India's deep tech edge: 5 takeaways from a conversation with Arpit Agarwal at Blume Ventures
Notes from conversations with founders, investors, industry leaders and other stakeholders building India's deep tech and climate tech ecosystems
Arpit Agarwal, a partner at Blume Ventures, one of India’s best known early-stage, sector-agnostic VC firms, recently spoke with me about backing what he describes as frontier technologies, and a range of related topics – from India’s under-appreciated strengths to challenges of scale to Blume’s own priorities in the coming years.
As Blume prepares to announce the first close of its fifth fund, Arpit is also happy to debate why sector-agnostic funds may be better placed to invest in deep tech. Here are five takeaways from the conversation.
What VCs are watching in deep tech in India
The recent India-Pakistan tensions have significantly boosted government interest and emergency purchases in defence technology, especially drones. However, India currently lacks sufficient cutting-edge domestic drone tech, leading to ongoing imports as warfare shifts toward drones, electronics, and space.
Although India may catch up within five years, defence technology remains a major investment focus for VCs.
Beyond defence, green hydrogen is an emerging sector: there’s a surge in startup activity and projections point to increased investment in the next three years as the field matures. Quantum computing is also on the radar, with both the government and private sector directing attention and substantial funding toward making India a global leader.
The broader electric vehicle ecosystem, particularly software and marketplaces, also presents investment opportunities as established verticals saturate. Overall, defence tech, green hydrogen, quantum computing, and evolving drone and electric vehicle segments stand out as investment opportunities in deep tech in India.
The entire Green Hydrogen supply chain is shaping up in India
Hydrogen has long been used in industries such as refineries and blast furnaces, where it is typically produced and consumed on-site rather than stored or transported. The current innovation lies in the development of ‘green hydrogen,’ produced with renewable energy sources, which can be transported via pipelines or containers and used in generators or fuel cells for clean power.
Green hydrogen offers a fully clean energy chain, and has the potential to become economically viable as technology advances and costs decrease.
India is witnessing rapid progress along the entire green hydrogen value chain: startups are developing more efficient and durable electrolysers for hydrogen production; others are focused on new methods for hydrogen storage, such as metal hydrides; and additional companies are enabling the conversion of hydrogen into energy through fuel cells, internal combustion engines, and even hydrogen-based jet turbines.
All these activities reflect significant momentum in India’s emerging hydrogen ecosystem, making it an increasingly promising sector for clean energy investment and innovation.
India’s as yet untapped strengths versus China’s scale
There are several ways in which India can compete effectively with China in deep tech manufacturing, despite China’s clear advantages in scale and cost efficiency. While China remains the global leader in manufacturing due to its extensive capabilities and massive economy, Indian companies have advantages in specific use cases.
For example, Indian robotics ventures are able to create price-performance optimized products by using cost-effective components from large-volume industries like automotive, which sometimes allows them to manufacture certain bots more cheaply than those made in China — especially if ultra-high precision is not essential.
International clients, especially in the US and Europe, are often more comfortable sourcing technology from India, given current geopolitical dynamics and concerns over dependence on Chinese suppliers. This gives Indian companies a market access edge. India also excels in software integration, an increasingly critical element even in hardware products.
Indian companies are considered more capable in integrating with large enterprise IT systems, supported by strengths in language, sales, and software customization. Ultimately, even if Indian products are cheaper to produce, companies can price them at par with global competitors, allowing for better profit margins while maintaining a competitive position in international markets.
Should deep tech founders seriously consider sector agnostic funds?
While sector-specific venture funds might seem to have an advantage due to their deeper access and selection within a single domain, a sector-agnostic fund with sufficient access can actually achieve better returns across sectors.
The investment selection filters at Blume’s sector-agnostic fund are stricter for deep tech deals, resulting in higher-quality picks. Examples like Ethereal Machines and Ati Motors, which passed through rigorous selection alongside other top companies, illustrate this approach.
Over 14 years and more than 150 investments, Blume Ventures has invested in about 25 deep tech or climate tech companies, but these have generated significantly higher gross returns compared to the overall fund performance. Although deep tech investments are fewer, their quality and outcomes outperform those from hot or crowded sectors, as long as the fund maintains access to top opportunities.
Blume’s top priorities over the next 2-3 years
Blume Ventures’ fund strategy has evolved over time. The first two funds were small by today’s standards — around $18 million and $50 million — functioning much like micro VC funds, with small, opportunistic checks and a willingness to experiment in their approach.
Beginning with Fund III, Blume shifted toward taking lead positions, making more concentrated bets, and increasing fund size, growing to $100 million for Fund III and about $280 million for Fund IV. Fund V is expected to be similar in size, focusing on fewer investments but larger check sizes per company, and maintaining more capital in reserve.
Currently, the primary focus is on generating exits, with the aim that 8 to 10 portfolio companies will reach IPO in the next three years — a key priority at this stage. Exits in deep tech tend to take longer; although Blume has exited companies such as Carbon Clean and is working on exiting GreyOrange, most deep tech exits are still some way off.
