Deep Technology (Deep Tech) is receiving increasing attention from world-wide entrepreneurs and investors. A comprehensive report from BCG and Hello Tomorrow on Deep Tech investment revealed that over the course of 4 years from 2016 to 2020, investment in the field has grown from $15B to a four-fold of over $60B. The wave is forecasted to continue rising high in the coming years, reaching a massive $200B investment amount if a new funding model and ecosystem is to be developed.
Impressive records, which make us all can’t help but wonder, “What do deep tech startups do?” and “What can they do to further attract funding and reach their full potential?”
At its core, Deep tech venture is the convergence of Advanced science, Design and Engineering (BCG & Hello Tomorrow, 2021). The approach starts with firms identifying opportunities through outstanding fundamental problems. They then apply design thinking approach to find the best technological solution to such a problem, at the same time ensuring that their ideas are both technically feasible and economically viable. The technology itself may or may not be disruptive, yet the application and the business model usually is. Throughout its operation and scaling process, it is essential that the ventures stay problem-oriented to make sure that they are not only utilizing the best and latest technology, but are also tackling some of the most major challenges.
Indeed, it is not uncommon that startups and investors get carried away with the hype of interesting new technology and forget to revisit whether intrinsic values are being created. Mr. Peng T. Ong, Co-founder and Managing Partner of Monk’s Hill Ventures, a VC firm that focuses on tech companies, asserted that he doesn’t invest in AI, or “deep tech”, because “Though the technology is more sophisticated today, one fundamental truth remains: AI does not intrinsically create consumer value.” The fund’s partner further explains that his strategy is instead to “invest in deep value”, which is built upon deep technology and leverages new innovation.
Given its innovative nature, deep tech ventures usually require extensive upfront capital and time for R&D, yet at the same time bearing high risk of not coming through eventually. The question would be how can startups and investors, in the first place, can be more certain that they are on the right track to success. In another piece of its report Deep Tech and the Great Wave of Innovation (2021), BCG and Hello Tomorrow propose a framework of “Four moments of truth” that helps analyze and evaluate the feasibility of a deep tech business model.
BBG’s “Four moments of truth” approach features four critical questions that deep tech ventures need to address concurrently at an early stage of their lives. The specific questions vary according to the startup’s business case and operating industry, yet overall, they take form as below:
· Frame the paradigm: What is the problem? Could reality be different?
· Forge the theory: Is there a way to develop a solution? How can we make it possible?
· Take the first step: Can we build the solution today?
· Change reality: What must happen for the solution to become the new normal?
Finding the answers to all of these questions helps identify obstacles, or so called “frictions” at the early stage, thus providing startups and capitalists better anticipation of the risks to be faced in the next milestones. This framework can also be used as a tool to evaluate a startup’s performance at each milestone and helps direct the business on the right track.
Similarly, when being asked what the criteria are to evaluate a deep tech venture, Leesa Soulodre, the General partner of R3i Ventures – a deep-tech focus VC firm- shares that they focus highly on the problem that’s being solved. “Is it a problem that needs to be solved now? Is it oxygen that we can’t live without? Is it aspirin that is it solving problem that’s a pain and we need to solve it? Or finally is it jewelry, is it nice to have but not a must have?”
In addition to the problem orientation approach, Leesa also reveals that R3i usually starts with looking at the team and identifying factors that are going to build “a cohesive and cognitively diverse team”. Having the right team and the right problem, deep tech VC firms would also analyze the market size and how fast it is growing. Investors’ role at this stage, said Leesa, is to “give them that accelerated access (to the market) to ensure that they meet the demand of those opportunities head-on and prepared.”
Next to building a great business, in order to attract funding, startups should also pay attention to designing their pitch so that their ideas are clearly conveyed to investors, who might not have strong enough technical background to treasure the science complexity of their solution. In his contribution to Tech in Asia’s startup ecosystem, Hsu Han Ooi, Partner at Iterative Capital, identifies some of the key points which most deep tech startups can further improve in their pitch decks.
· Focus on stating the problem. (E.g. Who the problem represents, how fundamental it is and why it is important that it gets solved)
This point is especially important to keep in mind if the founders’ team are all technical- and academia- based that may often focus too much on the beauty of the science and less on the “customers’ pain points”.
· Define the competitive advantage
It’s undeniably hard to build a good deep-tech startup, but in most cases, the problem that your startup is trying to solve is also ưhat many others are after.. It would score points with investors if firms can correctly identify their competitive edge, as well as how it can be built up over time/ scaling-up process.
· Building a customer acquisition strategy
Oftentimes it takes more than simply a great product to acquire customers and generate economic profit. To convince investors that their product will sell well, it is suggested that startups should have a collection of constructive feedback from end-buyers, a list of potential customers, and a plan for distribution channels of their products.
· Finally, why your solution matters. Hsu Han Ooi suggested the following questions to follow when presenting the impact of the pitched solution:
– How will the world be a better place with your technology?
– When will you achieve the magic moment that will delight customers?
– How do you know your technology matters?
In conclusion, deep-tech startup and deep-tech investment is a rising field with extensive room to grow for both entrepreneurs and investors. This article focuses on analyzing the factors of successful deep tech ventures from the startups’ perspective. First of all, at the very core, it is about building a business that solves fundamental social problems and delivers deep value, by leveraging the latest technology that traditional businesses are missing out on. The process involves converging Problem orientation, Design, Science, and Engineering to ensure the innovative quality, technical and economic viability of the product. As very nicely put by Leesa Soulodre, “The best technologies or best problems to solve in the world, they have facets of oxygen, they have facets of aspirin, and they have facets of jewelry”. After that, deep tech startups can combine presentation tactics in their pitch to better convey their technological solutions and increase the chance of successfully raising funds.
In the upcoming Thursday, we’re going to host an etalk with a leading deeptech venture capitalist – Leesa Soulodre. Come join us on 09/09 to learn from the stories of experienced entrepreneurs and investors overcoming obstacles to success and pick up tips for fundraising & investing to any innovation in #DeepTech#MedTech & #DigitalTransformation.
𝐓𝐈𝐌𝐄: Thursday, 09.09.2021; 19:00 – 20:30 (VNT)
𝐋𝐎𝐂𝐀𝐓𝐈𝐎𝐍: Online via Zoom
𝐑𝐄𝐆𝐈𝐒𝐓𝐄𝐑 𝐇𝐄𝐑𝐄: https://bit.ly/Etalk-Season2
Writer: Quynh Le – VVCC Project