Why India needs deep tech startups10 min read . Updated: 28 Oct 2019, 11:07 PM IST
India's startup ecosystem has produced 27 unicorns but none are in the deep tech domain. Is the country losing out?
BENGALURU : A little over two years back, Hemanth Satyanarayana, founder and chief executive of a Hyderabad-based mixed reality startup called Imaginate, wowed audiences when he provided a sneak peek into how people would interact and conduct business in the future -- via virtual teleportation. He used an augmented reality (AR) headset to chat with a virtual 'avatar' of his colleague who was physically present in another room.
Since then, Imaginate has only improved the technology and believes it will eventually change the way we do video conferencing. "We now enable cross-device communication over virtual reality and augmented reality (the combination is popularly known as mixed reality) wearables for better enterprise collaboration in the industrial sector. This is a leap ahead from today’s video conferencing experience," insists Satyanarayana.
Another technology startup, Bengaluru-based Gnani.ai, is focused on speech recognition and natural language processing (NLP) in multiple Indian languages. "Our goal is to bridge the digital divide in India using voice--the most natural form of communication. We use the core technology to develop multilingual voice bots and speech analytics in multiple channels such as web, apps or even on telephone lines," says Ganesh Gopalan, co-founder of the startup that is funded by Samsung Ventures.
Tech industry body Nasscom points out that there are hundreds of such technology startups that can be defined as "deep tech-based" companies. According to Milind Hanchinmani, Lead-DeepTech Club at Nasscom, "Over the past five years, India has witnessed the emergence of over 1,200 deep tech startups and the adoption of advanced tech is rapidly increasing at a 50% YoY growth."
Of the estimated 7,500-odd technology startups, Nasscom defines these deep tech-based companies as those that have been "consistently working towards driving innovation in new age technologies such as AI, IoT (internet of things), Blockchain, Machine Learning, Cybersecurity, Augmented and Virtual Reality, among others".
India desperately needs these deep tech startups in order to take digital transformation to the next level, argue experts. Current digital technologies such as mobile, cloud, and customer relationship management (CRM) tools added functional capabilities such as connectivity, storage, and computing power in the digital transformation journey of any organisation and its processes, according to Jayanth Kolla, founder and partner of a deep tech research and advisory firm, Convergence Catalyst.
"However, emerging deep technologies, including Advanced Analytics, AI/ML, IoT (internet of things), and Blockchain, will add a layer of intelligence to a company’s systems," he adds. According to Kolla, these technologies work in the background to make systems "smart, intuitive, self-reliant, customised and most importantly, continuously improving, which is the next level of digital transformation--the so-called digital transformation 2.0".
For instance, CogniCor Technologies helps enterprises, primarily financial services organisations, from across the globe to build a cognitive interface powered using an AI platform. "It can read and understand enterprise knowledge and engage various stakeholders in goal-based conversations", according to Sindhu Joseph, chief executive and co-founder of the Delaware-registered startup that has operations in Kochi.
Similarly, Bengaluru-based Coeo Labs makes medical devices that assist newborns and infants in breathing and prevent ventilator-related infections. According to Nitesh Kumar Jangir, co-founder of the Bengaluru-based startup, "Any patient who is on ventilator has around 25-30% chances of acquiring a deadly infection called Ventilator-associated pneumonia (VAP). More than 250,000 people in India die every year because of this infection."
Jangir points out that while such patients are administered antibiotics, this also increases antimicrobial resistance, which will be the next big problem in healthcare. To address the issue, Coeo Labs has built a technology that can prevent this infection, which Coeo Labs has christened VAPCare. According to Jangir, Coeo Labs has already been granted patents in countries like the US, India, and China. "Our product is already USFDA approved. And this device uses high-end cutting-edge material science, sensor technology, and data analytics," he adds.
Funding a challenge
According to Jangir, deep tech is those areas where you do cutting edge research in all kinds of technologies, not just software or AI, but it also involves doing cutting-edge research in material sciences or in bio-technology. "These are not the things that are driven by lucrative business models or normal IT business models but these are technologies that have high IP (intellectual property) capability, and have real contributions to knowledge and science itself," he insists.
Deep tech startups, according to Joseph of CogniCor, are on the rise globally. She points out, though, that India lags a behind on this front since most of the startups are from the US, Greater China, Taiwan and Japan. She believes that India needs to create a more robust deep tech startup ecosystem and deep tech talent pool. The work done by the likes of Nasscom in creating the ecosystem is noteworthy.
"However, unlike Silicon valley, the home grown VCs are kind of reluctant when it comes to funding deep tech startups. The lack of funding can be a huge impediment," says Joseph.
She has a point. The Indian startup ecosystem has produced 27 unicorns till date but none are from the deep tech domain. In terms of a total startup funding in Indian startups since 2014, the highest grossing sectors are e-commerce ($13.59 billion), fintech ($8.14 billion), and consumer services ($4.74 billion), according to Inc42 DataLabs research. According to a 3 May report by Inc42 DataLabs, the deep tech sector recorded a mere $9.58 million in investment in the first quarter of 2019 as compared to the $958 million investment in e-commerce, $697 million in fintech, and $212 million in consumer services.
According to Kashyap Kompella, a technology industry analyst and CEO of rpa2ai Research, there are now an increasing number of deep tech startups in healthcare and pharma which are traditionally research and development (R&D) intensive industries. He cites the examples of Bengaluru-based Achira Labs (a technology platform for immunodiagnostics) and RichCore Life Sciences (that makes animal-origin free proteins and enzymes). He cautions, however, that "in the field of AI software, where the deep tech label is being liberally applied these days, one must take those claims with a pinch of salt".
The challenges for deep tech companies include "shortage of talent and fierce competition for available talent," he said. "India is a STEM-rich country at the bachelor’s level but STEM-poor at the PhD level." He adds that deep tech companies have a longer lifecycle before they can scale and become commercial successes, hence will need “patient capitalists" -- venture capitalists whose horizon is longer than traditional VCs and who better understand the technology commercialization models and filter startups for investments based on their IP assets.
Manish Singhal, Founding Partner of pi Ventures says his firm looks at deep tech as "any business which is enabled by a technology that has inherent IP in it". According to him, they come in two broad categories – one is digital deep tech and one is beyond digital deep tech. In the digital deep tech, all the technologies that are fundamentally innovating in the digital domain come under it.
“AI comes in that – companies like Sigtuple, Niramai. These are all digital deep tech. In the beyond digital deep tech, a lot of innovation in India is happening in various things like life sciences. A company called Pandorum has developed an artificial cornea in the lab," notes Singhal.
He points out that while it has never been easier to launch a start-up in India, there are still numerous challenges. "Two people get together and get some funding and start but all these deep tech companies typically have a slightly longer incubation time to become a business. Then, there is a funding paucity after they have gotten started to take them to a business of commercial value. That funding ecosystem is coming together slowly and we are doing our bit it in it," Singhal says.
Siddharth Pai, founder and managing partner of Siana Capital, defines deep tech as technology that can change things at a fundamental level, either through new knowledge-based expert systems or the ability to take existing knowledge to develop a technology solution rather than wait for AI to figure it out.
The other area is hardware or firmware-related, according to Pai. “In so far as tech sitting on a hardware platform, the definition is a bit broad -- medical devices, other calibration systems, new operating software for mobiles going into the large catchment area of 500 million Indians coming online."
Other than these, true advancements in engineering, physics, exact sciences, and mechanics that have the ability to be quickly translated into a workable product or technology platform for wide use also fit into the deep tech definition, says Pai. He adds that in hardware, chip design would also fit under deep tech due to the capital intensive nature, but is better suited to private equity investment firms with rounds of large capital infusion.
Pai acknowledges that deep tech doesn’t represent low hanging fruit like a food delivery or a real estate app, where there is already a lot of venture capital money chasing deals. "Deep tech and deep science are under-served segments. The gestation period is long. In deep science, drug discovery, for example, takes 8 or 10 years, sometimes longer. There is higher risk for a long period of time. The lack of private money in this space is a challenge. The ability to build critical mass for the country is difficult. I don't think we have established in the popular imagination that such differentiated science can come out of India," he says.
Will these evolving deep tech companies eventually be acquired by large technology companies? For instance, Whatsapp and Instagram were acquired by Facebook, while DeepMind is now a Google company."
The founders of Deep Tech startups are a tenacious lot. Not only have they toiled in the lab to get a patent or two but are actively engaged in taking their inventions to market. Even if all of them do not succeed eventually, they are attractive to larger and more established companies. That’s why we see a lot of future “acqui-hires", says Kompella.
According to Satyanarayan of Imaginate, typically deep tech startups around the globe will get acquired by large companies if they do not have a "good follow-on series of funding". He points out, thought, that in India, large technology companies do not seem to acquire deep tech startups "as much as I think they should". This is because of the general tendency of “build rather than buy" in the Indian tech market which is still famous for outsourced or cheaper software development".
Joseph of Cognicor, on her part, believes that only a handful will be able to grow into deep tech unicorns, since it is easier for big companies to acquire a deep tech startup rather than trying to develop the technology on their own. Adit Chhabra, chief executive of the New Delhi-based AI-startup Wobot, corroborates that "consolidation in an industry is a natural outcome. It might be faster in deep tech because of deep pockets of the large players, both money wise and data wise".
This March, for instance, Reliance Industries Ltd. (RIL) entered into agreements to acquire three startups--language localisation technology platform Reverie Language Technologies, software-as-a-service startup Easygov, and software simulation services company SankhyaSutra Labs. Similarly, global technology companies like Google, Microsoft, SAP Labs, Accenture Ventures, Oracle, and Facebook continuously engage with deep tech startups in India.
Jangir believes that India needs the Flipkarts and Olas of the world of deep tech. “Right now, there is no one. More than deep tech, we need someone who has become a unicorn by selling hardware. We don't have companies selling hardware," he says.
According to Hanchinmani of Nasscom, as India’s public and private sector increasingly focuses on adopting next generation technologies, the demand for advanced deep tech and AI-related technologies will witness enormous growth domestically, thus creating an opportunity for start-ups and tech players to provide innovative products and services.
He concludes, though, that prowess in deep tech and AI will require focused attention and mentorship from the industry, academia, and the government.