Deep tech startups win over ‘patient’ VC funds
VCs have been pooling in more money in higher number of rounds in the past year as their appetite for niche products and platforms is growing significantly.
A rising number of bets by firms like Axilor Ventures, Sequoia Capital and Blume Ventures, among others, have been made in 10-15 such startups each in deep tech companies. Research from startup data tracking platform Tracxn said investments worth $697 million, spread across 115 rounds, have been made in deep tech startups so far this year, as against funding worth $832.16 million in 243 rounds in 2018, and $355 million in 256 funding rounds in 2017.
Axilor Ventures, which has bet on 18 startups in the category, according to the data, including its 2019 cohort, is seeing several startups in the industrial AI and healthcare space, two verticals it expects will shape the larger deep tech market. “Like consumer and fintech startups in the past, a critical mass is now building up in the deep technology space… The quality of founders and those wanting to go global has also greatly increased and that makes a big difference to valuations that businesses can command,” said Ganapathy Venugopal, CEO of Axilor Ventures.
He added that two out of 20 startups on an average in recent Accelerator cohorts have been in the deep technology space.
The connectivity of deep tech startups to ‘patient’ capital that is willing to stay invested without immediate results has also increased, according to some investors. “There is capital that is willing to take risks and fund, and these are not just Indian investors — includes Japan, China, Europe or South East Asia, US,” said Sateesh Andra, MD at Endiya Partners.
A natural evolution in technology cycles in India is a key reason for the spurt, Andra added. “The combination of returning Indians from the US and Europe and local talent, which has worked in core multinational companies in R&D, and young graduates who have a deep understanding of this technology — this now forms the talent pool… previously, that kind of technology was available only in the (Silicon) Valley,” said Andra.
Matt Clifford, CEO of London-based Entrepreneur First, a global investor in seedstage startups, said unlike the amount of capital required for customer acquisition in consumer-facing companies, the requirement for patient capital in R&D-driven companies is seeing more traction.
Niche companies are also making bets in the space, to develop the ecosystem. Queppelin, an augmented reality and virtual reality applications development company, recently floated a $400,000 seed fund to invest in companies building products and services in AR&VR, including hardware applications. “We are looking at investing in seed money in 10-15 startups in areas like manufacturing, real estate, defence or healthcare. It takes a techie to understand these newer technologies. Often a traditional VC would still be looking at a startup which has a precedent in that space, while this area requires a leap of faith,” said co-founder Prafulla Mathur.