India has changed its startup rules for deep tech

Deep-tech startups in areas such as space, semiconductors, and biotechnology typically take much longer to develop than more traditional ventures. With that reality in mind, India is revising its startup regulations and mobilising public Capital to help more of these companies survive long development cycles and reach commercial viability.

This week, the Indian government revised its startup framework, extending the period during which deep tech firms are classified as startups to 20 years, up from the previous limit. It also increased the revenue ceiling for startup-specific tax incentives, grants, and regulatory benefits to ₹3 billion (roughly $33.12 million), compared with ₹1 billion (about $11.04 million) earlier. The update is intended to better align policy timelines with the extended research and development cycles that are common in science- and engineering-driven businesses.

The regulatory shift is also part of New Delhi's broader strategy to cultivate a long-term deep tech ecosystem by pairing regulatory reform with public funding. That includes the ₹1 trillion (around $11 billion) Research, Development and Innovation Fund (RDI), announced last year, which is designed to expand patient Capital for science-led, capital-intensive companies. Against this backdrop, U.S. and Indian venture firms have joined forces to launch the India Deep Tech Alliance, a private investor coalition with more than $1 billion in Capital. The group includes Accel, Blume Ventures, Celesta Capital, Premji Invest, Ideaspring Capital, Qualcomm Ventures, and Kalaari Capital, with chipmaker Nvidia serving as an adviser.

For founders, the updated framework could resolve what many viewed as an artificial pressure point. Under the earlier rules, startups often risked losing their official startup status while still pre-commercial, creating what some described as a "false failure signal" that evaluated science-led ventures based on policy timelines rather than actual technological progress. Vishesh Rajaram, founding partner at Speciale Invest, an Indian deep-tech venture capital firm, said the previous system often penalised companies before their technology had time to mature.

"By formally recognising deep tech as different, the policy reduces friction in fundraising, follow-on capital, and engagement with the state, which absolutely shows up in a founder's operating reality over time," Rajaram said.

Even so, investors argue that Capital remains a significant challenge, especially beyond the earliest stages. "The big gap has historically been funding depth at Series A and beyond, particularly for capital-intensive deep tech companies," Rajaram noted. This is where the government is expected to play a supporting role.

"The real benefit of the RDI framework is to increase the funding available to deep tech companies at early and growth stages," said Aru Kumar, managing partner at Celesta Capital. By capitalising public Capital through capital timelines similar to those of private funds, Kumar explained, the structure aims to address long-standing gaps in follow-on financing without changing the commercial standards that guide private investment decisions.

Siddarth Pai, founding partner at 3one4 Capital and co-founder of regulatory affairs at the Indian Venture and Alternative Capital Association, said the revised deep tech framework helps India avoid a "graduation cliff" that has historically cut companies off from support just as they begin to scale.

According to Pai, these policy changes are coming as the RDI fund takes shape, with an initial group of fund managers already identified. The process of selecting venture and private equity managers for deep tech under private Capital exists in India, particularly in segments such as biotech. Pai said the RDI fund is meant to serve as a nucleus around which broader capital formation can develop. Unlike a traditional fund-of-funds model, he added, the vehicle is also designed to take direct equity positions and to offer credit and grants to deep-tech startups.

India's deep tech grows. Overall, India is still an emerging rather than a dominant deep-tech market. Indian deep tech startups have raised a total of $8.54 billion to date, but recent figures suggest renewed momentum. In 2025, Indian deep tech startups raised $1.65 billion, a sharp recovery from $1.1 billion in each of the previous two years, following a peak of $2 billion in 2022, according to data from Tracxn. The rebound points to increasing investor confidence, particularly in sectors aligned with national priorities such as advanced manufacturing, defence, climate technologies, and semiconductors.

"Overall, the pic "up in funding suggests a gradual move toward longer-horizon investing," said Neha Singh, co-founder of Tracxn.

By comparison, deep tech startups in the United States raised approximately $147 billion in 2025 — more than 80 times the amount invested in India during the same year — while China accounted for roughly $81 billion, according to Tracxn data.

That gap underscores the challenge India faces in developing capital-intensive technologies, even with its deep pool of engineering talent. The hope is that these policy changes will encourage greater investor participation over the medium term and help narrow that divide.

A longer-term signal

For global investors, the changes to India's framework are interpreted more as a signal of long-term policy intent than as a catalyst for immediate shifts in capital allocation. "Deep tech companies operate on seven- to twelve-year horizons, so regulatory recognition that stretches the lifecycle gives investors greater confidence that the policy environment will not change mid-journey," said Pratik Aga, a partner at Accel. While he noted that the update would not instantly reshape allocation strategies or eliminate policy risk, it does improve investor confidence that India is considering deep tech over the long term.

"The change shows that India is learning from the U.S. and Europe on how to create patient frameworks for frontier building," Agarwal said.

Whether the new approach will reduce Indian startups' tendency to relocate their headquarters overseas as they scale remains uncertain. Agarwal said the extended runway strengthens the argument for building and staying in India, though access to Capital could be critical. Over the past few years, he added, India's public markets have been increasingly open to venture-backed technology companies, making domestic listings a more viable option than before. That trend could ease some of the pressure on deep-tech founders abroad, even as access to procurement and funding remains a key factor.

For investors focused on long-horizon technologies, the ultimate measure of success will be whether India can produce globally competitive outcomes. The clearest signal, according to Kumar of Celesta Capital, would be the emergence of a critical mass of Indian deep-tech companies that succeed internationally.

"It would be great to see ten globally competitive deep tech companies from India achieve sustained success over the next decade," Kumar said, describing that milestone as the benchmark he would use to judge whether India's deep tech ecosystem is truly maturing.