Investments in the three sectors — deep tech (including AI startups) climate tech and semiconductors — have totalled $1.58 billion in 2023, in five months itself, according to data from Tracxn.
ETtechInvestors told ET that beyond the funding winter, reasons attributable to the sudden increase in interest for these emerging sectors include increased adoption of environment-friendly technologies and policy pushes from the government in areas ranging from domestic manufacturing, emissions monitoring to renewables.
Venture capital fund Matrix Partners also plans to double down on sectors like electric mobility where it already has Ola Electric in its portfolio. It also plans to invest in startups in the semiconductor space and pick bets in the buzzy artificial intelligence (AI) sector, where it has already backed three ventures including text-to-speech software startup Murf.ai.
“We have made about 5-6 investments in these technologies… Three of them are in AI… We are aggressively looking at this theme from our new fund and the reasons why this is becoming more real today versus 3-5 years ago is that talent, capital and government push – all these three factors are coming together to make it happen,” Tarun Davda, partner and managing director at Matrix Partners India told ET.
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“Obviously, the rest of the sectors continue their cycles – consumer tech, fintech, B2B, but a lot of those themes have now played out and people are now looking at what’s next,” he added.
The VC fund, which has backed startups such as payments platform Razorpay, ride hailing company Ola and online gaming startup Zupee among others, made a final close of its latest India fund at $550 million – the largest corpus it has raised for the country since starting operations here in 2006.
Hyperspectral imaging startup Pixxel raised $36 million from investors, including Google, Lightspeed, Blume Ventures and Athera Venture Partners, processor design company InCore Semiconductors, raised $3 million from Sequoia Capital India and green hydrogen manufacturers Newtrace raised $5.65 million Sequoia Capital India and Aavishkaar Capital.
ETtechET had reported on April 11 that venture capital firms focused on the deep tech sector are reinforcing their presence in India at a time when AI is creating ripples across the tech world on the back of the launch of Open AI’s ChatGPT.
“Funds or investors are always hunting for a sector where there is a tailwind where things are automatically taking off so whatever you invest will also take off right… In the last three- or four-years, emergent sectors have been essentially about climate- and deep-tech. It’s been happening for a while, but different funds are showing different risk appetites now,” Lightspeed India partner Rahul Taneja told ET. In the last 12 months, Lightspeed in India has done four such deals in these sectors.
Even as the sectors require patient capital, investors see two crucial ingredients to investable climate-tech and deeptech businesses – moat with strong intellectual property and a clear line of revenue once commercialisation begins.
Athera Venture Partners, previously Inventus India, is currently closing a Rs 900-1,000 crore fund, and plans to deploy 30% of the fund in emerging sectors like climate-tech, deep tech and semiconductors over the next two-three years, Rutvik Doshi, managing director, Athera Venture Partners, told ET.
“We’re an early-stage investor so I don’t have the luxury of doing a Series B, C or D. But a broad-based growth stage investor has the luxury of getting into these emerging sectors and waiting and watching… That is why you’re seeing these broad-based funds getting into a Pixxel or Euler Motors only now. Going forward, two years down the line, you will see competition in this segment from everybody,” Doshi said.
Sector Watch
Recent impetus by government policies in areas such as electric vehicles has also attracted venture bets into these sectors. These include production-linked incentive schemes, subsidies to push adoption of electric vehicles, etc. A recent study by government think-tank Niti Aayog has estimated that $267 billion worth of investment will be required in EVs, battery infrastructure, and charging infrastructure to make a full transition to EVs.
Also read | NITI Aayog mulls EV policy review to reduce dependence on China
“As the EV adoption grows, there are second tier companies emerging in the space that investors will be watching out for. These include startups in the battery storage space, battery recycling, EV components, hardware and software-enabled electric mobility services, etc,” a Delhi-based mobility-focused investor told ET. The investor added that emerging use-cases from first tier EV platforms like Uber and BluSmart could kickstart investments into those building back-end products and services.
Similarly, Taneja from Lightspeed highlighted four sub-sectors within deeptech to watch out for – spacetech with its satellites and rockets, semiconductors with potential manufacturing, robotics and internet-of-things with an interplay of hardware and software, and drones with advanced regulations and policy in place.
“India is ready for climate tech. Specialised funds are continuing to deploy capital. But larger generalists are increasingly taking small bets in the space as no one wants to miss the bus. For a lot of them, the small cheques at the most are round-off errors,” Swapna Gupta, partner, Avaana Capital, which is currently investing from its second fund, focused solely on climate-tech.
Avaana Capital has led a $2 million seed-funding round in environmental, social and governance software maker Sentra.world. RPG Ventures and Golden Sparrow Ventures also participated in the round. The company helps clients monitor its scope 3, or supplier related, emissions and manage it efficiently.
“By prioritising scope 3 emissions, we drive sustainability across the value chain for industrial businesses in India, the Middle East, and Southeast Asia, with future expansion into Europe,” Harsh Choudhry, cofounder and CEO of Sentra.world, told ET.
Gupta from Avaana Capital pointed to several policy waves prompting a push in climate tech deals. The first was the government’s push on solar and other renewables-linked policies. Second was the electric vehicles-led push on renewables. Third is the policy push on the circular economy via which reporting, monitoring and controlling emissions solutions will gain prominence and finally, water-related sciences with critical freshwater shortage issues projected globally.
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