With venture money pouring into just about every sector, from enterprise software to delivery apps, in the last year, some investors have begun to take deep, or hard, tech seriously.
But as venture capital continues to decline sharply, the money that has flowed into this field known for quantum computing, robotics, and space technology has started to dwindle over the past few years.
“I think a lot of funds were looking for external returns,” said Abidan Ross, founding partner at Root Ventures. Root Ventures is an early stage deep tech company with nearly 80 investments. “There were many people chasing [investments] last year. “
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Those who specialize in deep tech (also known as “frontiers” or “hard tech”) have seen flat investors looking to areas that may still be years, if not decades, out of the market. It is said that
Peter Hebert, co-founder and managing partner of New York-based Lux Capital, said:
“There have been withdrawals by ‘tourists’,” said Hebert. This means investors who typically don’t invest in hard tech and typically enter at a later stage.
decrease in number
Finding the right amount to invest in deep technology can be difficult as it cuts across so many different (and large) sectors. But you can tell by looking at a few specific sectors.
Quantum computing is a level of computation that is much faster and better than classical computers that examine quantum states and perform computations.
Last year, quantum startups poured more than $800 million in venture capital into the space, according to Crunchbase data. This year was a very different story, with less than half to almost three quarters.
We still had big rounds this year. Finland-based IQM Quantum Computers, for example, closed its Series A worth about $126 million in July. But last year, Palo Alto, Calif.-based PsiQuantum closed a $450 million Series D, giving the company a hefty $3.1 billion valuation.
A more established deep technology area is robotics, which has seen a flood of funding over the years, but not as much as last year. The space will see him raise nearly $18 billion in venture funding in 2021, according to Crunchbase data. Best ever. Less than half of that has gone to startups so far this year.
It may come as a surprise, but in the robotics sector, the same companies that participated in the two biggest rounds last year also participated in the biggest round this year. Self-driving startup Cruise closed two of his rounds worth about $2.8 billion in 2021, and this year he closed a round worth about $1.4 billion in March.
Declining venture capital is what the majority of the tech startup ecosystem is seeing. Those who invest in deep tech say the main reason the dollar has fallen is because investors who entered the space last year are returning to where they feel more comfortable.
“I think last year there was a lot of people chasing deep tech,” Ross said. “The multiples of things like enterprise SaaS were so high that your beliefs weren’t going to bring you any big windfalls.” So they made the hard move to tech.
Hebert added that investments in deep technology have also benefited from low interest rates in recent years. This has changed significantly recently.
“The indifference to what happened years ago is fascinating,” he said.
While many investors have exited deep technology and are now managing their portfolios or looking at opportunities elsewhere, there are still significant growth areas in deep technology, Hebert said.
“Climate technology has proven to be quite resilient,” he added.
Hebert recalls back in 2008 when a deep tech startup ran out of money. Luckily, during the good times of the last few years, many companies had their cash hoarded, he said, adding that the majority of Lux’s portfolio has taken that approach.
“I think we are facing a convergence of interests,” said Hebert. “For many large funds, deep tech is on the frontier.”
But that integration may not be a bad thing.
“2021 felt like an exception,” he said. “It feels more natural this way. People’s expectations are relaxed and more realistic.”
Illustrated by Dom Guzman
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