How much money does a company need to get out of a hole?
It turns out the figure was about Rs 33 crore (~US$4 million) in the case of Tonbo Imaging—a 11-year-old startup that makes and supplies imaging systems to armed forces in ~25 countries.
Back in 2021, Tonbo had orders worth Rs 200 crore (US$24 million) on the line, and it needed more working capital to pull itself out of its precarious position.
The Bengaluru-based company’s investors, including Edelweiss, Qualcomm Ventures, and Artiman Ventures, did not foot the amount needed to fulfil the orders. This was a time when Indian startups were raising around $100 million in series A rounds.
“We were at an inflection point and needed more time to grow. Our investors’ funds were targeted at early to mid stage tech investments and not for larger growth-sized working capital needs,” said 46-year-old Arvind Lakshmikumar, the co-founder and chief executive of Tonbo. “This and the timing of the capital needs made it difficult for existing investors to participate.”
The revenue of Tonbo—which designs and manufactures electro-optic devices such as thermal scopes mounted on weapons—in 2021 and 2022 fell by half to about Rs 25 crore (US$3 million) from Rs 54 crore (US$6.5 million) recorded in the year ended 2020.
For what it’s worth, the defence sector has a fairly long gestation period and a significant procurement cycle. Besides, the need for liquidity also becomes a major issue. That’s what has kept investors cautious so far. The space needs more support from the industry to help incubate companies, said Atim Kabra, a director and board member at defence company Astra Microwave Products.
Last month, however, Tonbo brought on HBL Power Systems—a Telangana-based company that supplies electronics systems to Defence and Railways—as a strategic investor. HBL took a 34% stake in Tonbo for Rs 150 crore (US$18.3 million), valuing the latter at Rs 450 crore (US$54.7 million).
Tonbo—whose client roster includes Israel’s intelligence agency Mossad, the French Army, and the Indian Armed Forces—hopes the investment will help make up for its lost years. The company expects to post Rs 110 crore (US$13.4 million) in revenue in the year ending March 2023 and aims to capitalise on the prospects presented by the Indian government’s indigenisation initiative.
In the budget for 2022-23, the Indian government allocated US$17.6 billion to spend on weaponry. The market size for electro-optics—which constitutes 30% of the spending in any modernised equipment—is expected to be US$2-3 billion.
Lakshmikumar cites the example of the Arjun Mk-1A tank, which is significantly indigenised and has a price tag of ~Rs 50-60 crore (US$6-7.3 million) per tank. The “eyes and brain” of this tank, formed by the electro-optic component, are valued at ~Rs 15-18 crore (US$1.8-2.2 million).
