Why public capital isn’t enough to save India’s deeptech

Government funds can help reduce risk in India's deeptech sector, but they alone cannot fully secure private capital investment, as time and exit risks remain significant hurdles. India's AI and deep tech investments have grown to $2.1 billion across 289 deals in 2025, with deeptech's share of total VC-PE activity rising to around 15%, up from 4% in 2016.

However, while private capital is increasingly confident in deeptech companies that have already been validated, it remains hesitant to invest in the riskier aspects of deeptech development. The state's RDI Scheme and Startup India Fund of Funds 2.0 provide substantial capital, but their impact depends on whether they address technology, time, or exit risks.

Technology risk can be mitigated through grants and lab-to-market funding, but time risk, due to the lengthy development cycles, remains a challenge. Exit risk is the most critical issue, as only one exit for every twelve funded startups over a decade indicates a weak link in the deeptech investment pipeline. To become a more attractive destination for private capital, India needs to shift from being a mere financier to an anchor buyer, providing customer demand and outcome-based procurement commitments.

Additionally, corporate India is ready to co-invest at a higher level, but the overall investment landscape still lags behind that of countries like the US, China, and South Korea. While there are concerns about potential valuation inflation and a focus on policy-driven startups, a qualified yes is given to the assertion that government funds can make private capital comfortable in India's deeptech sector, provided the state acts as both a first customer and an early exit buyer.