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Investable Opportunities In Deeptech

Updated: Jun 23, 2023

Industry Overview

DeepTech, or deep technology, refers to technologies and business models that are based on tangible innovation in engineering or scientific advances, and which are not focused on end-user services. DeepTech companies are typically focused on building highly technical research and development-based products that provide solutions to global issues.The main areas in the industry include biotech, artificial intelligence (AI), robotics, machine learning and advanced materials.

Investment Activity

Investments globally in DeepTech have grown at a CAGR of 22% from 2015 - 2018, between 2014 to 2019 DeepTech firms attracted 11% of startup funding while being responsible for 17% of unicorns. According to BCG, funding in the space increased from $15B in 2016 to more than $60B in 2020.

DeepTech has proven to be a particularly attractive sector in the world of corporate venture capital. Though pure financial and returns-driven VCs would be wary of the capital requirements and higher risks, corporate VCs see the unknown as a chance to invest in the next cutting-edge product.

Despite the valid concerns faced by pure financial VCs, there have been several success stories. Below is an overview of Alumni Ventures returns-driven DeepTech portfolio, and the innovative companies disrupting it.

Chooch is a startup identifying and tagging visual data to create AI models. Other notable investors include 212 Venture Capital and Streamlined. Ocient is a big data platform for rapid analysis of the world’s largest datasets. Other notable investors include Greycroft, OCA Ventures and Valor Equity.

Ursa Major Technologies is a space technology company making turnkey propulsion engines for vehicle launch. Other notable investors include Alpha Edison and Arden Road Investments. However, despite the budding investment opportunity in both pure financial and corporate VC, there are several risks for all investors to consider.

Risk & Mitigants

With a need to develop highly technical prototypes, DeepTech companies often take much longer to find an initial product-market fit and begin scaling. They also require more funding than other startups due to the heavy research and development costs. According to research via TechCrunch, the median DeepTech startup requires $115M and 5.2 years to become a unicorn.

Additionally, with any high-risk, high-reward industry, investors are likely to shy away during periods of macroeconomic turmoil. The 2007-2009 financial crisis resulted in a decrease in venture capital funding, and over the last two recessions international funding has dropped between 30% and 59% year-over-year. This poses an issue due to international investors accounting for 56% of total venture capital investments in Canada (2019).

Despite DeepTech startups posing riskier investments, their businesses being built on fundamentally unproven and unique technologies means that they are quite difficult to replicate and compete with, creating a strong competitive advantage which will allow for businesses to be disruptors in their respective subsectors. Though the time to achieve a return on investment is longer, DeepTech companies can also deliver outsized returns over other technology sectors, proving the high-risk, high-reward mantra.

Key Takeaways

Overall, investing in disruptive DeepTech companies can allow investors to achieve high returns and contribute to advancing various social, environmental and health-related missions.

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