India has changed the rules for deep tech startups

Deep tech startups in sectors such as aerospace, semiconductor, and biotechnology take much longer to mature than traditional ventures. For this reason, India is adjusting the rules for startups and mobilizing public capital, in the hope of helping more of them reach commercial products.

The Indian government this week updated its startup framework, doubling the period for which deep tech companies are treated as startups to 20 years and raising the revenue threshold for startup taxes, grants and regulatory benefits to INR 3 billion (about US$33.12 million), from INR 1 billion (about US$11.04 million) previously. This change is intended to align policy timelines with the long development cycles typical of science and engineering-based companies.

The change also forms part of New Delhi’s efforts to build a deep, long-term technology ecosystem by combining regulatory reform with public capital, including the Research, Development and Innovation (RDI) fund announced last year worth one trillion rupees (about $11 billion). This fund aims to expand patient financing for science- and R&D-led companies. Against this backdrop, US and Indian venture firms later came together to launch the India Deep Tech Alliance, a more than $1 billion consortium of private investors that includes Accel, Bloom Ventures, Celesta Capital, Premji Invest, Ideaspring Capital, Qualcomm Ventures, and Kalari Capital, with chipmaker Nvidia as an advisor.

For founders, these changes may fix what some see as an artificial pressure point. Under the previous framework, companies often risked losing their startup status while still in the pre-commercialization stage, creating a “false failure signal” that judges science-led projects on policy timelines rather than technological progress, said Vishesh Rajaram, co-founder of Speciale Invest, an Indian deep-tech venture capital firm.

“By formally recognizing that deep tech is different, the policy reduces the friction in fundraising, pursuing capital, and engaging with the state, which is quite evident in the founder’s operational reality over time,” Rajaram told TechCrunch.

However, investors say access to capital remains a more compelling constraint, especially after the early stages. “The biggest gap historically has been the depth of funding at Series A and beyond, especially for capital-intensive deep-tech companies,” Rajaram said. This is where the Research, Development and Innovation Fund established by the government earlier was supposed to play a complementary role.

“The real benefit of the RDI framework is the increased funding available for early-stage and growth-stage deep technology companies,” said Arun Kumar, Managing Partner at Celesta Capital. By channeling public capital through investment funds with similar tenures to private capital, the fund is designed to address chronic gaps in follow-on financing without changing the commercial standards that govern private investment decisions, he said.

India’s deep tech framework avoids the “graduation cliff” that has historically cut off companies from support just as they scale, said Siddharth Pai, co-founder at 3one4 Capital and co-head of regulatory affairs at the Indian Venture and Alternative Capital Association.

These policy changes come as the RDI Fund begins to take operational shape, with the first batch of fund managers identified and the selection process for venture and private equity managers underway, Pai said.

While private deep-tech capital already exists in India — especially in areas like biotech — Pai told TechCrunch that the RDI Fund aims to serve as a nucleus around which greater capital formation can occur. He noted that unlike a traditional fund of funds, the vehicle is also designed to take direct positions and provide credit and grants to deep-tech startups.

Deep tech funding is growing in India

In terms of size, India remains an emerging market rather than a dominant market for deep tech. Indian deep tech startups have raised a total of $8.54 billion so far, but recent data indicates renewed momentum. Indian deep tech startups raised $1.65 billion in 2025, a sharp rebound from $1.1 billion in each of the previous two years after funding peaked at $2 billion in 2022, according to Tracxn. The recovery indicates growing investor confidence, especially in areas aligned with national priorities such as advanced manufacturing, defence, climate technologies, and semiconductors.

“Overall, the rise in funding indicates a gradual move towards long-term investing,” said Neha Singh, co-founder of Tracxn.

By comparison, US deep tech startups raised about $147 billion in 2025, more than 80 times the amount deployed in India that year, while China took in nearly $81 billion, data from Tracxn shows.

This disparity highlights the challenge India faces in building capital-intensive technologies, even with its wealth of engineering talent. So the hope is that these moves by the Indian government will increase investor participation in the medium term.

Long range signal

For global investors, New Delhi’s framework change reads as a signal of longer-term political intentions rather than an incentive for immediate shifts in allocation. “Deep tech companies operate over a seven- to twelve-year horizon, so regulatory recognition that extends the lifecycle gives investors greater confidence that the policy environment won’t change mid-journey,” said Pratik Agarwal, partner at Accel. While he said the change will not change allocation models overnight or remove policy risk entirely, it adds to investors’ comfort that India is thinking about deep tech over longer time horizons.

“The change shows that India is learning from the US and Europe on how to create patient frameworks for building borders,” Agarwal told TechCrunch.

Whether the move will reduce the tendency of Indian startups to move their headquarters abroad as they expand remains an open question.

The extended runway strengthens the case for building and staying in India, although access to capital and customers remains important, Agarwal said. Over the past five years, public markets in India have shown an increasing appetite for venture-backed technology companies, making a local listing a more credible option than in the past, he added. This, in turn, could ease some of the pressure on deep tech founders to integrate abroad, even if access to late-stage procurement and capital will continue to shape where companies eventually expand.

For investors who support long-term technologies, the ultimate test will be whether India can deliver globally competitive results. The real signal will be the emergence of a critical mass of Indian deep-tech companies succeeding on the global stage, said Kumar of Celesta Capital.

“It would be great to see ten globally competitive Indian deep tech companies achieve sustained success over the next decade,” he said, describing this as the benchmark he would look for in assessing whether India’s deep tech ecosystem is maturing.