Where does the relationship stand?
One major gap between investors and deep tech founders is understanding of tech. While many investors come from a background in banking or finance or software, few understand how to evaluate the potential of transformative deep tech for which they seek external help. In addition, many venture capitalists are not willing to take risks on unknown technologies, which may or may not work in the longer run with a medium to high risk to reward ratio. This means that many innovative ideas die in the search for funds, instead of being given an opportunity to develop into impactful products or services.
Creating new markets through deep tech innovations
Despite difficulties, there have been achievements. Machine learning algorithms can detect malignant cells faster than people, establishing a new industry for medical diagnosis. Augmented reality can train personnel faster than before, generating another new sector with immense development potential. We can employ disruptive deep tech to fill holes in existing businesses and establish new markets that will drive economic growth.
It’s important for us to remember that not all lab technologies can be commercialised – but that should be southward rather than dominating as it does today. We need to think beyond immediate profits and focus on providing solutions for difficult problems through innovative technology solutions – even if those solutions require more effort or involve more risk upfront than traditional investments do. If we’re willing to take those risks now, we can unlock the real potential of transformative deep tech over time.
Deep tech founders lack invertibility. Most understand the technology they’re inventing and the economic feasibility, but not the venture capital ecosystem or how funds work. As a researcher founder, one may be impressed by their creativity, but venture capital funds are excited by three-to-five-year estimates and planned exit. All founders must accept and work with this reality. The invention of semiconductors sparked the rise of venture capital funds, which very soon switched focus on internet and software enterprises due to lower risk and larger returns in shorter time periods.
Deep tech startups operate in a unique landscape which requires specific skills and parameters to evaluate. Their incubation period is much longer than those of internet or software-based companies; in some cases, this could span a decade. This extended timeline allows deep tech startups to focus on achieving scientific acknowledgements, while they also benefit from having far more replication time and little to no competition.
IP rights and patents give these companies a bright future. Deep tech startups are rewarding due to their robust foundations and inherent advantages. According to BCG, 83% of deep tech businesses deal in physical items, which requires capex to set up production and assembly. This is bad news for venture capitalists.
The last year was an incredibly exciting time for the startup industry, as Techcrunch reported that a total of $650 billion was invested globally. Unfortunately, only 12 percent of these funds went towards deep tech companies, demonstrating the disparity between the potential they contain and the actual amount they received in investments. Government grants have become one of the major sources of deep tech funding.
However, some positive signs are beginning to appear – with more and more tech and business leaders aiming to invest in early-stage tech lead ventures through angel and syndicate networks. This encouraging trend is even more dominant in India, where deep tech startups count better than counterparts globally and an increasing number of funds are actually interested in making deep tech investments. It seems deep tech startups are about to reap significant benefits from these promising developments.
If you have a deep tech startup, it’s time to hunt for angel investors. C-level executives who invest as a hobby or passion can be a strong validation for venture capitalists. They’re well-connected, understand IT, and can assist you find resources. Deep tech startup investing is a lengthy game, so don’t be dismayed if your first round doesn’t go as expected. Indian deep tech’s future seems bright because you’ve developed a commercial lifetime asset.
The writer is CEO and Founder of Sanchiconnect.
