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A lot of technology news generates buzz. But a type of tech start-up often goes under the radar. Enter the world of deep tech.
Deep tech, the term used by many investors, is about fixing hard societal problems with tech solutions, often by advancing underlying scientific knowledge. The applications of deep tech run the gamut, from advanced nuclear reactors and tiny sensors to quantum computing and nanomaterials. It also often involves creating a physical product, rather than something digital. The definition isn’t always clear-cut, and it does overlap with well-known tech, but it makes sense as a distinct category.
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To support a “prosperous and abundant future world, we’ll need many new technologies,” says deep tech venture capital firm DCVC in its new Deep Tech Opportunities Report, a worthy read for people interested in learning about the topic. That investment mindset has gone mainstream for many corporate investors, venture capitalists, sovereign wealth funds and private equity firms.
20% of venture capital funding goes to deep tech, up from about 10% a decade ago, says Boston Consulting Group in a 2023 report, “An Investor’s Guide to Deep Tech.” Investors see it as a smart way to diversify away from software and traditional tech investments.
Areas topping the list for most deep tech funding are artificial intelligence, autonomous systems, advanced physics and chemistry, the Internet of Things and other sensors, and synthetic biology, according to BCG. Applications include electric-powered aircraft, next-gen batteries, microscopes and gene sequencing.
Some of the companies are household names, such as driverless car leader Waymo, rocket and internet satellite giant SpaceX and generative AI firm OpenAI. Deep tech also includes popular fields such as virtual reality, robots and drones.
Scouring the portfolio of a deep tech VC firm often seems like catching a glimpse into the future. DCVC’s report highlights many of its intriguing investments, such as Fervo Energy, which is using horizontal drilling and fracking tech to tap new sources of geothermal energy. Radiant Nuclear is developing a very small nuclear microreactor. Brimstone is creating a carbon-emission-free cement-making process. Freenome is using AI to develop tests for the early detection of cancer.
Plenty of other VC firms either focus on or dabble in deep tech. There are hundreds of VC firms that invest in deep tech, according to BCG. They include Alumni Ventures Deep Tech Fund, Apex Ventures, Boost VC and SOSV.
The caveats should come as no surprise. These are high-risk bets that could fizzle. The R&D costs are high and the timelines are long. VC investment in deep tech has fallen in recent years, echoing declines in overall VC funding. However, deep tech’s share of VC dollars has held stable, says BCG. That’s because of the promise of disruptive commercial products that not only solve big problems but lead to big profits.
High interest and healthy funding will continue, even if the inherent risk makes it not for the faint of heart. “In the earlier stages of deep tech development, the principal risks are scientific, and the big challenge is often moving the technology out of the lab and into the real world,” notes BCG.
A couple of major tailwinds have emerged in recent years. Generative AI is spreading and advancing fast, helping support breakthroughs in all sorts of areas, such as drug discovery and nanomaterials. Meanwhile, there’s been a resurgence of support for industrial policy in the U.S. and other countries, leading to funding and policy changes beneficial to the field.
As tech giants and their soaring stock prices grab all the attention, deep tech can serve as an antidote to overhyped AI features, social media apps or digital advertising that dominate media coverage. It’s an opportunity to discover cutting-edge tech before it breaks into the mainstream.
This forecast is from the team at The Kiplinger Letter, which has been running since 1923. It is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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