Deep tech companies aim to solve complex societal and environmental challenges. By providing Internet connectivity to remote and rural areas via a satellite constellation or reducing the carbon footprint by pulling carbon dioxide out of the atmosphere with specially formulated chemicals, these companies attempt to commercialize scientific or engineering discoveries to benefit society. Their business strategy is driven by research and applied technology transfers. This all data comes from the report published by IFC, a member of the World Bank Group in November 2020.
Deep tech solutions address a global market and work to solve challenges prominent in both developing and developed countries. When a deep tech solution works, it often creates a platform technology that enables disruption across industries, allowing for additional optionality around addressable markets.
Research-intensive startups drive deep tech commercialization. These startups’ production cycles are rooted in the multi-stakeholder process of transitioning technology from a research lab to the market, differentiating them from software-based companies. Research institutions have always played an important role in technology commercialization. As new commercialization models emerge, research institutions are reinventing their approaches to technology transfer and existing processes, creating new entry points for other investors.
Why is Deep Tech Gaining Prominence Now?
According to the 2019 Tough Tech Landscape report, investments in deep tech grew from 500 deals totaling $2.9 billion in 2012 to over 1,600 deals for $35.7 billion in 2018. These figures are not due to outlier quarters. In 2018 alone, there were 101 startup exits (when early investors sell their stakes in the market) globally for companies working in deep tech.
Several factors contribute to this trend:
- Advances in digital infrastructure provide a reliable backbone for scientists and engineers. Cloud computing allows for increased energy efficiency and decreased upfront computing costs for data-intensive scientific experiments.
- Advances in basic research have opened up more areas for applied research.
- The cost of inputs, including hardware and materials, is falling, making scientific experimentation more widely available.
- It is now possible for many researchers to access digital and research infrastructure that was previously too expensive or scarce to use.
Moreover, COVID-19 has forced many companies to pivot and look for new ways to create value. Deep tech companies are well-positioned to support communities during the pandemic. They have helped produce and distribute personal protection equipment using 3D printing, increased availability of testing options, and created new disinfecting solutions.
Opportunities Offered by Deep Tech
Deep tech solutions help address the world’s most pressing challenges. When a deep tech solution works, it creates a platform technology that can enable disruption across markets and jumpstart new industries.
For example, biotech company Apeel Sciences has developed a technology that allows avocados, citrus, and other types of fruit to last twice as long as usual. The technology is derived from natural products and reduces food wastage along supply chains. Satellite imagery providers like Planet add value to the development of more sustainable and productive smallholder agriculture by providing solutions around field boundary detection and crop land mapping in conflict-affected geographies.
Applied Solar Technologies (AST), an IFC client, has raised the standard of energy management at telecom base stations across India by powering mobile phone antennae with solar energy and battery storage. Similarly, micro financing in developing countries received a tremendous boost with the arrival of AI for credit scoring.
Instant credit decisions are being made by machine learning models instead of an army of credit officers. For example, Twiga Foods, a fast-growing food trading marketplace and distribution network with 4,000 suppliers and 35,000 vendors, uses AI to estimate credit scores for small-scale vendors, providing loans of $30, on average. It allows vendors to increase the size of the orders they handle by 30 percent and has increased profits for retailers by 6 percent.
Deep tech is best suited to solve intractable problems by providing unique and transformative solutions. Deep tech solutions can increase agricultural productivity without damaging the environment and human health, or bring productivity gains to manufacturing and other resourceintensive industries without unsustainable scale-ups of pollutive operations.
Deep tech startup ecosystems create positive spillover effects to boost economic development.
Commercializing breakthroughs in the Internet of Things can disrupt many sectors. In manufacturing, IoT solutions can help detect corrosion inside a refinery pipe and provide real-time production data, enabling significant productivity gains and consolidating small players by reducing
Space technologies are core to the strategic drive toward global universal connectivity, and solutions based on them aim to eliminate the digital divide.
Climate technologies to reduce greenhouse gas (GHG) emissions show potential.
Challenges to Deep Tech Commercialization
- It used to take a long time for deep tech companies to reach a market-ready level.
- Deep tech companies need access to specialized facilities and resources.
- Financing options for deep tech companies are limited and the available financial options lack depth and flexibility.
Trends in Addressing Existing Commercialization Challenges
Enabling effective cross-sectoral collaboration helps to ease many challenges and boost opportunities.
The growing availability of open-source systems and cloud computing resources decreases capital expenditures and lowers international barriers in deep tech commercialization.
More targeted efforts toward streamlined technology commercialization and investing in entrepreneurship have emerged.
The Role of the Private Sector in Deep Tech Commercialization in Emerging Markets
While private sector involvement in the commercialization of deep tech in emerging markets has been limited so far, there are several examples of successful efforts around private capital mobilization and public-private partnerships between universities and a range of private sector players.
Angel investors and the diaspora are catalyzing the change. According to The National Association of Software and Service Companies (NASSCOM), in 2019 India had 1,600 deep tech startups,10 excluding companies in life sciences. Deep tech is seeing increased adoption across multiple sectors like industrial, healthcare, automotive, and spacetech.
Out of the estimated two million residents in Silicon Valley (California), some 730,000 are foreign-born, including almost 40,000 immigrant entrepreneurs. Having worked for large tech companies and empowered by cutting-edge software tools, foreign-born tech talent is becoming agents of change in developing economies. Many companies in the IFC portfolio were founded by first-generation immigrants who worked or studied in the United States and then moved to start a business that addresses problems at home.
The growth of India’s spacetech sector illustrates how the private sector can engage and enable deep tech commercialization.
Pixxel, an Earth Observation startup launched at the Birla Institute of Technology and Science (BITS), aims to launch a constellation of 24 satellites and raised $5 million in seed capital in 2020. Bellatrix Aerospace, an electric propulsion startup incubated at the Indian Institute of Science (IISc), raised $3 million in pre-Series A funding. Astrome, also based out of IISc, has repositioned its millimeter wave wireless technology to build a wireless backhaul solution. AgniKul Cosmos raised $3.5 million to develop a fully 3D printed rocket engine.
Partnerships with corporations and startup accelerators can benefit early-stage deep tech startups.
Deep Tech Overview 2020, there are over 150 deep tech companies in Israel, excluding several in life sciences, that have raised a total of $5.52 billion over the 2010–2019 period. Israeli deep tech startups raised a combined $1.8 billion in 2019, almost twice as much as they did in 2018 or 2017.
Business counterparts can benefit from universities’ streamlined commercialization processes. Technion, one of Israel’s largest public research universities and a pioneer in robotics commercialization, has a track record of effective tech commercialization activities.
Countries with strong academic hubs such as Brazil, Kenya, and several Eastern European countries can set up the systems now to commercialize intellectual property produced by their higher education institutions. These markets are now retaining talent in country, and returnees from the United States and Europe are becoming founders of deep tech startups. The best practices described above form a good starting point for those who wish to develop a sound technology commercialization strategy.