India changes deep tech startup rules

Deep tech startups in fields like space, semiconductors, and biotech take much longer to mature than traditional ventures. So India is adjusting its startup rules and mobilizing public capital in hopes of helping more companies commercialize.

This week, the Indian government updated its startup framework, doubling the period for deep tech companies to be treated as startups to 20 years, and increasing the income threshold for startup-specific taxes, subsidies and regulatory incentives to 3 billion rupees ($33.12 million) from the previous 1 billion rupees ($11.04 million). This change is aimed at aligning policy timelines with the long development cycles typical of science- and engineering-driven businesses.

The changes are also part of New Delhi’s efforts to build a long-term deep tech ecosystem through a combination of public capital and regulatory reforms, including the Rs 1 trillion (about $11 billion) Research, Development and Innovation Fund (RDI) announced last year. The fund aims to expand patient financing for science-driven and R&D-driven companies. Against this background, American and Indian venture companies later collaborated to launch the India Deep Tech Alliance. The alliance is a more than $1 billion coalition of private investors including Accel, Bloom Ventures, Celesta Capital, Premji Invest, IdeaSpring Capital, Qualcomm Ventures, Kalari Capital, and is advised by chipmaker Nvidia.

For founders, these changes could fix what some see as artificial pressure points. Vishesh Rajaram, founding partner at Indian deep-tech venture capital firm Speciale Invest, said the previous framework often put companies at risk of losing startup status in the pre-commercial stage and created a “false failure signal” that judged science-driven ventures on policy timelines rather than technological advances.

“By formally recognizing deep tech as different, this policy reduces friction in financing, follow-on capital, and state engagement, which will inevitably emerge in the business realities of founders over time,” Rajaram told TechCrunch.

Still, investors say access to capital remains a binding constraint, especially after the early stages. “Historically, the biggest gap has been the depth of funding beyond Series A, especially for capital-intensive deep tech companies,” Rajaram said. That is where the government’s nascent RDI fund is intended to play a complementary role.

“The real benefit of the RDI framework is that it increases the capital available to early and growth-stage deep tech companies,” said Arun Kumar, managing partner at Celesta Capital. He said that by channeling public capital through venture funds with similar objectives to private capital, the fund is designed to address chronic gaps in follow-on funding without changing the commercial criteria governing private investment decisions.

Sidharth Pai, founding partner at 3one4 Capital and co-chair of regulation at the Indian Venture and Alternative Capital Association, said India’s deep tech framework can avoid the “graduation cliff” where companies historically lose support as they scale up.

These policy changes come as the RDI fund begins to take shape operationally, with the first group of fund managers identified and the process of selecting venture and private equity managers underway, Pai said.

While private capital for deep tech already exists in India, particularly in sectors such as biotech, Pai told TechCrunch that the RDI fund is intended to serve as a nucleus to enable greater capital formation. He noted that unlike traditional funds of funds, this vehicle is also designed to gain direct position and provide credit and subsidies to deep tech startups.

Deep tech funding in India rises

From a scale perspective, India remains an emerging market rather than a dominant deep tech market. Indian deep tech startups have raised a total of $8.54 billion so far, but recent data shows new momentum. Indian deep tech startups raised $1.65 billion in 2025, according to Tracxn, a sharp rebound from $1.1 billion in each of the previous two years, after funding peaked at $2 billion in 2022. The recovery suggests increased investor confidence, particularly in sectors aligned with national priorities, such as advanced manufacturing, defense, climate technology and semiconductors.

“Overall, the increase in funding suggests a gradual shift towards longer-term investments,” Tracxn co-founder Neha Singh said.

By comparison, U.S. deep tech startups raised about $147 billion in 2025, more than 80 times the amount raised in India that year, while China accounted for about $81 billion, Tracxn data shows.

This disparity highlights the challenges India faces in building capital-intensive technologies despite its deep engineering talent pool. Therefore, these moves by the Indian government are expected to increase investor participation in the medium term.

long term signals

For investors around the world, New Delhi’s framework changes are seen as a signal of long-term policy intent, rather than a trigger for immediate allocation changes. “Deep tech companies operate over seven to 12-year time horizons, so regulatory recognition of extending lifecycles gives investors greater confidence that the policy environment will not change midstream,” said Pratik Agarwal, partner at Accel. While he said the changes would not change the allocation model overnight and would not completely eliminate policy risk, he said it gave investors more peace of mind that India was thinking more long-term about deep tech.

“This shift shows that India is learning from the US and Europe about how to build a patient framework for building frontiers,” Agarwal told TechCrunch.

Questions remain as to whether this move will reduce the trend of Indian startups moving their headquarters overseas as they scale up their operations.

Agarwal said that while access to capital and customers remains important, the runway extension strengthens the case for building in India and staying in India. Over the past five years, India’s public markets have seen an increased appetite for venture-backed tech companies, making domestic listings a more reliable option than before, he added. That could ease some of the pressure on deep tech founders to incorporate overseas, even though access to procurement and late-stage capital will continue to shape the ultimate size of companies.

For investors backing long-term technology, the ultimate test is whether India can deliver globally competitive results. Celesta Capital’s Kumar said the real signal is that there will be a significant number of Indian deep tech companies that succeed on the global stage.

“It’s great to see 10 globally competitive Indian deep tech companies achieving sustained success over the next 10 years,” he said, explaining that this is the benchmark he looks for when assessing whether India’s deep tech ecosystem is mature.