While the frost of the funding winter hasn’t completely disappeared yet, the Indian defence startup ecosystem is experiencing unprecedented growth. Attributed to the government’s pro-policy reforms and increased demand for defence technologies, a large number of startups entering the unicorn club are making strides in the Indian defence sector.
The latest EY report reveals that the sector witnessed over $1.5 billion in private equity and venture capital investments in the past three years. Hence, India’s deep tech innovation in defence continues to hold a crucial power.
It perfectly aligns with the aspirations of ‘Atmanirbhar Bharat’ where emerging startups can be incentivized to build progressive solutions for battlefield challenges.
Automated logistics drones, AI-powered projection and warfare planning, autonomous drones and other next-gen technologies make startups a strategic priority from an investment point of view along with portraying India’s capacity-building initiatives in the defence sector.
Startups outshining traditional capabilities
Recognised as the home to the world’s third-largest armed forces, India boasts a substantial defence budget of around USD 34.35 billion. The notable contributions from startups in the field of AI and robotics further aggravate their impact on enhancing the capabilities of the Indian armed forces.
Startups exhibiting risk-taking capabilities and growing prowess in defence technology bring agility in air and water surveillance, particularly with the development of Aerial Systems, Counter Drone Systems, Robotics and Space.
Subsequently, Robotics and Unmanned vehicles are seen as disruptive forces to alter the course of defence strategies. As per media reports, investments particularly in defence startups were estimated nearly $50 Mn in 2023, double from 2022.
Leveraging the potential of Machine Learning, Artificial Intelligence and Deep Learning, these startups are unlike established and large enterprise firms, can accommodate the dynamic demands of the industry.
Government Initiatives Fueling Growth
Demonstrating an upward growth trajectory, the government of India in 2018 launched the Innovations For Defence Excellence (iDEX). The initiative strives to build an ecosystem that further nurtures innovation and technology advancements in the sector.
Having received over 2000 proposals, iDEX provided significant financial assistance to around 300 startups and small-medium companies to scale their operations, invest in R&D capabilities and strengthen the competencies of India’s defence sector.
Apart from this, Defence Minister Rajnath Singh’s newly unveiled initiative to finance the R&D efforts of startups cohesively with the government offering funding of Rs. 25 Cr. to meet the demands of armed forces on the battlefield.
In a series of government initiatives, another scheme Acing Development of Innovative Technologies with iDEX (ADITI) addresses various security challenges beyond land, air and underwater threats, identifying cyber thefts. This, in turn, facilitates a collaborative spirit between startups, government agencies and investors creating a synergy crucial for realizing India’s Self-Reliance vision.
Apart from this, the government has entered into strategic alliances with leading nations like the USA and Israel. By leveraging domestic capabilities, India is strategically positioned at the global stage with enhanced Indo-US Defence Cooperation and Indo-Israel Defence Strategy.
Further, the ban on foreign drones and freeing up import of drone components is allowing India to accelerate its Make in India efforts as other international regions – Southeast Asia, the Middle East and Africa are also turning to India for its tech-backed defence solutions.
Surge in Strategic Angel Investments
As the country solidifies its global positioning, angel investment becomes pivotal in cultivating a growth culture for early-stage startups. Apart from bolstering domestic capabilities, it is significantly influencing the economic landscape on a global level.
In 2024, angel investors have increasingly shown their interest in niche technologies and are directing their funds to areas of revolutionary applications, enabling start-ups to entirely focus on creating breakthroughs with radical innovations.
A substantial rise in syndicate investments is also capturing the angel investing landscape where a group of investors pool funds to spread risk and provide startups with initial-stage funding to accelerate R&D efforts and scale their operations. Furthermore, many defence focused incubators are actively supporting both private and government funding.
In a notable deal, Finvolve – a leading Micro VC & deep B2B foundation recently invested $750k in Zulu Defence that provides advanced air defence aerial systems for rapid deployment, resilient ISR, precision strikes, and countermeasure capabilities in contested environments.
The strategic influx of angel investment proves to be instrumental for India’s Self-Reliance capabilities. The investments are anticipated to reduce the country’s dependency on other nations by owning and inducing advanced technologies. The virtuous cycle of innovation and investment is projected to stimulate India’s positioning as a global leader in defence technology.
