India Revamps Startup Rules to Boost Deep Tech Innovation
▼ Summary
– India has updated its startup framework, extending the period deep tech companies are treated as startups to 20 years and raising the revenue threshold for benefits to ₹3 billion to align with their long development cycles.
– The government is combining this regulatory reform with public capital, including a ₹1 trillion Research, Development and Innovation Fund, to build a long-horizon deep tech ecosystem and address funding gaps.
– Investors note that access to capital, especially at Series A and beyond, remains a key constraint, which the RDI fund aims to address by providing patient financing through venture funds.
– Indian deep tech funding showed a rebound to $1.65 billion in 2025, but the market remains emerging, vastly smaller than the U.S. and China, highlighting the challenge of building capital-intensive technologies.
– The policy change is seen as a long-term signal of India’s commitment, potentially increasing investor confidence and strengthening the case for companies to build and scale within the country.
India is taking significant steps to support its deep technology sector, recognizing the unique challenges faced by startups in fields like semiconductors, space, and biotechnology. These companies often require much longer development cycles before reaching commercial viability. To better align with these realities, the government has extended the period for which deep tech firms are classified as startups to 20 years. Additionally, the revenue ceiling for accessing crucial tax breaks, grants, and regulatory benefits has been raised to ₹3 billion (approximately $33 million), up from the previous ₹1 billion threshold. This policy shift is designed to prevent innovative science-led ventures from being prematurely judged as unsuccessful simply because their development timelines exceed conventional expectations.
The updated framework is part of a broader strategy to cultivate a robust deep tech ecosystem. This approach combines regulatory adjustments with substantial public capital infusion, most notably through the ₹1 trillion Research, Development and Innovation (RDI) Fund announced last year. The fund aims to provide patient, long-term financing specifically for research-intensive companies. In a related development, a coalition of major U.S. and Indian venture capital firms, including Accel, Blume Ventures, and Premji Invest, has formed the India Deep Tech Alliance, a private investor group with over $1 billion in committed capital to further bolster the sector.
For entrepreneurs, these changes address a critical pain point. Under the old rules, a deep tech company risked losing its valuable startup status while still in the pre-commercial research phase. This created what investors describe as a “false failure signal,” where a venture was assessed against arbitrary policy deadlines rather than its actual technological milestones. By formally acknowledging the distinct nature of deep tech, the new policy reduces friction in fundraising and engagement with government programs, which directly impacts a founder’s day-to-day operations.
Despite these supportive measures, access to capital remains a persistent challenge, especially beyond the initial seed stage. The most significant funding gap has historically appeared at the Series A round and beyond, which is particularly difficult for capital-intensive hardware and science companies. The RDI Fund is intended to help bridge this gap by deploying public capital through selected venture funds. This structure is meant to increase the availability of follow-on growth funding without distorting the commercial investment criteria used by private investors.
The policy revisions also help avoid a “graduation cliff,” where companies suddenly lose all government support just as they begin to scale. These changes coincide with the RDI Fund moving into its operational phase, with the first group of fund managers now being selected. Unlike a standard fund-of-funds, this vehicle is also empowered to make direct investments and provide credit and grants to startups, acting as a nucleus for attracting more private investment into the ecosystem.
While gaining momentum, India’s deep tech market is still developing. Startups in this sector have raised a cumulative $8.54 billion to date. After a dip following a 2022 peak, funding saw a notable rebound to $1.65 billion in 2025, indicating renewed investor confidence in areas like advanced manufacturing, defense, and climate tech. However, the scale difference is stark: U.S. deep tech startups raised over $147 billion in 2025, while Chinese firms secured about $81 billion. This disparity underscores the scale of the challenge, even with India’s vast engineering talent pool.
For international investors, the policy update is seen as a strong signal of India’s long-term commitment rather than an immediate call to reallocate funds. Deep tech investments typically unfold over seven to twelve years, so regulatory recognition of extended lifecycles builds confidence that the rules will not change unexpectedly mid-stream. The move demonstrates that India is learning from other major economies about creating patient frameworks for frontier innovation.
A lingering question is whether these efforts will reduce the trend of Indian startups relocating their headquarters overseas as they grow. The extended support runway strengthens the argument for building and remaining in India. Furthermore, the country’s public markets have shown an increasing appetite for listing venture-backed technology companies in recent years, making a domestic initial public offering a more viable exit path. While access to global customers and late-stage capital will continue to influence decisions, these factors could ease the pressure on founders to incorporate abroad.
The ultimate measure of success for India’s deep tech push will be its ability to produce globally competitive companies. The benchmark for a mature ecosystem, according to investors, would be the emergence of about ten Indian deep tech firms that achieve sustained international success over the coming decade. The recent policy overhaul and capital mobilization represent foundational steps toward turning that ambition into reality.
(Source: TechCrunch)
