A deep technology is a technology whose purpose is to solve the world's most complex problems, such as climate change, food shortages, and disease. According to a new report and research from Boston Consulting Group (BCG), deep tech today accounts for a stable share of venture capital funding, up from about 10% about a decade ago.
The report, titled An Investor's Guide to Deep Tech, provides an overview of the deep tech landscape that investors looking to enter the field will find useful. As a result of a decline in venture capital funding for deep technology, it fell from $160 billion in 2021 to about $105 billion in 2022 to about $40 billion in the first half of 2023, close to the levels of 2020.. The drop roughly corresponded to the overall decline in venture funding that resulted from the rise in interest rates since the beginning of the year. The size of the average deep tech investment has significantly increased over the past several years, with many of them now exceeding $100 million in size. According to a BCG analysis, both traditional and deep-tech funds deliver similar unweighted internal rates of return to investors (26% and 25%, respectively).
According to a BCG analysis, both traditional and deep-tech funds deliver similar unweighted internal rates of return to investors (26% and 25%, respectively).
A managing director and senior partner at BCG, and a coauthor of the report, Antoine Gourévitch, said that deep technology, once confined to the domain of high-risk, high-return enthusiasts, has migrated to the mainstream of venture capital. Although deep tech requires an additional level of risk, capital, and patience compared to other asset classes, the markets unlocked by it and the substantial returns that startups are likely to realize are potentially lucrative.
Investors face a number of challenges when it comes to investing
Deep tech investing involves backing technologies that are still developing their underlying science, considering potential markets, and drafting business plans. As such, deep tech investments tend to mature for a longer period of time than other tech investments – an average of 25% to 40% longer between funding each stage, from seed capital to Series D.. In addition, these ventures are also at a higher risk of failure at each stage as compared with other investments in the technology sector. As well, it is not uncommon for large funds, especially those that start investing early on, to participate in multiple rounds of funding, particularly when they are investing in early stage companies. An average of 42% of investments made by deep tech funds with over $1 billion in assets are multi-round investments, according to BCG's survey of these funds
An average of 42% of investments made by deep tech funds with over $1 billion in assets are multi-round investments, according to BCG's survey of these funds
There are four main areas in which deep tech investment can be beneficial
The BCG analyzed deep tech investments using two dimensions: technologies and use cases in four areas of impact - climate and sustainability, demographics, technology, and security. A variety of technologies (such as artificial intelligence, autonomous systems, and advanced physics and chemistry) and use cases (such as transportation and logistics, energy and climate, and health and wellbeing) are gaining traction. Among the most popular funding destinations are also cross-industry platforms, both physical and digital.
Support for deep technology by countries
With more than 60% of global deep tech funding being provided by the US and China, respectively, they lead the world in terms of absolute funding. The combined amount of deep tech funding in Europe is 14%. At the same time, BCG's examination of deep tech funding as a share of GDP, shows that several nations, including Israel, Sweden, the US, Singapore, and the UK, are aggressively trying to support deep tech development as a share of GDP.
Developing a clear strategy is one of the most important steps
There are several factors that investors need to consider when prioritizing technology segments when it comes to investing in deep technology: The first is to ensure that they have a clear strategy that prioritizes the technology segments in which they can build networks of expertise and an ecosystem of partners.
It was Jean-François Bobier, a partner of BCG and co-author of the report, who commented, "Because deep technologies address large and intricate global issues that cannot be solved overnight, the need for advanced technology solutions will only grow," he said. Investing in deep tech now is a great time for investors to do so. Investors who fail to understand the opportunities and don't learn the ropes are missing out on an excellent opportunity to diversify their portfolios."
Here is a link to the publication: https://www.bcg.com/publications/2023/deep-tech-investing/
For media inquiries, please contact Eric Gregoire at +1.617 850 3783 [email protected] 
A leader in business strategy, Boston Consulting Group partners with companies and governments to address their most pressing challenges and leverage their greatest opportunities. When BCG was founded in 1963, it was the pioneer in business strategy. As a result of our collaborative approach, we empower organizations to grow, build sustainable competitive advantage, and drive positive societal impact by applying a transformational approach. Today, we work closely with clients to embrace a transformational approach.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that challenge the status quo and spark change by questioning the status quo and sparking change. Among our offerings is management consulting, technology and design, and corporate and digital ventures. As a firm, we work within a unique model of collaboration across all levels of the client organization, driven by our goal to help our clients flourish and to give them the ability to contribute to bettering the world.
The Boston Consulting Group (BCG) is the source of this information
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