Venture capital is fueling India’s hardware startups

Transcript

From the transcript Core Memory publishes with the episode.

1. 53:52

   I feel like a lot of founders are going to hit me for saying this, but I think there's a lot of reasons, but I think it's mainly just venture capital. It is venture as much as founders like to shit on venture and be like, ugh, investors. The reality is that deep tech cannot exist without venture. Especially when you look at historical accounts of how businesses, industrialists were made in the, you know, Like early 1900s and all like it is it is genuinely insane that people are willing to throw 10s of millions of dollars at pre revenue companies to be like, yeah, just just fill the tech like we know you'll get money later.

2. 54:33

   It is it is insane. Like this environment did not exist even until very recently.

3. 54:39

   So, okay, we've been doing deep tech in the US for a very long time, although the interest in it has these boom and bust cycles. We're clearly in a bit of a boom. And so that, if I'm reading you right, that kind of carried over to India as well? Yes, absolutely.

4. 54:56

   And I think, like, lots of things the government has done combined. But honestly, like, I don't... I honestly don't think that deep tech has really been a thing in the US until this boom cycle. Obviously, you've had cases like SpaceX, Tesla, and all, but I think these are all second-time founder companies. I guess the way I'm describing it is...

5. 55:18

   Like we did semiconductors for decades and it was expensive and it took years to pay off. We did gene sequencers. We, you know, we have, I've lived, I've lived through these periods. Like, you know, what tends to happen is like the dot-com boom comes along and then it's like, wow. It's way easier to make money potentially off of a website than it is to like fund semiconductors. So people pull away, you know, and then something like, like you're saying, then something like Tesla comes along or SpaceX and it's like, oh, well, if you hit this right, it's fucking massive, you know?

6. 55:53

   And so then it swings back and then obviously we have this kind of political, um, National moment of wanting to manufacture again and all that. But I think Um, I think you're we did actually used to do deep tech. It slightly different.

7. 56:13

   Yeah, but I think, again, like back then, it wasn't really like venture that funded it, right? Like these were large research bodies. These were, you know, traditional investments. Like you had weird structures if you wanted to get money for this, right? Either you get a government grant. Because it's like spun out of a PhD program. You're doing this from like a very big college that has a lot of money behind it.

8. 56:36

   Or you're somehow able to figure out how to commercialize early. You get like weird debt things. And I've like researched a lot about like this innovation like 100 years ago. So like free semiconductor era. Like if you look at a lot of like surprisingly insightful conversations between inventors happened in debtor's prison. Yeah, okay. Because that was the only way they could get money. Okay. And because they couldn't pay it back fast enough, some of the greatest minds were just locked up in prison.

9. 57:10

   Yeah, yeah, yeah. Because financing structures were terrible back then. Yeah, and I guess, I mean, the definition of deep tech, I guess, could be very... I was just thinking back to, like, you know, it's like when... I mean, really... Some of the first instances of what we think of as venture capital of the day would be like Fairchild Semiconductor and then Arthur Rock putting money into Intel. And then you had the whole PC run with Apple and Microsoft and things like that.

10. 57:37

    But anyway, we don't have to get... So this is part of what changed is that people are willing to take risk on an 18-year-old who has... Wild idea on aircraft in this moment in time. And so, okay, so it's, it's sort of like a big, big picture change. And then, and then your friends are like, we might as well do it here. There's structural advantages. I like living here and money can get here, but you guys, you seem to like done.

11. 58:05

    Pretty well with the venture capitalists. I mean, almost everybody else I talked to in India, it was quite critical of the local VCs for still chasing the easier money in apps and AI and software and not wanting to take risks on the hard tech. When I was there, hung out with Aether, which is, On a path to make a million electric scooters over the next year. Has been around for almost for a decade, I think. Went to their factory.

12. 58:40

    It was like, couldn't be more legitimate. There's just people making scooters everywhere. They're awesome. They're cheap. Couldn't raise money. Had to go public because nobody would give them money to expand as fast as they wanted. Like there is a local, it felt like a... A dislike for the local venture capital community.

13. 59:03

    Yeah, no, I think Ather's story is especially funny because I think Ather grew more in their first year in the public markets than they grew in their past five years in the private markets. Like people missed out. People really missed out on Ather. In fact, the funny thing is that when Ather IPO'd, It was a really lukewarm reaction because investors were like, yeah, sure, they're like a unicorn now, but it took them way too long to get there.

14. 59:31

    And then guess what? They like forexed in less than two years. Right. And if somebody had given them $200 million earlier, they would have grown. So much faster. Yeah. So that's there. I do agree.

15. 59:45

    I think this environment is starting to change and I think the change is happening fast. I think the government is also throwing a lot of fuel to the fire. So they open these deep tech funds. Yes, exactly. You know, to encourage investment in deep tech. So I think what this means is that like this whole deep tech boom cycle that you're seeing in SF has, I think, transferred to India much faster than most other boom cycles do. Yeah.

16. 1:00:08

    And I think that's great. The challenge is just, I mean, if you're If you think about like structurally how to build a fund, I think deep tech requires a very different thought process. And, you know, the large funds in India, the LPs behind them generally do not like that kind of risk appetite, right? Like they don't like the idea of, you know, throwing tens or hundreds of millions of dollars at a company that has a similar risk profile to a seed stage bet.

17. 1:00:37

    Even if, you know, the eventual outcome can be many orders of magnitude higher. So I think it's because of those risk profiles that the large funds have not yet been able to make a great jump into doing like late stage bets. And you see a lot of early funds that are doing really well, but it takes time for a small fund to grow into a big fund. And so I think, you know, honestly, right now, if you're trying to raise like single digit millions, maybe up to 10 mil, India is honestly a really great environment to raise for deep tech.

18. 1:01:07

    The problem is just that when you're looking for larger chunks of capital, the amount of parties that can give that just in out really quickly.