The Signal

India’s defence technology sector has crossed the critical threshold from “R&D expense” to “exit-grade asset class.” The headline isn’t just the funding spike; it’s the structural shift in how capital is flowing. With Tonbo Imaging filing its DRHP for an IPO and Garuda Aerospace converting to a public entity in late 2025, the market has validated the first generation of defence startups.

The new reality is quantified: The Indian defence tech market is projected to hit $19B by 2030, growing at a 20% CAGR. But the “easy money” in basic hardware assembly is gone. The next wave of value—and the bulk of the $78B+ modernization budget—is reserved for “systems” (AI, autonomy, optical intelligence) rather than “platforms” (metal shells).

The Situation

The capital injection is specific, not broad. While the sector attracted significant attention in 2025, the distribution is lopsided.

  • The Winners: Counter-drone technology is absorbing 71% of all defence startup funding, with the segment growing at 17% CAGR.
  • The Exits: Tonbo Imaging’s IPO is an Offer for Sale (OFS), allowing early backers like CEAQ Technologies to liquidate positions. This proves to LPs that Indian defence deeptech has a viable exit horizon, derisking future Series B/C rounds.
  • The Scale: Tonbo posted ₹469 Cr revenue in FY25 with a healthy 15.5% net profit margin, while Garuda Aerospace clocked ₹118 Cr revenue. These aren’t concepts anymore; they are P&L realities.

Why It Matters

Founders must understand the procurement pivot. The Indian Ministry of Defence (MoD) is no longer looking for vendors to replace foreign hardware 1:1. They are looking for force multipliers.

1. The Talent Cliff: The bottleneck is no longer capital; it is human. A recent Quess Corp report warns that 40-45% of specialized roles (radar, propulsion, optical engineering) will remain unfilled by 2030. Companies that solve this talent supply chain become acquisition targets.

2. The Moat is Code: Tonbo’s value isn’t the camera housing; it’s the “HawkAI” platform that fuses sensor data. Hardware is commoditizing; the intelligence inside the hardware commands the premium multiple.

3. Sovereign Stacks: With NewSpace Research securing $52M to build swarm drone stacks, the government is signaling a preference for “sovereign IP”—technology owned 100% locally, free from ITAR restrictions.

Founder Action

If you are building in defence tech, your strategy needs to shift from “Make in India” to “Design in India.”

  • Audit Your IP: If you rely on foreign subsystems for your core value prop, you are a trader, not a deeptech company. The iDEX pipeline will filter you out.
  • Target the Gaps: Stop building generic drones. Build the sub-systems the industry is starving for: Optical Engineering, Propulsion, and Edge AI Certification.
  • Hire for the Cliff: Aggressively recruit radar and RF engineers now. The talent war will inflate these salaries by 50-60% in the next 24 months.