What is ‘Deeptech’?..and why should we pay close attention?
Difference between a ‘tech’ and ‘deeptech startup’
Technology is everywhere — so much so that almost any startup presents itself as a tech startup. However, a company selling a traditional product or service applying existing technology (like Uber or Cabify) is not the equivalent of actual technological and scientific progress with corporate implications. To distinguish one phenomenon from the other, the term “deep tech” was coined.
To recap in the words of Swati Chaturvedi (who coined the term ‘Deeptech)-These are specifically ‘companies rooted in a scientific discovery or meaningful engineering innovation’.
Why is deeptech still considered a ‘tricker’ investment?
It’s not that easy to find investors for a deeptech startup- the product itself is not as straightforward- compared to consumer related products or services (food delivery, mobility scooters, esports etc etc). Science-based companies can take much longer than the typical seven to eight year venture capital investment cycle to produce a return, and not every investor has the background or experience to evaluate these businesses correctly
Newcomers frequently find themselves in unfamiliar territory, and carving out a role can be complex. Deep technologies often affect entire value or supply chains and therefore require a more thorough analysis of the stakeholders’ interdependencies and value creation models in order to determine how to align goals, set strategies, and organize for interaction with others.
The global deeptech scene- which country dominates?
According to a 2019 study by McKinsey, On a country-by-country basis, the big national players dominate, but they by no means own the playing field. While 53% of all deep tech companies in our study are based in the US, both the number of US firms and the US share of global deep tech have been declining in recent years.
The deeptech scene in Europe
Although deeptech investments may require more of a scientific/ engineering hat to be worn when doing the screening and due diligence….that doesn’t stop venture capital funds from flowing into this area filled with innovation. There are a growing number of European investors who know exactly how to invest in deeptech— and there has been a recent influx of new ones on the scene. Corporate venture arms can also often provide patient capital and a handful have established a track record of success. In this blog I will list 5 VC funds that specialize in deeptech investing, and 5 of my favourite deeptech startups.
5 DEEPTECH LOVING VC FUNDS
- Amadeus Capital Partners
I was fortunate enough to co-host Anne Glover- the founder and co-CEO of Amadeus Capital Parters a few months back at one of the LSE’s Founders’ Club Zoom talks (see my earlier blog ‘Snippets from my interview with Venture Capitalist, Anne Glover- Founder of Amadeus Capital’). Needless to say…this is a very strong fund..especially for deeptech startups.
Amadeus has raised 18 funds so far and has $1bn+ in commitments. The fund is known for taking early and astute bets on deeptech startups, the portfolio speaks for itself. For early-stage UK investments it focuses on artificial intelligence; machine learning; autonomous systems; human/computer interfaces; enterprise software-as-a-service (SaaS); cyber security; digital health; medical technology and novel materials; quantum technologies.
Notable investments: 150 companies in the portfolio in total, including Graphcore, Prowler.io, PolyAI, Improbable, Immense, FiveAI, Ravelin, ContactEngine, DirectID, BlockClaim, Congenica, Inotech, Healx, Ori Biotech, Paragraf, Riverlane, Nu Quantum; Creditas, Kreditech, Zilingo, Travelstart, Descomplica.
This is a VC fund to watch. Earlier this year, I was fortunate enough to go to the Atomico offices in Fitzrovia to meet the team, including CEO and founder, Niklas Zennström who is a well respected Swedish entrepreneur and figurehead for entrepreneurs in the tech sector. Niklas is known for founding several high-profile startups with Janus Friis including Skype and Kazaa- he’s incredibly down to earth and forward looking- just like the rest of the Atomico team- and I can see why Deeptech founders would want to work with them- also the team members themselves are specialists in this area- The deeptech partners include Irina Haivas, Siraj Khaliq (who backed Graphcore) and principal Ben Blume.
Atomico back Series A onwards and after raising an oversubscribed fund in Feb 2020 (which focuses on backing European founders)…their total AUM comes to $2.7 Bn…making them one of the largest players in European Venture Capital. Atomico look for founders that can scale up fast (and sustainably) and disrupt industries. Their focus is on building the companies of the future and have done so with some interesting investments (particularly Lilium…which I write about in detail below).
Notable investments: Wolt, Graphcore, Lilium Jet, Healx, Varjo, Spacemaker.
Notable exits: Rovio, Supercell, Hailo
- Walerud Ventures
Jane Walerud, is one of Europe’s most active angel investors (very excited to say that I will be co-hosting her at the LSE’s Founders’ Club zoom talk in a month). Walerud Ventures is not the typical VC fund, instead of raising a fund, Jane and her husband Bengt will invest their own money, typically investing around 10MSEK plus a couple of years of part-time work in each company. They usually work with six companies at any one time. This is not really a typical investor, but a family business of very tech-savvy company builders. The Waleruds helped build Klarna and were one of the first angel investors in the startup, but have since worked with many deeptech companies. They start with companies at a very early stage, usually when it is just the founders and an idea. They use their networks and experience to help companies grow. “We’re part of the gang but have no wish to take over,” says Jane Walerud, describing the relationship.
Notable investments: Klarna, LensWay, Midsummer, Racefox, Ekkono, Swedish Algae Factory, Volumental, Graphmatech, Ellen.
This is a Germany based VC, founded in 2010, with over 100M EUR raised. They prefer to invest at the seed stage…which some may consider slightly riskier when it comes to Deeptech startups. Nonetheless, they have made a great name for themselves in Germany and Europe. They look for outstanding founders developing disruptive technologies, especially in artificial intelligence, blockchain and quantum technologies. The team are all serial founders who became investors, and so they behave more like cofounders than simply financiers. Despite a relatively large team of 13 they will only make one or two investments a year, so each portfolio company gets a lot of attention and typically they allow a 10+ year time-horizon for getting a return on investment.
Notable investments: Lilium (also invested in by Atomico), Kraftblock, Neufund, Smartlane, air up, Hardt Hyperloop, Pitch, Xentral, Scanbot
Notable exits: MyTaxi (acquired by Daimler), Wunderlist (acquired by Microsoft), KaufDa (acquired by Axel Springer)
- Cambridge Innovation Capital
This is a £275m fund, founded in 2013 which focuses on companies in the Cambridge ecosystem, with a deep affiliation with Cambridge University. They are primarily interested in early stage companies in artificial intelligence, internet of things, quantum technologies, autonomous systems, therapeutics, medtech/diagnostics, digital health and genomics/proteomics….in other words..they love deeptech.
Notable investments: CMR Surgical, Riverlane, Carrick Therapeutics, Fluid Analytics, Prowler.io
Notable exits: Bicycle Therapeutics (floated in May 2019)
5 DEEPTECH STARTUPS WHICH I FIND MOST INNOVATIVE
This artificial intelligence (AI) company created a neural network that imitates the way the human brain works and learns to play video games. It also created a neuronal Turing machine that is capable of accessing an external memory. In 2014, Google bought it and in 2016, its program Alpha Go beat the world champion of the ancient Chinese board game Go (the first time that AI beat the player). Its new version, Alpha Go Zero is capable of learning on its own, without any human interventions.
- Lilium Aviation
This aviation startup (invested in heavily by Atomico- a personal favourite fund of mine…mentioned in the list above) wants to completely change the way people travel. It is developing the world’s first fully electric jet with vertical take-off and landing (VTOL). Lightweight, silent and environmentally-friendly, the plane seeks to eliminate congestion and pollution from cities, and offer inter-city travel that is faster than public transportation.
- Gel-e Life Sciences
This company develops medical products that stop bleeding in a fast, clean and safe manner. It uses biomaterials and designs treatments for wounds with a wide range of uses. Stephen Hawking is one of the biggest proponents of its potential
- Dark Trace
This company applies machine learning to cyberdefense. It uses artificial intelligence to stop cybercrimes “before they occur.” Founded by mathematicians from the , University of Cambridge, the company uses algorithms inspired by the human immune system to create defense systems for the corporate world’s computer networks.
- Sophia Genetics
Dedicated to data-driven medicine, this company’s technology helps healthcare professionals better diagnose and treat patients. According to the company, “democratizing data-driven medicine is helping save lives”.
‘Deeptech is where engineering meets scientific discoveries’…hence why its crucial that VCs continue to look into and invest in this area….to further science and to change be part of the force which is driving innovation in our world.
Thanks for reading!