India’s Defence-Tech Boom: How Private Capital Is Powering Strategic Innovation
India’s defence technology sector is seeing an unmistakable surge in private investment. Venture Capital, Private Equity funds and even family offices that once hesitated to back complex, long-gestation defence ventures are now aggressively deploying funds, catalysed by regulatory reforms, geopolitical shocks, and visible startup successes.
Today’s battlefield is fundamentally different from traditional conflicts. Modern military operations increasingly rely on autonomous systems, AI-driven threat identification, unmanned aerial systems, and sophisticated cyber capabilities. Where conventional warfare once centred on attrition and mass deployment, contemporary conflicts demand speed, precision, and technological superiority. This transformation has created massive opportunities for private capital to support cutting-edge defence technologies that can adapt at software speed rather than the traditionally slow pace of defence procurement cycles.
Inflection Point in India’s Defence: To Each His Own
The world order was once built on interconnected supply chains, cost efficiencies, and just-in-time systems. However, the pandemic, rising cyber threats, and tensions along India’s borders have exposed the fragility of global interdependence, especially in critical sectors like defence.
India’s defence transformation similarly began with a series of bold policy initiatives designed to build indigenous capabilities and reduce dependence on foreign suppliers. The government’s Atmanirbhar Bharat vision, coupled with the Make in India initiative, has created a supportive environment for domestic innovation and manufacturing. The defence budget has seen unprecedented growth, rising from ₹2.53 lakh crore in 2013–14 to ₹6.81 lakh crore in 2025–26. Additionally, there is a strategic reallocation of resources toward capital expenditure and indigenous procurement, with nearly 70% of the budget reserved for domestic suppliers.
Indigenous defence production has hit record highs, contributions from private defense companies and MSME’s have also increased
Furthermore, policy frameworks such as the Defence Export Promotion Policy and incentives for domestic manufacturing have unlocked significant global market access for Indian defence players. India’s defence exports, a measly 686 crore in 2014, skyrocketed to INR 23,622 Cr in 2025 and will further double to INR 50,000Cr by 2029. This is further buoyed by increases in global defence spending — NATO’s recent decision to raise its defence spending target to 5% of GDP by 2035 will further inject hundreds of billions of dollars into the global market.
Surge in defence exports driven by policy push and global dynamics
Why Is This Relevant For Venture Capital In India?
As far back as the 1940s in the US – Silicon Valley, Venture Capital and military technology have shared a common history. The very first venture capital firm in the U.S. was founded to profit from new technologies developed for use in WWII, including early research on the internet, GPS, semiconductors, and aerospace — all spun out of military dollars.
More recently in the US, Anduril raised its latest round of $2.5Bn valuing it at over $30Bn. Helsing in Europe secured €450Mn as well. India also saw its largest VC investment in the space with Raphe mPhibir raising $100Mn, marking it as the country’s largest private fundraise to date. Titan Capital has unveiled a dedicated defence vertical, while family offices have begun systematic allocation to the sector.
The growing importance of dual-use technologies has further accelerated investor interest. Technologies developed for military applications now routinely find commercial markets in areas like autonomous vehicles, precision agriculture, telecommunications, and enterprise security. India’s defence forces are a large anchor customer with deep pockets and now the mandate to source from domestic startups (via iDEX, TDF, import bans, etc.). This, combined with maturity in India’s deeptech founders (ex-ISRO, former DRDO scientists), makes it an interesting play for venture capitalists now, and this boom could potentially catalyse a generation of deep-tech companies with dual-use potential.
A recent Inc42 Investor survey also showed Advanced Hardware and Technology (defence-tech is a sub-space) as the big investor theme for H22025, second only to AI across both early and growth categories.
Emerging Sub-sectors Driving Investor Interest
Defence tech as a sub-sector is not monolithic but spans multiple deep tech verticals — AI, hardware innovation, cybersecurity, materials sciences, among others. With more than 1,300+ startups / SME companies in the space, the dronetech space has attracted the most interest and over $500Mn+ of funding so far.
Emerging sub-sectors in the defense-tech landscape, and a representative set of companies
Early Backers In The Space Have Also Seen Successful Exits
The sector has also seen robust liquidity opportunities for pioneering venture investors, angels, and early-stage backers. Exit pathways have included IPOs to strategic acquisitions, to secondary rounds for smaller VCs and angel investors.
NIFTY India Defence Index outperforms NIFTY50 driven by policy push and export momentum
ideaForge’s successful IPO in July 2023, listing at ₹1,305 (94% above the issue price of ₹672), provided crucial market validation for defence-tech investments. Paras Defence & Space Technologies also went public and traded at premium multiples compared to their defence PSU counterparts. Many more companies, such as Tonbo Imaging, which closed its pre-IPO round last quarter, as well as Garuda Aerospace, which closed its INR 100Cr Series B round ahead of its planned IPO.
Strategic acquisitions will be an active pathway as traditional legacy defence players are looking to bolster capabilities through partnerships & acquisitions. Alpha Design Technologies was acquired by Adani Defence, and Dhaksha Unmanned Systems also secured a strategic investment from Coromandel International, an agricultural giant. This further validates how corporations value dual-use technologies.
Secondary market activity has also given exits to early investors and angels in multiple startups — Raphe mPhibr’s $100 million Series B, which we talked about earlier, being one such example.
The Way Forward
The technological advances have fundamentally altered how investors view the defence sector — no longer a capital-intensive, slow-moving industry, but a dynamic technology frontier with significant commercial applications. But money alone is inadequate to support these new entrants. Building a go-to-market muscle for defence sales will require startups to uniquely understand procurement processes. Initiatives such as DAP (Defence Acquisition Procedure) and iDEX grants are significant steps forward in this area. Another challenge that startup founders will have to navigate with their investors is the cyclical and contract-based nature of revenue in this industry, which is atypical to what VC investors like — predictable, recurring, non-linear scale of SaaS.
How does one take these challenges? Here are some strategies and learnings that startups are pursuing in India and globally to tackle these challenges head-on.
Partner with established defence primes – Partnership and integration with existing defence suppliers can unlock faster growth. Such partnerships can help bridge credibility gaps and provide customer access. Globally, Helsing’s (estd. 2021) partnership with Saab (estd. 1937) is a great case study where Helsing’s AI and signal processing expertise complemented Saab’s hardware-based sensors and self-protection systems, also resulting in Saab investing in future Helsing rounds. One has started to see these collaborations at play in India — whether through white-labelled solution, OEM partners or more long-term strategic partnerships.Keep an eye on the international market from Day 1 – Tonbo Imaging didn’t initially build for the Indian markets; it is one of the few homegrown defence tech startups to start building from India for use in the global market. Today, however, 40% of its revenue comes from India. When startups work on proprietary technology and create intellectual property (IP), a successful product can be replicated and sold to multiple customers. Platforms like INDUS-X and iCET (India-US collaboration initiatives) can be a great starting point. Indian startups should also look at learning from their counterparts in Israel, which have successfully expanded into the US markets.Build sales capability for navigating defence procurements – Hiring talent with defence backgrounds, existing relationships and regulatory expertise that can navigate complex and long procurement cycles can help unlock repeat orders and move from pilot to orderbook faster.Pursuing dual-use business models – Across drones, cybersecurity, one sees multiple examples of companies pursuing government contracts and commercial sales to diversify revenue stream and risks.Offering integrated solutions over piecemeal tech components – Startups should focus on delivering solutions, whether by itself or collaborating with other defence primes. Grene Robotics’ integration of AI-based software within its Indrajaal counter-drone system, and selling to the armed forces as a unified platform rather than a separate analytics module, has been critical to its success.
Private investors are backing innovations with multiple revenue streams and exit pathways, reducing traditional defence investment risks.
If you are a founder building in the Defence-Tech space and are looking to raise capital or explore M&A opportunities, please reach out to udayan@loestro.com, we’d love to have a chat.
LoEstro Advisors is an investment banking firm specialising in sell-side fundraising and M&A advisory. Over the last six years, we have grown to be one of India’s largest (in terms of M&A transactions) homegrown mid-market investment banks, with $1.5 bn+ worth of combined deals closed across technology, healthcare, consumer, and education sectors.
