Why Investing in Deep Tech can Lead to Higher ROIs

Kenna Castleberry

While the industry of deep technology, or deep tech is swelling significantly, the meaning of deep tech is still not publicly agreed on. The term “deep tech” is rather nebulous, used to classify a group of start-up businesses whose goals are to tackle big problems, or engineering/scientific setbacks. Because of this catch-all phrasing, deep tech companies range from using artificial intelligence to blockchain to robotics. The large variety in these companies allows for profitable investments and free-flowing capital markets. At the Deep Tech Insider, we look at the research and growth within the deep tech industry to illustrate why deep tech start-ups make lucrative investments and increase ROIs.

  1. The Numbers show significant Promise for Deep Tech

According to the Boston Consulting Group (BCG), the deep tech capital markets have grown substantially in recent years. From their research, the BCG has found that “dry powder” investments (which are investment capitals seeking high returns) are at record levels. These early investments have been able to already generate incredible results for the industry, which was estimated at $18 billion in 2018. The subindustry of synthetic biology alone is predicted to grow to $23 billion by 2023. Those numbers are exciting to read for any potential investor, as they promise steady growth and good margins.

  1. Deep Tech Companies are Solving Big Problems with Cool Tech

Whether it’s food shortages, medical problems, or even climate change, deep tech start-ups are working to solve some of the biggest challenges we have today. BCG found that 51% of deep tech companies were in the health care market, developing products like AI diagnostics, or wearable health trackers. Other startups are using artificial intelligence to help farmers with food crop predictions and yields, minimizing shortages. Some of these companies are utilizing blockchain to establish interconnecting farming systems for increased efficiency. Deep tech startups are known for using emerging technologies or developing their own technologies to solve these problems. BCG found that over 83% of deep tech ventures were either designing or building physical products, which can be patented and sold for overhead. Not only do deep tech companies provide lucrative opportunities for investing, but their work makes a positive impact on society, using innovative and creative technology.

  1. Deep Tech companies are Often Overlooked for Capital Markets

Deep tech companies are often overlooked for investments due to a higher need for capital markets, and a longer time to get market-ready. Many deep tech companies take months or years to create working prototypes or develop their technology. While this may seem discouraging for an investor, this can actually be beneficial. According to Propelx, a company that funds many deep tech startups, the low valuations of deep tech companies provide significant returns later. Additionally, because most of the capital needed is front-loaded, the investment can be much more cost-efficient after the startup is market-ready and making profits. BCG has shown that already early investments in deep tech startups have led to amazing results for society and financially, leading to a rising number of unicorns. A unicorn is a classification for a startup company valued at over $1 billion. For deep tech startups, the goal is to become a unicorn.

Deep tech startups allow for significant ROIs for investors, as well as chances to make significant positive impacts on society. Deep tech companies hold themselves to a higher standard, as they need their technology to work in order to make a profit. As the deep tech industry continues to grow, many more companies are coming out of the woodwork. From their research, BCG saw that around 1,500 deep tech companies surveyed were involved in universities and research labs. These startups come from a variety of places, creating new untapped capital markets for any investor.

References:

Chaturvedi, Swati. “What Are Deep Technology Startups and Why Are They Good Investments?” 2014. Propel(X). October 24, 2014.

“Deep Tech.” 2021. Wikipedia. May 27, 2021.

ELEKS. 2021. “What Is Deep Tech and How It Builds a Better Future.” Medium. April 5, 2021.

Gourevitch, Antoine, et al. “Meeting the Challenges of Deep Tech Investing.” Boston Consulting Group, Boston Consulting Group, 17 May 2021.

Hamilton, Fiona. 2021. “An Introduction to Deeptech.” Medium. July 16, 2021.

 

Photo courtesy of Freepik.com

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