Exploring the Next Frontier: The Rise of Deep Tech Startups
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Chapter 1: Understanding Deep Tech
Deep tech is currently experiencing a surge in interest. Those who followed the recent ‘Gundo’ hackathon can attest to the rising enthusiasm in this sector. You might be asking, "What is deep tech, and why is it generating buzz among venture capitalists on social media?" While the definition can vary, most agree that deep tech is closely tied to physical sciences and engineering. The phrase "atoms, not bits" is commonly used in the industry to emphasize the focus on creating tangible products rather than digital ones. Historically, many groundbreaking companies like Apple, IBM, and Intel have emerged from deep tech, revolutionizing our world through physical innovation.
Today, we will delve into the reasons behind the resurgence of deep tech, explore the challenges and opportunities it presents, and speculate on what the next decade may hold. To conclude, we will review an inspiring case study from Ouros Energy.
If you’re searching for investment opportunities or are simply excited about engineering, this discussion is for you.
Why Deep Tech Is Gaining Traction
Since the dot-com era, the majority of startups have concentrated on digital products, sidelining physical innovations. This trend was driven by the rapid pace of digital development and the allure of high returns. However, the dominance of social media giants is beginning to fade. Growing political tensions, climate crises, and a general disenchantment with social media have prompted founders to seek new avenues for innovation. The current decade presents numerous challenges that demand physical, real-world solutions:
- Climate change necessitates innovative energy production and storage.
- Emerging threats in warfare call for advancements in manufacturing and defense.
- Lowering launch costs could make space exploration a viable business sector.
On the investment front, major players have also taken notice of this shift in entrepreneurial sentiment. Y Combinator, a prominent startup accelerator, has updated its list of desired application ideas, with a focus on sectors like space, manufacturing, and defense.
According to Carta, funding for startups focused on physical products has gradually stabilized at around 40% of total startup funding, and this figure is expected to rise as more deep tech companies gain traction.
Deep Tech Startups: Insights from Founders
Deep tech ventures differ significantly from software-centric startups in several respects. One of the most notable differences is the longer development timelines associated with deep tech. In this realm, the pivotal question shifts from "Is there a market?" to "Can this be technically achieved?" Challenges often lie not in market validation, but in the technical realizability of the product. This means that, despite concerns from potential founders, traditional venture capital routes remain accessible for deep tech startups.
Many entrepreneurs express the desire to secure substantial initial funding, recognizing the high costs involved in developing their products. However, most founders should be realistic about their goals, starting with smaller funding rounds to develop essential innovations that can attract larger investments later. Utilizing grants to create a minimum viable product (MVP) before seeking further funding has proven successful for many deep tech companies.
Challenges in Deep Tech
The terms “hard tech” and “deep tech” are often interchanged for good reason. Launching a deep tech venture comes with unique challenges and typically requires a highly specialized founding team. These startups frequently encounter extended timelines to market and complex regulatory hurdles. For instance, Varda Space, which focuses on in-orbit drug manufacturing, faced significant delays in obtaining reentry approval from the U.S. Federal Aviation Administration. They anticipated keeping their first capsule in orbit for two months but ended up waiting eight months for approval to return.
Deep Tech Startups: An Investment Perspective
In evaluating deep tech startups, I adopt a personal scoring system ranging from -2 to 2 (very negative to very positive) based on several categories. While my assessment may vary depending on the specific industry and product, the founding team consistently emerges as the most critical factor.
Key Factors for Evaluation:
- Team: The success of early-stage startups primarily hinges on the founding team rather than the vision or technology. A strong team can navigate unforeseen challenges and creatively solve problems.
- Disruptive Potential: Successful businesses are designed to challenge the status quo. The more disruptive the startup, the greater the financial opportunity, though it may also encounter friction from established systems.
- Technological Readiness: This is the area where I feel least qualified to judge. However, I rely on the NASA Technology Readiness scale to assess how advanced the technology is.
- Scalability: Some technologies may be easy to produce but challenging to scale. Legal and regulatory hurdles can complicate the customer acquisition process.
- Secret Sauce: This includes unique advantages such as connections, legislative support, or other factors that give a company an edge.
Case Study: Ouros Energy
I had the opportunity to speak with Ethan Loosbrock, the founder of Ouros Energy, to gain insight into establishing a deep tech company. My fascination with battery technology, stemming from my research on the U.S. energy grid, made this discussion particularly engaging.
Q: What inspired you to develop battery technology?
A: My interest evolved from environmentalism to engineering and ultimately to energy. I recognized that batteries are a bottleneck for many technologies. Our innovation aims to enhance performance while reducing cost and weight.
Q: Can you elaborate on your cathode technology?
A: While I can’t disclose too many specifics, we focus on eliminating heavy components from the cathode to create a lighter and more cost-effective solution without compromising performance.
Q: Which industries do you see most impacted by your technology?
A: It’s difficult to pinpoint one industry, but electric aviation and energy sovereignty are particularly exciting areas for transformation.
Q: How do you envision the battery technology landscape evolving?
A: I anticipate accelerated trends in energy density, cost reduction, and increased localization of manufacturing.
Closing Thoughts
Ethan’s work exemplifies the essence of deep tech. Although this field involves complex technical challenges and long timelines, the potential impact of such innovations makes it worthwhile. Personally, my background is primarily in consumer technology, but I have a deep-rooted passion for deep tech, driven by the idealism and optimism it represents. Founders in this space are often motivated by a vision of a better future rather than mere financial gain.
Starting a deep tech venture may seem intimidating, particularly due to the specialized knowledge often required. However, it primarily calls for a profound curiosity and an unwavering commitment to making a difference. Many successful founders lacked formal expertise but were propelled by their passion. Engaging in challenging endeavors like building rockets or batteries is a transformative act that shapes future generations.
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