EntreWorks Insights (April 2024): Deep Tech-A New Wave of Innovation?

Welcome to the latest edition of EntreWorks Insights, a quarterly newsletter that reports on business trends, policy developments, and other issues affecting the business of economic and workforce development.   You’re receiving this note because you’ve asked to subscribe or because you have some previous interest in the work of EntreWorks Consulting. If you wish to subscribe or be removed from this list, please send an email to info (at) entreworks.net. If you’re interested in the newsletter, please read on.  Please feel free to share with friends, family, colleagues, and other loved ones.  Comments and constructive criticism (and praise) are also welcome.  You are also encouraged to visit the EntreWorks blog at http://entreworks.net/blog.  Thanks for your interest.

Erik R. Pages

President

EntreWorks Consulting

www.entreworks.net

EntreWorks Insights

Volume 21, Number 1

April 2024

HIGHLIGHTS:     Deep Tech: A New Wave of Innovation?

                             What’s New at EntreWorks Consulting?

Deep Tech:  A New Wave of Innovation?

Thanks to a recent consulting project, I’ve been digging into the latest trends in technology commercialization.   Not surprisingly, there’s a ton of interesting work underway across the US and around the globe. This issue of EntreWorks Insights shares some of what I’ve learned with a focus on the concept of deep tech and how deep tech’s emergence may transform how communities, governments, businesses, and research institutions support technology-based economic development.

What is Deep Tech?

Since we’re embracing technology in this issue of EntreWorks Insights, I opted to tap into artificial intelligence (AI) tools to get us started.  According to my Microsoft CoPilot,

Deep tech, also known as deep technology, refers to a category of organizations, often startups, that focus on developing innovations that surpass technological benchmarks and push the boundaries of current technology. These companies tackle substantial scientific or engineering challenges, aiming to provide solutions that have a significant impact on society.

That’s a good introduction as it highlights several key aspects of deep tech. Many sectors, such as AI, biotech, advanced materials, and quantum computing, can be classified as deep tech.  They all share a focus on grand challenges that require complex technologies, valuable intellectual property, and the potential for breakthrough innovations. 

From the standpoint of economic developers and community leaders, deep tech’s most important features may be that they require different ways of building businesses, supporting ecosystems, and bolstering the research and development process. Many of our current and newer tools to spur entrepreneurship and innovation, such as hackathons and the lean startup model, may not be as effective when we’re seeking to support and nurture deep tech startups. 

A new conception of the innovation process is also required.  The classic pipeline model, where ideas move in a straight pathway from lab to market, may have less relevance today.  Instead, we must recognize that innovation can come from anywhere and that the process of moving from lab to market is more complex than envisioned in the old pipeline metaphor.

Digging Deeper on Deep Tech

Businesses and institutions working in deep tech are seeking to do big things.  This is not about a new app or a cool new food concept.  Deep tech is about responding to deep challenges, such as climate change, curing cancer, advancing robotics, or building ethical AI systems.

These types of grand challenges exist everywhere, so many different businesses or technologies can be classified as deep tech.  Despite great diversity, they share key attributes.

• They rely on world-class science and research.  PhDs are always involved! 
• They are problem driven as opposed to being primarily technology or market-driven.  They seek the “best” solution as opposed to the most profitable solution.
• They are typically focused on developing physical products as opposed to new services or IT solutions.
• They operate at the intersection of various technologies and academic disciplines.
• They benefit from close collaboration between business, academia, and research labs.

Leaders around  the world are embracing deep tech. The European Union’s New European Innovation Agenda is focused almost exclusively on supporting deep tech innovation, with plans to invest as much as €70 billion in this portfolio over the next several years.  A review of the EU program portfolio gives a good indication of the diversity of deep tech:  51% of funds support health tech (cell and gene therapies, cancer treatment, medical device, and pharmaceutical manufacturing; 28% support digital industry and space (quantum computing, advanced materials, and advanced manufacturing); and 21% support cleantech, which includes ag/food, energy, and environmental technologies.

Because of the complexity of these technologies, firms cannot really be developed via the same pathways we’ve seen used in IT sectors.  Firms can’t “fail fast” when they are working in highly regulated industries where failure may lead to lost lives and other calamities.  The business development process will be more complicated, take more time, and follow a more focused and deliberate growth trajectory.

Startups in these fields will look different.  They can’t be started by a bunch of smart young people pulling all-nighters and living on ramen noodles.  They require more investment and more time to have impacts, and must have world-class research and technology expertise.  Research from the Boston Consulting Group suggests that deep tech startups typically require an investment of anywhere from $200,000 to $1 million, and two years of operation, to develop a prototype. They also estimate that the time between investment rounds for deep tech ventures may be 25-40% longer than found with more traditional tech ventures.  However, when deep tech investments succeed, the benefits can be profound.  To date, rates of return for deep tech are similar to other tech investments, but deep tech is beginning to generate significant new venture investing activity.  In fact, deep tech investments now account for about 20% of all VC investments, up 10%in the past decade.  Deep tech may offer unique potential to do well and do good, by solving societal challenges and generating strong returns as well.

Emerging Practices

Whether they embrace the term “deep tech” or not, many of the newest Federal technology based economic development programs are investing in these sectors.  Examples include the US Economic Development Administration’s Tech Hubs, the National Science Foundation’s Regional Innovation Engines, and industry specific efforts such as the Department of Energy’s Regional Clean Hydrogen Hubs and the Pentagon-backed Microelectronics Commons.  Most of these federal investments support regional consortia that engage higher education, business, and economic development organizations who are testing out a host of new strategies and programs. Similar types of initiatives are also underway around the world, in Europe, China, Japan, and in Latin America.   In Europe, the Copenhagen-based Deep Tech Alliance connects innovation partners from ten countries.

Because these new efforts support a host of different technologies, there is no single recipe for success. Completely new and revolutionary programs and tools are not always necessary.  Many of our traditional technology development tools, such as business accelerators, technology transfer offices, and STEM education, must be part of the deep tech program mix.  However, these efforts must recognize that supporting deep tech requires more money, more technical expertise, and more patience.

Supporting deep tech also requires strong and resilient ecosystems with active engagement from universities, corporations, and economic development organizations.   The playbook for these ecosystem partners will vary based on focus areas, local assets and gaps, and past history.  A typical program might mix include the following roles and functions:

• Universities:  Technology transfer offices, technology parks, research labs, entrepreneurship training and programs for students and faculty.
• Businesses:  Willingness to collaborate with universities and startups, venture investing, technology partnerships.
• Economic/Workforce Development:  Matching fund programs, incubators/accelerators, STEM training programs, mentoring/coaching, industrial parks, research lab support.

This listing of potential roles likely doesn’t sound much different than what most places do today. Yet a deep tech ecosystem does work differently.  We can’t simply place entrepreneurs in a 12-week accelerator course or rely solely on university technology transfer offices to move ideas from lab to market.  Instead, deep and sustained collaborations and specialized scientific and engineering expertise must be tapped to help companies identify market opportunities, build prototypes, and successfully go to market.

Many of these emerging models, such as the EDA Tech Hubs, are in the early stage of development.  However, some states and localities have been focused on deep tech for a longer period of time.  Mass Ventures (formerly known as the Massachusetts Technology Development Corporation) is a prime example.  Beginning in 2020, Mass Ventures’ leadership shifted their entire program focus to deep tech, seeking to build on the Commonwealth’s world class research capacities.  Under this new model, Mass Ventures has revised and updated its program portfolio, which now includes the following initiatives:

• MV Capital:  A suite of funding tools, including a deep tech venture fund and Small Business Innovation Research (SBIR) program matching grants ranging in size from $100,000 to $500,000.  (As a point of comparison, most state SBIR matching grant programs provide up to $50,000 for SBIR Phase 1 winners.)
• MV Accelerate:  Supports a Technology Commercialization Acceleration program and MassVX, a mentoring and coaching network that links researchers to business experts and mentors.
• MV Spinouts:  Includes the Massachusetts Technology Transfer Center, supporting academic spinouts from state colleges and universities, and a statewide technology transfer network.

This mix of programs makes sense and is well suited to the unique circumstances of deep tech startups.  It provides larger infusions of capital, develops tech talent, and builds strong connections between entrepreneurs, researchers and science/engineering expertise

What’s Next?

We are in the early stages of this mini-revolution in how we support innovation and technology-based economic development.  We’ll learn more from the experience of various tech hubs and innovation engines now getting started around the US and around the world.   As these efforts gain traction, several broad themes seem relevant.  First, when it comes to deep tech entrepreneurship, we need to think bigger.  We’ll need to embrace grand missions that help address pressing societal problems.  Second and relatedly, we’ll need to invest more.  You can’t combat climate change with a  $50,000 matching grant.  Third, we need to build deeper collaborations that engage entrepreneurs, academics, corporations, and a diverse mix of ecosystem partners.  Finally, we’ll need to be patient.  Developing world class solutions to grand societal challenges takes time, but that’s true of all important and consequential things!

Useful Resources

Here are a few reports that I’ve found helpful:

Oihan Basilio Ruiz de Apodaca, Lars Frolund, and Fiona Murray, “What is Deep Tech and What are Deep Tech Ventures,” MIT REAP Program, 2023.

Boston Consulting Group and Hello Tomorrow,  Deep Tech:  The Next Great Wave of Innovation, 2021.

Jean-Francois Boubier, Anne-Douce Coulin, Constant Morez, Greg Emerson, Kaustubh Wagle, and Antoine Gourevitch, “An Investors Guide to Deep Tech,” Boston Consulting Group, November 2023.  

European Union Deep Tech Talent Platform.

X Prize, “What is Deep Tech:  The Top 100 Companies Advancing Humanity in 2023.”  July 21, 2023.

What’s New at EntreWorks Consulting?

We are enjoying the arrival of Spring and hope to connect with friends and partners in the coming year.  We’ve kicked off interesting projects in Indiana and Louisiana in recent months. In addition, Erik Pages of EntreWorks will be attending the Pennsylvania Economic Developers Association meeting in Harrisburg, where he’ll be providing a keynote address (April 16) on “Building Future Ready Economic Development Organizations.”  Erik will also be attending the Federal Reserve’s Investing in Rural America Conference in Roanoke VA (May 21), and the Deshpande Symposium on Innovation in College Park MD on June 10^th.  Hope to see you on the road.

You can find reports and other great resources at our website; we encourage you to check it out. The website also includes access to all past issues of the EntreWorks Insights newsletter and the EntreWorks blog at http://entreworks.net/blog.  Recent topics include the linkages between economic resilience and entrepreneurship, the gig economy during the pandemic, and evaluating federal small business programs. In addition, you can still access blog updates at our Facebook and LinkedIn pages.  We look forward to connecting in person in 2024.