Deep Tech Startups to Show Resilience and Strength in the Phase of Consolidation
New businesses, investment rounds, the influx of global investors and startups, the building of regulatory infrastructure, worldwide mergers and acquisitions, and internationalization have all experienced significant activity in the previous decade. There are numerous entrepreneurial success tales. It's necessary to take a step back and consider how the Indian startup ecosystem got to where it is now. Palash Gupta, Member NASSCOM Product Council & Head Project Management & Business Outsourcing Department,Huawei examines this growth and aspects that need emphasis with CIO Insider.
In conversation with Palash Gupta, Member NASSCOM Product Council & Head Project Management & Business Outsourcing Department,Huawei
What will 2022 look like for the deep tech start up industry in India?
Despite the market volatility and ongoing Ukraine-Russia war India’s start-up ecosystem has managed to mop up over $10 billion in funds during the first three months 2022.
Challenging side of this; prolonged war and geo political conflicts, inflation being the core concerns, Central banks in hawkish mode, tightening liquidity in money market, apprehensions due to the poor performance of the Tech companies in the public market and sombre investor mood will result into moderation of investment and funds.
We have already started witnessing the impact of employee layoffs in startups; - Lido, okCredit, Unacademy, Furlenco, Cars24, Meesho, Mfine among others.
Startups will be more prudent towards their expenses and value proposition, with revenue and profitability getting clear preference over potential market size. Huge opportunities await for founders, who can be agile in strategy, execution and plan ahead months. Best way for any start up is to preserve the capital and extent the runway for 18 to 24.
2022 will be the phase of consolidation and demonstration of resilience and strength. A lot of focus will go on organization building and identifying what matters for the business.
Elaborate about the elements responsible for making deep tech companies different from other tech companies.
Deep technology startups often share the following qualities. Which makes them different from other tech startups:
•They are problem oriented and focus on solving large and fundamental issues in a unique manner which at times change the way we live, disrupt or often create a new market.
•They operate at the convergence of multiple technologies and develop solution by years of research and lab work.
•They are rich in intellectual property & possess fundamental and defensible engineering innovations that distinguish them. Typically, the underlying intellectual property (IP) of a deep tech company is unique and hard to recreate, resulting in a significant competitive advantage.
•Have high Risk & gestation period before they become commercial but when successful delivers exponential returns.
•Once established, deep technology businesses can develop barriers to entry for competitors that allow for the building of a valuable enterprise.
•Taking technology from “lab to market” requires substantial capital carrying a much higher degree of risk than an average venture investment.
•Deep tech companies have the capability to create new markets with little competition and
can replace existing technologies while fundamentally transforming an industry.
When DeepTech companies reach market, They rewrite the rules and at times make existing businesses and solutions irrelevant; also it’s tough to replicate what they’ve done. For example, fintech using blockchain to for global mobile banking, with low overheads will break the old business model of inefficient local banks with bureaucratic processes and high fees.
What are the kinds of approaches practiced by the industry that reflects their success?
•Nearly two decade ago, the technology landscape in India was in incipient stage, with most ER&D companies engaged in software services and a small set of companies building new innovation based products. There was lack of focus, talent, courage and support from ecosystem to develop a new product from India.
Inspired by the globally accepted talent pool and cost saving opportunities, global companies began opening GCCs in India. While GCC ecosystem made India as home for global names, the primary objective from their headquarters remained the cost arbitrage and not tech leadership.
In last 15 years, Indian product ecosystem has grown and the talent has matured due to the interaction with their global counterparts. Today, we have a strong ecosystem and collaboration of GCC/GCoE, Startups, University, Mentors, Venture capitalists and enhanced customer confidence.
Today, India is home for approximately 1500 GCCs and 15000 start-ups launched in a decade driving inclusive and diverse representation of demography, covering wide spectrum of sectors, extensive corporate participation and enhanced investor commitment.
What is your perception about the skills level of the talent pool in India in leveraging these technologies?
There is no dearth of degree holder talent in India, but to build a product and do heavy lifting in initial stages, you need the specialists who are quite limited in availability. Though, India has a healthy pool of engineers capable of building things from scratch due to the strong presence of the GCCs & GCOEs. To ride the next wave of technology, India needs to build a large pool of product development talent with strong technology and domain foundation, excellent problem-solving skills and product mindset.
There is a need to create a sustainable, human-centric, resilient economy that achieves diverse objectives—including growth, inclusion, and equity and DeepTech startups are the vehicles to achieve it
Deep-tech companies face unique challenges. Challenges specific to India are, cultural aversion to risk, lack of compelling value proposition and business models due Under-developed domestic market, challenge in accessing mature markets, lack of availability of H/W, supply chain constraints and design, marketing, branding and product management abilities.
I would like to go slightly deeper on some challenges which need to be addressed in Indian context –
Difficulties in Validating the Product: We lack the necessary infrastructure and environment needed for product validation and solution iteration. Need an effective mechanism where government and established organizations can lend expertise in engineering and manufacturing at scale and serving as early test customers for the new product.
Difficulties in Scaling Up: Scaling up a physical product—and a related manufacturing process—at times is complex and costly. There is a need to overcome engineering challenges in a way that meets design-to-cost parameters.
Difficulties in Accessing Funding: Today’s widely followed venture capital model is insufficient in scope, and skewed toward certain verticals. Many private equity and venture capital funds are structurally constrained (by lifetime, Size, limits & Risk exposure) from investing in deep tech. Most do not have the talent to fully understand the science and technology risks. Having high Risk, high gestation period and longer time for return on investment makes DeepTech as difficult destination for the funds.
Your Recommendation for Startups to be Successful:
Market access, technical expertise, and business knowledge are equally crucial for start-ups to be successful.
Startups in strategic areas like defence, communications, healthcare, Space Tech etc., need to be facilitated by the conducive policies, infrastructure access to develop, test and iterate solutions. India's 2021 drone policy is one such initiative.
Corporates can provide technical, industrial, and commercial visions, skills & experience. They can be the strategic investors to help start-ups on technological, market, industrial expertise and capabilities, access to corporates’ data, distribution network and customer base.
Deep-tech innovations will be led by megatrends like global climate change, demographic shifts, resource scarcity, an aging population and scientific progress. All nodes of ecosystem - Government, Universities, Corporates & Startups need to push the boundaries of science and translate technological capabilities into business applications. There is a need to create a sustainable, human-centric, resilient economy that achieves diverse objectives—including growth, inclusion, and equity and DeepTech startups are the vehicles to achieve it.