'Proving the unprovable’: Deep tech bridges the investment gap

February 22nd, 2022

'Proving the unprovable’: Deep tech bridges the investment gap

As the record development of Covid-19 vaccines and related treatments proves beyond doubt, the power of deep tech to bring solutions to giant-sized problems is a phenomenon of the future.

Working behind the scenes as they deploy sciences incomprehensible to the average person, deep tech start-ups are transforming lives in ways that a few years ago were considered unimaginable.

“Some, such as SpaceX and Blue Origin have captured the public imagination,” explains Boston Consulting Group (BCG) in a definitive study of the deep-tech sector. “Others deal in what was once pure science fiction such as flying cars.”

The wider catalogue of deep-tech innovation is more prosaic but no less profound. According to Eleks, a consultancy in enterprise development software, this field of invention is “based on scientific advances and discoveries whose fundamental focus is to pioneer new solutions that solve society’s biggest issues.”

These issues comprise chronic disease, climate change, clean energy, food production and more. In fact, 97% of the sector’s work contributes to at least one of the UN’s sustainable development goals.

Creation through collaboration

Differing from the earlier generation of tech companies, deep tech gets there through a highly disciplined application of mutually enhancing skills. “Technologists and scientists typically collaborate towards a common goal,” notes Eleks.

It’s this ‘mutually enhancing’ aspect that the sector leans into. Artificial intelligence and machine learning is now a normal part of modern technological development and it will help hasten deep tech’s development curve.

In tandem, investor enthusiasm is bubbling to the surface – but it’s a recent step change. By design, deep tech is about trying to prove the previously unprovable and this has deterred investors. The associated structural constraints such as size, incentive limits and the lifetime of the fund have served to deter further.

That’s mainly why investment into the sector, counting everything from private investments and M&A to IPOs, stood at a relatively lowly $15bn in 2016.

Now, though, new investment models, larger funds and longer timelines are being engineered in order to invest through the lens of a ESG framework. And trend-watching authority voices are hyping the value proposition.

“[Deep tech investments] are…defensible through IP. Many VCs are starting to see that this makes them a very strong investment proposition” notes Ewan Kirk, founder of Cantab Capital Partners.

Further, funds are aiming to support the transition of these technologies into commercially available products for industry. “This year we will see the first quantum computing companies demonstrate solutions that are competitive with classical-only computing clusters,” says Christophe Jurczak, founder and partner at Quontonation, a VC fund.

“The metric is a mix of time to solution, accuracy and energy consumption. At a minimum we will have a clear vision of the requirements and scaling laws to make it happen within the next two years,” he adds.

Towards intelligent ecosystems

Elsewhere, cloud-to-edge connectivity is creating seamless experiences for users without disruption. In mid-February, for example, the content delivery network Akamai announced the acquisition of IaaS platform Linode for approximately $900 million, to become the world’s most distributed compute platform.

The European market has become something of a focal point. One of the latest funds to launch is Outsized Ventures, which has now hit the first close of its inaugural €60 million fund. Founded in March 2021, general partner Isabel Fox told TechCrunch recently that “the next wave of great companies will be at the intersection of scientific disciplines and that Europe is well placed to lead that charge.”

To help facilitate these types of complex deals, investors are buying in talent, either by hiring consultancies or installing science-oriented, in-house advisers. This is, in part, helping to compress the development process in ways that promise a quicker return.

Where to next? Deep-tech innovation is behind most if not all of Gartner’s latest Impact Radar of emerging technologies and trends for 2022. The report estimates that it will take smart spaces – physical or digital environments embracing people in “intelligent ecosystems” – between three and six years to hit the mass market. These spaces include anything from preventive maintenance in buildings to automated tolls.

So far, artificial intelligence (AI) has been applied mostly in the professional and financial services sectors, along with high-tech telecoms. However, AI applications are now bedding in to the automotive, transport and mobility sectors, and as Daan de Cloe, CTO of AutoFill Technologies, observes, “my guess is that the use of the technology in these industries will only increase in 2022.”

That’s because as the population expands, governments must develop the infrastructure to support it. Not only will AI applications support this infrastructure development, they can help power these networks in a more sustainable and net zero-conscious manner.

In short, a solution tailor-made for the kind of collaborative and creative methods of deep tech.

Director – Technology and Technology - Enabled

pj@draxexecutive.com

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