What if the makers of the popular television saga Games of Thrones could have foreseen that its ending would be a mega disappointment for a major faction of its loyal fans? Whether the blockbuster HBO series would have changed it is up for speculation, but nowadays there are software tools that streaming players can use to predict the reaction of its potential audience on a climax, and tailor the content accordingly.
Bengaluru-based Entropik is one of the very few emotional intelligence startups across the world that offers such a technology. Founded in 2016, the startup uses artificial intelligence to primarily track and analyze facial expressions and eye movements to assess consumers’ attention, engagement, and emotions. This enables the startup, which rolled out its technology for commercial usage in May 2019—after three and half years of R&D and 17 patents—to gauge viewers’ reaction to a certain script or a piece of content for media and OTT players and assess consumers’ emotional responses to FMGC brands’ product launches, among other things.
Increasingly, investors’ interest is piqued by companies like Entropik, one of the many homegrown deep tech startups—typically those using artificial intelligence (AI), machine learning (ML), augmented reality, virtual reality, IoT, blockchain, robotics, 3D printing, and big data and analytics. Last September, the company raised USD 8 million led by Falcon Edge-managed Alpha Wave Incubation.
There are now widespread real-world applications of deep technologies, which is driving their adoption across industries, believes Pratip Mazumdar, co-founder and partner, Inflexor Ventures, an investor in Entropik.
“There are right (deep tech) companies, at the right place, creating the right product, just like Entropik, which have been able to attract a good amount of investor interest,” he told KrASIA. “There is an incremental risk capital available today which was not available a few years back for founders building deep tech companies.”
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As per industry body Nasscom, which tracks the tech startup ecosystem in India, there were over 2,100 deep tech companies till mid-last year. However, many industry veterans consider startups using advanced material science, biotech, and quantum computing, among others, as deep tech as well.
The key area of operations for deep tech startups include, but are not limited to, space, enterprise services, finance, healthcare, agriculture, and manufacturing.
Data by research firm Venture Intelligence shows deep tech startups have raised a total of USD 174 million across 11 deals in the first quarter of 2021, 68% higher than last year, and 357% more than what they raised in 2018.
Some of the startups that landed check from VCs this quarter include Uniphore, which provides speech recognition software for enterprises, robotics and bionics startup Makers Hive, and chip designing firm AlphaICs.
India’s moment of deep tech
In the last few years, a few deep tech-focused VC funds like Speciale Invest, Pi Ventures, and Ankur Capital have ramped up their ammunition providing much-needed early-stage capital for these startups. What’s helping these companies is the interest of a handful of larger VC firms that have begun to dabble in this space to test the waters. Prior to that, the risk capital for deep tech startups was few and far between due to the lack of investor appetite.
“There are far more specialist funds today which are focused on AI and ML. These deep tech companies that did not use to get the attention of the typical investors who chase B2C startups, have started getting backing by B2B, deep-tech focused funds,” said Arun Natarajan, founder, Venture Intelligence.
Ranjan Kumar, the founder and CEO of Entropik, said he received early support from some of these funds like IDFC Parampara (whose second fund is known as Inflexor) and Bharat Innovation Fund, after bootstrapping the venture for the first two years.
What also sustained Entropik, Kumar said, was the innovation programs by corporations like SAP, Accenture, and TCS, which allowed it to validate its technology from the business perspective.
“The challenge comes in early stages. As compared to commercial tech startups, which can create a product in three months, and add tens of thousands of users within a couple of months, deep tech startups need at least two to three years to build and perfect their products,” Kumar told KrASIA. “But while you are in the R&D stage, there is no revenue stream. So you have got no metrics to show to investors that can make your theory believable. And nobody would fund an idea that looks like science fiction. And that is just the nature of investment business.”
Natarajan said some of these deep tech VC firms like Pi Ventures and Speciale Invest are now raising their second funds and that is an encouragement to other early-stage investors that are thinking of backing deep tech startups.
Speciale Invest, which raised its first deep tech-focused fund of close to USD 10 million in 2018, has made 14 investments so far in areas of robotics, alternate energy storage, electric vehicles, climate tech, enterprise tech, and space tech, among others.
“There are large multi-billion dollar markets which are at a tipping point,” Vishesh Rajaram, managing partner, Speciale Invest told KrASIA. “Some of these technologies that have historically not been commercially viable are becoming more mature, more commercially viable, and cost-efficient. And those are the opportunities.”
“For example, electric vehicles have been around for the last 15-plus years, except that the batteries were inefficient and very expensive. And today, with lithium tech, the batteries are more commercially viable. Similarly, satellites have become smaller and the cost of launching satellites is coming down.”
Indian talent coming back to the country from the US has also brought in a sea of change, fostering deep tech startups in the country.
“The US immigration policy has kept our best engineering talent at home. Besides, we are seeing the second and third wave of technology professionals returning to India,” said Anirudh Damani, managing partner of early-stage venture capital firm Artha Venture Fund, which has backed several deep tech firms including space tech startup Agnikul.
“For instance, Agnikul’s founders came back from the US, leaving behind lucrative jobs to set up a startup over here [in India],” he said. “India has built software for much of the world, so our engineers are well versed with the latest technologies. And now they are home, and they know how to build a startup.”
Agnikul, which designs and manufactures rockets (launch vehicles) for micro and nanosatellites and recently test-fired the world’s first 3D-printed rocket engine, is reportedly in talks to raise a USD 12 million Series A round.
Meanwhile, the government is also making it easier and cheaper to develop some of these technologies with policy changes, such as the opening up of ISRO (Indian Space Research Organisation) to work with space tech startups, Damani said. He added that the amalgamation of all these factors has helped homegrown deep tech startups emerge and compete.
Mazumdar agrees. He said the enabling provisions like regulatory changes have opened up resources and opportunities for these startups which has led to the widespread adoption of deep technologies. “Over the last three to four years, deep tech companies were in a nascent stage, but to achieve scale and real-life usage, they needed access to data,” Mazumdar said.
Since the cost of gathering useful data was high, they did not have enough data sets. Thus “the analysis that was happening on that data was limited, and so were the applications,” he said.
But that is changing now, he believes. For instance, he said India has made regulatory changes including removing the need for approval for Indian companies to use the government geospatial data. This has made it easier and cheaper for startups to acquire and process such data to build applications. Earlier, Indian companies had to go through NASA and other similar repositories, which made data expensive and increased the cost of end products.
Striving for the center stage
Among all the sectors deep tech startups are disrupting, enterprise tech seems to be gaining far more investor attention than others, more so with the pandemic accelerating the technology adoption among enterprises of all sizes.
The case in point is the USD 140 million Series D round raised last month by 13-year-old Uniphore, a conversational AI technology company, that offers speech recognition and speech authentication programs capable of interacting with people in local languages.
The fundraise can partially be attributed to the fact that it is now based out of the US where investors don’t shy away from putting in their dollars in deep tech firms.
Till 2016, the company was offering its suite of software, comprising virtual assistance, voice biometrics, and speech analytics, to financial and healthcare institutions in India. For instance, banks used its virtual assistant U-Self Serve (then known as Akeire) to communicate with users in rural areas in their local language, which then passed on the instructions to the banks’ software to get the job done.
Its big break came in late 2017 when John Chambers, the former executive chairman and CEO of Cisco, picked up a 10% stake in the company in the Series B round, after which it relocated its headquarters to California. Since then, the company hasn’t faced a dearth of investors willing to do follow-on rounds, which is what ails deep-tech startups based in India. This is partly the reason many deep tech firms in the past have chosen to get acquired by larger conglomerates before they could scale, so as to get financial and managerial resources and take their products to a larger market.
Natarajan believes the big challenge for some of the deep tech startups and their backers at present is “who is going to do follow-on rounds if the larger VCs are now back to chasing the B2C wave.”
“A typical deep tech startup can go to VCs like Sequoia and Accel and deep-pocketed family offices (for early-stage checks), but how long can they sustain with that small money is the question, since the appetite for most of the large VC guys like SoftBank is driven by consumer technologies,” Natarajan added.
Speciale Invest’s Rajaram believes the first wave of deep tech is just beginning in India, which is essentially setting the stage for the next 50 to 100 deep tech companies in the country. Although he said, the speed of their taking off is slower than it is for the consumer-oriented companies.
“It’s early days, and there are these unanswered questions of ‘Is there a lot of follow on capital? Are there lots of VCs investing in it?” he said. “It’s unanswered simply because there’s not enough track record.”
Rajaram feels it’s a matter of time that this track record will come into play. “When you’ve got a few successes, those few successes will breed a few more successes. And when there are enough successes, then a lot more investors will be open and have the risk appetite to come down to the deep tech side,” he added.