What is ‘deep tech’ and why is it now considered an established asset class?

investmentnews.com:

Solving the world’s biggest issues will involve, at least in part, an area of technology that is known as ‘deep tech’ and it’s now an established asset class according to new research.

Boston Consulting Group says that deep tech now claims a stable 20% share of venture capital funding, roughly double where it was a decade ago, as investors look to invest in these emerging technologies as potential solutions for global issues such as climate change, food shortages, and disease.

“Once confined to the domain of high-risk, high-return enthusiasts, deep tech has now migrated to the mainstream of venture funding,” said Antoine Gourévitch, a managing director and senior partner at BCG, and a coauthor of the report. “While requiring heightened levels of risk, capital, and patience compared with other asset classes, the markets unlocked by deep tech and the substantial returns realized by startups can be lucrative.”

Deep tech funding has suffered in recent years, along with the wider venture funding landscape due to higher interest rates. In 2021 investors piled $160 billion into the space, but a year later this was down to $105 billion, and for the first half of 2023 just $40 billion has been raised.

But the average size of investments in deep tech has increased significantly, with many now reaching $100 million or more. BCG analysis found that traditional and deep-tech-focused funds deliver similar unweighted internal rates of return (26% and 25%, respectively).

The challenges for deep tech venture investors include the duration for investments to mature, due to the nature of these emerging technologies that are still developing their underlying science, finding potential markets, and drafting business plans.

From seed capital