as are component plays, which are used for radar systems, quantum cryptography, and optical communications."