Unravelling The DeepTech Potential in Indian B2B SaaS

DeepTech has evolved as a force in the ever-changing technological landscape, altering industries, upsetting the status quo, and unlocking unimaginable possibilities. As the global business landscape evolves, start-ups are rapidly capitalising on the potential of Advanced Technologies to address and solve real-world challenges, build new and innovative business models, and drive transformation. The DeepTech start-up ecosystem in India is booming, attracting the interest of Venture Capital (VC) firms, ambitious start-up founders, and forward-thinking corporations. The introduction of advanced technology and creative business models has propelled this boom, making it a tempting arena for strategic investments and collaborations. Within the global B2B tech scene, Indian B2B SaaS firms are acquiring an increasingly significant position, fuelled by the increased accessibility and democratisation of innovative technology.

According to a report titled ‘Breaking Ground: “Unravelling the deep tech potential in Indian B2B SaaS’ by NASSCOM and EY, 80% of the leaders of leading SaaS firms believed that there is a shortage of deep tech talent which includes expertise in sectors such as Artificial Intelligence (AI), Machine Learning (ML) and advanced computing may impede the fast growth of India’s enterprise Software-as-a-Service (SaaS) firms. The research is based on a survey of 201 Indian B2B SaaS companies, as well as face-to-face interviews with numerous chief experience officers (CXOs) of top SaaS companies. There are presently three deep-tech unicorns in India's unicorn club- 5ire, Uniphore, and Gupshup. DeepTech-focused B2B SaaS enterprises have the ability to achieve sustained Annual Recurring Revenue (ARR) CAGRs of 30-50%. Moreover, 1 out of 4 (25%) of the Indian B2B SaaS companies studied were inventive deep tech-focused, with approximately 1,400 patents filed (i.e., 2.5 times more patents in the last five years), as compared to the prior decade of 2008 to 2018.

DeepTech Industry Landscape in India

   Source: NASSCOM and EY

• DeepTech B2B companies

These are active companies that develop, deploy, or use sophisticated technologies in their product offerings. AI/ML, Big Data/Analytics, Intelligent Automation, AR/VR, and Decentralized/Distributed Ledgers are examples of advanced technologies employed in B2B SaaS.

• Inventive DeepTech Companies

Innovative B2B SaaS enterprises are emerging from the pool of DeepTech B2B firms, developing innovative products or solutions that are generally supported by fundamental research. This category of technological advancements is primarily concerned with the creation of new intellectual property (IP) including scientific or engineering advances.

• Innovative DeepTech Companies

All B2B SaaS firms that are not creative DeepTech are defined as Innovative B2B SaaS and further classified as Emerging (Team size is <10), Advanced (Team size is 10-50), and Scaled (Team size is 50+).

   Source: NASSCOM and EY

DeepTech start-ups are active technological companies that develop, deploy, or incorporate sophisticated technologies into their goods or services. Artificial Intelligence/Machine Learning, the Internet of Things (IoT), Blockchain, Big Data and analytics, Augmented Reality/Virtual Reality (AR/VR), Robotics, Nanotechnology, Biotechnology, Advanced Materials, and other advanced technologies are examples of DeepTech Startups. Among the top Deep Technologies available, Artificial Intelligence and Machine Learning are the most widely used, accounting for around 54% of use cases, followed by big data or descriptive analytics (39%), intelligent automation (7%), augmented/virtual reality (0.78%) and decentralization/distributed ledger (0.19%).

Business-to-business (B2B) Software as a Service (SaaS) enterprises focusing on developing new intellectual property may be at the forefront of industry growth, with annual recurring revenue (ARR) growing at a compound annual growth rate (CAGR) of 30-50% on a consistent basis. According to a Bessemer Venture Partners report, software-as-a-service (SaaS) is expected to be valued at US$ 50 billion in India by 2030. The Indian Software as a Service (SaaS) market is anticipated to reach US$ 20–25 billion by 2025, according to a report published by Bain and Company. The total annual recurring revenue (ARR) of Indian SaaS enterprises has increased fourfold to US$ 12-US$ 13 billion in 2022, while investments in this industry have increased sixfold to US$ 5 billion in the last five years. Indian SaaS companies will grow at a rate of 20-25% per year, reaching around US$ 35 billion in ARR and accounting for approximately 8% of the global SaaS industry by 2027. From 750 in 2017, the number of sponsored SaaS firms has more than doubled to 1600 in 2022. The domestic SaaS market in India has grown at a CAGR of 30-35%, compared to 20-25% and 15-20% growth rates in the UK and US markets, respectively.

Source: Bain and Company, News Articles

Characteristics of a DeepTech start-up

                       Source: Zinnov

• Complexity

They (DeepTech start-ups) have sophisticated technical solutions with the ability to reshape or establish new markets. For example, QNu Labs is a start-up with patented technologies and solutions with the goal to revolutionise the encryption landscape internationally.

• Intersection of Technologies

These start-ups may operate at the intersection of technologies, utilising more than one technology to deliver solutions. Crayondata, for example, uses both AI and Big Data to create data-driven solutions in the Banking, Fintech, and Travel industries.

• Long Development Cycles

Due to the intricacy of the technology involved, DeepTech products often have lengthier development cycles than ordinary start-ups. For example, Log 9 Materials, a cutting-edge nanotechnology solutions provider, has invested much in research, testing, and validation. The company's dedication to pushing technological frontiers has resulted in longer development cycles as it works to overcome technical obstacles and bring its creative solutions to market.

• Intellectual Property

DeepTech startups frequently focus on developing and commercialising intellectual property such as patents, proprietary algorithms, or unique research methodology. For Example, Shilps Sciences, a deep science firm that provides unique solutions for imaging and characterisation at the nano and micro scale, has several patents to its name.

• High Entry Barriers

The advanced nature of the technology used, as well as the requirement for significant R&D, creates high entry barriers for potential competitors. For example, Niramai Health Analytix, an Indian deep-tech start-up with a non-invasive breast cancer screening solution, has now acquired US FDA authorization for their first device, the SMILE-100 System, six years after the company's establishment.

• Strong R&D Focus

R&D is an essential component of DeepTech startups. They are always investing in enhancing and innovating their technologies in order to keep ahead of the fast-changing digital world. For example, the R&D efforts of the robotics and automation solutions start-up GreyOrange are focused on creating state-of-the-art robotic systems that can do a variety of activities like sorting, picking, packing, and replenishment.

• Need Patient Capital

DeepTech start-ups require capital due to their considerable R&D focus and the nature of their ideas.

Market Opportunities for DeepTech Start-ups in India

DeepTech start-ups are well-positioned to capitalise on opportunities created by collaborations with Large Enterprises, particularly in important sectors such as HealthTech, AgriTech, and CleanTech. As demand for revolutionary solutions grows, these start-ups are poised to thrive and make important contributions to the collaborative landscape.

• Untapped Potential

India, with its large talent pool and thriving entrepreneurial culture, provides untapped opportunities for DeepTech start-ups. Recognising this once-in-a-lifetime opportunity, venture capital firms are increasingly focusing their efforts on investing in ground-breaking ideas that not only address India's unique difficulties but also have worldwide market appeal.

• Government Support and Initiatives

The Indian government has actively promoted and supported the startup ecosystem by offering incentives and enacting favourable legislation. Such activities foster a favourable atmosphere for creators to launch DeepTech enterprises.

• Opportunities to tap into by both Indian and global enterprises
  • Collaboration and Partnerships

    Partnerships, joint ventures, and strategic alliances can be formed between enterprises and DeepTech start-ups. A vibrant DeepTech ecosystem necessitates a symphony of stakeholders, including industry players and government agencies. Industry participation provides practical insights into market needs and technical requirements. Access to potential consumers, funding opportunities, and industry mentorship can be advantageous for startups and researchers. Government bodies, on the other hand, play an important role in setting favourable policies, funding methods, and regulatory frameworks.

  • Acquisitions

    Enterprises can acquire promising DeepTech start-ups that correspond with their strategic goals. Enterprises can obtain access to cutting-edge technologies, intellectual property, and specialised expertise by incorporating these start-ups within their organisations.

  • Innovation Hubs and Accelerators

    Creating dedicated innovation hubs for DeepTech start-ups nurtures an innovation culture within organisations. This provides a channel for nurturing and funding early-stage start-ups, hence stimulating the development of disruptive technology.

  • Acqui-hiring

    Enterprises can use acqui-hiring as a strategic channel to increase their talent and skill base, allowing them to acquire qualified experts with a strong understanding of modern technologies and industry-specific difficulties.

  • Access to New Markets

    DeepTech start-ups frequently investigate specialised markets and develop technology. Enterprises can use the knowledge of these start-ups to obtain insights into new markets, client groups, and possible development opportunities.

  • Accelerate Digital Transformation

    DeepTech start-ups can play a critical role in expediting a corporation's digital transformation path. Their solutions can help to streamline procedures, optimise operations, and improve customer experience, all of which contribute to total corporate growth.

  • Access to open data

    Access to open data as part of the underlying deep tech infrastructure is critical to driving innovation. Open data repositories provide a wide pool of knowledge from which researchers, entrepreneurs, and developers can extract insights. This data can be used to train advanced machine learning models, validate hypotheses, and reveal hidden patterns. Governments and organisations establish an atmosphere in which startups and researchers can experiment, refine their ideas, and develop game-changing technology by providing unrestricted access to datasets. Open data encourages openness, cooperation, and information exchange throughout the ecosystem in addition to hastening the development of DeepTech solutions.

  • Collaboration with academia

     DeepTech communities thrive when industry and academia work together effectively. Universities are zones of cutting-edge research and knowledge development, making them ideal breeding grounds for disruptive technology. Collaboration initiatives between academia and industry allow for the sharing of ideas, expertise, and resources. Findings from research can be put into practical applications, and industry concerns can motivate targeted research activities. Such collaborations not only bridge the gap between theoretical advances and real-world implementation but also nurture a talent pipeline of qualified individuals ready to contribute to the DeepTech workforce.

     Source: NASSCOM and EY

Challenges

• DeepTech Talent

DeepTech necessitates specialised knowledge, but recruiting and maintaining skilled personnel is difficult due to high demand and limited availability. Creating a stimulating work environment and offering incentives to develop a culture of creation are essential for attracting talent. The strong demand for talented individuals such as AI/ML Engineers, Blockchain Developers, Computer Vision Engineers, and IOT Security Specialists needs the development of a compelling work culture as well as the provision of competitive remuneration and benefits packages.

• DeepTech Infra

DeepTech solutions necessitate advanced infrastructure such as open data, computing labs, and specialised equipment. However, these resources are frequently expensive and inaccessible, impeding company success. Collaborative efforts are essential to ensure shared access to critical infrastructure and a level playing field for every participant.

• Patient Capital

DeepTech ventures have longer development timetables and higher risks, making it difficult to get patient capital - finance that lasts for long periods without immediate returns. DeepTech start-ups must strike an understanding between investor expectations and the requirement for long-term financial support. Scalability and market penetration can be difficult undertakings for DeepTech start-up entrepreneurs. Since the gestation period for DeepTech goods and solutions is often longer than that of traditional start-ups, it may result in a flatter trajectory that requires more time to build a market presence and grow operations.

• Market Access

DeepTech inventions frequently face roadblocks when attempting to access markets. Their complexity may result in longer adoption cycles and the need for additional education for potential users.

• Regulations

DeepTech improvements can outstrip regulatory frameworks, creating ambiguity and potentially legal difficulties. DeepTech start-ups may find it difficult to navigate complex regulatory and compliance frameworks. Certain industries, such as HealthTech, still require particular permits, such as Device Regulation, Data Privacy, and Clinical Trials.

Road Ahead

India's young population, good connections, corporations, and startups are generating deep technology solutions, making it an appealing destination to launch a business. For VC firms, start-up founders, and corporations alike, India's DeepTech start-up ecosystem provides enormous prospects and intriguing adventures. With tremendous untapped potential, expanding demand in critical sectors, devoted government support, and a focus on addressing real-world problems, India's DeepTech industry is primed for exponential expansion. Enterprises must embrace change, negotiate challenges, and recognise the global potential of DeepTech breakthroughs. As a participant in India's DeepTech revolution, it has a unique potential to alter sectors, make a meaningful difference, and envision a future where creativity knows no bounds.