Where India Sits as Global VC Pours Into AI, Defence, and Space

The global venture capital market is in a strange moment. Deal counts are at a 10-year low, with just 7,356 transactions in Q2 2025 compared to more than 9,300 in the previous quarter. But while the volume is shrinking, the biggest sectors are still commanding eye-popping sums. Artificial intelligence, defence technology, and spacetech have become the gravitational centres of venture funding.

Scale AI’s $14.3 billion round alone tilted the global numbers. Defence tech players like Anduril raised large rounds. Spacetech names such as World View caught investor attention. The pattern is unmistakable: capital is consolidating around frontier technologies with clear national security or strategic implications.

For Indian investors, the question is how India fits into them.

AI : From Global Talent Pool to Global Competitor

For two decades, India has been the world’s AI back office. Global majors like Microsoft, Google, and Amazon set up labs in Bangalore, Hyderabad, and Pune to tap into India’s abundant engineering talent. The work was important, but not always proprietary: research support, model training, and enterprise deployment rather than building end-to-end AI products.

That is starting to change.

• Generative AI in Indian languages: Startups are creating models and products tailored to India’s linguistic diversity, from conversational bots in Hindi to translation tools for Tamil and Marathi.
• AI infra for enterprises: Young companies are building developer platforms and model-serving infrastructure, helping businesses integrate AI without relying exclusively on global APIs.
• SaaS with AI at the core: India’s SaaS ecosystem, already deep, is increasingly embedding AI features to differentiate against global competition.

While no Indian AI startup has yet raised a multi-billion-dollar round, cross-border momentum is growing. Postman, Hasura, and Freshworks are examples of SaaS players that could spin off AI-native competitors. Some Indian founders are raising in Silicon Valley while keeping engineering roots in India.

Defence Tech : From State Monopoly to Startup Space

Defence tech used to be an investor taboo in India. For decades, the space was dominated by state-owned enterprises, with little room for private players. That landscape is changing rapidly.

• The Indian defence budget has steadily grown, with more procurement earmarked for private firms.
• Startups like ideaForge (drones) have gone public, proving there is a viable commercial and capital markets path.
• Tonbo Imaging and NewSpace Research are examples of companies building world-class defence tech for both domestic and export markets.

Globally, defence VC is booming. Investors see national security as recession-proof, and the recent geopolitical tensions have accelerated spending in the U.S. and Europe. In India, the combination of policy support and geopolitical urgency is nudging private capital into defence after years on the sidelines.

The challenges remain significant:

• Long procurement cycles.
• Heavy reliance on government contracts.
• Limited exit history beyond IPOs.

But the strategic rationale is undeniable. Defence has become one of the few sectors where capital allocation is not just about returns but about sovereignty, competitiveness, and geopolitical leverage. India cannot afford to lag in a domain that sits at the intersection of security and technology, especially as peer nations aggressively scale domestic defence industries and dual-use innovation. The sector is now central to industrial strategy, tech leadership, and economic resilience.

Defence in India is not a spray-and-pray sector. It is highly regulated, capital intensive, and still deeply tied to government priorities. Investors stepping into this space must accept longer cycles, close dependence on procurement pipelines, and an unpredictable exit path. Yet this caution masks a meaningful inflection point: private participation is growing, indigenous manufacturing has become a national priority, and defence startups are increasingly building dual-use technologies with applications across aerospace, cybersecurity, and AI-driven intelligence systems. What once felt like an opaque, government-dominated space is gradually evolving into a sector where private capital can play a catalytic role, but only with patience, expertise, and a long-term view.

Spacetech : India’s Best Shot at Global Leadership

If AI is a global race and defence is a strategic necessity, spacetech is India’s chance to lead outright.

India’s credibility rests on ISRO’s decades-long track record of low-cost, high-efficiency missions. From the Mars Orbiter to Chandrayaan-3, ISRO has built India’s brand as a frugal but effective space power. The private sector is now building on that legacy.

• Agnikul Cosmos has successfully test-fired 3D-printed rocket engines.
• Skyroot Aerospace launched India’s first privately built rocket, Vikram-S.
• Pixxel is deploying hyperspectral imaging satellites, with customers ranging from global governments to agritech firms.

The Indian spacetech ecosystem is young, but it has all the ingredients: talent, credibility, and policy support via IN-SPACe (the Indian National Space Promotion and Authorisation Centre). The creation of IN-SPACe opened ISRO’s infrastructure to private players, while FDI norms and production-linked incentives have made it easier for foreign capital to flow in.

Spacetech is capital-intensive by design, but that cost structure doubles as a competitive moat. The companies that survive the first wave of launches will own launch infrastructure, orbital capacity, and customer relationships that are hard to displace. Unlike software, this is a winner-takes-most market and India’s cost advantage gives domestic firms a unique shot at scaling globally.

This sector now represents a strategic allocation where India has already demonstrated leadership. As the country moves from being a launch provider to a full-stack space economy player, spanning launch services, satellites, downstream analytics, and defence-linked applications, spacetech could emerge as one of India’s first globally scaled deep-tech industries.

Policy as a Catalyst

AI, defence, and spacetech are propelled by a combination of global momentum and strong Indian policy support.

• In AI, the government is funding compute infrastructure and supporting AI startups through innovation schemes.
• In defence, procurement is shifting toward private suppliers, and foreign investment caps are being reconsidered.
• In spacetech, the opening up of launch and satellite services to private firms is unprecedented.

The private sector cannot scale these industries without clear state alignment. Fortunately, in India, that alignment is now visible.

India’s Place in the Frontier

Global VC is consolidating around frontier sectors. AI, defence, and spacetech are long-horizon, high-barrier industries where winners will command market share and strategic significance.

India may not yet be producing $10 billion AI rounds or defence unicorns at scale, but the foundations are clear: a deep talent pool, early technical breakthroughs, growing policy support, and rising global investor attention. These sectors are still early in commercialization, but how India scales its role in AI, defence, and spacetech over the next decade will shape not only its startup ecosystem but also its position in the global technology hierarchy.