VCs and Deep Tech: im14andthisisdeeptech
November 28, 2019
The word “deep tech” gets thrown around a lot these days.
It feels every investor and their grandma is looking for deep tech companies to invest. Just sending an email with words “deep tech”, “patent” and “biotech” or “sustainability” could probably net you a meeting with a venture capitalist (probably even faster than you could say “I’m a white male engineer”, which is the second-best method for getting a meeting with an investor).
In reality, most deep tech companies are pretty far from being real deep technology companies. Most of them are the r/im14andthisisdeep version of research-based companies: buzzwords, rehashes of someone else’s work, and something that makes you cringe the more you think about it.
The push for every startup to be a deep tech company is so strong (especially here in Finland) that I’ve found my startup on a few deep tech lists, just because we use the phrase “developed with scientists.” One time I also saw how the title of a talk was changed from “How to build a startup” to “How to build a deep tech startup” to make the startup sound sexier.
There’s one straightforward question you can ask yourself to validate if the company is a deep tech company: could the company/product be built by bootstrapping? If the answer is no, then what your looking at is probably a deep tech company or WeWork.
It’s easy to understand why VCs want to invest in deep tech companies. First, there is the built-in moat produced by patents, meaning that you don’t need a strong founding team to keep the business defensible. Deep tech companies also often focus on industries such as biotech, ai, material technology, and chemistry, which are all pretty tricky words for people who’ve never read any scientific articles.
However, the biggest reason for VCs’ high interest most likely comes from the economics of commercializing research. As deep tech companies take considerable time to turn a profit due to the lengthy R&D, deep tech companies are also perfect quite perfect for exits. There’s no better pig in a poke hustle than VC selling a deep tech company with incomplete technology to an incumbent, as the realization that the deep tech of the startup ain’t that deep after all usually takes years.
Venture capital fad or not, deep tech companies are crucial for the progress of humankind. Although being cancerous, social media companies such as Facebook will most likely never uncover the cure for cancer. However, paying attention to the actual scientific creditability of the deep tech startups is crucial to weed out the ones that are like Theranos.
I will finish up with an anecdote that the gave spark to write this post. A little time ago, I heard one VC proudly say that they mainly invest in deep tech companies and companies with a strong brand. What that sounds like to me is that they invest in companies that won’t turn a profit during the fund’s lifetime and Coca-Cola, which to be frank isn’t even the worst investment strategy I’ve heard of, seeing as how Coca-Cola has been able to increase its dividend almost every year.