CA Students’ National Conference

AAROHANA – Ascend to Achieve

Organized by Board of Studies, ICAI
Hosted by SICASA Bengaluru Branch of SIRC of ICAI

Technical Session – Start-Up

Where Breakthroughs Break Down:

Deep Tech vs VC Reality

Index
Particulars Page No
Introduction of the Author 3
Personal Details 3

Aim of the Paper 3

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Introduction 4

What is DeepTech? 4

Characteristics of DeepTech 4

Scope of DeepTech 5

Why DeepTech is Different from Other Tech Companies? 5

What is Technology Readiness Level (TRL)? 6

What is Venture Capital (VC) and VC Fund? 7

Structure of a Venture Capital Fund 7

Life Cycle of a Venture Capital Fund 8

Recent Trends in VC Investment in DeepTech 8

DeepTech Vs VC Reality 9

Way Forward 9

Conclusion 10

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Introduction of the Author:
Hithesh Ravindra Shetty, a CA Finalist, is currently undergoing Industrial Training at
Ventura Securities Limited in the Equity Research Role. During the first year of his
articleship, he was associated with BDO India LLP in the Risk Advisory Services (Internal
Audit) division. Hithesh was honored with the Best Article of the Quarter for Q1 of FY25
at BDO India LLP in recognition of his exceptional performance at work.
Hithesh has served as the Secretary of WICASA Kalyan Dombivli Branch of WIRC of ICAI
for the tenure 2024-25. He played a leading role in organizing the State Level CA
Students Conference, Shikhar – Peak of Excellence, hosted by WICASA Kalyan Dombivli
Branch of WIRC of ICAI in November 2024. Additionally, he was elected as the Sub-Head
of the CA Students National Conference, Shashwat, hosted by WICASA of WIRC of ICAI in
January 2025.

Personal Details:
Name : Hithesh Shetty
Date of Birth : 24th May 2004
Student Registration Number : WRO0762844
Commencement of Articleship : 5th February 2024
Completion of Articleship : 6th April 2026
CA Final Exam : January 2027
Address : A-101, Raksha Darshan, Behind Model English School,
Panduruangwadi, Dombivli (East), Thane - 421201
Contact Number (Whatsapp) : 9321652374
Email ID : [email protected]

Aim of the Paper:

This research paper aims to analyze the misalignment between DeepTech startups' long
development cycles and traditional venture capital's short-term return expectations,
highlighting the resulting investment challenges. It proposes strategies like government
support, specialized funds, and corporate venture capital to foster a sustainable
DeepTech ecosystem.

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 Where Breakthroughs Break Down:
Deep Tech vs VC Reality
Introduction:
Picture this: It’s a lazy Sunday afternoon in Bengaluru. You had big plans to revise for your CA
finals — maybe brush up on GST valuation or Ind AS 16 — but instead, you’re lured into brunch
at Indiranagar (who says no to pancakes and cold brew?). Hours, one traffic jam, and two filter
coffees later, you're finally at a café, trying to study, but your brain’s buffering harder than
Bangalore Wi-Fi during a storm.
In a panic, you open ChatGPT and type:
"Bro, explain GST valuation like I’m 5 and also dying from caffeine."
Seconds later, it responds:
“Think of it like selling a dosa. The total price includes sambhar, chutney,
and GST. Valuation just means figuring out what part of the bill is the
actual dosa and what part goes to the taxman.”
Suddenly, the nightmare that is indirect taxation starts making sense.
ChatGPT isn’t just another tech app — it’s a lifeline for CA students, always
ready to explain, no eye-rolls, no judgment.
But here’s the thing: ChatGPT is built on DeepTech — grounded in years of research in AI and
natural language processing. Developed by OpenAI and backed by long-term investors like Elon
Musk and Microsoft, it took nearly a decade to reach real-world application.
This is where the problem lies: DeepTech needs time, but traditional venture capital often
doesn’t provide it. While VC funds expect returns in 7–8 years, DeepTech ventures need more
time and patient capital.
This report explores the friction between the long development cycles of DeepTech and the
short-term return expectations of VC. Let’s get it into it:

What is DeepTech?
DeepTech, or deep technology, refers to companies-often startups-that develop
advanced technology solutions based on substantial scientific discoveries or meaningful
engineering innovations. These solutions typically address complex challenges that
require lengthy research and development (R&D) cycles and significant capital
investment before they can be commercialized successfully. These technologies are
significantly ahead of their time, create paradigm shifts across industries, and often open
up entirely new markets.

Characteristics of DeepTech:
Science-Driven Foundations:

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DeepTech is based on advanced scientific research and engineering, often starting at
early stages of development with long paths to commercialization.

Cross-Sector Presence and Versatility:

It spans industries like AI, biotechnology, energy, and space, offering transformative
potential across sectors.
Problem-Oriented and Mission-Driven:
DeepTech aims to solve global challenges like climate change, disease, and food
security, driving long-term societal or industrial impact.
High Risk, Early Stage:
These ventures start with unproven concepts, face high uncertainty, and require patient
capital.

Scope of DeepTech:
The scope of deep tech is vast and transformative, spanning multiple industries and
addressing critical global challenges through advanced scientific discoveries. It continues
to expand, especially in key sectors as follows:
Artificial Intelligence (AI):
AI enables machines to mimic human intelligence, driving automation, predictive
analytics, and decision-making in sectors like healthcare, finance and mobility.
Biotechnology:
Biotech leverages biological systems for innovations in drug development, genomics,
and sustainable agriculture, tackling issues in health, food security, and the
environment.
Advanced Materials:
This field focuses on creating materials with enhanced properties, enabling
advancements in energy storage, electronics, and construction.
Electronics & Photonics:
These technologies power innovations in communication, imaging, and quantum
computing, offering faster data transmission and greater energy efficiency.

Why DeepTech is Different from Other Tech Companies?

Deep tech companies are rooted in scientific breakthroughs and operate at early stages
of innovation, unlike traditional tech firms that focus on rapid, incremental products.
They address complex global challenges through high-risk, capital-intensive technologies

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with long development cycles and regulatory hurdles, aiming to deliver disruptive,
industry-changing solutions.
In this context, the Technology Readiness Level (TRL) framework is essential, as most
deep tech innovations fall within TRL 1–6. TRLs help stakeholders assess a technology’s
maturity, progress, risks, and development needs on the path to real-world application.

What is Technology Readiness Level (TRL)?

Technology Readiness Levels (TRLs), developed by NASA, assess a technology’s maturity
from concept to deployment. In DeepTech, they help manage risks by tracking progress
from research to commercialization. TRLs guide stakeholders in aligning technical goals
with business strategies and reducing uncertainties.
The TRL scale is divided into nine levels across three phases: Early Stage (TRL 1–3),
Technology Development (TRL 4–5), and Technology Demonstration & System

Development (TRL 6–9).

TRL 1–3: Early Stage:

At this phase, technologies are in fundamental research, with no practical application
yet. TRL 2 involves conceptualizing the technology, while TRL 3 focuses on proof-of-
concept testing in labs. Risks are centered on science and feasibility.
TRL 4–5: Technology Development:

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Prototypes are developed and tested in controlled environments (TRL 4), and in relevant
conditions simulating real-world use (TRL 5). At this stage, seed funding is common, with
engineering and integration risks arising alongside remaining scientific challenges.
TRL 6–7: Technology Demonstration:
Technologies are tested in operational environments (TRL 6) and full prototypes are
deployed in real-world settings (TRL 7), often with early commercial interest. Series A
funding is typical, with scaling and integration risks becoming more pronounced.
TRL 8–9: System Development & Maturity:

At TRL 8, the technology is fully developed and tested, ready for large-scale production.
TRL 9 signals commercialization, with real-world use and mass-market adoption. Funding
shifts to Series B or beyond, with focus on engineering, execution, and scaling risks.

Now that we have a clear understanding of DeepTech, let’s shift our focus to Venture
Capital.

What is Venture Capital (VC) and VC Fund?

Venture Capital (VC) is a form of private equity financing where investors provide
funding to high-growth startups in exchange for equity ownership. In addition to capital,
VCs offer strategic guidance, technical expertise, and management support to help
businesses succeed. VC is particularly essential for startups in sectors like technology,
biotechnology, and deep tech, which may not have access to traditional funding sources
like loans.
VC Fund refers to a pool of capital raised from multiple investors (limited partners or LPs)
to invest in early-stage startups. The fund is managed by general partners (GPs) who
make investment decisions, provide oversight, and assist portfolio companies in scaling.
The goal is to achieve high returns, with profits shared between LPs and GPs once a
minimum return is reached.

Structure of a Venture Capital Fund:

Limited Partners (LPs):
LPs are investors—like institutions, pension
funds, or wealthy individuals—who provide
capital to a fund, have limited liability, and earn
returns based on its performance without
managing daily operations.
General Partners (GPs):

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GPs are fund managers who make investment decisions, manage the portfolio, and
support startups with strategic and operational expertise.
Fund Management Team:
It supports the GPs and includes analysts and associates who assist with sourcing deals,
conducting research, managing startup relations, and performing due diligence.
Investment Committee:
It comprises of senior GPs and occasionally external experts, the committee reviews and
approves major investment decisions, ensuring alignment with the fund’s strategy and
risk-return objectives.

Life Cycle of a Venture Capital Fund:

A VC fund typically operates over 8–10 years and progresses through several key
phases:
Fundraising Phase:
GPs present the fund's strategy to potential LPs—such as institutions and high-net-worth
individuals—who commit capital, drawn over time via capital calls. This phase lasts
several months to two years.
Investment Period:
Over 2–5 years, GPs identify and invest in startups aligned with the fund's thesis,
allocating capital gradually and reserving funds for follow-on investments.
Management/Holding Period:
Running concurrently with and beyond the investment phase (typically 3–4 years), GPs
support portfolio companies, monitor performance, and focus on scaling and value
creation.
Exit/Divestment Phase:
Over the next 3–5 years, GPs exit investments through IPOs, mergers, or sales, returning
proceeds to LPs and GPs based on the agreed distribution structure.
Winding Down:
In the final stage, remaining distributions are made, legal and financial matters are
settled, and the fund is formally closed.

Recent Trends in VC Investment in DeepTech:

In India, VC investments in DeepTech exceeded $1 billion from 2021–2023, doubling the
$500 million from 2018–2020. Larger funding rounds and follow-on investments are

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growing, with biotech attracting $900 million (2013–2023). Despite challenges like long
gestation periods and limited capital beyond Series A, government support and
DeepTech-focused VCs are stepping in.
Globally, DeepTech drew over $60 billion in 2022, with a focus on quantum computing,
climate tech, and space tech. Investors, including corporate VCs and sovereign funds,
are adapting to longer timelines, seeking both innovation and target IRRs of 15–20%.

Source: Ankur Capital Source: Ankur Capital

DeepTech Vs VC Reality:
The core conflict between DeepTech startups and traditional VC funds stems from their
mismatched timelines—DeepTech has a long gestation period i.e. it requires long
development cycles, while VCs seek high returns within shorter fund lifecycles, creating
friction in investment fit and return expectations.
The gestation period is the time a startup takes to go from proof-of-concept to a scalable
business. In DeepTech, this often spans 8–10 years due to complex R&D, pilots,
regulations, and infrastructure needs—unlike digital startups that can launch in 2–3
years.
DeepTech startups typically require 8–10 years to develop and scale, while VC funds
usually have a lifespan of 7–8 years, occasionally extending to 10–12 years. This creates
a challenge for VCs, as they must invest, grow, and exit within a limited timeframe. The
long gestation period of DeepTech—spent developing technology, achieving market
readiness, and scaling—delays exits such as IPOs or acquisitions, which are crucial for
returning capital to Limited Partners (LPs). VCs aim for 15–20% annual returns (IRR), but
without timely liquidity events, meeting these targets is difficult.
DeepTech’s extended timelines often exceed a typical fund’s lifecycle, hindering
profitable exits and return generation. Consequently, VCs are reluctant to invest in
DeepTech unless the fund has a longer horizon or is specifically focused on the sector.
This misalignment between DeepTech’s development pace and VC fund expectations
creates significant investment and return challenges.
Thus, VCs are hesitant to invest in DeepTech due to its long gestation period, making
timely exits and meeting return targets difficult within typical fund lifecycles. Without a

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longer investment horizon or DeepTech-specific focus, these ventures are seen as high-
risk and misaligned with conventional VC models, despite their long-term potential.

Way Forward:
As DeepTech startups face challenges in securing traditional venture capital due to their
long development timelines, a more supportive and sustainable investment ecosystem is
needed. The following steps outline a path forward for DeepTech growth:
Enhance Government Funding and Policy Support:
Governments should scale up funding mechanisms and policy support for early-stage
DeepTech ventures. Programs like the BIRAC BIG grant should be expanded, and more
translational research initiatives should be introduced to bridge the funding gap at
foundational and prototype stages. Drawing inspiration from countries like China and the
U.S. can help foster long-term DeepTech innovation.
Encourage Specialized DeepTech Funds:
DeepTech-specific venture capital funds with extended life cycles, beyond the typical 7–8
years of traditional VC funds, should be developed. These funds, tailored for the unique
needs of DeepTech, will offer both financial support and specialized expertise.

Increase Corporate Venture Capital Participation:

Corporate venture capital (CVC) can provide patient capital and strategic partnerships,
accelerating DeepTech growth. Companies like BP Ventures and Google Ventures have
demonstrated the value of CVC in funding DeepTech ventures, and more corporate
involvement should be encouraged.
Involve Family Offices and Philanthropic Investors:
Family offices and philanthropic organizations, which focus on long-term investments,
are crucial for DeepTech. These investors can support high-risk, high-reward ventures,
filling funding gaps and allowing startups to focus on long-term development.
Strengthen Stakeholder Collaboration:
Promoting collaboration among startups, investors, governments, academic institutions,
and corporations will help reduce development time, speed up commercialization, and
increase investor confidence in DeepTech ventures.

Conclusion:
In conclusion, DeepTech startups need 8–10 years to mature, clashing with the 7–8-year
VC fund cycle and 15–20% IRR targets. This mismatch limits VC interest despite

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DeepTech’s potential. Patient capital from governments, corporate VCs,and family
offices is key, along with stronger policy and long-term funding support.

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