Deep Technology Challenges, Advantages, And The Way Forward

Deep technology aims to develop 'innovative' & durable solutions to community level problems (social, environmental, health, etc.). The solutions can be product/service. Deep tech uses existing or new multi-disciplinary advanced sciences to innovate. So, unlike shallow tech, deep tech is not about developing or improving technology, its about finding purposeful and functional life solutions. 

Deep Tech Challenges: Despite the field's life changing potential, investments and partnerships in deep tech are still inadequate. This is affecting solutions development. Let’s see the key obstructions the industry faces:  

1. Huge Capital Requirement: Being research intensive, deep tech solutions development usually has way longer research cycle than that of the other sectors. Therefore, unlike the usual low-cost, bootstrapped entrepreneurial startups, deep tech firms need full paraphernalia of advanced R&D infrastructure, in-depth knowledge sources, and talent acquisition for specific skills. All these resources are expensive due to their exclusivity. Therefore, deep tech startups often need huge investments for a long time before delivering even a basic proof of concept.  

2. Commercial Infeasibility of Research to Market Ready Product Lifecycle: Initial funding (at research phase, without a ready prototype) for deep tech is often a challenge because several VCs (Generalist VC category) are unable to exactly understand the technology or don’t intend to look at the foreseeable future potential beyond a certain time frame for the returns to set in. Even if they invest, the funding has a short life. 

Hard tech solutions often need several years or even decades to just develop a proof of concept. Then improvisation to build a perfect prototype takes time. Lastly, manufacturing of market ready products/services happens. The objective of deep tech entrepreneurs, who are often researchers, is primarily academic. They are focused more on finding innovative solution than profits. But the investors seek a definite return for their investment by a timeline. Therefore, not many investors share the deep tech entrepreneurs' vision. VCs may even pull out in the later cycles, if they find it all financially infeasible or undervalued for them. Looking beyond short or moderate term profit, VCs need to value the problem-solving solutions development too. As per the May 2021 Hello Tomorrow-BCG report, such startups require investment of $150-300 million fund sizes, deployed repeatedly over approximately 10-15 years.

3. Knowledge & Skills Resource Crunch: For innovative and path breaking solutions development, deep tech entrepreneurs require technology experts. Being interdisciplinary with extremely specific futuristic knowledge requirement for constantly evolving deep tech solutions; information and skills are scattered in various functional and geographical domains.

Therefore, building a qualified team is a big challenge. Less than required helping hands or time taken to access an information or technology resource, often decelerates the development pace. Aggressive focus needs to be on building in-house team of the required scientists and technology experts.

4. Deviated Results or Failure Possibility: An accurate assessment of final product/service in the terms of its usability and functionality is as much important to estimate return on investment. And that certainty of final deliverable is often a challenge in deep tech. The prototype may be different from the research expectations. The research may even fail to bear results!

So, the risk cannot be very effectively calculated and that is a definite bottleneck for investment.

5. Business Model Challenges: Deep tech prototype often requires a lot of researching time to develop and improvise. Therefore, deep tech solutions' market readiness & reach, and thereby, returns through commercialization may be delayed, unlike those of fast converting shallow tech solutions (improvement or delivery of standard, existing technologies), like ecommerce, apps, websites, etc. So, deep tech ventures have a challenging business model due to innovative,  multidisciplinary deliverable. And therefore, the deep tech contracts are dynamic.

To combat the gap, deep tech firms need to be as accurate as possible about their deliverable for a commensurate business & financial model development.

6. Industry Specific Marketability Delays: The deep tech product/service development & market reach pace and the amount of investment required, often depend on the technologies used and the trial time the solution takes for the market readiness. So, for example, BioTech or advanced material product/service may take longer to develop and hit the market than a cyber security solution. Therefore, VCs prefer to invest in a deep tech solution with fast and sure market readiness to ensure returns.

Such funding preferences are consequently leading to some  deep tech fields growing better and faster than the rest. All the deep tech fields are important and equally need investors' interest for all round life solutions.

7. Academics v/s Business Skills Alignment Challenge: Accurate & speedy unique raw materials procurement, specific talent acquisition, facilitating manufacturing, and scaling up operations, require extra sharp business skills and a prolific network. The researchers working on deep tech solutions are often primarily academic. They often lack the required business skills and reach to procure and enable the required resources procurement. Similarly, the academicians are not too skilled on budgetary & financial concerns. 

Investment by corporates that also share the academic vision of the deep tech solution, can significantly leverage here.

8. High Market Price & Applicability Keeps it B2B: Often, due to the high implementation costs and the functionality of deep tech solutions, large sized organizations & institutions and Governments are mostly able to adapt and be distribution centers for the deep tech solutions.

B2C model is still not too common and this dependency on distributing business accordingly limits or delays the deep tech market reach.

9. Big Fish Obstruction: Due to the insecurity of market disruption and profits swing, the powerful competitors may use their influence to try block or slow down the deep tech solutions entry into the market.

10. Corporate Partner Delays: Corporate collaborations often suffer from complex and slow corporate decision making, besides several fluid factors mentioned above. This often decelerates the research and the subsequent steps. 

Advantages of Deep Tech: The sheer objective of deep tech to find innovative solution to people's life problems, makes it a powerful investment niche. Here are some advantages: 

1. Market Disruptor: Deep tech innovation and market disruption thereof can immensely improve life’s functionality, wherever applied. This ensures a quite stable and profitable market space for a deep tech solution.  

Therefore, while this domain requires way more time and investment than other tech startups, deep tech also offers a way profitable exit potential for the investors.

2. Durable Solutions: The deep tech solutions are long lasting.

3. Proprietary Solutions: Deep tech offerings are developed using already existing or emerging

technologies or findings. The solutions are unique, hard to reproduce, and proprietary (if intellectual property right/patent protected). This gives market dominance to the deep tech products/services.  

4. Cross-Industry Market Access: Since the deep tech solutions employ varied disciplines, their market access proportionately expands.

So yes, while the deep tech solutions may require heavy investment, the returns may grow immensely too. 

5. Early-Stage Entry Edge: Early mover advantage in the innovative solutions niche may mean significant profitability potential as soon as the product hits the market. 

Being proprietary solutions the market dominance lifecycle of deep tech solutions is quite long. And that means assured long term returns post product/service launch.   

  

Deep Tech Ecosystem Help: Incubators & accelerators can leverage deep tech startups, but corporates, institutions, government, and universities are the key catalysts. They need to adjust their profit orientation to facilitate the growth of deep tech industry. Deep tech aims to solve life concerning issues. But due to investments roadblock, many innovative solutions benefitting us are unable to see the sun.

Once investments start flowing smoothly, the infrastructure and technology & skills deployment systems for deep tech will get built. Going further, this shall significantly reduce the costs of researching in the sector. To reach this stage, the investors need to help facilitate the deep tech startups with:

Image: The Syntax Systems, India