Deep Tech: A Double-Edged Sword – Challenges and Economic impact

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In our previous article, we explored the Deep Tech And The Great Wave Of Innovation, We discussed the immense potential of deep tech to reshape industries and address global challenges.However, as with any powerful technology, deep tech comes with its own set of challenges. In this article, we’ll delve deeper into these challenges, explore the economic impact of deep tech, and analyze the support systems that fuel this transformative technology.

Despite its exciting possibilities, deep tech faces four main roadblocks that impact not only individual ventures but also the entire ecosystem:

1.The need for reimagination:

The necessity for reimagining how science and technology can reshape processes or solve problems isn’t always readily apparent. It took businesses two decades to reconsider factory operations after electric engines supplanted steam.

For deep tech ventures, which often hinge on applying technological breakthroughs to address challenges, identifying the right business framework can be daunting. Many struggle to articulate a compelling value proposition by reconceptualizing value chains and business models.

For large corporations seeking to broaden their innovation endeavors by engaging with deep tech, the primary challenge often lies in envisioning products and processes stemming from vastly different sources or methodologies. In previous eras, 77% of industry leaders maintained their status five years later. However, in today’s dynamic market, where continuous innovation and reinvention are paramount, this figure has dwindled to 44%.

In this context, large companies may encounter the most formidable hurdle within the deep tech ecosystem. Besides grasping the applications and use cases of emerging technologies to fully embrace deep tech, they must harness both counterfactual and factual skills, foster creativity, nurture cognitive diversity, and ensure senior leadership regularly confronts the unknown.

2.The need to push science boundaries:

Despite significant advancements in numerous scientific domains, researchers still grapple with unraveling the full extent of what’s possible in many fields. In disciplines like biology, understanding the intricacies of nature remains incomplete. Similarly, in chemistry, navigating the complexity of nanoparticles as intricate 3D structures poses substantial hurdles for design and engineering.

While soft robotics, which entail constructing robots from materials akin to those found in living organisms, have piqued interest, the development of prototypes has been relatively modest. Controlling and activating the behavior of soft materials proves challenging due to their elusive nature. Quantum computing holds immense promise, yet numerous technical impediments impede progress. Although substantial strides have been made in AI and machine learning, many unresolved issues persist.

Governments, universities, and startups all have roles to play in pushing the boundaries of science and translating technological capabilities into tangible business applications.

3.Difficulties in scaling up:

Deep tech companies pioneer fundamental innovations often yielding new physical products, yet they may lack relevant experience in scaling up.

Scaling up a deep tech physical product, along with its associated manufacturing process, entails complexity and considerable costs. Apart from establishing suitable physical infrastructures, ventures must surmount engineering challenges while adhering to design-to-cost parameters. Corporations and governments can lend support—the former by imparting expertise in engineering and large-scale manufacturing, and the latter by acting as early adopters for new products.

4.Difficulties in accessing funding:

Although investment in deep tech has surged in recent years, the prevailing investment model remains a bottleneck. Particularly, today’s predominant venture capital model exhibits inadequate scope and is unevenly weighted toward specific technologies like AI, ML, and life sciences.

Complicating matters further is the arduous transition in deep tech from the laboratory phase (typically grant- or subsidy-funded) to investment-driven venture funding. Many private equity and venture capital funds encounter structural constraints (pertaining to lifespan, size, and incentive limitations) in investing in deep tech. Additionally, most lack the expertise to fully comprehend the scientific and technological risks. Moreover, many venture capital funds have deviated from their original “venture” mindset, opting instead to follow others’ lead or make safer bets on more-established and better-understood technologies.

Support Systems: Fueling Deep Tech’s Engine

Support institutions act as the backbone for Deep Tech ventures. They provide a unique ecosystem that fosters innovation and bridges the gap between groundbreaking research and real-world applications. These institutions come in various forms, each offering a unique set of resources:

  • Funding: Deep Tech projects often require substantial investment due to their long-term research and development (R&D) cycles. Support institutions, such as universities with large endowments or government agencies, provide crucial funding to get these ventures off the ground.
  • Infrastructure & Expertise:  Universities and research labs offer state-of-the-art facilities and the expertise of leading scientists and engineers. Deep Tech companies can leverage this infrastructure to accelerate their R&D efforts.
  • Business Incubation & Acceleration: Support institutions often house business incubators and accelerators specifically designed for Deep Tech startups. These programs offer mentorship, networking opportunities, and guidance on navigating the complex business world.

The Economic Impact of Deep Tech

By supporting Deep Tech, these institutions are laying the foundation for a thriving future economy. Here’s how:

High-Value Jobs and Bridging the Talent Gap:  Deep Tech companies are innovation powerhouses, demanding a highly skilled workforce. This translates to a surge in high-paying jobs for scientists, engineers, and other technical specialists. 

Globally, PhD candidates face a crisis of opportunity, with only 3.5% of students completing a PhD securing a permanent research position at a university. These factors are likely to have a negative impact on the training of the next generation of academics and are cause for concern. But, as the report argues, entrepreneurship can offer a credible career alternative to PhD students and postgraduates concerned by their prospects in academia. A concentrated combination of fellowships, funding and training could help incentivise the next generation of talent.

Universities as Economic Engines: Universities play a central role in the Deep Tech ecosystem. Studies show a significant economic impact: in 2018/2019  universities in the UK alone contribute a staggering £95 billion to the national economy and support over 815,000 jobs annually. This highlights the economic powerhouse universities can become when fostering Deep Tech ventures. Additionally, research demonstrates a high return on investment for university research. In 2020/2021 Every £1 invested generates a substantial £3.60 in economic benefit. Universities like those in the Russel Group are instrumental in spinning out successful businesses, creating an estimated 33,000 jobs and attracting £4.9 billion of investment in just one year.

Beyond Job Creation: The economic impact of Deep Tech extends further:

  • Competitive Advantage & Defensibility: Deep Tech solutions often involve groundbreaking inventions and proprietary technologies. This creates a competitive advantage for companies, making them less susceptible to being easily overtaken by competitors.
  • Sustainable Growth: Deep Tech solutions address critical challenges in areas like healthcare, energy, and materials science. This fosters sustainable economic growth by developing solutions for long-term benefit.

Deep tech offers immense potential to reshape industries and  address global challenges.  By acknowledging the challenges and cultivating a  supportive ecosystem, we can unlock the economic benefits of this  transformative technology and build a more prosperous future.

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