Indian Deeptech Startups In Deep Demand Globally Many deeptech startups have been acquired by large global companies in the recent past. Access to the Indian talent pool is one of the top reasons behind the heightened interest

In the past couple of years, we have seen many Indian deeptech startups getting by larger global companies. For instance, in the last two years, KPIT Technologies acquired Bengaluru-based PathPartner Technology, Accenture bought BRIDGEi2i, which is an AI and analytics firm based in Bengaluru, General Atlantic got a 17% stake in AI startup Artivatic.ai, Eagle Eye Networks, which is a US-based cloud video surveillance firm acquired AI startup Uncanny Vision and Arizona-based Nextiva acquired Simplify360. These are just a few of the acquisitions that have happened in the recent past.

Mergers and acquisitions (M&As) have become a common affair today across sectors. Larger counterparts are making smart acquisition moves on their smaller peers from a product expansion, talent acquisition or even a new market entry point of view. However, global companies seem to be particularly interested in India's deeptech startups. We asked experts why.

Deeptech's international appeal

"The availability of capital, and a move toward innovation-driven strategies adopted by the startups is a key reason," said Ankur Bansal, co-founder and director, BlackSoil.

The key areas where Indian deep tech startups are venturing are AI/ML, language processing, biotech, robotics, blockchain and quantum computing. "We can see the list of areas expanding based on global demand. The Indian VC ecosystem is also playing an important role in encouraging such deep-tech startups but they struggle to get an exit purely in the Indian context," said Amarjeet Singh Makhija, partner and leader - Startups, PwC India.

The access to the Indian talent pool is the top driver for many of these acquisitions, say experts. The next key reason is the favorable pricing compared to similar businesses in developed economies. "The Indian entrepreneur is also an asset alongwith the IP which is brought in," added Makhija.

India has time and again also proven to be an attractive investment destination as the world's fastest-growing major economy. "We foresee sustained cross-border acquisition interest in key sectors such as fintech and financial services, digital services, media and entertainment and new retail," saidShauraya Bhutani, Partner, Breathe Capital

Acquisitions of startups help these companies stay ahead of industry trends and the time also seems to be right today, to get a better bargain. "Deep tech companies generate IP, and there are a number of companies in the business of harnessing an IP portfolio to work well with their GTM - IP is also universal - doesn't necessarily need to be limited to the India market. This means that the potential set of exits for IP led companies are much more vast," said Sonal Saldanha, VP, Investments, 3one4 Capital.

Access to newer markets and technology is another attraction for global firms. "The acquisition of Simplify360 accelerates our companies' shared mission by adding social media, reputation management, live chat and helpdesk CRM to Nextiva's offerings," said Tomas Gorny, co-founder and CEO, Nextiva, in a statement. This Arizona-based conversation company acquired Bengaluru-based AI company Simplify360 in April this year. The acquisition opens the door to the Asia-Pacific market for Nextiva as the company expands globally. Backed by Goldman Sachs, Nextiva was valued at $2.7 billion dollars by its first financing round in late 2021.

Another important thing to note here is that based on the current size of the Indian Startup ecosystem, the deeptech startups are only a small percentage. So, most startups in deeptech also try to merge with larger western platforms "The tech talent exists in India but the ability to create the right business and business model compared to developed economies is still evolving. Therefore, merging with larger western platforms allows them access to better technology, and larger markets," said Makhija.

A brain drain?

We asked experts if this is also another kind of brain drain, considering IPs of Indian companies are now being sold to global companies. "This is not a brain drain but a temporary phase until India is ready to provide such entrepreneurs a better opportunity. Such acquisitions also encourage more entrepreneurs to move into this emerging sector," said Makhija.

"IP is a means to an end, and if the IP owner usually only has a small window of opportunity to commercially exploit this technology. Oftentimes this IP holds global potential, and a buyer may already be well placed to give the technology instant scale," added Saldanha.

Experts also say that deeptech buyers are often large companies with slow investment or M&A processes. "Buyer valuations are not always in line with the prices that deeptech companies would have raised money at - Deep tech companies may not be at the right level of technology readiness levels (TRL) before they consider being acquired, so the buyer might find it difficult to commit to doing the level of work required to take the technology to commercial readiness," she added.

According to Naasscom, India has over 3000 deeptech startups growing at 53% CAGR over last ten years. One-third of deepTech startups belong to Enterprise Tech and BFSI and more than $2.7 Bn funding was raised in 2021, 1.6X over 2020. Considering these facts, acquisition by international companies is inevitable till the startup ecosystem in India evolves completely and matches up to its global counterparts.