India Defence Tech: Startups Pivot to Software as Funding Surges
Overview
Indian defense startups are increasingly prioritizing software development over hardware. Driven by a surge in venture capital and supportive government policies, companies are building full-stack capabilities for adaptability and long-term contracts, though integration into traditional procurement faces challenges.
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Software-First Approach Drives Growth
Indian defense technology startups are increasingly shifting focus from hardware to sophisticated software capabilities, seeking to build more durable, full-spectrum defense firms. This strategic pivot, powered by a surge in venture capital and government support, aims to enhance adaptability, scalability, and long-term customer retention. Companies like Digantara and ideaForge are at the forefront, recognizing the demand for interconnected systems.
Digantara, initially a hardware platform provider, found defense customers demanded sovereign control over software. The company has since pivoted to a software-first strategy, developing its surveillance platform into a full-stack capability. This allows for remote updates, bypassing lengthy procurement cycles and enabling long-term contract retention, as agencies can update hardware instead of replacing it.
Funding Surge Fuels Sector Expansion
The Indian defense-tech ecosystem is experiencing an unprecedented funding boom, with startups raising $329 million in 2025 alone. This surge follows emergency procurement provisions and policy changes, including the Defence Procurement Manual (DPM) 2025, which reserves 25% of procurements for MSMEs. Investors, once wary of the sector's irregular revenue cycles, are now actively seeking opportunities in defense technology.
Navigating Procurement Challenges
Despite the push towards software, traditional procurement processes still heavily favor hardware acquisitions. Startups like ideaForge and Galaxeye note that software is often treated as an extension of hardware rather than an independently evolving capability. They are exploring ways to embed software upgrades into annual maintenance contracts or hardware refresh cycles to align with buyer preferences.
Sector Concentration and Diversification Needs
A significant portion of defense startups, over a third, are concentrated in drone systems or unmanned aerial vehicles (UAVs). While drones offer a lower barrier to entry, experts suggest differentiation lies in advanced software, including electronic warfare resilience and edge intelligence. Funds are now looking to diversify into areas such as propellant systems, flight simulators, and digital platform systems for smart ships.
