15-year funds have to emerge for deeptech in India: Blume Ventures' Arpit Agarwal

Arpit Agarwal, partner at Blume Ventures Image: Nishant Ratnakar for Forbes India

Deeptech startups too must face the same litmus test of viability in the market, which means they must deliver serious value to customers at scale. The returns on such companies can be impressive, but the ecosystem will need to find ways to match the money for long-gestation projects with focussed execution, says Arpit Agarwal, partner at Blume Ventures, in an interview to Forbes India. Edited excerpts.

Q. How did Blume build a deeptech portfolio?
One thing that sets us apart—and probably many other firms too—is our willingness to act decisively without waiting for consensus. For instance, back in 2011-2012, we discovered Carbon Clean, a startup from IIT-Kharagpur dabbling in carbon innovation. They lacked a concrete business plan, but we saw potential and backed them early on.

Over the next five to six years, they refined their model, secured UK government grants, and, today, they’re a global leader in industrial-scale carbon capture.

Our approach isn’t about having a pre-defined thesis; it’s about trusting our instincts and first principles. We foresee needs like carbon capture and invest in motivated teams that align with these future trends. This philosophy underpins our portfolio—from deeptech to electric vehicles (EVs) and SaaS—where we often lead rather than follow, driven by our own convictions.

While not every bet pays off, when it does, it’s immensely rewarding—a testament to our approach and belief in backing the right ideas at the right time.
 
Q. How would you define a deeptech company in India?
Deeptech, whether in Silicon Valley or in India, revolves around companies that innovate using years of research to develop groundbreaking technologies. Unlike simpler innovations like workflow software or retail storefronts, these ventures delve into globally unique ideas that stem from extensive research and solve complex challenges.

They often originate from India-specific constraints like frugality or leverage cutting-edge technologies necessitated by today’s standards.

Fields like biotechnology, med-tech, drones, cybersecurity, and generative artificial intelligence (AI) exemplify this approach, exploring autonomous mobile robots, industrial automation, advanced EV components like new batteries and management systems. These innovations typically undergo years of development before generating revenue, reflecting their deep-rooted technological foundation and potential global impact.
 
Q. As a VC firm, what is the deeptech opportunity you see in India?
Venture capital (VC) is designed for companies that initially operate at a loss but have the potential to become highly profitable in the future, making it ideal for deeptech ventures.

Take Ati Motors, a company emerging from IISc research in autonomous mobile robots and factory automation. It invested significantly in R&D for five to six years before gaining traction. Now, with gross margins ranging from 60 to 80 percent and minimal competition due to its unique technology, it exemplifies how sustained investment can lead to substantial returns.

 Historically, Indian VC has been cautious with deeptech due to market readiness issues and the necessity to target global markets like the US. Additionally, securing subsequent funding rounds posed challenges. Despite these hurdles, the ecosystem is maturing, evidenced by increasing interest in deeptech investments as of 2024. I foresee significant growth in this sector over the next decade, driven by a more supportive ecosystem and increasing investor confidence.

Also read: Deeptech in India will be a multi-decade journey: Rajan Anandan
 
Q. What are the factors coming together in India’s deeptech sector?
Let me illustrate with the example of the biotech sector. In biotech, the journey has been shaped by agencies like BIRAC, which supported numerous early-stage innovations, leading to the creation of hundreds of companies despite many not gaining prominence due to nascent ecosystems and limited investment. However, this era cultivated a deep pool of entrepreneurial talent familiar with scaling companies to a certain level.

Today, these experienced entrepreneurs are progressing to higher aspirations, catalysing the biotech sector’s growth from level A to B and beyond. Their maturity and network benefit new startups, accelerating their journey from concept to commercial success. This evolution reflects a cycle: As quality entrepreneurs emerge and succeed, more funding naturally follows, nurturing the ecosystem further.

VC’s role is pivotal but cautious, often following trends and waiting for companies to mature before investing significantly. As seed-stage investments grow, so does the pipeline of companies advancing to Series A, B, C, and even IPO stages. This cycle amplifies the confidence and capital flowing into biotech and similar deeptech sectors.

The Indian market’s potential to sustain biotech companies domestically is gaining traction, promising faster growth as companies align more closely with local needs. This convergence of talent, capital availability, and market readiness exemplify how ecosystems mature, fostering greater investor interest and expanding opportunities across sectors like autonomous mobile robots and beyond.

Overall, the trajectory shows promise: As ecosystems mature, they attract more investment, nurturing innovation and economic growth in emerging technology fields.

Q. Any examples of startups that you’d consider as the next generation of deeptech from India?
I’m incredibly enthusiastic about Yakrit, a company pioneering a groundbreaking machine capable of replicating liver functions for acute liver failure patients, outside the body. This technology is revolutionary for several reasons: It involves billions of live human cells functioning outside the body, a feat never achieved before. The engineering precision ensures the cells remain viable and effective over extended periods, crucial for patient trust and clinical effectiveness.

Similarly, other Indian innovators are pushing boundaries. For instance, a company developing a novel battery anode promises to enhance battery capacity, reduce costs, and extend lifespan through advanced material science. Another exciting development involves bio bots designed to navigate and clean tubules within tooth enamel, a pioneering concept emerging from Indian research labs.

These innovations underscore significant advancements in translating cutting-edge research into practical solutions. The journey from lab to market typically spans several years of intensive development and validation, driven by dedicated teams and supported by scientific rigor. The increasing proximity of these innovations to commercialisation is promising, marking a new era of impactful technological advancements emerging from Indian institutes.

Q. Any thoughts on the go-to-market aspect of deeptech startups in India?
Successfully navigating the path to commercialisation varies widely across industries like med-tech, EVs, green hydrogen, and more. Each sector presents unique challenges and adoption curves. However, a universal principle remains unchanged: Products must be tailored to meet customer needs and demonstrate immediate value.

Take Ati Motors, for example, whose bots save costs and reduce labour, offering an impressive 18-month payback period in India, making customer adoption straightforward.

Achieving customer value from core product inception often requires extensive iteration and customer engagement over several years. Close customer interaction and continuous product improvement are crucial to demonstrating value early in the process. Moreover, maintaining product quality over time is essential; reliability issues can stem not just from engineering flaws but also from supply chain challenges.

Further, expanding market segments post-initial success is critical yet challenging, requiring deliberate effort and time. Despite these complexities, traditional VC models are proving effective in India, offering potential for venture-class returns within typical fund durations of around 10 years.

However, sectors like life sciences may necessitate longer-term investment horizons, which Indian markets are gradually adapting to accommodate. So, maybe, 15-year funds have to emerge. So far, we haven’t seen those happening, which is another reason why life sciences startups continue to struggle in terms of funding raised. But it is a matter of time. We will see a lot more of that happening too.