During the last decade, the interest from private investors in financing breakthrough technologies with huge innovation potential has grown exponentially. This generalized interest in technology transfer grew because of the new wave of technological advancements that bear the promise to solve “grand societal challenges”, now commonly identified as THE DEEP-TECH REVOLUTION.
In case you missed, this is WHAT IS (and what is not) DEEP TECH.
Most of these deep-tech technologies are based on science and engineering advancements developed within research centers and universities that have facilities and funds to sustain the first phases of technology discovery and validation.
The government usually finances the development of new technologies up to the “applied research level”. It is usually OUT OF THE SCOPE of governments to determine which technology will be suitable to have real applications, therefore public funding often decreases dramatically after this stage.
Theoretically, this is when Investors and the Industry should show up and keep developing promising technologies. The reality however is that technologies at this level of development still face a huge amount of uncertainty, thus money commitment in immature, unproved, and not-yet-scalable technologies usually is scarce.
This decrease in funding coupled with the lack of tangible interest from the private sector generate a funding gap in which many technologies end up dying. The graph below, adapted from Jackson report (2011) highlights this phenomenon.
Graph Adapted from Jackson, 2011
Direct transfer toward industry of such early-stage technologies thus results almost impossible due to uncertainties regarding functioning at scale and related economics.
For many deep-tech technologies, risk-reward profiles might be of interest for private equity funds such as venture capitalists since technology characteristics and intellectual property protection might enable the creation of capital-efficient startups that require no duplication of assets.
Getting early-stage technologies developed in universities and research centers ready for venture capital investments, however, is not easy since investors want to invest in fully formed and committed teams with a clear idea of the market
For several reasons, however, early-stage deep-tech startups usually lack both these elements and thus need to overcome several challenges to become interesting enough to attract the interest of the private sector.
The emergent nature of the technology makes the techno-economical assessment of the technology very complicated.
Even though the technology has a single application, due to all the uncertainties surrounding its development it is quite complex to understand whether that technology, inserted in a product, will be able to make people change their mind and buy from the startup.
For deep-tech startups, many aspects that define a market opportunity are deeply anchored to the technological features of the potential innovation.
Since spin-offs typically develop early-stage technologies, many of such elements are usually unclear due to the early-stage nature of such technologies, which implies that a profitable field of application of the technology might be yet to be identified.
Technology value, which depends mostly on the value proposition offered, is therefore often difficult to prove.