Deep Tech: The Great Wave of Innovation
Deep tech is being heralded as the 4th wave of innovation. The 1st wave consisted of the first and second industrial revolutions. The 2nd wave was driven mainly by corporate labs like IBM, Xerox Parc, with high-caliber multi-disciplinary teams strongly involved in the scientific community, doing basic research. The 3rd wave saw the decline of corporate research and the emergence of small disruptive firms, backed by venture capital, which later defined a “Silicon Valley” model that focused on IT/ digital and biotechnology. Just as each wave grew from the last, the 4th is now gathering momentum. Picture the early 90s, when the Internet was starting to get traction. That’s how we need to think of this 4th wave.
Deep tech ventures are characterized by four main attributes. They are problem-oriented, not technology-driven. They situate themselves, instead, at the convergence of technologies (96% of deep tech ventures use at least two technologies, and 66% use more than one advanced technology). Building on the advancements stemming from the digital revolution, deep tech has shifted innovation away from the digital world (“bits”) towards the physical one (“bits and atoms“), developing mainly physical products, rather than software (83% of deep tech ventures are currently building a product with a hardware component). Lastly, deep tech ventures rely on a deeply interconnected ecosystem of actors, without which it cannot thrive.
Deep tech can transform the world as the Internet did.
The potential is huge. We need only to look at Tesla and SpaceX to see how start-ups can completely turn industries upside down to grasp deep tech’s potential. It can drive fundamental innovation and address crucial issues in an economically sustainable way while unlocking growth. Fusion, the first supersonic plane after the Tupolev, the synthetic biology revolution, flying taxis, a vaccine for COVID developed in nine months with a novel mRNA approach... What do these innovations all have in common? They are all driven by deep tech ventures, and they’re only a small fraction of what start-ups and scale-ups can achieve today.
Investors have begun to recognize this potential.
technology risks (which are considered risks of failure), according to our preliminary estimates, we have seen a massive deep tech funding increase during those same years from 2016 to 2020 from $15B to more than $60B. When focusing on startups, the latest Hello Tomorrow survey confirmed an increase in amounts per investment event from $360K to $2M between 2016 and 2019. Our preliminary estimates indicate that the disclosed private investments in deep tech by “Smart Investors” increased from $0.9B to $5.2B between 2016 and 2020, growing from 20 to 44 deals. It’s now time for business leaders to recognize the opportunity and to understand the rules of the deep tech game.
The deep tech approach is characterized by 3 core elements.
First, problem orientation is the compass guiding the venture throughout its lifetime. Second, the driving forces of the deep tech are the convergence of approaches (science, engineering, and design) and the convergence of technologies around three different clusters (Matter & Energy, Computing & Cognition, and Sensing & Motion). Finally, the Design-Build-Test-Learn (DBTL) cycle is the engine. It leverages the convergences and lies at the core of the deep tech approach.
Weakened obstacles to innovation are key to the growth of deep tech.
These include: the dropping price of equipment; availability of info & data; increasing availability of capital; and thanks to advancements in science, the emergence of platform technologies. Because of the underlying exponentials, the iterative nature of the DBTL cycle, and the convergence of the technologies, the deep tech wave is upon us, driving innovation much faster than people expected, and making the impossible possible.
Despite all its potential, there are still multiple challenges to the growth of deep tech. Four challenges stand out, impacting all stakeholders:
the need for reimagination
the need for continuing to push science boundaries
the difficulties in scaling up
the difficulties in accessing funding.
To be successful, deep tech ventures must embrace the fundamental principles behind the approach: being problem (and not solution) oriented; hypothesis-driven; cross-disciplinary; anticipating frictions throughout and front-loading risk; shortening the engineering cycle; always keeping economics in mind; designing to cost and leveraging the ecosystem.
These principles are reflected in 4 moments of truth:
The Copernicus Moment on how to frame the paradigm, i.e., what is the problem, and could reality be different?
The Newton Moment on forging the theory, i.e., how can we make this possible?
The Armstrong Moment on taking the first step, i.e., can we build it today?
The Asimov Moment on shifting reality, i.e., what does it take to become the new normal?
The power of the 4th wave lies in its ability to massively broaden the option space at unprecedented speed and solve fundamental problems. Of all the innovation waves, it promises to be the most transformational. The greatest our world has ever seen. The great wave.
©BCG