Challenges and Opportunities for Defense Startups in India: Navigating Capital and Contracts

While government indigenization efforts have made it easier for startups to enter the defense sector, venture capital firms and individuals still have doubts.

This is a multi-faceted problem.

Defense startups tend to have longer-than-average gestation periods, are extremely capital-intensive, highly regulated, and have uncertain payment schedules from government contracts. This is the perfect image of a risky bet for most VCs in the ecosystem.

Dr. Ajay Kumar noticed this during his tenure as union defense secretary and took steps to address the issue. He was instrumental in setting up iDEX—Innovations For Defense Excellence—which formally launched in 2021.

Defense Expo 2022 hosted the first-ever conference for venture capitalists, the financial world, and the defense startup ecosystem to find a way into the future.

The results were not optimistic.

“Most of the participants were from banks and long-term lending institutions, which is not what startups really need,” says Dr. Kumar.

After retiring, Kumar started his own VC firm, Mount Tech Growth Fund, a Category II alternative investment fund that focuses on startups operating in the national security, defense and aerospace, and digital communications sectors.