US and Indian Venture Capitalists Come Together to Invest $1B in Indian Deep Tech Startups
Key takeaways:
- US and Indian venture capitalists have formed an alliance, called the India Deep Tech Investment Alliance (IDTIA), and pledged $1B to fund deep tech Indian startups.
- IDTIA will focus on seed stage to the Series B stage businesses and stay away from late stage funding.
- Indian startups struggle with bureaucracy, red tapism, compliance burdens, and high taxes, which is why most Indian businesses operate from foreign countries.
- That's precisely why the alliance will engage with the government to discuss more investor and startup-friendly legislation in the country.
India's deep tech startups are set to receive a major boost with the launch of the India Deep Tech Investment Alliance (IDTIA), which has pledged a $1B fund to strengthen deep tech development in the country.
The alliance includes leading investors from India and the US, such as Blume Ventures, Premji Invest, Celesta Capital, Gaja Capital, Ideaspring Capital, Accel, Venture Catalysts, and Tenacity Ventures.
This move comes at a time when India-US relations are far from smooth. Recently, Donald Trump imposed a 50% tariff on Indian imports due to India's growing oil purchases from Russia, straining ties between the two nations.
Earlier this year, Trump also claimed credit for negotiating a ceasefire between India and Pakistan after a war-like situation, although there was no official acknowledgement from India - something that may have left Trump a bit salty.
Diplomacy aside, US venture fund houses are now coming together to explore new investment opportunities in India.
More About the AllianceUnder the new agreement, each of the participants will commit private capital for a period of 5 to 10 years to Indian startups.
As of now, the alliance has not set fixed criteria for start-ups to be eligible for funding. However, Shriram Vishwanathan from Celesta Capital said that the firms should comply with conditions under the RDI scheme as a bare minimum to be eligible for IDTIA funding.
The Research, Development and Innovation (RDI) scheme is an Indian initiative that allocates a budget of 1T Indian rupees or $11B for deep tech research and development.
Here are some of its conditions, which are also required to be fulfilled for IDTIA funding.
- Local incorporation: Currently, many Indian tech startups are headquartered in the US, which is why RDI requires local incorporation as a key condition.
- Sunrise sector: RDI funding is meant for those businesses innovating in sunrise sectors' in the country. Sunrise sectors are industries in their early stage of development with rapid growth potential. These include electronics and semiconductor, electronic vehicles, renewable energy, agro and food processing, AI and deep tech, healthcare, and pharmaceuticals among others.
- Local approvals: the startups should also comply with all local legal regulations and acquire required licenses as per Indian laws.
The IDTIA will focus on startups from the seed stage to the Series B funding threshold and avoid any late stage investments.
This means that investors want to prioritize early stage companies with focus on innovation, proven product-market fit along with proven demand and steady revenues.
Besides funding, the start-ups will also benefit from network access and direct mentorship from alliance members.
The Startup Scene in IndiaIn April, Piyush Goyal, India's Commerce Minister, made headlines when he criticized Indian entrepreneurs, arguing that selling fancy ice creams and cookies' doesn't qualify as a startup.
According to him, there's an innate lack of innovation in India, with entrepreneurs overly focused on consumption-driven businesses.
Aadit Palicha, CEO of quick-commerce startup Zepto, pushed back, saying:
The government needs to actively support the creation of these local champions, not pull down the teams.
As blunt as Goyal's comment sounded, there's a lot of truth to it. Look at India's unicorn list:
- Food delivery platforms like Zomato and Swiggy
- Quick-commerce solutions like Zeptop
- Aggregators like Ola Cabs and Moneyview
These are undeniably successful businesses, but they're hardly innovative' in a technical sense.
Contrast this with China's unicorns:
- DJI Innovations, a leader in consumer drones
- Bitmain Technologies, a crypto-mining hardware giant
- ZongMu Technology, specializing in autonomous vehicle sensing
- MEGVII, a powerhouse in AI and facial recognition
The difference is stark, and that's exactly what prompted the minister's remark. But the question remains: why are there so few tech-centered startups in India?
One major reason is India's notorious bureaucracy and the sheer number of business hurdles that startups face. According to a 2018 survey, 45% of businesses reported encountering corruption and legal challenges.
The compliance burden is also staggering. A report found there are 1,536 Acts, 69,233 compliances checks, and 6,618 annual filings businesses must navigate.
Around 30% of these rules relate to labor laws, and alarmingly, 68% of provisions carry the risk of jail time for non-compliance.
While not every business is bound by every law, keeping track of applicable regulations and filing on time is a monumental task. Even established firms struggle with this, let alone young startups.
Taxation doesn't make things easier. Corporate income tax stands at 25% for businesses with turnover under $45.40M, and 30% for those above. On a personal level, income taxes can climb to 33% once surcharge and Cess are included.
No wonder many wealthy Indians prefer relocating. As of 2024, Dubai alone houses over 60,000 Indian businesses, lured by its 9% corporate tax and zero personal income tax.
IDTIA Can Boost India's Tech Growth StoryWhile things may look bleak for India on the tech front, IDTIA could help boost the country's deep-tech startup ecosystem. Shriram noted that this is just the beginning and more firms are expected to join the alliance soon.
Celesta Capital has already backed Indian startups such as Agnikul (a space-tech firm), IdeaForge (a drone maker), and OneCell Diagnostics (an AI-powered cancer detection tech developer). Shriram believes India remains a very interesting market, teeming with new opportunities.
Beyond funding innovators, IDTIA will also serve as a platform for collaboration with the Indian government to encourage more startup- and investor-friendly laws.
After much backlash, the government was forced to scrap the draconian Angel Tax, which imposed a 30% levy on startups if the investment value exceeded their fair market value - a common scenario in startup funding.
IDTIA wants to ensure that such blunders are not repeated, which is why the alliance plans to engage proactively with the government and share its inputs.
That said, simply providing more funding will not fix India's tech drought. The government must become more flexible in how it taxes and regulates businesses, particularly startups.
The Startup India Initiative is one such program offering benefits like 100% tax exemption on profits for three consecutive years out of the first ten. Compliance has also been eased with SPICe+ forms, allowing faster incorporations.
But these benefits are peanuts compared to the massive red tape, compliance costs, bureaucratic harassment, and rigid legal requirements that Indian startups face daily.
Unless the government takes serious action, India risks being reduced to a consumption market - merely following and consuming innovations from the West (and East) instead of creating its own.
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