A significant shift in India’s investment landscape is underway, marked by the launch of a dedicated ₹1,000 crore fund focused on the burgeoning defence and space sectors by 360 One Asset’s private equity and venture capital division. This substantial commitment, entirely backed by domestic limited partners, signals a crucial turning point for industries historically reliant on government procurement and characterized by episodic private funding. The initiative underscores a growing confidence among Indian investors in the nation’s strategic technology sectors, aligning with a broader national push for indigenous capabilities and reduced import dependency.
The newly established fund is targeting a final close within the next two months, with plans to strategically deploy capital across 15 to 20 companies spanning the entire defence and space value chain. Sameer Nath, Chief Investment Officer and Head of Private Equity and Venture Capital at 360 One Asset, indicated that the firm intends to exercise a greenshoe option, potentially expanding the corpus further. This could position it as one of the largest dedicated capital pools for defence and space in India, a market previously cautious and conservative in attracting private investment. The fund’s leadership, including existing partners Sandeep Maheshwari and Abhishek Nag, has already initiated four investments, notably in Digantara, CoreEL Technologies, and Sisir, covering a spectrum from Series A to pre-IPO and late-stage private equity. A fifth investment is reportedly nearing completion, highlighting the immediate deployment strategy.
Historically, India’s defence and space sectors have presented unique challenges for private capital, often perceived as high-risk due to long gestation periods, complex regulatory environments, and a singular dominant buyer – the government. Consequently, private equity and venture capital participation has been limited, largely confined to sporadic bets by generalist funds. While firms like Peak XV, Accel, and Lightspeed have made selective investments in companies such as Digantara, EtherealX, and Pixxel, these have typically been one-off ventures rather than part of a dedicated sector-specific strategy. Even existing India-focused defence or aerospace funds have largely remained sub-₹500 crore, making the 360 One fund a notable outlier and a potential catalyst for broader private sector engagement. This move also follows a similar initiative last year, when former Citi executive Ravi Kapoor launched Indusbridge Ventures, another ₹1,000 crore aerospace and defence fund, further signaling a nascent trend of specialized capital formation.
The surge in investor interest is inextricably linked to significant policy reforms and strategic imperatives emanating from the Indian government. The "Make in India" and "Atmanirbhar Bharat" (Self-Reliant India) initiatives have been instrumental in creating a more predictable and attractive investment environment. These policies aim to foster domestic manufacturing, reduce the nation’s substantial defence import bill, and enhance technological sovereignty. Key policy changes, such as increased Foreign Direct Investment (FDI) limits – up to 74% under the automatic route and 100% via government approval for defence manufacturing – have opened doors for greater international collaboration and technology transfer, although domestic capital remains a primary driver for funds like 360 One. Furthermore, sustained increases in defence capital outlays in the Union Budgets, alongside a strong emphasis on indigenous procurement, have provided a clearer demand pipeline for defence startups and mid-sized enterprises. For instance, India’s defence budget for FY24 stood at ₹5.94 lakh crore (approximately $72.6 billion), with a significant portion allocated to capital acquisition, underscoring the government’s commitment to modernization and indigenization.
The opportunity set for investors has expanded dramatically, moving beyond traditional manufacturing to encompass cutting-edge technologies crucial for modern warfare and space exploration. This includes artificial intelligence, machine learning, advanced materials, robotics, cybersecurity, satellite manufacturing, launch services, and sophisticated data analytics for both defence and civilian applications. Sandeep Maheshwari, who focuses on late-stage and secondary investments for the fund, highlighted how the growth outlook for defence and space companies has fundamentally shifted. He noted a transition from single, episodic orders to continuous procurement cycles, leading to improved revenue visibility and more predictable order flows, which are critical for attracting and sustaining private capital.
A unique and compelling aspect of many portfolio companies in these sectors is their dual-use potential. Several startups develop technologies with direct military applications that also possess robust civilian or commercial uses. This diversification provides a crucial layer of risk mitigation for investors, ensuring growth potential even if geopolitical conditions shift or defence procurement cycles experience slowdowns. For example, satellite communication technologies developed for military intelligence can also power broadband internet in remote areas, and advanced drone technology for surveillance can be repurposed for agricultural monitoring or infrastructure inspection. This dual-use capability makes these investments more resilient and attractive to a broader pool of capital.
A significant tailwind for India’s defence industry, and a key factor in attracting private investment, has been the dramatic increase in defence exports. Maheshwari emphasized that boosting exports is now an explicit policy priority. India’s defence exports have witnessed an impressive compound annual growth rate (CAGR) of 84% over the last few years, surging from ₹12,815 crore in FY22 to an estimated ₹23,622 crore in FY25, according to Ministry of Defence data. This trajectory is projected to continue, with Maheshwari anticipating exports could reach ₹50,000 crore within the next few years. This growth is driven by India’s competitive pricing, reliable technology, and strategic partnerships, particularly with nations in Southeast Asia, Africa, and the Middle East seeking diversified defence procurement options.
The evolving ecosystem is also reshaping the dynamics between established defence public sector undertakings (DPSUs) and nimble startups. Abhishek Nag noted that large incumbents are increasingly looking to acquire capabilities rather than build them internally, especially in areas where startups demonstrate superior agility or operate closer to the technology frontier. This trend, common in global defence markets, positions mergers and acquisitions (M&A) as a vital exit strategy for investors, offering a healthy alternative to public listings. Unlike the consumer internet or software sectors, where IPOs are often the primary objective, defence and space companies are more likely to find strategic or financial buyers in the private market. Nath affirmed this strategy, stating, "We are not putting all our eggs in the IPO basket," acknowledging that while some portfolio companies may eventually list, many others will achieve scale and provide returns through strategic sales, consistent with the global defence industry’s consolidation patterns.
The ramifications of this burgeoning private capital involvement extend far beyond immediate financial returns. It signifies a maturation of India’s strategic industrial base, fostering innovation, creating high-skilled employment, and enhancing technological sovereignty. By reducing reliance on foreign suppliers, India strengthens its national security apparatus and projects greater geopolitical influence. The growth of indigenous defence and space technology also creates a multiplier effect across the economy, stimulating research and development, manufacturing, and associated service industries. As India aims to become a global hub for manufacturing and innovation, the private sector’s active participation in these strategic domains is paramount. This fund, and others like it, serve as critical enablers, transforming India’s defence and space aspirations into tangible economic and strategic realities on the global stage. The long-term vision is clear: to cultivate a robust, self-reliant ecosystem capable of competing with global leaders, fueled by a dynamic interplay of government policy and agile private capital.
