What makes Deep Tech VC different?

The Innovation Industries VC fund invests in deep tech companies with ground-breaking technologies that can address the fundamental challenges of our time. We get a lot of questions around the term deep tech, such as: what makes deep tech investing different? And why does it represent one of the best opportunities for LPs to achieve outsized returns?

The short answer: Deep tech is different as it involves more front-loaded technology risk (e.g., engineering failure at an early stage), requires more funding (capital-intensive) and has longer holding periods (5-10yr payback horizons) than typical VC areas such as SaaS. It isn't easy, but on the flipside; there is significant opportunity for large rewards due to the market-pull and disruptive nature of these technologies, coupled with stronger moats than more commoditized sectors.

The long answer: Deep tech is an incredible opportunity, and it is unique from other tech sectors for the following reasons:

1. Investing in deep tech is different. It involves front-loaded technology risk stretching across extended R&D phases, with a complex convergence of technologies (e.g., physics, chemistry, engineering). Deep tech start-ups require more, and longer, funding as they are often capital intensive, developing physical products rather than software with requirements for cutting-edge labs and production.
2. Potential for rapid value capture after R&D. Deep tech solves for a fundamental need (97% of deep tech ventures contribute to at least one of the UN's sustainable development goals). With market-pull present, there's potential for rapid value capture and a rare green field opportunity once the R&D phase is over. In addition, moats are often strong due to disruptiveness and protectability of the technology.
3. It is easier to hire and retain talent. Talent is the most important leading indicator for success. Looking at our own portfolio, these deep tech companies are largely world-positive and therefore have an easier time sourcing candidates (with candidates often accepting our offers over competing firms), with very low employee turnover.
4. Deep-tech sells into more diversified sectors with more more reliable demand. Let's compare SaaS startups who sell APIs. Their customers are primarily other software startups whilst deep tech startups have customers that fall into the broad array of industrial, healthcare and agri/food sectors. In case of a tech correction, deep tech is well-diversified selling into pharma, aerospace, telecom, energy, logistics, chemicals, agriculture, construction, semiconductors, and more.
5. There’s an opportunity to discover mis-priced assets. Most VC investors feel comfortable valuing commercial risk, but not the technology risk that comes with deep tech. We, as a deep tech fund, understand these dynamics and are specialized in mitigating technology risk through our fundamental understanding of tech, our long-holding period and >20 years of partnerships with key research institution. This allows us to scale technologies and capture value in a unique way.

At Innovation Industries, we believe deep tech provides solutions to some of the biggest and most fundamental challenges that our society is facing. Funding is crucial here, and we're excited to continue to help ground-breaking companies realize their full potential and maximize their positive environmental, social and economic impact.