Investors Are Betting on “Deep Tech” Unicorn Startups Aimed at Major Social Problems; New Findings From BCG

• The goal of deep tech is to offer breakthrough innovations to address sweeping problems like climate change.

• Deep tech ventures need the support of a reimagined investment chain—with participation from governments, venture capital and private equity firms, and limited partners and corporations.

• A new investor model would address the current frictions holding back deep tech, such as mindset biases, misrepresentations, or inadequate risk-assessment capabilities.

The power of mRNA technology, which led to the development of COVID-19 vaccines within months, is just one highlight of a new innovative field. The goal of deep tech is to offer breakthrough innovations to address sweeping problems like climate change. Further examples include small-scale nuclear reactors, air mobility drones, carbon-based materials (whose manufacture removes CO2 from the atmosphere), and cellular agriculture (such as artificial proteins). A new article by Boston Consulting Group (BCG) and Hello Tomorrow, “Meeting the Challenges of Deep Tech Investing,” notes that there are already unicorns in the field. There’s potential to accelerate this growth if a new investor model can be built.

Deep tech ventures need the support of a reimagined investment chain—with participation from governments, venture capital and private equity firms, and limited partners and corporations. A new investor model would address the current frictions holding back deep tech, such as mindset biases, misrepresentations, or inadequate risk-assessment capabilities.

It is not only a question of the investment model. “We need to do a much better job telling the many success stories and exit opportunities in deep tech,” says coauthor Massimo Portincaso, chairman of Hello Tomorrow. “Deep tech still lacks a clear narrative to educate investors and attract more funding.” The narrative should clarify that although deep tech risks are inherently higher, there are methodical practices to mitigate them. The authors also found that, though deep tech’s equity needs are higher than digital’s in the early years, the former’s lifetime needs tend to be lower on average. The narrative disconnect also rises from the cultural gap between startup venture capitalists and scientists.

Getting in on the Ground Floor

No one knows which ventures will thrive. But their success so far, like the success of the mRNA vaccines, has already changed the way people think about the risks of investing in breakthrough technologies. A small but growing number of specialized funds are turning their attention to this field. These organizations have success factors in common, which could help in the reshaping of the deep tech investor model. They are problem oriented and equipped with in-house deep tech expertise. They leverage different investment vehicles to best support ventures’ needs.

“In the end,” says Antoine Gourévitch, coauthor and managing director and senior partner at BCG, “Deep tech will catalyze a new approach to public-private partnerships. To accelerate and deliver on this opportunity, government funding needs to be more focused and flexible, and private investment needs to be more willing to take big chances. Deep tech gives investors the chance to be part of the next wave of innovation and to solve some of our most fundamental problems.”

For more information or to read the full article, please visit www.BCG.com.