Recently investor Nicolas Colin asked the question, ‘Do we really need deeptech?’. No, was his answer. At least not from entrepreneurs, who would be better advised, he said, to apply existing tech to new, untapped markets rather than “some new fancy technology that will solve a problem such as carbon storage, smart grid balancing or longer battery life”. Seek out uncertainty within markets, not new technology, was the message — and develop products that people want today, not tomorrow.
Before I respond, allow me to briefly run through my morning. The day begins and I reach for my phone that computes using a low power central processing unit created by a spinout of University of Cambridge (ARM) today worth $40bn. Next, I say, “Alexa, will I need my umbrella today?”, and an AI-powered natural language software developed by a UK company called Evi Technologies, later acquired by Amazon, kicks into action. I call an elderly relative and ask how she feels following her Pfizer BioNTech vaccine, created by two biotech entrepreneurs who pursued a new technology (mRNA therapy) initially dismissed by capital markets and big pharma. And that’s all before breakfast.
These are just a few of the technologies now embedded into our everyday lives or, in the last case, saving them. Had the entrepreneurs involved in their development been warned that "there is more technology available than anyone knows what to do with”, or that “there’s a high probability that [the next technological] revolution won’t come along for another several decades”, the technologies and markets they were destined to create may have taken many more years to be come into being, if at all.
Recognise the possibilities
Innovation isn’t linear, and what people might find useful, desirable and eventually essential isn’t known until the possibilities are explored. When we invested in Evi (then True Knowledge) and its ‘answer engine’ back in 2007, we were investing in uncertainty. Not by turning away from deeptech, but by appreciating that the uncertainty created by this new technology could unlock a big opportunity and, in this case, Amazon’s Alexa was born.
The BioNTech vaccine is the perfect example. Those years of research and perseverance from its founders to develop an ‘uncertain technology’, long before incumbents saw its value, ultimately enabled them to create the vaccine in record time. The role of investors, as we see it, is to recognise possibilities and back the entrepreneurs who can realise them.
“There is also a big difference between a well-funded science project and a business.”
Solve an actual problem
Yet it’s true that the best technology doesn’t always win. There is a lot of luck involved and startups succeed or fail for a host of reasons. Many factors including the team, market timing, the problem being solved and the route to market, must all converge to create a chance of success. There is also a big difference between a well-funded science project and a business, and it’s critical that new technology solves real world problems and doesn’t spend too long in the lab.
“To say that we don’t need to develop new tech because there’s enough already misunderstands the ways in which innovation emerges.”
The universities which are best at creating successful spinouts are also those which put ‘customer discovery’ at the heart of their tech transfer operation. To say that we don’t need to develop new tech because there’s enough already misunderstands the ways in which innovation emerges. It just needs to be directed at the right problems.
To help achieve this, spinouts and deeptech startups should aim to talk to at least 100 potential customers to validate thinking around product/market fit and adjust accordingly if required. Once you’ve proven where the commercial opportunity lies, companies can focus their time where it matters most and go to market sooner. It should also become much easier to attract investment and talent.
A supportive ecosystem
As Colin rightly points out, Europe is a more fragmented market than the US or Asia. But it also has the infrastructure and capital to support those bold enough to take a risk. $50bn has been invested in the UK startup ecosystem in the last four years, creating more than 60 unicorns and, with increasing numbers of US funds setting up home here, it’s clear that momentum is very much with Europe. There is more capital willing to fund new companies through their growth stages, countering the need to ‘sell out’ too soon, particularly to non-European buyers. Mimicking similar rules in place across Europe, the UK’s new National Security and Investment bill (yet to become law) is another strong indicator of the increased desire to keep hold of prized (and typically deep) technology assets.
Colin also suggests that deeptech startups are vulnerable to ‘powerful, better-funded incumbents’ who could infringe on their intellectual property (IP). While this is true, it happens very rarely, for two main reasons. First, the threat of litigation remains a meaningful deterrent, one made more serious by the potential for a startup’s acquisition by another well-funded incumbent. Second, there is also a reality that a business is much more than its IP, and in many cases the founding teams are the only ones with the ‘secret sauce’ to unlock its value.
Ultimately, it is often new technology that creates uncertainty in the first place. So our message to deeptech pioneers is this: don't be afraid to solve a really hard problem. We, and our fellow investors, want to help you bring deeptech innovations out of the lab and into the world. If you're creating plant proteins which can replace single-use plastics; discovering new biofuels for air transportation; reducing carbon in fertilisers or working to achieve a viable nuclear fusion reactor, we would love to hear from you.