There is no real ecosystem for deep tech in India: Accel’s Prashanth Prakash

Prashanth Prakash, Accel

Deep tech or sectors like artificial intelligence (AI), machine learning (ML), biotechnology, molecular discovery, among others have no real ecosystem in India, according to Accel’s Prashanth Prakash, in what seems like a contrarian view on a topic that has garnered a lot of attention from entrepreneurs of late.

“Unfortunately, there’s no real ecosystem for deep tech in India currently. The reasons are many. There’s no corporate R&D (research and development) budget. The government R&D budgets are very small. It is very easy to get the first cheque of $1-3 million, but after that there’s no funding pipeline,” said Prakash, speaking at an event in Bengaluru.

“There’s no leverage in areas like molecular discovery or some of the deep biotech areas because you do all the work in India and then you have to go to Boston and redo it. So there’s just no ecosystem for molecular science in this country. I don’t want to sound all negative but I just wanted to layout the reality,” he added.

Prakash’s comments come at a time when deep tech innovations in India are on the rise and are attracting investments from venture capital (VC) and private equity (PE) firms. For instance, investments in companies offering AI-based models jumped nearly 10 percent in the calendar year 2022 to $5.03 billion in India, according to Tracxn data. To put it in perspective, overall funding to technology companies had fallen to $46.7 billion in 2022, down nearly 40 percent from the previous year.

“The deep tech sector was not initially supported by funds because everyone thought the risk was high. Investors felt that once you do investments in deep tech, the exits will take longer and perhaps only through acquisitions,” said B V Naidu, managing partner, Startup XSeed Ventures, who is also chairman of the Karnataka Development Economy Mission, an initiative of the Karnataka Government.

“Now this has changed. Just to give you an example, we did around 12 investments through our first fund, we got early exits in two of them within 18 months. One is a cyber security company called Shield Square, which got acquired by an Israel-based company, and another company which has developing IP for Apple products also got acquired. So this changed apprehension of investors and thus they started looking at deep tech,” he added, speaking to Moneycontrol, on the sidelines of the event.

India has also seen a push from academic institutions for deep tech innovations in the recent past. Colleges like IIT Madras (Indian Institute of Technology) have been promoting such innovations very aggressively. In fact, IIT Madras’ IIT-M Research Park has incubated over 200 deep tech startups, with a cumulative valuation of over Rs 50,000 crore, Moneycontrol previously reported in its special series.

But Prakash has a different view even on these initiatives and suggested that the academia in India has to have more focus and bias on rewarding research in institutions.

“We have the best IITs, but close to zero research or (zero) translatable research from any of these IITs. There is no research budgets worth anything in most of the IITs, because most of the professors are rated on the publications they do globally,” said Prakash.

“There’s no rating in India for industry work or industry research or the kind of startup activity that happens within an IIT. It has been worked on and I am a part of a task force that’s trying to change the evaluation mechanisms in the IITs and try to influence new model to incentivise professors,” he added.

Over the past few months, the emergence of language learning models and the increasing prominence of ChatGPT have provided a boost to the deep tech industry, encompassing vision and speech algorithms, quantum computing, big data, and language processing. However, Prashanth Prakash mentioned that language learning in India is still a distant prospect, contradicting the notion that it has gained significant traction in recent times.

“There are more than five open source LLMs (language learning models) in different parts of the world. I don’t think we are there in India to create even a single LLM. Because no professor who has worked in anything in AI in this country has either the current depth with his PhD students or whatever industry connects to create an LLM in India,” Prakash said.

“We really have to do a lot more at every level. At the corporate level, where R&D budgets are very small, at the university level and I think there are good initiatives in terms of deep tech funds, but where will they find the right investable companies if the ecosystem does not support it,” he added.

Prakash also higlighted the need for a more mature mergers and acquisition (M&A) ecosystem in India in the deep tech space. He said most of the large corporates in India do not have the culture of buying IP (intellectual property) as they either wait for startups to crumble and buy these companies for cheap or hire a few people from these companies to develop it organically.

Prakash, a veteran VC investor in India, leads Accel. According to Tracxn, Prakash is currently the board of as many as 15 startups in the country, including unicorns like Infra.Market, representing Accel.

Accel, one of the country’s most active early-stage startup investors, has invested in more than 200 companies to date and has 20 unicorns in its portfolio. According to Tracxn, the VC has also invested in more than 20 companies using AI-based models.