Warning: Deep Tech is Watching!
Have you ever been sitting on the couch watching one of your favorite shows, sipping on a glass of wine, and then look over to notice your laptop screen staring right at you? You continue watching Schitt’s Creek and giggling at the antics of David and Alexis. However, you can’t help but give the side eye to the open laptop screen and embarrassingly think, “I wonder if someone on the screen is watching me?” Finally, you get up and slowly close your laptop and then casually walk back to the couch, giggling at your slight paranoia.
This is the image that popped into my mind when I first heard the words “deep tech.” No, deep tech is NOT watching you (at least I hope not). But, what in the heck is deep tech?
What is Deep Tech?
Swati Chaturvedi, co-founder and CEO of the investment firm Propel(x) coined the term in 2014. According to her definition, deep tech refers to “companies founded on a scientific discovery or meaningful engineering innovation” and which also seek to make the world a better place.1 Deep tech includes innovations that will completely change (and are currently changing) the world’s future. A few examples include: artificial intelligence, therapeutics, robotics, and drones.2
These innovations are often developed by PhDs and other highly qualified experts. They typically require a lot more time and capital to develop.2 However, does this mean that these companies will be successful?
What Makes Deep Tech Companies Successful?
There are a plethora of life-altering innovations out there just waiting to be discovered (and already in the works). However, not all innovative companies will be successful, no matter how groundbreaking the technology may be.
According to Boston Consulting Group, successful deep tech ventures tend to have four complementary attributes: 1) problem-oriented; 2) operating at the convergence of technologies; 3) mostly develop physical products; and 4) at the center of a deep ecosystem.3
1. They are problem oriented.
Deep tech companies tend to focus on solving large and fundamental issues. For example, 97% of deep tech ventures contribute to at least one of the United Nation’s sustainable development goals.3
2. They operate at the convergence of technologies.
It is not enough for these companies to just innovate. They must have a solid business model and team.
Deep tech companies tend to own their intellectual property, spend years on testing and research, and have scientists, engineers or other experts on their teams, in addition to their business personnel.4 For example, approximately 70% of these companies own patents in their technologies.3 In addition, 96% of deep tech ventures use at least two technologies, and 66% use more than one advanced technology.3
3. They mostly develop physical products.
Most deep tech companies utilize a combination of software and hardware.5 However, about 83% of deep tech ventures are engaged in building a physical product, as opposed to building just software.3
4. They are at the center of a deep ecosystem, and government funding is critical.
It is not just companies focused on deep tech and building out the ecosystem. Approximately, 1,500 universities and research labs are involved in deep tech.3 Further, deep tech ventures received some 1,500 grants from governments in 2018.3 According to Daniel Lunz, CEO and co-founder of Capsulomics,
[g]overnment funding provided through non-dilutive academic and small business research grants are a key piece to the discovery, development, and validation of early scientific innovations. Beyond research and technical validation, the funding also aids startups in securing physical space, early technical team members, and product development. Thus, beyond development of the innovation, the funding can aid startups in creatively bridging the Innovation Valley of Death (below) by de-risking their company to a point of securing funding through revenue or venture funding.
Capsulomics “has secured multiple non-dilutive grants vital to early technology and team development,” says Daniel. However, he points out that
[o]ne of the challenges with non-dilutive government funding is that it’s not quick money. In a best-case scenario, the government grant funding will take 6–9 months to be awarded. Often, funding is not awarded the first time the grant proposal is submitted; thus, it can take anywhere from 1–2 years from when a grant proposal is first developed to when funding is awarded (assuming funding is eventually achieved). Because of this, founders should use care in the development of their funding strategy if they plan to utilize and rely on government grant funding.
Besides government funding, venture capital is viable option for deep tech companies seeking to bridge the gap.
Deep Tech and Venture Capital
In order for companies to get off of the ground, they require funding. This is even more critical for deep tech companies.
From 2016 to 2020, annual investments in startups focused on commercializing technologies, such as biotechnology, robotics, and quantum computing grew in value from $15 billion to $60 billion worldwide.6 During this same time period, the average private investment more than tripled in size.6 Meanwhile, deep tech corporate venturing, the second-largest source of this funding, grew from $5.1 billion in 2016 to $18.3 billion in 2020.6
So, what does this all mean?
Deep tech is the technology that will rule the world, and a lot of this technology still lies in uncharted territory. In order to make it all happen, investors must be willing to take a risk on these companies.
I do know one thing for sure, though. The next time I am binge watching Schitt’s Creek (for the umpteenth time) and grinning extra hard with David and Alexis, I can be SURE that the laptop that I left open staring at me is NOT watching me!
1https://www.bbva.com/en/what-is-deep-tech/
2https://www.ieseinsight.com/doc.aspx?id=2433&ar=19
3https://www.bcg.com/publications/2021/deep-tech-innovation
4https://academy.smu.edu.sg/insights/challenges-commercialising-deep-tech-1796
5https://thedeeptechinsider.com/2021/12/13/what-is-the-difference-between-deep-tech-and-tech/
6https://sloanreview.mit.edu/article/the-three-internal-barriers-to-deep-tech-corporate-venturing/
Lalita Hamilton is an attorney utilizing her knowledge of business, finance, and innovation to identify entrepreneurs who are working to bring the most unique and game-changing innovations to market and to help them grow and scale into a profitable business. She is a venture capital fellow with Riptide Ventures and was also a fellow with Early Light Ventures.
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