Why does India lack hardware startups?, Telecom News, ET Telecom

<p>Typically, hardware startups have a long gestation period when they research to turn the idea into reality. This means that both the founders and the investors have to be prepared to invest for a long period of time.</p>
Typically, hardware startups have a long gestation period when they research to turn the idea into reality. This means that both the founders and the investors have to be prepared to invest for a long period of time.

Even as the government is keen to position India as a manufacturing hub, hardware or deep tech startups, as they are generally referred to, tend to face several challenges hampering their growth and the development of the ecosystem.

A whitepaper by the Telecom Standards Development Society of India (TSDSI) says that less than 5% of startups in India are deep tech startups, while 95% are related to software, which requires low initial investment and is typically easier to get funding for.

This is not at all surprising considering the number of challenges hardware startups face in developing and selling a product. Apart from Tejas Networks and Saankhya Labs, it is hard to think of an Indian hardware startup in the telecom space.

“The main issue is that typically deep tech startups are trying to resolve a structural problem and it takes a long time for them to break even. The problem is further exacerbated by the lack of a supply chain in India…most of the components are still imported even if the assembly is done in the country. India also lacks the infrastructure to test and certify the gear. Even when the infrastructure is there, the cost of testing is very high,” says Sunil David, Co-chair of the Digital Communications Working Group, IET Future Tech Panel.

“The number of software startups is always going to be more than the number of hardware startups. If you see, Silicon Valley is mostly software-based, with very few hardware companies. This is because software businesses can be easily scaled, and it is easy to get VC funding. India must develop a startup-to-business kind of approach,” says Dr Sathyanarayanan Chakravarthy, Professor at the Indian Institute of Technology – Madras, who is involved in several deep tech startups.

Long road to making the first sale

Typically, hardware startups have a long gestation period when they research to turn the idea into reality. This means that both the founders and the investors have to be prepared to invest for a long period of time.

“One major challenge for hardware startups is that the turnaround time is very long. It is usually seven-to-nine years for a hardware-based startup, while it is only five-to-six years for a software startup. In India, the VC [Venture Capitalists] ecosystem that understands the hardware segment is not readily available. Very few VCs have expertise in the hardware segment and they are not geared to invest for a long period of time,” says Neha Sartak, Founder at Astrome. The company is incubated at the Indian Institute of Science (IISc) in Bengaluru and has recently raised $3.4 million to expand operations in the US.

The issue of funding is raised by almost all stakeholders. Just to put this in perspective, nearly $300 million was invested in Tarana Wireless over a decade before it developed a product ready for the market. The investors who understand this and are ready to support the long journey are few.

“Raising money was a significant challenge considering there is no ecosystem of hardware vendors in India, and no success stories, so nobody was ready to put money on us,” says Deepak Solanki, Founder of Velmenni, which is working in the light communication and launched its first product at IIMC last year.

Besides the funding, finding the skills required for research is a major issue. “Talent is also an issue because research talent is anyway limited, and it is mostly absorbed by multi-national companies. Startups cannot match the financial benefits offered by large technology firms. We circumvented this issue by training the available talent pool,” says Neha Sartak.

After battling the funding and talent issues, if a deep tech startup is able to develop a product, it must brace itself for the biggest battle of testing and selling the product. The infrastructure required for testing is not easily available. The government has tried to address this with the Department of Telecommunications (DoT), allowing startups to conduct tests at government-owned labs like the Centre for Development of Telematics (C-DoT). While this is proving to be a game changer and is helping the startups significantly, some do allege that several startups are unaware of this.

Last year, the government offered the use of 5G test bed free of cost to the Government-owned startups till January 2023. Initiatives like these are bound to go a long way in boosting the 5G ecosystem.

The Telco Challenge

However, possibly the biggest problem for a startup is to start engagement with the telcos. The service providers are typically not geared to work with startups. They like to work with established vendors who already have a longstanding relationship with the telcos.

“The time taken to crack a telco customer is quite long. Telcos are typically large organizations and it is tough for startups to find out how to approach them. We brought people from large telcos who helped us with finding the best way to engage with them and even then, it was 1.5 to two years before we were actually able to pitch the product,” says Solanki of Velmenni.

In addition, the pilots and tests conducted by the telcos typically run for a long period and are generally not paid for by the service provider in India. “There is a need to have paid pilots, as is the norm in the US and other developed countries because it is impossible for startups to run pilots over an extended period of time. The service providers must also have a separate department or segment to deal with the startups, which is not the norm as of now,” explains Sartak.

Further, the telcos also need to encourage hardware startups, which doesn’t seem to be the case. “The telcos must promote hardware startups as well. If you see the profile of the companies incubated by Indian telcos, they are mostly use cases based and not network-related. They typically don’t work with startups that are producing gear which they would be deploying in their networks. Telcos need to adopt a different approach to engage with the startups,” says Sartak of Astrome. Jio runs a JioGenNext Market Access Program to work with startups. On the other hand, Airtel runs programs like Startup Innovation Challenge to engage with startups.

There also needs to be closer working ties between the industry, Government and academia. Most hardware startups are associated with an academic institute because they require deep technology expertise. Further, in the absence of the VC, the telecom industry, along with the Government, needs to step in to galvanise the hardware startup ecosystem in the country. This is the need of the hour because it is innovation in deep technology that will grow India’s profile as a startup nation

While the pace of change can arguably be faster, there is little doubt that the country is taking some baby steps to encourage the development of hardware startups. At the same time, a lot remains to be done.

  • Published On Jul 11, 2023 at 08:04 AM IST

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