Riding through the valley of death to build
Then crossing the chasm to sell
If this is not philanthropy, then what is
we have two chasms that a deeptech startup has to cross.
First is what is referred to by PSA Dr Ajay K Sood as the valley of death. It is the period in the technology development cycle when the startup bleeds to death because of excessive outflow and no inflow.
The second chasm is after the technology has been developed and seeks market acceptance. The term became popular from the book: Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers : a marketing book by Geoffrey A. Moore that examines the market dynamics faced by innovative new products, with a particular focus on the “chasm” or adoption gap that lies between early and mainstream markets.
The govt of India has approved two schemes – the Rs 50,000 crore ANRF and a Rs 100,000 crore fund called the RDI fund. The ANRF fund helps startups to cross the first half of the valley of death by using a consortium of academic institute, startup and user industry to go from concept to working lab prototype. The RDI fund (to be disbursed through AIF funds) will help startups navigate the second half of the valley of death – from working lab prototype to a proven commercial process.
This is an absolutely great step taken by the Govt of India. And full marks to Prof Abhay Karandikar and the PSA for taking it from concept to ready framework in under two months. The task now is to find the matching money for the AIFs to be able to access and absorb the RDI funding.
Now this is a np hard problem which the aif industry has to solve. Firstly deeptech investing is not a viable activity but critical for the nation. Secondly, even if you do cross the first chasm, how do you cross the second chasm. Overcoming customer acceptance of new technology takes both time and money. Not just money. How does an investor wait it out in an economy with a cost of risk money at 30%+ pa.
An excellent start point is RDIs offer of money as equity at lower IRR and liquidity penalty or as debt with a 15 year tenure at 3% pa. This is money at one tenth the market value. Very attractive. But where does the other half come from. Why would any return chasing investor put money into deeptech. Esp if you can just buy the NSE index to get 15% return or pursue food delivery or taxi apps with zero tech or market risk. Deeptech is too high a risk.
And high risk most certainly doesn’t mean high return. It just means high risk. Possibly with no reward. Just complete write off if you are unlucky (for doing nothing wrong).
The only option is for social impact funds to meet this chasm. AIFs registered as social impact funds have a target corpus of Rs 100,000 crores – about the same as the RDI fund. However deeptech is not a permissible activity for social impact funds. They look at social ventures and csr areas.
This needs to change. Else RDI is going to struggle to find the other 50%.
