VCs rethinking deep tech: Something’s changed in the last 6-9 months, says Accel

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Indian venture capitalists are shifting their focus toward advanced manufacturing and deep tech, a departure from the norm where companies from these sectors were avoided due to a long gestation period.

According to Prashanth Prakash, founding partner at Accel, this shift has become evident over the last six to nine months.

“There is something that shifted in the last six to nine months where VCs don’t seem to be viewing these as old-world, asset-heavy businesses anymore,” Prakash said during a panel discussion at Accel's Advanced Manufacturing Summit in Bengaluru.

The comments assume significance as they point to a broader re-evaluation within the venture ecosystem, as firms begin backing startups in sectors such as defence, aerospace, robotics, semiconductors, and industrial AI, areas previously seen as too complex or capital-intensive for mainstream VC interest.

IP Takes Driver Seat

Accel is now actively investing in companies with proprietary technology and intellectual property (IP) at the core of their business models.

“If you're just doing lowest-cost production, it's going to be very hard to win against China. But now we have IP. We can monetise that over the long term,” Prakash further said.

He added that India’s startup ecosystem is seeing an increase in engineering-first founders, often building equipment-, process-, or product-led innovations that create moats.

Prakash also pointed to increasing government support for sovereign technology and deep tech infrastructure, including procurement initiatives, PLI schemes, and state-led investments, as factors accelerating the trend.

“This is no longer just about PLI. The government is clear that we need to localise $200 to $300 billion of imports over the next few years,” he added.

Also, read: Indian rockets in ‘great demand’, we are short of manufacturing capacity: Former ISRO chairman Somanath

Caution to Confidence

Reflecting on earlier missed opportunities in space tech firms like Agnikul and Pixel, Prakash acknowledged the historical hesitation among VCs in backing high-risk, deep-tech ventures.

“We passed on Agnikul at seed because we thought it would take 18 years and tens of millions to know if it works. The moats come from IP and innovation, and that is where we are starting to focus a lot more on,” Prayank Swaroop, Partner at Accel, added.

Asked when India might see its first unicorn in advanced manufacturing, Prakash predicted a three-to-four-year timeframe, citing increasing investor interest and a maturing domestic market.

Also, read: Venture capital Accel backs Indian cybersecurity startups to chase innovation over pricing power