India’s Defence Tech Inflection Point: Why VCs Must Suit Up Now

India is witnessing a silent but seismic shift – where deeptech meets national security, and startups are suddenly part of the defence equation.

The Timing On Point

India’s defence tech opportunity is no longer theoretical. The signals are everywhere:

• Over 100 defence tech startups are now operational
• FY25-26 defence budget has crossed INR 79,000 Cr, with nearly 70% reserved for domestic procurement
• India’s defence exports touched $2.63 Bn in FY24, up 32% YoY
• Institutional frameworks like iDEX, Mission DefSpace, and the Technology Development Fund are now fully operational

In a major push for indigenisation, the defence ministry recently signed a INR 62,700 Cr contract with Hindustan Aeronautics Ltd (HAL) to procure 156 light combat and utility helicopters. This marks one of the largest defence orders placed with an Indian PSU and is a strong signal of the government’s intent to back domestic capability at scale. For founders and VCs alike, this underscores the need to invest in future-ready technologies that complement and elevate India’s industrial defence base.

We’re entering an era where India wants to build sovereign capability, not import it. This isn’t just about national pride. It’s about national strategy.

Defence Is The Original Deeptech

History reminds us that many of humanity’s biggest tech breakthroughs – from GPS and the internet to radar and space travel – originated in defence labs.

India’s own DRDO has already pushed dual-use innovations into the mainstream: think bio-toilets used by Indian Railways, lightweight ballistic vests for police, or high-altitude rations for disaster relief.

Today, startups like ideaForge, NewSpace Research, Big Bang Boom, Tonbo Imaging and Optimized Electrotech are solving mission-critical defence needs with scalable tech. These aren’t proof-of-concepts, they’re deployable systems, some already exported or IPO-ready.

This is where defence and commercial TAM begin to converge and it’s why VCs should start paying attention.

India’s Anduril Moment?

The global playbook is already written. In the US, VC-backed defence innovators like Palantir and Anduril have redefined what’s possible when private capital meets national security.

Palantir began by serving intelligence agencies and now powers everything from battlefield decision-making to pandemic response. Anduril, founded by Oculus co-founder Palmer Luckey, built AI-driven surveillance towers, autonomous drones, and next-gen battlefield networks – becoming a $14 Bn defence tech giant in under a decade.

These companies didn’t wait for permission. They brought speed, software, and scalability to an industry bogged down by legacy vendors. Importantly, they showed that startups can, and should, compete for major defence contracts.

India is poised to follow a similar trajectory. With deep engineering talent, an increasingly open procurement ecosystem, and a geopolitical imperative to build sovereign capability, Indian startups can lead the next wave of global defence innovation. But this won’t happen by accident – it needs bold founders, patient capital, and a venture ecosystem that understands both IP and impact.

The Challenges Are Real But Surmountable

Defence is not SaaS. The capital cycles are longer. The buyer is often just one – the government. And the playing field is still tilted in favour of PSUs and conglomerates with legacy contracts.

Other challenges include:

• Procurement complexity and multi-layered approval cycles
• Predatory practices from large incumbents – OEM pushdowns, undervalued M&As, and equity grabs
• Capital inefficiency due to long payment delays
• Investor unfamiliarity with defence protocols, IP regulations, and FDI caps

But the terrain is shifting. And for founders who know how to navigate it, and investors willing to go long, it’s a greenfield opportunity.

VC Playbook: How To Win In Defence Tech

1. Prioritise Core Science And IP: Look beyond front-end features. Support startups building moats in autonomy, ISR, cybersecurity, and signal processing
2. Bring Capital Mix Intelligence: Help startups combine TDF/iDEX grants, bank guarantees, and credit facilities to minimise dilution
3. Enable Defence-Fluent Support: Encourage teams to hire ex-military advisors and procurement professionals who know how to sell to sarkari systems
4. Back Dual-Use IP: Invest in companies that can commercialise outside defence—drones, AI surveillance, resilient networks
5. Build For Global Exports: Think beyond India. Many of these systems, especially in drones and anti-UAS, are relevant across the Global South and Indo-Pacific.
6. Take A 10-Year View: This is not a “growth-at-any-cost” sector. It rewards patience, IP depth, and cross-sector collaboration

More Than Just An Investment Theme

It’s rare for a sector to offer both economic alpha and strategic significance. Defence tech sits at that intersection.

It’s about building sovereign capability. It’s about ensuring India is not dependent on foreign supply chains for its national security. And yes, it’s about creating globally competitive deeptech companies with real IP and long-term value.

We need more patient capital and conviction-led investors in this space. Besides, we need more founders who aren’t afraid to build for defence and adapt for the world.

The opportunity is here. The tailwinds are strong. The question is: Will Indian venture capital show up?