Startup and VC Ecosystem Updates | Issue# 14 [August 30, 2025]
What?
Amid India’s northern peaks in June 2025, a machine gun swept the barren range with cameras and sensors, locking onto a target without human direction. The gun aimed, fired, and hit its mark with precision. This real Indian Army trial of equipment manufactured by Indian company BSS offered a glimpse into warfare’s evolution – where decisions once made by soldiers are increasingly handled by algorithms. Meanwhile, Operation Sindoor demonstrated edge AI-enabled intelligence systems, autonomous targeting, and precision engagement capabilities that showcase how Artificial Intelligence (AI) is reshaping modern combat and India’s position in the global defence technology landscape.
According to Inc42’s latest Defence Tech Startup Ecosystem Report 2025, India’s defence tech market is predicted to grow from $7.6 Bn in 2025 to $19 Bn by 2030, reflecting a Compound Annual Growth Rate (CAGR) of 20%. What makes this growth particularly compelling is that nearly half of this $19 Bn opportunity will be driven by advanced technologies, such as AI, autonomous systems, quantum computing, and next-generation radar platforms. Let us take a deeper look at the factors characterizing the evolution of India’s defence tech startup ecosystem. Additionally, learn more with insights from Inc42 [1 and 2] and YourStory.
Digital Warfare Drives Market Growth
The recent military tensions between India and Pakistan highlighted how digital warfare capabilities are becoming as crucial as traditional firepower. Modern conflicts increasingly rely on AI-powered decision-making tools, autonomous systems, and real-time data processing that fundamentally alter battlefield dynamics.
This shift reflects broader global trends. Worldwide defence spending hit $2.7 Tn in 2024, up 51% since 2014, with conflicts from Ukraine to Gaza proving the tactical advantages of AI-powered systems. India, now the world’s fifth-largest military spender at $86 Bn (after the US, China, Russia, and Germany), is moving aggressively to integrate AI into its defence strategy. Indian Finance Ministry’s allocation of INR 6.81 lakh crore (up 9.53% year-on-year) demonstrates this commitment. Although much of this budget covers personnel costs like salaries and pensions, the government has prioritized capital expenditure for acquiring new equipment and infrastructure.
The numbers tell the story. India’s AI defence market alone is projected to reach $2.5 Bn by 2030, up from $0.7 Bn in 2025 – a 28% CAGR that significantly outpaces the global average of 17%. This is not just about keeping up with global trends – it is about establishing technological sovereignty in an increasingly AI-driven battlefield.
Government Schemes Fuel Innovation
India’s defence transformation did not happen by accident. A series of strategic policy initiatives introduced by the government has created fertile ground for Indian startups and private players to challenge traditional defence contractors and systems.
The Innovations for Defence Excellence (iDEX) programme, launched in 2018, has become the primary catalyst for startup participation. iDEX has funded over 200 Indian startups in partnership with the Defence Research and Development Organisation (DRDO) and Defence Public Sector Undertakings (DPSUs). The programme provides grant funding up to INR 1.5 Cr through its Support for Prototype and Research Kickstart (SPARK) framework, with larger projects receiving up to INR 10 Cr.
The Technology Development Fund (TDF), executed by DRDO since 2016, takes things further by providing up to 90% funding with a maximum of INR 50 Cr for indigenous technology development. As of 2025, TDF has sanctioned 78+ projects worth INR 334 Cr, successfully developing 27 defence technologies.
Foreign Direct Investment (FDI) liberalization in 2020 increased the cap from 49% to 74% under the automatic route, with up to 100% permitted through government approval. This opened doors for sophisticated joint ventures and technology transfer agreements.
The Defence Production & Export Promotion Policy (DPEPP) 2020 set ambitious targets of achieving INR 175,000 Cr turnover by 2025, including INR 35,000 Cr in defence exports. The results speak for themselves – defence exports have surged from INR 686 Cr in FY14 to over INR 23,000 Cr in FY2024-25, a 34-fold increase.
Perhaps most importantly, the government’s emergency procurement powers – previously constrained by bureaucratic approval processes – now have an overall financial limit of approximately INR 40,000 Cr (around $4.8 Bn), allowing defence forces to fast-track acquisition of critical equipment and ammunition. Strong government support has played a key role in the evolution of India’s defence tech startup ecosystem, fostering innovation and growth.
Homegrown Innovation: Startups Powering Tomorrow’s Defence Systems
Indian defence tech startups have raised $432 Mn across 56 deals since 2014. However, 70% of this funding – $307 Mn – came between 2024 and the first half of 2025, indicating rapidly accelerating investor interest.
- Raphe mPhibr: Leads the pack as India’s most valued defence tech startup, recently raising $100 Mn at a $900 Mn valuation (raised $145 Mn). The Noida-based company develops fully indigenous Unmanned Aerial Vehicles (UAVs) and aerospace components, integrating carbon fiber composites, internal combustion engines, and electronics under one roof. Their product lineup includes the mR10 Drone Swarm (deployed in Operation Sindoor), the mR20 high-altitude logistics drone, the Bharat man-portable surveillance drone, and the X8 maritime patrol UAV. The startup has developed India’s first indigenous military-grade autopilot and UAV-specific internal combustion engine. The complete product lineup of Raphe mPhibr has collectively logged over 1 Mn kilometers with Indian security forces.
- ideaForge: A Mumbai-based public company founded by IIT Bombay alumni in 2007, specializes in UAVs for defence, security, surveillance, mapping, and disaster response (public company, raised $45.7 Mn). Their drones feature long-endurance flight capabilities, thermal imaging, AI-enabled analytics, and GPS-denied navigation, supported by proprietary autopilot systems and ground control software. They have conducted over 725,000 flights and hold more than 80 patents.
- Big Bang Boom Solutions (BBBS): Headquartered in Chennai, the startup develops indigenous defence technologies including electronic warfare systems, AI-based simulators, radar cloaks, naval deterrents, anti-drone systems, hybrid combat armour, autonomous drones, and containerized shooting ranges (raised $31.2 Mn). Notable products include an anti-drone defence system, hybrid ceramic body armour, and a 360° advanced battle interface.
- SSS Defence: Based in Bangalore, SSS Defence manufactures small arms, ammunition, and military optics. Their portfolio includes assault rifles, carbines, sniper and marksman rifles, tactical optics, and ammunition. Notable products include the Viper (.308/7.62x51mm) and Saber (.338 Lapua Magnum) sniper rifles, with the Saber securing a $50 Mn export order in 2024. They also supply the Manohar M72 carbine to police forces.
- Sagar Defence Engineering: The Mumbai-based company develops unmanned marine surface vehicles for surveillance and data collection, drones for reconnaissance and rescue (including India’s first maritime spotter drone), the Varuna personal aerial vehicle for urban mobility and medical evacuation, and autonomous weaponized boat swarms under the Indian Navy’s iDEX DISC 7 (Defence India Startup Challenge 7) program (raised $30.1 Mn).
- EyeROV: Founded by IIT alumni in Kochi, the startup develops autonomous and remotely operated underwater and surface vehicles for inspection and survey operations (raised $1.9 Mn). Their flagship product, EyeROV TUNA (India’s first commercial underwater drone), operates at depths of up to 300 m and features HD/4K cameras, sonar, and AI-driven analytics for 3D site reconstruction and image enhancement.
- Skyroot Aerospace: Founded by former Indian Space Research Organisation (ISRO) scientists, Skyroot Aerospace develops the modular Vikram series of cost-effective, rapid, and reusable rockets for small satellite launches (raised $95.1 Mn). They achieved the historic launch of “Vikram S” in November 2022, making them the first Indian private startup to reach outer space.
- Others: Additionally, several other companies are making significant contributions: See section AI Powers the Next Leap Forward.
The funding landscape of India’s defence tech startup ecosystem highlights distinct patterns. Drone and anti-drone technologies dominate, claiming 71% or $305 Mn of total funding. Nearly all of these companies currently integrate AI into their solutions, reflecting the pivotal role of the technology in modern defence systems.
AI Powers the Next Leap Forward
The AI revolution in defence is not on its way – it is here. According to Inc42’s analysis, 89% of Indian defence tech startups have already integrated AI into their offerings, collectively amassing $386 Mn in funding.
Globally, the AI military market is worth $16 Bn in 2025 and will more than double to $35 Bn by 2030, growing at 17% CAGR. The drivers are intensifying geopolitical tensions, urgent modernization needs, and the proven performance of AI systems in recent conflicts.
Within this global context, autonomous systems show the strongest growth trajectory. Autonomous platforms currently account for 12% of the market ($1.9 Bn) but is expected to surge to 30% by 2030 ($11 Bn), encompassing drone swarms, loitering munitions, and unmanned combat vehicles.
ISR platforms dominate today with $5.1 Bn in market value (32% market share), though their share is projected to shrink to 26% by 2030 as autonomous systems armed with AI gain prominence. Other segments, such as cybersecurity and information operation are also experiencing rapid expansion at 32% CAGR.
Indian companies are at the forefront of this transformation: AjnaLens builds AI-powered mixed reality glasses for defence training (raised $6.3 Mn); Tonbo Imaging creates AI-driven Intelligence, Surveillance, and Reconnaissance (ISR) platforms (raised $46 Mn); and GalaxEye produces AI-based multi-sensor satellites for real-time strategic intelligence (raised $37 Mn).
The government is backing this AI push with concrete initiatives. The new Wargame Research and Development Centre (WARDEC) in New Delhi, a collaboration between the Army Training Command and Rashtriya Raksha University, will be India’s first AI-driven simulation training hub.
Companies, such as Vayudh, IG Drones, and Garuda Aerospace are developing AI-powered autonomous systems ranging from drone swarms to loitering munitions. Vayudh develops AI-powered autonomous systems including drone swarms and loitering munitions (raised $10 Mn); IG Drones creates advanced drone and counter-drone systems (raised $1M); Garuda Aerospace focuses on AI-enabled tactical air defence drones (raised $42.8 Mn); Zulu Defence Systems creates AI-enabled tactical air defence drones (raised $750K); and Armory develops AI-powered kinetic interceptors for neutralizing hostile UAVs (raised ~$157 K).
Where India Stands Today
According to Inc42’s Defence AI Quadrant analysis, India falls into the “Challenger” category in the global AI defence race, characterized by substantial defence expenditure combined with rapidly developing AI capabilities. India’s strengths include a large, well-funded military modernization plan with AI as a named priority, strong private-sector innovation especially in drones and ISR, and supportive policies like FDI liberalization and startup-friendly programmes.
However, significant hurdles persist. Challenges include limitations in manufacturing military-grade products at scale, gaps in deeptech R&D for propulsion and quantum sensing, and difficulty competing with established international system integrators.
The government’s approach shows strategic thinking. Rather than trying to match the massive AI defence budgets of the US ($675 Mn in 2023) or China, India is focusing on areas where it can achieve technological leapfrogging. The emphasis on indigenous development through startups and MSMEs (Micro, Small and Medium Enterprises) reflects this pragmatic approach.
Interestingly, Operation Sindoor was not just about government systems. Private players like ideaForge, which develops AI-powered UAVs for reconnaissance and surveillance, aided the government at the same operational level. This public-private collaboration model appears to be India’s chosen path for defence AI development.
Investor Appetite for Defence Innovation
The funding data reveals interesting patterns about investor confidence and market maturity within India’s defence tech startup ecosystem. Bengaluru leads with $158 Mn in funding, followed by Delhi NCR with $117 Mn and Chennai with $79 Mn. This geographic distribution reflects each region’s strengths – Bengaluru’s tech ecosystem, Delhi’s access to policy makers, and Chennai’s aerospace manufacturing base.
Stage-wise analysis shows the sector is in a healthy growth phase. Since 2014, growth-stage startups have attracted $305 Mn across 17+ deals, with a median ticket size of $11 Mn. Seed-stage companies have raised $43 Mn across 24+ deals, while late-stage startups secured $67 Mn across 4+ deals. This suggests investors see significant scaling potential beyond the typical seed-stage risk profile.
The government’s procurement pipeline supports this optimism. INR 20,000 Cr has been earmarked for advanced Male-class UAVs, INR 2,500 Cr for the Navy’s unmanned maritime platforms, and a INR 2,000 crore Production-Linked Incentive (PLI) scheme is dedicated to drone sub-systems and software.
Strategic alliances are opening global opportunities. The newly formed Autonomous Systems Industry Alliance (ASIA) between India and the US enables co-development and joint IP creation in counter-UAV systems, autonomous maritime drones, and mission-critical platforms.
Thoughts
India’s defence tech transformation represents more than just military modernization – it is a fundamental shift in how the country approaches technological sovereignty. The confluence of supportive government policies, growing private sector capabilities, and the urgent need for AI-powered defence systems has created a perfect environment for innovation.
While the statistics are impressive, the real story lies in the changing dynamics. When a startup like Raphe mPhibr can develop indigenous military-grade autopilot systems that get deployed in actual military operations, it signals that the traditional defence contractor model is being disrupted. When 89% of defence tech startups integrate AI into their offerings, it shows that AI is not just a buzzword – it is becoming the foundational technology for next-generation defence systems.
What is particularly interesting is how India is developing its own path rather than simply copying Silicon Valley or Pentagon models, or models from other countries, such as China and Russia. The emphasis on public-private partnerships, the focus on indigenous IP development, and the strategic use of startups to fill capability gaps in order to build a stong defence tech ecosystem shows matured and sophisticated thinking about how to build military technology capabilities in a resource-constrained environment.
The global context makes this transformation even more significant. As traditional defence powers like the US and China engage in AI arms races with massive budgets, India is proving that smart policy design and entrepreneurial innovation can create competitive advantages without matching their spending levels dollar-for-dollar.
The emergence of companies that can compete internationally – like SSS Defence’s $50 Mn export order for the Saber or Skyroot Aerospace’s space launch capabilities – suggests that Indian defence tech startups are not just import substitutes but genuine export contenders.
The next phase will be critical. As many of these companies scale from prototypes to production, from domestic sales to international markets, they will face the classic startup challenge of maintaining innovation momentum sustainably while scaling and building operational excellence. The companies that successfully navigate this transition will define India’s position in the global defence technology hierarchy.
The AI revolution in defence is still in its early stages globally. India’s combination of engineering talent, cost advantages, supportive policies, and growing market demand positions it well to capture a meaningful share of this expanding market. However, success will require continued policy support, patient capital, and most importantly, the ability to deliver world-class products that can compete with established defence contractors.
The battle for the future of warfare is being fought in boardrooms and R&D labs as much as on physical battlefields. We are mighty proud that India’s military organizations and defence tech startups are proving that they belong in that fight and that they are receiving proactive government and R&D support to fortify India’s military capabilities.
If you are interested to learn more, feel free to check out these reports from Inc42 [1, 2, and 3] and YourStory.
Thank you for reading through! I genuinely hope you found the content useful. Feel free to reach out to us at ankanatwork@gmail.com and share your feedback and thoughts to help us make it better for you next time.
Acronyms used in the blog that have not been defined earlier: (a) Venture Capital (VC), (b) Billion (Bn), (c) Trillion (Tn), (d) United States (US), (e) Indian Rupee (INR), (f) Crore (Cr), (g) Financial Year (FY), (h) Million (Mn), (i) Indian Institute of Technology (IIT), (j) Global Positioning System (GPS), (k) Millimetre (mm), (l) Metre, (m) High Definition (HD), (n) Thousand (K), (o) Three-Dimensional (3D), (p) Research and Development (R&D), (q) National Capital Region (NCR), and (r) Intellectual Property (IP).