At first sight, deep tech may sound like the opposite of high tech. It isn’t. Deep tech requires high-tech equipment. In a survey on Dutch nano-tech startups, it was found that about half of them aim to sell equipment. Their machinery can be used to manufacture materials and products that are essential or very valuable for existing high-tech products, such as coatings for electrolyzer parts. Plenty of reasons, therefore, for the high-tech industry to dive into the deep.
Deep tech refers to companies that aim to employ radically new technologies to solve societal problems. This involves high risk in both technology development and market fit. Therefore, deep-tech VCs need deep pockets: large investments for a longer period, with potentially very high rewards. Crispr deep tech enabled the lightning-fast development of Covid-19 vaccines. Without deep tech no quantum tech. Deep tech can improve battery performance drastically. Clearly, this isn’t just about societal problems but at least as much about big money.
Deep-tech companies are typically spin-offs from academic and industrial R&D labs. The Netherlands boasts a relatively large number of such startups, thanks in part to scientific investments such as NanolabNL. But investments in the startups themselves are lagging. In our country, about 15 percent of tech investments land in deep tech, whereas the EU average was 21 percent in 2020. Finland, Norway and Belgium are (well) above 30 percent.
As a result, Dutch deep-tech scale-ups are few and far between. The announcement of the Deeptech Fund last September wasn’t a minute too soon. It should get operational within weeks rather than months.
But our young companies need a lot more than just money. Affordable cleanrooms, shared equipment for industrialization (not for research or education), support for the industrialization of the production process and support for finding market fits and potential clients. Some VCs even object to the name “deep tech,” as this term ignores the often bigger issue of finding a killer application.
In my opinion, the challenge of developing production processes is overlooked by most researchers, investors and government agencies. Researchers tend to believe that the issue is solved when the prototype is ready. But, though hard enough, that’s just the first milestone. Consider the development of the first functioning transistor at Bell Labs in 1947, which was the result of a research project costing about 1 million dollars, whereas total worldwide R&D spent mainly on semiconductor production (equipment) development in 2020 amounted to 68.4 billion dollars per year.
Furthermore, many investors and VCs aren’t even familiar with the term “manufacturing readiness level,” focusing only on technological readiness and market fit. Our government has only very recently and reluctantly set up subsidies for innovation in production processes, apparently believing that this magically happens within companies – or in China.
In reality, setting up reliable and affordable production needs a lot of elbow grease and detailed knowledge and experience. Several successful deep-tech scale-ups told me that their growth would have been much faster if facilities, knowledge and experience had been more readily available.
High-tech companies all over the Netherlands have demonstrated their capabilities in realizing competitive production processes. It’s urgently necessary to bring this experience to the table. Not just for producing deep-tech equipment but also to ensure Europe-based deep-tech production facilities. Let’s not make the same costly mistake as with semiconductor production, and make sure that deep tech and its equipment become the next generation of high-tech equipment.