Different DeepTech Investing Report 2020

 
DeepTech Investing Report

March 2020
©2018 DifferentFunds, Inc. ● PROPRIETARY & CONFIDENTIAL Page 1 of 87

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“Increased investment in frontier technologies is critical to solving

some of the most important challenges we face in the 21st century –
such as developing carbon-negative technologies, creating a space-
faring civilization, reversing or delaying aging, and feeding 10 billion
people on a hotter, drier, planet. DifferentFunds has provided a
seminal analysis of why we are currently under-investing in DeepTech
ventures, and how an “all hands on deck” effort involving
government, industry, academia, and investors might close this
critical capital gap.”
— Tom Kalil, Schmidt Futures
©2020 DifferentFunds, Inc. Page 2 of 92

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Overview ........................................................................................................................................................5
Yes, There Is a Capital Gap in DeepTech Investment. ..............................................................................................5
What Are the Causes? ......................................................................................................................................................... 6
What’s Next — Closing the Capital Gap. .......................................................................................................................6
What Is DeepTech? .....................................................................................................................................8

Science-Based, R&D-Based, Multidisciplinary, Transformational.......................................................................8
Commonly Included Technologies .................................................................................................................................9
An Alternative Perspective: DeepTech Means Solving Big Problems ............................................................10
Choosing a Moniker: DeepTech, FrontierTech, HardTech? ................................................................................10
What Makes DeepTech Different? .......................................................................................................11

Science...................................................................................................................................................................................11
Mission ...................................................................................................................................................................................12
Company Trajectory ..........................................................................................................................................................12
Risks ........................................................................................................................................................................................13
Legacy ....................................................................................................................................................................................14
DeepTech Investment Timeline (Post-World War II) ............................................................................................... 16
The DeepTech Investment Landscape ..............................................................................................17

Facilitators and Enablers ................................................................................................................................................. 18
Funders .................................................................................................................................................................................. 20
Media.......................................................................................................................................................................................20
Founders ................................................................................................................................................................................21
How Is DeepTech Changing? ................................................................................................................23

The AWS Effect ...................................................................................................................................................................23
Reduced Federal R&D Investment ...............................................................................................................................23
Trump Administration Policies .......................................................................................................................................23
China’s Advancement .......................................................................................................................................................24
State of DeepTech Investing .................................................................................................................25

DeepTech vs. Overall Startup Investing .....................................................................................................................25
DeepTech Investment — a Complex Terrain To Navigate ....................................................................................27
DeepTech Investors: USG — America’s Seed Fund......................................................................31
DeepTech VCs: Investing From Concept to Commercialization ..............................................34

An Overview of the DeepTech VC Landscape .........................................................................................................34
Firm Analysis: From Fund Size to Firm Strategies .................................................................................................35
The General Partners: Backgrounds of Investing Partners at DeepTech VC Firms ..................................45

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Life Sciences — Overview of a Specialized, but Large Segment of the DeepTech Landscape ...........48
DeepTech vs. Software — Different Investing Models? ......................................................................................50
So Where Is the DeepTech Capital Gap? ...........................................................................................52

  Pre-Seed and Lab-To-Market: the Earliest Stages ................................................................................................53
Seed and Series A: Competing for Scarce Capital ............................................................................................... 53
Series B: Different Key Performance Indicators (KPIs) ........................................................................................54
Project Finance: No-One Underwrites Critical CapEx .........................................................................................55
One Size Does Not Fit all..................................................................................................................................................56
DeepTech Limited Partners: the Money Behind the Money ...................................................... 57

The LP Landscape & Portfolio Construction ........................................................................................................... 57
Where Does DeepTech Fit in the LP Portfolio? ........................................................................................................59
LP Investments in DeepTech ..........................................................................................................................................60
Impact Investing and DeepTech — Confusion and Opportunity ...................................................................... 62
Examples of Unique LP Approaches to DeepTech Investing .............................................................................62
Challenges of Moving More Capital Into DeepTech ......................................................................64

The Allocators (LPs) ...........................................................................................................................................................64
The Investors (VCs & CVCs) ...........................................................................................................................................70
The Government ................................................................................................................................................................74
Research Universities ......................................................................................................................................................75
The Innovators & Inventors ............................................................................................................................................76
Strategies To Overcome DeepTech Investment Barriers ............................................................77

Where Do We Go From Here? ........................................................................................................................................77
Strategies To Close the DeepTech Capital Gap. ......................................................................................................77
Conclusion: Funding the World’s Greatest Challenges ...............................................................81
About the Different Team .......................................................................................................................82
Appendix: Methodology ........................................................................................................................84

VC Analysis: Overview and Approach ......................................................................................................................85
VC Analysis: Firm-Level Definitions ...........................................................................................................................86
VC Analysis: the DeepTech Concentration Score .................................................................................................87
VC Analysis: Individual Partners and Definitions ..................................................................................................90
DeepTech Investment Timeline Citations ..................................................................................................................92
For more information, please contact:

Mack Kolarich, Chief Product Officer
mkolarich@differentfunds.com

DEEPTECH INVESTING REPORT
March 2020
Overview
Investment in venture-backed technology startups has risen to a prominent position in the financial
sector and indeed in the global economy. Technology companies are raising staggering amounts of
capital and transforming massive sectors. Investors ranging from Silicon Valley venture capital firms to
major financial services corporations to family offices are backing these companies. But for the past
two decades, the predominant focus has been on software and “technology-enabled” startups, versus
those companies working on the edges of innovation in fields from hardware to advanced materials to
robotics and manufacturing — that is, DeepTech. We set out to understand if that is the case and if so
why.
The goal of this report is to answer three questions:
- First, is there a disproportionate amount of investment going into software and technology-
enabled companies, creating a capital gap for DeepTech companies?
- Where is that gap (investment stage, type of technology, sector, etc.) and what are its causes?
- What challenges can we address to close that gap?
To understand this landscape we turned to Different’s platform intelligence, and supplemented our
proprietary data with additional research. Since launching the Different platform, we have built a deep
understanding of the venture ecosystem with a network that spans 100+ markets, in the U.S. and
internationally. We monitor over 1,200 U.S. venture firms.
We identified over 200 North American (U.S. and Canada) venture firms investing in DeepTech, and
another 150+ firms investing in Life Sciences (a subset of DeepTech). We analyzed these firms using a
combination of interviews and online surveys as well as publicly available data. Additionally, we
analyzed the DeepTech investing ecosystem from Accelerators to Limited Partners (LPs) using a
combination of interviews and 3rd party data. We consulted with over 150 experts in the course of our
research, reviewed 350+ venture firms and analyzed 4,500 portfolio companies.
Yes, There Is a Capital Gap in DeepTech Investment.

The short answer is yes, there is a DeepTech capital gap. The gap is pervasive and substantial, but
appears at different times for different types of companies.
DeepTech shares many of the same investor types as the overall startup market, with one key addition.
There is a significant role for research organizations in the early stages of a DeepTech company’s
development. Many DeepTech companies are spinouts of university or government research. (In fact,
much of the technology we rely on today originated in government labs.) So while the cast of investors
is roughly the same, their roles vary somewhat and there are some other players.
Most agree there is a substantial capital gap for DeepTech companies but, depending on their
perspective, disagree on where. To a certain extent, this is driven by the expertise and focus areas of
the individuals involved. (If you’re an Accelerator director your concern is seed capital, not later stage
funding, for example.)

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Fundamentally, the DeepTech capital gap appears as soon as government grants end and continues
through the mid-to-late stage fundraising cycle, where commercial success is more obvious and a
variety of investors participate. What are the causes?
What Are the Causes?

Having established that there is a capital gap, we sought to define and quantify that gap. While there are
a myriad of reasons and complicating factors as to why this is the case, in essence, they come down to
the following.
- The mainstream venture playbook doesn’t work for DeepTech startups. Company trajectory,
development cycles and capital requirements differ from the norms for software and
technology-enabled startups. It takes longer for these companies to achieve the performance
milestones (KPIs) needed to attract commercial investors.
- A combination of structural issues and optics fuel LP resistance to investing in DeepTech

venture funds. They perceive this to be a high-risk field in what’s already a high-risk investment
category, and question their capacity to source and diligence these investments. The result is
that far fewer DeepTech venture firms are well-capitalized. The vast majority are struggling
emerging managers (e.g. new firms, under $100M in assets). They are startups themselves.
- While a critical resource, government financing is not optimized for DeepTech startups.
Lengthy cycle times and the dominance of large prime contractors and other incumbents create
formidable barriers for young technology companies.
- Universities and research faculty play pivotal roles in the early stages of technology
development, but their programs and incentives often limit opportunities for innovators to
expand beyond classic research to commercialization. Institutional inertia is a barrier to change.
- Finally, while scientific entrepreneurs face the same challenges as all other entrepreneurs,
there are some unique differences which pose significant hurdles for the translation from
technologies that work in the lab to investable products.
What’s Next — Closing the Capital Gap.

It’s impossible to overstate the importance of this field. DeepTech has the potential to solve the world’s
great challenges … from how we feed the planet to how we protect our national security. The experts
we consulted agree: we must find ways to close this capital gap.
Make no mistake — while the capital gap exists — there are many excellent organizations, venture firms,
family offices and corporations supporting DeepTech entrepreneurs in dozens of ways. But the field
needs more.
We noted hundreds of ideas for ways to close the capital gap during the course of our research. We
highlight some strategies to overcome DeepTech investment barriers in this report. We hope this report
serves both as a tool to help navigate this landscape and a call to action. Our objective is to catalyze
more capital into this critical field. Our future depends on it.

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Methodology Notes
In researching this report, we conducted over 150 interviews with DeepTech ecosystem experts, VCs,
government entities, universities, and institutional investors. Throughout the report, we may periodically
quote excerpts from these interviews. In order to foster frank and honest discussions, we agreed to
keep the interviewees confidential, so will not attribute any quotes unless expressly cleared by the
individual.
For this report, we also collected data on over 200 DeepTech funds in North America through surveys,
interviews, and publicly available information. This fuels our analysis on the state of the DeepTech
venture ecosystem.
Finally, we also consulted dozens of reports to round out our understanding and incorporate prior work
on the topic.
For our full methodology, please see the Appendix, page 83.
 

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What Is DeepTech?
We begin by defining ‘DeepTech’ — what it is and is not, and what technologies or fields it includes.
Most understand it to mean technology on the cutting-edge of what’s possible, but there is a lot of grey
area in this rubric. When does ‘DeepTech’ become so de-risked, so commonplace, that it’s just ‘Tech’?
What’s once seen as innovative eventually becomes commonplace.
To inform our definition, we queried the ecosystem around these companies, incorporating
perspectives from over 150 interviews. Additionally we dove into a variety of existing research
resources. We found that definitions vary depending on the vantage point, but there are some common
threads. We rooted our definition in these threads.
Science-Based, R&D-Based, Multidisciplinary, Transformational

For this report, ‘DeepTech’ refers to companies and innovators building science-based or R&D-based
products. These technologies often have transformational potential — if they succeed, they could
cause paradigm shifts in the way businesses operate, how our national security is protected, or how an
entire field of discovery thinks. Many DeepTech companies take a long view to solving the world’s
greatest challenges.
DeepTech encompasses innovations in biology, chemistry, physics, engineering, and hardware —

frequently powered by advanced computing. (Some call this ‘Atoms + Bits.’) DeepTech companies are
increasingly multidisciplinary. Many generate significant data, and layer on some component of artificial
intelligence (AI) or machine learning (ML).
DeepTech can also include innovations focused solely on advanced computing, but they must be truly
cutting-edge. They must have some form of ongoing R&D or scientific breakthrough to be included.
Simply applying a machine-learning framework to software or a web app does not suffice. While 10
years ago this may have been considered truly pioneering and an advanced technology, today it is
much more commonplace.
From industry experts to LPs and GPs, many of those to whom we spoke had different ways to define
the term. Example DeepTech definitions include:
“Something you can't just build in your garage.”

“A technology that might not even work.”
“Anything that might win a National Science Foundation grant.”
“Pushing the envelope in the art of the possible."
“Hard engineering problems with easy business models or hard business models with easier
engineering.”
“Any tech looking to solve some of the major systemic challenges we're facing as a society.”
And one of our favorites:
“Between the start and end of this interview, what constitutes DeepTech has changed because
someone has invented something new."

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Commonly Included Technologies

The sectors and technologies included in ‘DeepTech’ are broad and ever shifting. Several technologies
appear below, but this list is by no means exhaustive. Life sciences (Pharma, Therapeutics, Medical
Devices) are commonly considered DeepTech, and typically have well-established capitalization and
commercialization pathways. And while some include blockchain as a field of DeepTech, many do not.
- AgTech - Internet-of-Things
- Biology / Synthetic Biology - Materials Science
- BioIT / Bioinformatics - Microelectronics & Nanotechnology
- AI/ML - Neurotech
- Augmented or Virtual Reality (AR / VR) - Quantum / Compute
- Autonomous Vehicles & Drones - Robotics
- Cybersecurity - Sensors
- CleanTech / Energy - Space
Artificial Materials Robotics Bioinformatics AR/VR Quantum AgTech

Intelligence Science Computing
Nanotech Drones Autonomous Cybersecurity IoT / CleanTech / SpaceTech

Vehicles Sensors Energy

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An Alternative Perspective: DeepTech Means Solving Big Problems

Although many experts defined DeepTech in terms of discrete technologies, we found several other
definition frameworks. DeepTech innovators and investors typically view the world (and their work)
through one of the following lenses:
- Technology (e.g. quantum computing)

- Sector (e.g. advanced manufacturing)
- Problem (e.g. cure skin cancer)
- Grand Challenge (e.g. clean energy / climate change)
Many of our interviewees described ‘DeepTech’ as ‘any company or product solving big problems.’ They
think in terms of challenges or opportunities versus particular applications or market segments. In our
research we found that grant-making agencies and foundations tend to think in terms of problems: e.g.
NASA needs a widget to print in Space or Prime Coalition is trying to reduce carbon footprint, while
Investors tend to think in terms of technologies and sectors.
Choosing a Moniker: DeepTech, FrontierTech, HardTech?

Those who follow these types of companies closely may have noticed a lack of consensus around
nomenclature. Some use the term DeepTech, others FrontierTech, and then there’s HardTech,
ToughTech, ScienceTech, etc.
In our interviews we inquired about preferred terminology. Given that the focus of our research is
around investing, we also tested these terms with the financial services industry (institutional investors,
family offices, etc.) to ascertain any pitfalls. We settled on DeepTech as it seems to be the most widely
used with fewest risks for negative reactions or misinterpretations. Following are reactions to
alternative monikers for this field.
- DeepTech: Most commonly used within the advanced technology ecosystem. Generally
understood by financial investors, and has the fewest misgivings.
- FrontierTech: Also commonly used, but confuses financial investors (especially those outside
the U.S.). Many in financial services think ‘frontier’ means emerging markets, such as Africa and
Latin America.
- HardTech: Moderately used, but some interpret this quite negatively, thinking that ‘hard’ means
‘not feasible,’ ‘too high risk,’ or ‘low potential.’ Some interpret HardTech to exclusively mean
‘Hardware.’ There are some in the ecosystem that proactively hate this word, because of its
potential negative connotations. Investors may also see this term as a disincentive / red-flag that
leads them to eschew these kinds of investments.
- ToughTech: Primarily used by MIT. As with HardTech, the word ‘Tough’ can carry negative
connotations and is disliked by some in the ecosystem as well as financial services.
- ScienceTech: Generally correctly interpreted and fairly innocuous, but not commonly used, does
not ‘roll off the tongue’ well, and is wonky.
“Investors like to either take business risk or technical risk, but usually not both. In companies
that have lots of technical risk, you often find that the business model is well understood or
moderately streamlined with a clear customer. You don’t have much of a ‘Hey this product fell on
deaf ears’.”

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What Makes DeepTech Different?

So how is the DeepTech ‘experience’ different from that of a typical tech or tech-enabled startup? What
dynamics are at play for these ‘scientific entrepreneurs’?
Science
First and foremost, DeepTech begins with science. It stems from Research & Development (R&D). It
harnesses a scientific discovery or breakthrough, and it builds from there. For DeepTech startups,
seeking product-market-fit is not about A/B testing features and phrases. Here it means conducting
iterative experiments with the technology and its application to real world environments, as well as
navigating the various scientific fields and intellectual property that might drive it. Because of this,
DeepTech has longer gestation periods. Depending on the innovation, it can take months to decades
(especially for materials sciences) before the technology is ready to commercialize.
This science can start anywhere, but it typically requires much more than a laptop and WiFi. It needs
laboratories, testing facilities, unique resources, specialized tools and machines, large computing
power, data, money, and extensive thought. It may begin in one of the 250+ research universities across
the country. It may start in one of the U.S. government's 40+ Federally Funded R&D Centers (such as
Los Alamos, Lawrence Livermore, Lincoln Labs, or the Jet Propulsion Laboratory) or with an Advanced
Research Project Agency like DARPA or IARPA. It might begin inside a corporation’s R&D department or
Moonshot Lab, whether that’s Google, Roche, Intel, Monsanto or hundreds of others. It could
commence from a prototyping facility or (less likely) a tinkerer’s garage. It might begin in a super power
like the U.S. or China or the remote corners of an emerging market like Egypt. But invariably, at some
point, someone believes the science is ready to be more — it’s ready to leave the workbench, be
applied to a problem, and become a product, a solution, a company.
Pasteur’s Quadrant
Many experts in the field reference Pasteur’s Quadrant1 as a framework for understanding the evolution
from pure to applied research and the role of DeepTech in the overall scientific landscape. Media,
analysts, and even scientists themselves often talk
about basic and applied research as if they are the
two ends of a spectrum, and that most research can
be described as being either “purely basic,” with no
practical end in view, or “applied,” with only practical
ends in view (and no interest in understanding
fundamental processes of nature).
Pasteur’s Quadrant presents an alternative: a box

divided into four quadrants that represent an
emphasis on different aspects of research. The 2-
axis grid acknowledges that basic and applied work
do not have to oppose each other, but can blend and
support each other.
1. Washington State Magazine: Pasteur’s Quadrant, Summer 2009. Available here..

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Mission
It’s often said that great entrepreneurs begin with an itch to solve a problem they experience. Taking
that a step further, DeepTech innovators are usually on a mission to solve a problem yet unknown to
most, or even one of the world’s Grand Challenges. They’re trying to reduce our carbon footprint, or
advance transportation options. They seek to cure disease or to enable advanced manufacturing
techniques. These are big thinkers often building on a lifetime of research. Rarely are they focused
simply on a particular market or application.
Company Trajectory
DeepTech companies share many of the lifecycle characteristics of software startups, but there are
significant differences.
Government Research Grants

Many DeepTech innovators start with government research grants. Across the U.S. as well as in other
countries, governments play a fundamental role in advancing these technologies towards
commercialization. In the U.S., grant-making bodies such as the National Science Foundation help with
capital to further de-risk and translate research from the lab into application. This capital is critical.
There are few other entities willing to operate at this stage (generally, a small roster of philanthropic
organizations), and none have the same level of resources as the government. Private sector
investment capital rarely if ever enters the equation at this point.
Specialized Development Spaces

As these DeepTech companies progress, they often need physical environments where they can test
their technologies. They need access to the specialized machines to construct and refine their
products; they need wet labs and chemical hoods to safely fine-tune; they need rides on rocket ships or
submersibles to get to their destinations; they need big open places where they can, quite frankly,
safely ‘blow something up.’ These resource requirements are unique to DeepTech startups.
Specialized Investors
At some point, DeepTech companies may need to add private sector investment capital to their
equation. Some startups find a fairly continuous path of private capital; some startups face longer
financing chasms between each stage of capital; others may reach vertical walls (could be early on, or
later with plant-based financing). Most DeepTech startups are undercapitalized at some point in their
life cycles.
Not all DeepTech is considered investable. Hard tech with hard business problems (unclear customers)
is more likely to struggle with private sector financing. Many DeepTech companies rely on paid pilots to
progress. And some bootstrap primarily through this revenue.
Similarly, the growth potential of a DeepTech company is a factor as well. Per one VC:
“There are gaps for compelling companies that have a high probability of a $200M exit, but not
much larger. Some of those opportunities seem compelling for the impact they could have. Those
companies are poor fits for VC funds investing at Series A and later, because they don’t fit the
power law requirements of these later stage VCs.”

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Finally, the outcomes for DeepTech companies aren’t always as clear as for their tech or tech-enabled
counterparts. With the exception of Life Sciences, there are fewer known exits and the
commercialization strategies are harder. “In areas with no proven exits, it can make it harder for us to
place a bet.” Some funds highlight exits like Cruise Automation to GM (an estimated 55X on invested
capital), 6 River Systems to Shopify (estimated 9X), or Beyond Meat (NASDAQ:BYND) as proof points;
but other sectors have yet to see liquidity light at the end of the startup tunnel.
When you work in DeepTech, the nature of your innovation likely means you’re the first of your kind,
you’re blazing your own trail, and you may end up being the first to exit in your field.
Risks
All startup companies face multiple risk factors, but in DeepTech there are additional challenges.
All DeepTech companies face some form of technical risk, some face significantly more than others.
DeepTech investors recognize that while all startups iterate and refine their products, it is more difficult
to iterate with Atoms vs. Bits; it takes more time and capital to build and refine each prototype. For
DeepTech solving problems in high-risk environments (large industrial settings, Life Sciences, etc),
some technical failures could be catastrophic.
Sometimes the technical risks manifest as a form of ‘systems risk.’ What works in the lab, or at small
scale, falls apart in a product or in large production. A scientific breakthrough or piece of intellectual
property may require three or four other key components to work in tandem as a product. Some
characterize this as a “multidimensional search problem,” where everything must work simultaneously.
Some DeepTech products also face business model risk; there’s not always a clear customer, or a clear
way to monetize a novel technology. Government-first or defense-first innovations can find this risk
particularly acute, but it occurs across sectors and scientific fields. Sometimes, something is so novel,
that nobody knows how to price it or sell it.
Others face first-pilot or sales cycle risks. Many DeepTech companies ultimately sell their products to
industrial corporations, but these corporations don’t always move at “startup speed”. In some
industries, a single sales cycle can take years. If a startup misses that cycle, they may die on the vine
waiting for another chance.
First-pilot risk can be equally daunting: in order to prove their technology works, many DeepTech
startups must convince a large enterprise to conduct a pilot of their product. Those pilots can be quite
costly and take months to years on their own. In industrial markets:
“... the incubation period between proof-of-interest and proof-of-value is much longer. Often big
corporations love the ideas, but don’t want to pay much until a startup proves its technology at
scale.”

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Legacy
DeepTech companies don’t operate in a vacuum. Their choices and pathways are influenced by
decisions made years and decades before them. It’s important to understand some of the history that’s
led to today’s advanced technology landscape.
Much of modern technology can trace its origins to government investment. But the way we invent and
innovate and the way innovation is funded has changed dramatically over the last century.
During World War II, President Franklin D. Roosevelt wrote a letter to Dr. Vannevar Bush, then Director of
the U.S. Office of Scientific Research and Development, asking for advice on how the federal
government could contribute to scientific advancement during peacetime. Dr. Bush replied with a
robust review and set of recommendations that were widely embraced by the government, and shaped
much of America’s DeepTech ecosystem for many decades.
Bush positioned the national research universities at the heart of the DeepTech landscape, and directed
Federal funding accordingly. In the period from World War II through the 60’s, many of our greatest
innovations (from GPS to the Internet to the human genome project) were catalyzed by federal calls to
action (Moonshots) and moved through the university and military-industrial complex for development
and funding.2
In the latter portion of the 20th century, there was a shift from government to private sector dominance
in many aspects of society as the Reagan era began and the move was made towards a “market-driven”
economy. Three events radically changed the technology and investor landscape:
- Deregulation and the financialization of the U.S. economy,

- The introduction of the commercial Internet, and
- The transition from the former USSR to China as our national competitive enemy superpower.
The Reagan Administration began a series of regulatory changes in the financial sector which were
continued by the Clinton and Bush Administrations. This deregulation of banking and investing enabled
financial services to grow significantly and compose a disproportionate share of the national economy.
We went from a nation of builders and makers to a nation of service providers and transactors. During
that period, the private equity industry began to grow exponentially and by the early 2000’s an
enormous amount of private capital moved into the technology sector seeking outsized returns in
ambitious time frames.
Catalyzing this flow of capital into technology investing was the dawn of the commercial Internet era. In
the early ‘90’s what we know as the Internet launched. It went from being a tool used by scientists and
academics (and built by the USG) to a global platform for communications and commerce used by
billions of people daily. Savvy investors learned how to guide young companies from an idea in a garage
to corporate acquisition or IPO. The costs of building companies came down dramatically along with the
time needed to achieve commercial success. Investors shifted their focus from hardware to software
and application companies, who followed these new development patterns and were more likely to
achieve extraordinary financial returns in shorter periods of time.
2. Information Technology & Innovation Foundation (ITIF): Becoming America’s Seed Fund: Why NSF’s SBIR
Program Should Be a Model for the Rest of Government, September 2019. Available here..

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Finally, after the fall of the Soviet Union, China took center stage as the competitive, economic
superpower. Unlike the Russians, the Chinese are following new rules of engagement. Experts warn that
while it’s one of our largest trading partners, China also threatens to become our greatest competitor,
particularly as it relates to advanced technologies. Per the Council on Foreign Relations:3
“China is investing significant resources in developing new technologies, and after 2030 it will
likely be the world’s largest spender on research and development. Although Beijing’s efforts to
become a scientific power could help drive global growth and prosperity, and both the United
States and China have benefited from bilateral investment and trade, Chinese theft of intellectual
property and its market- manipulating industrial policies threaten U.S. economic competitiveness
and national security.”
And another of our experts:
“Government was the big investor in the ‘60s and ‘70s. The scale was bigger than you can
imagine, because we understood as a country that we needed to be out in front. Money was
spent to ‘discover,’ because we knew that discovery drove more discovery and created new
amazing things. Today, that’s all different, and it's compounded by a lack of patience. Following
the rise of e-Commerce and apps in the 2000s, people’s calculations changed … their patience
waned as desire for quick returns waxed. But people forget that patience can be rewarded too.”
3. Council on Foreign Relations: Innovation and National Security: Keeping Our Edge, September 2019. Available
here..

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DeepTech Investment Timeline (Post-World War II)4
4. For a complete set of timeline citations, please see the Appendix, page 92.

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The DeepTech Investment Landscape

DeepTech encompasses multiple, highly diverse, ecosystems with a dynamic group of key players.
Cooperation, support, and a ‘pay-it-forward’ mentality of helping others is alive and present in these
ecosystems; it’s evocative of Silicon Valley in 1970s and 1980s (rather than the more cut-throat / ‘rising
tide sinks my competitors’ mindset that’s become more common today). In part, this mentality is
influenced by the universal recognition of just how difficult it is to succeed. The DeepTech community
wants to see more winners.
These ecosystems overlap, but don’t always communicate well with each other. Certain organizations
are better onramps into an overlapping ecosystem than others. Every entity and ecosystem also has its
own distinct motivations and rules that shape how it supports (and sometimes inadvertently hinders)
scientific entrepreneurs. Each ecosystem is also complex; requiring effort and expertise to fluently
navigate, and the people building DeepTech companies aren’t always equipped to do so.
Ecosystems can support DeepTech companies in multiple ways. Some facilitate and enable, providing
the foundations and launchpads for DeepTech companies to get started. Others underwrite, buy, or
invest, providing the capital for DeepTech companies to flourish. And some do a bit of both.

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Facilitators and Enablers

Facilitators and Enablers tend to focus on founder development and success as their primary goals.
They work at the very earliest stages of the innovator's journey, sometimes well before a company has
been conceived, much less established. They span the public and private sectors, but tend to be
mission-aligned, motivated more by the advancement of science and the growth of the community than
by financial returns. While similar to the Facilitators and Enablers supporting other startup
entrepreneurs, they are distinct in two ways. First, Universities and Government, particularly the Federal
Government, play outsized roles in this field. Conversely, private sector organizations (Accelerators,
Maker Spaces, Startup Studios, etc.) are fewer than their peers in the software world, making these
startups more reliant on university and government support, particularly in the earliest stages.
Universities
Universities play a critically important role, particularly at technology inception. They offer
fellowships, labs, mentors, and a path to intellectual property. But they also bring their own games and
politics. Universities have become the primary channel for government-supported R&D, but in order to
access this capital and the laboratories it funds, you must embark and remain on the academic track.
This track has inertia. It’s guided and guarded by professors, most of whom have decided to stay on the
track to its ultimate destination of basic research. They’re focused more on output (publications,
awards) than outcomes, and are often less motivated or equipped to support and encourage
commercialization of a technology. To start a DeepTech company requires one to leave academia for
the private sector; some universities and professors exert tremendous pressure on their graduate
students to remain in academia.
Graduate students and PhD students live and die by their advisors. Some professors are outstanding
advocates for whatever a student chooses to pursue, while others may be hell-bent on their own
research priorities. A student’s research and career options can come down to luck, as these
professors choose to open or close doors. When students leave the university, they often lose access
to its labs and resources. We heard numerous comments that “Grad School Dropouts make the best
entrepreneurs”, but they typically lose access to critical resources the day they leave campus.
For those who decide to leave, it’s not so easy to take their innovations with them. University
Technology Transfer offices frequently hinder licensing of R&D into founder and investor-friendly
formats. Most Tech Transfer offices have optimized for Life Sciences. Our interviewees consistently
reiterated that this Life Sciences licensing approach does not work for the rest of DeepTech and
dissuades investors from getting involved. Anecdotally, DeepTech VCs informed us that the worst
offices to work with typically have the most lawyers on staff.
There is awareness of these challenges and efforts being made to resolve them. CornellTech (on New
York City’s Roosevelt Island) is experimenting with alternative programs and frameworks. They’ve
completed several successful pilots, including offering a Runway Program for post-docs to continue
their research with an eye towards commercialization, a graduate STEM program that integrates
business education, and a fast-track technology licensing agreement that is founder-friendly.
Alternatively, a group of tenured faculty at OSU are looking at ways to raise awareness and shift
motivations among university faculty to increase focus on commercialization and entrepreneurship.
And new fellowships are being tested at Berkeley and MIT via Activate/Cyclotron Road.

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Foundations
Foundations and other philanthropic organizations help fill unique and pervasive gaps. Through
grants and fellowships, they provide critical lifelines for DeepTech companies and scientific
entrepreneurs as they navigate longer-than-usual “Valleys of Death”. Their support is almost always
tied to their specific mission, which shapes the lens through which they view the world.
Some are well-resourced, such as those of Schmidt Futures, the Bill & Melinda Gates Foundation, and
the Alfred P. Sloan Foundation. Others are donor-driven, and may struggle to consistently harness
sufficient capital to support their DeepTech missions. Organizations like New Harvest (cellular
agriculture) are leveraging the power of stories and passionate supporters to harness capital for their
DeepTech mission.
The role of challenge grants is somewhat unique to the DeepTech field. Often framed by the term
“Grand Challenges” or the UN SDGs, these are competitions designed to draw more talent into the field
via the mechanism of a grant program focused on a particular problem or issue. With a history of
programs like the old Westinghouse Scholars, XPRIZE is one of the most well-known challenge grant
programs today. Newcomers like Luminary Labs are taking a slightly different approach to this work by
serving as a strategy and innovation consultancy, using mechanisms including prize-based challenges
to identify and motivate scientific innovators.
Accelerators, Maker Spaces & Studios

DeepTech accelerator programs are few and far between. While there are hundreds of accelerators
across the U.S., only a handful specialize in DeepTech. Programs like Hax (Hardware program in San
Francisco, Shenzhen), WXR (AR/VR program conducted virtually) and Techstars (such as their Starburst
program in Los Angeles or their HardTech program in Indianapolis) also offer early-stage capital.
Additional accelerators in DeepTech are gradually emerging, but they’re relatively rare and can be costly
to get started.
Maker Spaces provide guidance and lab-like facilities outside of a university framework. New Lab
(New York), mHub (Chicago), and Playground Ventures (Silicon Valley) provide space and specialized
machinery for advanced manufacturing and prototyping. Such organizations can be key partners for
DeepTech founders in their earliest days, but their spaces are few and far between and expensive to
build (each of the three examples have benefitted from government and/or corporate support to
facilitate buildout and operations). Most maker spaces in the U.S. are designed for consumer
prototyping rather than DeepTech.
Startup Studios exist in this field as in others, though again there are very few. The combination of
expertise and access makes this a more specialized field. Examples include OtherLab and M34, who
offer some combination of capital, mentoring, and additional resources.
Beyond capital, these entities also offer a sense of community and ‘shared struggle’... a key
membership draw. Scientific entrepreneurs benefit from being around each other, and can leverage
each other’s specializations to think through hurdles.

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Funders
There are various capital sources for DeepTech entrepreneurs and this will be explored at length in later
sections of this report. At a high level, these organizations and firms provide the fuel for these startup
rockets to take off. Philanthropic and other Patient Capital organizations are donors to help seed
founders and ideas. Government and corporations serve as early customers. And there are a wide
range of investors from venture capitalists to corporations to family offices who enable DeepTech
startups to scale.
Within venture capital, there are a few category leaders with larger investment funds: some that focus
on many kinds of DeepTech, some that specialize (such as in Clean Energy) and some large generalist-
VCs who may be known for their software investments but are also comfortable with DeepTech. Then
there’s a long tail of smaller, emerging managers who make up the bulk of DeepTech investors.
Collectively, these VCs are a fraction of the overall U.S. venture market.
Institutional investors such as pensions, endowments, and family offices typically intersect with
DeepTech via investment funds. Some family offices prefer to do direct deals, and some families play an
outsized role in supporting impact-oriented DeepTech companies (such as combating climate change
or finding a cure for a specific disease).
The U.S. Government is a tremendous resource that spans the DeepTech lifecycle. The USG is the
country’s largest pre-seed investor and largest customer for many, though its presence sometimes
poses challenges for commercialization (e.g. "dual use" technologies). SBIR is commonly referred to as
America’s Seed Fund, and backs an enormous number of promising DeepTech startups each year. State
and local governments are players as well, but their capacity is smaller and activity is inconsistent. Later
in a company lifecycle, government plays a critical role as a pilot customer with early contracts for
DeepTech startups.
Finally, there’s the corporations themselves. Many are potential buyers; some have their own venture
capital arms. Invariably, they are critical parts of the DeepTech community.
Media
Storytelling is crucial, but often ignored. At the end of the day, DeepTech can be an insular ecosystem
and the scientist’s journey a lonely, solitary existence. Media outlets and journals can offer DeepTech a
channel to the outside world. Communicating the transformational potential and breakthroughs of
these companies not only helps attract future scientists, but it can also preserve or expand government
budgets, bolster citizens support, and inspire investors to look closer.
Media coverage of DeepTech today is limited in scope. Large funding milestones may be picked up by
startup publications like TechCrunch. Big exits may garner coverage from newspapers. Magazines such
as Scientific American, Popular Science, Quanta Magazine, and the MIT Technology Review reach
audiences of varying sophistication.

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Hollywood plays a role as well. Film can be a powerful medium to inspire younger audiences and shape
the perspectives of adults. But the stories and how they are told matter: consider Elizabeth Holmes and
the Theranos debacle (Bad Blood); John Nash and his code-breaking saga (A Beautiful Mind); or Tony
Stark and his many inventions (Ironman and the Marvel Universe). Each has a unique narrative,
resonates with a specific audience, and has consequences for the viewer and the DeepTech
community.
Founders
At the heart of the DeepTech ecosystem are the founders themselves. These individuals sit at the
center of all other players and organizations of the DeepTech ecosystem. These founders face two
challenges that distinguish them from their counterparts in software.
Scientists vs. Entrepreneurs

These founders are scientists and inventors first, which means they often lack business-building skills.
It’s a rare combination to find a scientist who is sufficiently intellectually athletic to also excel at the
business components. The scientist-founder is key because, as one investor said “no matter how great
of an entrepreneur you are, that entrepreneurship prowess won’t get the physics to work.”
Through training programs and careful mentorship, they can learn the skills and strategies to help them
build a company. But most still benefit from co-founders or early team additions with critical business
and sales skills to help commercialize the technology. Finding that right match is not easy, these
scientific entrepreneurs “need business counterparts who support them and do not undermine their
vision or autonomy,” clarifies one VC.
In Network vs. Out

It’s a common assumption that all DeepTech entrepreneurs start in a university lab, that’s not
necessarily true. They usually have strong technical backgrounds, but educational attainment varies
and they’re not necessarily coming straight from academia. Many have PhDs, many have Masters
degrees. Some are graduate level-dropouts or PhD-dropouts, still others pursue their DeepTech
companies during their Post-Doc programs.
Less often, they are professors who decide to commercialize their research. More likely, a professor
may be partially involved as an advisor or scientific officer, but the company and product is led by
someone else who was involved in the research.
In other areas where the engineering is multidisciplinary / more complex, “founders tend to hail from
industry or a corporate environment,” noted several investors. For these companies, the quality of
scientific talent must be excellent. But it must be balanced with equally talented business and go-to-
market talent as well.

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But there are a significant number of “out-of-network” founders, working outside the typical institutions.
Boston Consulting Group’s “Dawn of the DeepTech Ecosystem” report found that only 30% of DeepTech
companies were university spin-outs. 5 Today it is difficult to track these founders and they have far
fewer resources available to them. This is both a challenge and an opportunity.
5. Boston Consulting Group and Hello Tomorrow: The Dawn of the DeepTech Ecosystem, March 2019. Available
here.

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How Is DeepTech Changing?

Like all fields of technology, DeepTech continues to evolve. DeepTech does not exist in a vacuum, and
the innovators in the field are subject to similar trends of other startup innovators. For DeepTech, there
are several factors driving evolution in the field.
The AWS Effect

Cloud computing transformed the way software startups are conceived, built and financed. We’re
witnessing something of an “AWS Effect” in DeepTech as well. Emerging DeepTech platforms (Quantum
Computing, Genetic Sequencing, etc.) mean that more people in more places can build DeepTech
companies, and to a certain extent accelerate development and reduce capital requirements. This
dynamic is behind the growth of the "grad school dropout" phenomenon. It means that many innovators
get started with government grants, but not all, and many innovators start in universities, but not all.
Reduced Federal R&D Investment

USG investment is dropping, both as a percent of U.S. budgets, and relative to other countries.6 Federal
investment in R&D as a percentage of GDP peaked at 1.86 percent in 1964 but declined to 0.66% in
2016. Industry now leads in R&D spending. But corporations face short-term market and shareholder
pressures to focus on incremental advances in
existing technologies. They are not funding
research and development that leads to new
breakthroughs in science and engineering and
later spurs growth or broader advancements of
a field.
Trump Administration Policies

Although the Trump administration boosted the
budgets of several technology-related
organizations within the DOD and issued a
number of executive orders, its trade wars and
expansion of CFIUS enforcement have
disrupted the global DeepTech ecosystem and made international cooperation more challenging. The
White House has failed to work with Congress to increase federal support for basic R&D and has
adopted an incremental and limited approach to supporting the development of advanced
technologies. Further, the White House’s immigration policies have weakened the country’s ability to
compete for talent, and unnecessary trade conflicts with friends and allies have hampered the building
of international technology coalitions and could slow innovation.7
6. Information Technology & Innovation Foundation (ITIF): Becoming America’s Seed Fund: Why NSF’s SBIR
Program Should Be a Model for the Rest of Government, September 2019. Available here.
7. Council on Foreign Relations: Innovation and National Security report, September 2019.

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China’s Advancement
China, now the world’s second-largest economy, is both a U.S. economic partner and a strategic
competitor, and it constitutes a different type of challenger. China is launching government-led
investments, increasing its numbers of science and engineering graduates, and mobilizing large pools
of data and global technology companies in pursuit of ambitious economic and strategic goals.
These factors combine to disrupt U.S. primacy in DeepTech R&D and to increase the likelihood that the
next great technical innovation will emerge from outside the U.S.
“We don’t know what it will be like when the next great invention like flying cars comes from
another country … “

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State of DeepTech Investing

DeepTech investing is a fraction of U.S. venture capital. As MIT and PitchBook indicated in the Tough
Tech Landscape Report, in 2018, $131B was invested across all U.S. startups, with $35.7B invested
across DeepTech deals (roughly 1/4) 8. But the vast majority of DeepTech deals went into just two
fields: Life Sciences ($19.3B) and AI / ML ($4.6B).
The remaining DeepTech deals (encompassing dozens of sectors and scientific fields) represented
about $11.8B in capital raised, just 9% of total startup investment. This is a stark divide. To understand
why this divide exists, you have to consider the nature of the deals and the types of investors.
DeepTech vs. Overall Startup Investing

To help set context, the following charts highlight some of the insights from the Tough Tech report in
comparison to the overall U.S. startup market. The limited capital invested in DeepTech is not evenly
spread across sectors or technologies. AI / ML and Life Science startups are responsible for the bulk of
capital flows and dwarf other segments, leaving most DeepTech sectors underfunded and many
promising technologies on the lab bench.
2018 U.S. Startup Investment

$150B
$130.9B
$120B
$90B
$60B
$30B $19.3B
$11.8B
$4.6B
$0B
AI / ML Other DeepTech Life Sciences Total
Amount invested in companies, by category (Billions)
2018 Capital Invested 2018 Number of Deals

$140B $130.9B 9,500 8,948
$105B 7,125
$70B 4,750
$35.7B
$35B 2,375 1,653
$0B 0
DeepTech Startups U.S. Startups Overall
8. MIT/PitchBook: 2019 Tough Tech Landscape, October 2019. Available here.

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As noted by MIT/PitchBook in their methodology, the DeepTech numbers by segment may be inflated
because of category overlap: “given that in reality some companies can exist within two segments,
each individual segment’s deal flow may include the financing flows of a company that are also included
in another ToughTech segment’s dataset.” If true, this underscores even more the capital gap for
sectors other than AI/ML and Life Sciences.
2018 Deal Value by

Select Vertical
17%
AI & ML
7% CleanTech
Robotics & Drones
5% Life Sciences
71%
2018 Total Deal Value by DeepTech Sectors
Autonomous Vehicles $6,481

CleanTech $1,853
SpaceTech $1,463
Robotics & Drones $1,373
AgTech $904
Advanced Manufacturing $724
3D Printing $652
Microelectronics $522
Materials $349
Nanotechnology $318
Quantum $122
$0 $1,750 $3,500 $5,250 $7,000
Amount Invested in 2018 Deals (Millions)

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DeepTech Investment — a Complex Terrain To Navigate

DeepTech shares many of the same investor types as the overall startup market. However, as noted in
earlier sections, there is a significant role for research organizations in the early stages of a DeepTech
company’s development. Many DeepTech companies are spinouts of university or government
research (In fact, much of the technology we rely on today originated in government labs.) So while the
cast of investors is roughly the same, their roles vary somewhat and there are some other players.
U.S. Government: The World’s Biggest DeepTech Investor

The U.S. government is commonly highlighted as the world’s biggest customer. But less is known about
its investments in DeepTech innovation. As highlighted in a prior section, the federal government is a
tremendous underwriter of R&D through universities and laboratories. Thankfully, as research starts to
leave these large institutions in search of application and commercialization, the federal government
continues to shepherd the way.
In particular, the SBIR grant program is commonly cited as a core capital resource for early-stage
DeepTech startups. Collectively, these grants amount to about $3.1B in 2018. While not all of this capital
goes to companies which are strictly speaking DeepTech companies, and there are issues with
continuous grants to so-called “SBIR research mills”, this is an enormously important source of capital
across the DeepTech sector.
Angel Investors: Few and Far Between

Angel investors, while a common source of early capital for many startup companies, are fewer and
further between in DeepTech. The technical rigor of the products, specialized industry applications,
larger capital requirements, as well as higher technical risk and longer life cycles are formidable barriers
to the typical angel investor or group. That said there are a number of notable groups with DeepTech-
related focuses...including Space Angels (targeting SpaceTech), E8 Angels (CleanTech) and Silicon
Valley’s Life Science Angels, as well as occasional deals from university-affiliated groups that typically
invest in all kinds of alumni-built startup companies, some of which happen to be DeepTech.
However, angels invest in a relatively small percent of startups, and as is the case with the overall
market, represent a small portion of capital. It’s similar for ‘friends & family’ money. According to Boston
Consulting Group’s Dawn of the Deep Tech Ecosystem report, only 7% of DeepTech startups receive
early-stage capital from such a source.
As a result, the likeliest pathway for scientific founders is to stretch out government and other grants as
long as possible to get to either early commercial pilot revenue or seed-funding from venture capital
firms. Often, this results in large capital chasms.
Family Offices: Deep Pockets That Are Not Often in DeepTech

The role of family offices in startup investing, let alone in DeepTech investing, is nebulous and nearly
impossible to quantify. First and foremost, no one knows just how many family offices even exist (Ernst
& Young estimates ~10,000 FOs globally). Moreover, most family offices are opaque with information
about their asset allocations. As one noted expert at a top Ivy League Business School confirmed, it is
nearly impossible to nail down precisely where ultra-wealthy families invest and just how much capital
they manage.

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We interviewed numerous family offices in our effort to understand their perspectives on DeepTech.
We’ll address this in depth in a later section, but at a high level many families struggle to diligence
DeepTech companies as well as the VCs they invest in. Off the record, most admit — with the exclusion
of Life Sciences — they have few if any investments in DeepTech funds, let alone in companies. Notable
exceptions include organizations backed by family offices like the Gates Foundation and Schmidt
Futures whose founders have significant expertise in this field.
Corporate Venture Capital: Investors or Pilot Customers?

Corporate venture capital activity is predicted to surge in 2020 (Pitchbook 2020 VC Outlook)9. Whether
motivated by a need to deploy capital from deep corporate cash reserves, or a defensive move to
understand emerging technologies and prevent obsolescence, there is an abundance of corporate
capital in the venture landscape. Per PitchBook, 1,725 of 2018 deals, representing over $70B in
financing, had CVC participation.
The role of CVCs in DeepTech is notable yet difficult to quantify. Life science companies like Johnson &
Johnson have corporate venture arms dating back to the 60’s and a long history of M&A. While in other
fields like manufacturing, CVCs are relative newcomers. And although “the number of unique corporate
investors in the U.S. in 2018 was 212, nearly double the number of unique CVCs in 2008 at 108,” it’s
unclear how many of these CVCs have invested
in advanced science companies. BCG estimates
that, globally, the total value of capital raised by
DeepTech startups in which CVCs participated in
2018 was $5.7 billion (a minuscule fraction of the
overall CVC activity across all kinds of startups).
Across our research process, experts agreed

that corporations play a pivotal role as pilot
customers for DeepTech companies (we’ll explore
this further in Section 10). Many also noted the
prevalence of CVCs as potential capital sources
for these startups, but commonly had
reservations around their quality, value-add, and
consistency as investors. Per one VC:
“We love when CVCs invest, we just prefer they invest after us so we can guide the startup
through that process and help prevent the CVC from screwing up the company.”
Many CVCs invest off their balance sheets or out of business unit budgets, and their activity can
increase, decrease, or disappear depending on the internal corporate politics, budgets, and support
from that day’s CEO. This leads to inconsistency. Macroeconomic trends (recessions) can further
compound this. Much of the DeepTech ecosystem agrees that CVCs, when active in DeepTech, emerge
at later funding stages for companies, with fewer willing to take risks at the seed stage. This is
supported by data on overall CVC activity as well.10
9. PitchBook Analyst Note: 2020 Venture Capital Outlook, December 2019. Available here.
10. PitchBook: 18 charts to illustrate U.S. VC in 2018, January 2019. Available here.

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Some corporations are willing to go further out on the risk and/or timeline spectrum than others. But
frequently, CVCs will invest in products and companies with more near-term potential, less risk, and a
greater promise to be pulled into the corporation’s processes and product lines.
Invariably, VCs and entrepreneurs reiterate the importance of this strategic capital: at the end of the
day, any capital is key for underfunded DeepTech companies. And make no mistake — some CVCs are
considered phenomenal DeepTech investors, with extensive patience to their capital, ample appetite for
technical risks, and flexible strategic visions. But some CVCs are not.
DeepTech VCs: the Majority of DeepTech Investors.

This brings us to the non-corporate VCs. The vast majority of VCs in the United States and Canada are
focused on software-based investments. For many, the terms ‘tech’ and ‘tech-enabled’ have become
synonymous with web apps, mobile apps, online marketplaces, software-as-a-service, and cloud
computing. While a few select startups build on the edge of what’s possible in software / computer
science and could be considered DeepTech, most are not. As identified by MIT’s report and reiterated in
many of our interviews, Life Science VCs fundraise and operate in a different manner from the rest of
DeepTech categories. As a result, only a small fraction of total venture financings are in DeepTech. Only
a small subset of VCs invest in the more intractable, technically-risky opportunities that often leverage
hardware or multidisciplinary fields of science.
So just how big is this pool of capital for scientific entrepreneurs?
Collectively, we estimate there are over 200 DeepTech funds in North America that are deploying and/or
fundraising a total of $30.8B in capital. That sounds sizable and it is. However, in our research we found
11 “large outlier firms”, defined as having most recent fund sizes >$400M. When you exclude these
large outlier firms the total amount of capital is cut in half. The vast majority of North American
DeepTech funds are deploying and/or fundraising a total of $15.5B. They are small firms, whose median
fund size is just $52.5M, slightly less than the overall VC median fund size.
Median Fund Size Number of Firms

$80M 1,400
1,200
$59.0M
$60M 1,050
$52.5M
$40M 700
$20M 350
200
$0M 0
DeepTech VCs U.S. VCs

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To be clear, of that $15.5B, not all of that capital is committed. Approximately 60% of the funds in our
analysis are currently fundraising or were in-market within the last year (2019). It's imperative to note
that many funds fall short of their target ‘assets under management’ (AUM). Data on missed fundraising
targets is challenging to collect and verify for a host of reasons. But based on our interviews as well as
what we can derive from regulatory filings and public information, this is a pervasive problem. DeepTech
funds (like most VCs) struggle to meet their fundraising targets and sometimes come up short.
Of that $15.5B, some of that capital has already been invested, and the remainder will likely be invested
over the next few years. Some of that capital will be reserved for follow-on investments. However you
qualify it, the end result is a very small amount of capital available for DeepTech startup companies.
We set out not only to map the DeepTech ecosystem and ascertain the state of DeepTech investing, but
to assess the venture capital funds and their investors as well. The following sections of our report will
examine government funding, including its strengths and challenges; venture capital investors,
including an extensive data-driven review of their education, experience and how they operate; and the
Limited Partners and institutional investors that may or may not invest in these VCs.
11 Outlier DeepTech VC Firms
8VC https://8vc.com/
Bessemer Venture Partners https://www.bvp.com/
Breakthrough Energy Ventures https://www.b-t.energy/ventures/
Data Collective VC https://www.dcvc.com/
Eclipse VC https://eclipse.vc/
Energy Impact Partners https://www.energyimpactpartners.com/
Founders Fund https://foundersfund.com/
Insight Venture Partners https://www.insightpartners.com/
Khosla Ventures https://www.khoslaventures.com/
Lux Capital https://www.luxcapital.com/
Playground Global https://playground.global/

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DeepTech Investors: USG — America’s Seed Fund

As noted previously, the U.S. government is often referred to as the world’s biggest customer and also
happens to be the nation’s largest DeepTech seed investor. The federal government has a storied
history as a tremendous source of innovation for both the public and private sectors. The USG is one of
the nation’s largest underwriters of R&D through universities and laboratories. As research starts to
leave these large institutions in search of application and commercialization, the federal government
continues to shepherd the way with grants.
Federal grants are frequently the first outside funding, and an essential capital resource for DeepTech
startups. Established by Congress in 1982, the Small Business Innovation Research (SBIR) program is
the federal government’s largest annual funding program for startups and small businesses, with
$3.1B+ awarded to more than 3,100 companies in 2018.11
Sources of Seed Capital & Grants

$8.00B
$7.50B
$5.33B
$2.67B $3.10B
$0.785B
$0.00B
DeepTech Seed VC SBIR Grants Total Seed VC
Comparison of Seed Funding Sources (Billions)
Although monitored and coordinated by the U.S. Small Business Administration (SBA), the program is
actually administered by 11 other federal agencies, each of which is obligated by Congress to set aside
3.65% of its R&D budget for SBIR awards. The vast majority of these funds are awarded by just five
agencies: the Department of Defense (DOD), the National Institutes of Health (NIH), the Department of
Energy (DOE), the National Science Foundation (NSF), and the National Aeronautics and Space
Administration (NASA).
11. ITIF: Becoming America’s Seed Fund: Why NSF’s SBIR Program Should Be a Model for the Rest of Government,
September 2019.

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FY 2018 SBIR Awards12
Awards Firms Budget Share of Total

Agency
(No.) (No.) (USD) (%)
DOD 2,226 1,006 $1,314M 42.3%
HHS 1,575 1,187 $1,061M 34.1%
DOE 602 397 $278M 9.0%
NSF 400 400 $197M 6.3%
NASA 515 333 $183M 5.9%
Other 292 261 $77M 2.5%
Total 5,610 3,584 $3,110M 100%
This funding is non-dilutive (i.e. the government takes no equity), and is divided into multiple phases
with the ultimate goal of new technology commercialization.
While not all this capital goes to DeepTech companies, and there are issues with repeat awards to so-
called federal research contractors, this is a critical source of capital across the DeepTech sector.
SBIR funding has helped enable awardees to generate 70,000 patents, found nearly 700 publicly traded
companies, and garner approximately $41B in venture capital investments in its 35-year history. SBIR
alumni include success stories such as 23andMe, Apple, and Qualcomm.13 ‑
$150,000-225,000 during a period of 6-12 months, to establish

Phase I technical feasibility and commercial potential.
$750,000-1,000,000 during a period of up to 2 years, to support

Phase II further technology R&D and commercialization efforts.
Some agencies allow follow-on awards; for example, NSF will

provide a 1:2 match with private-sector investment up to a total of
Phase IIB $1.5 million. In 2018 Congress extended this supplemental program
to all agencies.
Not actually part of the SBIR program, “Phase III” typically refers to a
Phase III direct or sole source procurement of an SBIR-funded technology, or
a post-SBIR R&D award.
September 2019.
September 2019.

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Over the past two decades, NSF reinvented its SBIR program to specifically target growth-focused
startups and to emphasize commercializing innovations derived from federal R&D. Although there is
some debate among federal agencies, the NSF model is broadly seen as a success and is gradually
being tested and adopted in other agencies such as DoE. The Air Force recently formed a new program,
AFWERX, to interact with the startup community and encourage startup adoption of the SBIR program.
The Army is also running a similar program.
"There is no such thing as ‘the SBIR Program’ — it’s all separate programs run by different
agencies. There’s an SBIR for NSF, NASA, DOE, sub-institutes within each part of NIH, every
component of DOD is independent as well. Army’s SBIR is as big as NSFs. Theres also one for
Navy, SOCOM, etc. They’re all independent even though sometimes they overlap. It’s messy on
one hand, but diverse on the other.”

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DeepTech VCs: Investing From Concept to Commercialization
An Overview of the DeepTech VC Landscape

In order to understand the gaps and challenges in DeepTech, we must understand today’s landscape of
DeepTech VC firms. This section examines DeepTech VCs by their size, location, strategies, and
manager backgrounds.
We identified over 200 VC firms for inclusion in our DeepTech analysis. We did not include Corporate
VCs in this analysis, which are, for the most part, structured quite differently. And we examined Life
Sciences VCs separately, given the clearer commercialization paths and outsized resources available in
that sector. The data is predominantly compiled from publicly available sources, but is augmented by
surveys and interviews with dozens of firms. It encompasses firms that exist already, have recently
closed, are in-market fundraising right now, or in some cases are pre-marketing. (For a full review of our
methodology, see the Appendix.)
Overview
Number of DTVC firms ~200
Total Target AUM* $15B
Profile of a Typical DeepTech VC Firm
Median Fund Size (Target AUM) $52.5M
Median Number of GPs 2
Fund Tenure First-time fund (Fund I)
$1.5M (Seed);
Average Deal Size

$11.7M (Early Stage VC)
Note: calculation excludes the 11 large outlier firms, which collectively represent another ~$15B
As with the broader venture capital community, DeepTech funds vary widely in their size, makeup, and
strategies, but there are some clear patterns. The metro areas of San Francisco, Boston, and New York
dominate, with a rising presence from Los Angeles and Chicago, and limited capital elsewhere. The vast
majority of VCs are emerging managers (Funds I-III) with fund sizes below $100M. They tend to
specialize (investing in a few specific categories), and tend to be conviction investors with smaller
portfolios than their generalist counterparts. Accordingly, a majority of funds invest at or around the
seed stage; some invest at Series A; and few invest beyond that. The bulk of VCs in our analysis invest
50% or more of their portfolio in DeepTech companies. And the partners at these firms — while mostly
white and male — hail from a range of backgrounds and experiences. Contrary to what you might
imagine, very few DeepTech VCs have PhDs. 

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Firm Analysis: From Fund Size to Firm Strategies

Profile — Small AUMs, New Firms, Standard Structures
DeepTech VCs tend to be small emerging manager firms. Of our 200+ firms, there are 11 large outlier
firms whose capital under management (most recent fund sizes >$400M) and portfolio sizes differ
dramatically from the bulk of the firms in this field. Excluding these 11 firms, the median target AUM for
these funds is $52.5M. This is close to the U.S. venture capital market overall.
The vast majority (~87%) of firms are emerging managers (Funds I, II or III) — representing ~87% of
funds in the dataset when controlling for accelerators and evergreen funds. First-time funds alone
comprise 40% of all DeepTech funds. First-time funds are smaller, with a median target of $50M.
Second and third-time funds pursue larger AUMs, with median sizes of ~$75M.
Accelerators, while present, are few and far between and represent less than 10% of firms in the
dataset. Techstars plays an outsized role in domestic DeepTech-related accelerators, but has just a
handful of DeepTech programs across their extensive network.
In terms of structure, nearly all of these firms choose standard venture capital structures for their firms:
10 year time horizons with 1-2 two-year extensions, 2% management fee and 20% carry compensation
models. As reported by the VCs, they’re usually constrained to working within the established
framework of expectations from Limited Partners (LPs). Only a select few have chosen (or managed) to
diverge from the norm.
 
DeepTech VC Tenure Median Fund Size

$80M
13% $59.0M
$60M
$52.5M
Fund I
15% 40% Fund II
Fund III $40M
Fund IV or Later
$20M
32%
$0M
DeepTech VCs U.S. VCs

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Geography — the Coasts Dominate

While over 30 different U.S. markets play home to at least one DeepTech VC, the vast majority of firms
are concentrated in just a few geographic areas. As with other technology sectors, the San Francisco
Bay Area dominates, at over 35% of firms in our dataset. The metro areas of New York and Boston follow
as distant second and thirds, while greater Los Angeles rounds out any ‘concentration’ at 7% of firms.
These four metro areas comprise nearly 70% of the DeepTech VCs in North America, and manage over
70% of their capital. When you include the AUMs for the 11 large outlier firms, these four metros
represent 83.6% of DeepTech AUM.
Percent of DeepTech VC
Headquarters in Each Metro Area
30%
36%
San Francisco Bay Area
New York City Area
Boston Area
Los Angeles Area
7% Other
10% 16%
With the exception of a few DeepTech firms headquartered in Chicago, St. Louis, and Denver, there is
very little capital between the coasts. Any remaining capital and firms tend to be widely distributed
across the remaining 25+ markets in our dataset, from Atlanta to D.C. to Seattle to Montreal and
beyond. These markets have very little capital between them. And whether there is any meaningful
footprint for DeepTech VCs in these tail end markets is questionable at best.
Firm Headquarters DeepTech Firm DeepTech Firms DeepTech Market

(Metro Area) (%) (Total AUM $) (% of total DeepTech AUM)
San Francisco Bay 35.4% $4.90 B 31.6%
New York 16.3% $2.43 B 15.6%
Boston 10.2% $2.64 B 17.0%
Los Angeles 7.0% $1.25 B 8.0%
Chicago 4.2% $0.832 B 5.3%
All Others 26.9% $3.50 B 22.5%

Note: table excludes the 11 large outlier firms.

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Of course, this analysis is only a proxy for ‘geographic capital access.’ Just because a firm is
headquartered in a city doesn’t mean it invests entirely in that market. Many of the firms in our dataset
have invested across multiple markets, some invest internationally, and some have done deals in
‘harder to reach’ places like Montana, Indiana, and Iowa. Nevertheless, based on our research, VC firms
tend to do more deals in markets where their partners are based and where their capital is managed.
Introducing the DeepTech Concentration Score

A core component of our analysis was assessing VC firm portfolios for whether or not they actually
invest in DeepTech startups and by how much. We needed to understand which firms are truly
DeepTech investors, which firms fall in the middle, and whether or not firms are ‘science-washing’ their
strategies (ergo, positioning themselves as DeepTech investors while primarily investing in less
technical startups).
We call this score the ‘DeepTech Concentration’ or ‘DTC Score’, and it appears repeatedly in this report
as we apply it to different components of analysis. For virtually every section of our analysis, we also
examined whether DTC Score demonstrated any patterns, gaps, or trends. This report will highlight the
most interesting results.
In building the DeepTech Concentration Score, we assessed over 4,500 individual startup companies
that comprise the portfolios of our 200+ VC firms. Portfolio companies were assessed on their degree
of advanced tech legitimacy by reviewing each company’s website across a host of parameters,
including keywords, indication of R&D, and utilization of advanced technologies. (For a detailed
description of our methodology, see Appendix.)
DeepTech Concentration — in This Field, Most Firms Focus

The first question we sought to answer with this variable is ‘What percent of funds are actually
committed to DeepTech investing?’ That is, how many VCs are extensively investing in DeepTech
startups, versus those moderately investing, versus firms barely investing in DeepTech at all.
To do this, we segmented every VC firm by its DTC Score into five groups or ‘quintiles’ tied to a range of
DeepTech concentration. The top quintile is comprised of funds where 80% or more of the portfolio is
classified as ‘DeepTech’ and the bottom quintile contains funds with less than 20% of the portfolio in
DeepTech. For 8% of VCs in our dataset, we were unable to calculate a DTC Score due to lack of
portfolio data (either the firms were new or did not publicly list their investments).
Over one third of the firms in our dataset had DeepTech portfolio concentrations at the highest level,
meaning 80% or more of their portfolio consisted of DeepTech companies. The majority of firms in our
dataset had at least half of their portfolios in DeepTech deals.
The majority of funds in our analysis are moderately to fully committed to DeepTech investing. Among
the most DeepTech-committed firms, in cases where they had less-technically advanced investments,
those companies were often complementary to their DeepTech thesis in some way. For example, an
aerospace fund may have invested in a marketplace for aerospace parts, or a CleanTech fund may have
invested in software that manages carbon credits.

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Breakdown of Firms by DeepTech

Concentration Score
4%
19%
35%
DTC Score of 80-100%
DTC Score of 60-80%
DTC Score of 40-60%
DTC Score of 20-40%
DTC Score of 0-20%
22%
21%
Fund Sizes and DeepTech Concentration

Returning to our analysis of fund sizes, we incorporated DTC Scores to see whether or not a fund’s AUM
varied by its concentration in DeepTech investments.
We found that as DeepTech concentration goes up, the median fund size (modestly) trends down.
Firms at higher DTC Scores tend to make fewer investments as well, suggesting that the more
DeepTech-focused firms follow stronger conviction strategies and have smaller portfolios. This makes
sense given the combined dynamics of smaller funds and slightly larger deal sizes.
It’s interesting to note that firms with a more moderate DeepTech concentration tend towards larger
fund sizes. Very few DeepTech “pure play” firms have been able to achieve larger fund sizes to date. 14
Average and Median Fund Size by DeepTech

Concentration, Excluding Outliers
$125M
$100M
$75M
0-20%
20-40%
$50M
40-60%
60-80%
$25M 80-100%
Average Fund Size Median Fund Size
14. When you include the 11 large outlier firms, this data shifts dramatically. The outlier firms predominantly fell
either in the top quintile with a vast majority of the portfolio classified as DeepTech, or in the second quintile, where
20% to 40% of the portfolio is classified as DeepTech. This suggests that some of these large firms are generalists
with a limited exposure to DeepTech.

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Portfolio Strategies
Portfolio Style: From Specialists to Generalists to Thematic Investors
DeepTech VCs employ a variety of investment strategies that resonate with different founders and LPs.
As part of our analysis, we looked at the patterns around these strategies. For each VC in our dataset,
we assigned a ‘thesis strategy’ according to how they articulate their thesis and key investment
preferences. (See the Methodology Section in the Appendix for a deeper discussion.) The most
common strategies in our dataset are:
● Broad DeepTech: firms that invest across a wide range of advanced tech innovations, without a
clear specialization or overarching theme.
● DeepTech Specialist: firms that invest in specific fields or a more narrow set of technologies.
Examples may be “energy” or “aerospace + drones” or “BioIT, Neurotech,” etc.
● DeepTech Thematic: firms that have a thesis built around an overarching theme or vision such
as ‘advancing the UN’s Social Development Goals,’ ‘striving for a cleaner environment,’ ‘health
and wellness,’ ‘founders of a certain background’ or ‘founders from this specific university’ etc.
Some describe these firms as outcomes or problem-driven. Thematic firms generally consider
deals across a range of technologies or disciplines (including less technically-advanced
startups such as marketplaces or SaaS), so long as a company contributes to the thematic
vision of the firm.
● Generalist: firms that invest in all kinds of companies, technologies, and business models
(beyond DeepTech). Sometimes these firms have a primary investment lens that is delightfully
vague, such as “we invest in great founders.” Note that we looked to include in our analysis only
VCs who were positioned or commonly referenced as doing DeepTech deals. The DeepTech
component at these firms may be driven by a specific partner who’s particularly focused on
advanced technologies. Or the firm may just be a generalist that is comfortable with greater
technical risk.
● Other: A small portion of firms practiced more niche strategies, ranging from firms that
prioritize geography-first to firms that specialize in tech-transfer and IP negotiation with
universities.
The first three strategies comprise the majority of DeepTech firms. Specialist firms were the most
common, at 39% of the dataset, followed by Broad DeepTech funds and Thematic firms.

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In terms of fund size and assets under management, Specialist and Broad DeepTech firms look fairly
similar, with median sizes of $60M and $52.5M, respectively, and average fund sizes of ~$90M.
Thematics are much smaller and manage less money overall, with a median fund size of $50M and an
average of $52M. In contrast, Generalist funds manage an outsized portion of the DeepTech capital.
% of DT VC % of DT Median Fund
Thesis Style Total DT AUM
Firms Capital Size
Broad DeepTech 24.7% 28.1% $4.37B $52.5M
DeepTech Specialist 38.6% 38.6% $6.01B $60.0M
DeepTech Thematic 18.6% 12.2% $1.89B $50.0M
Generalist 8.4% 15.3% $2.37B $75.0M

Note: table excludes the 11 large outlier firms.
Frequency, AUM, and Size of VC Funds by Investment Thesis Style

Emerging manager firms are weighted towards specialization that aligns with GP expertise and
networks and demonstrates differentiation vs. other venture firms. By contrast, the larger outlier firms
are bifurcated, some more focused on DeepTech and others are Generalists who have a minority of
DeepTech deals. Of the 11 large outlier firms, none are Thematic investors. Strategies are split evenly
across Specialist, Generalist, and Broad approaches.
Interestingly, the outlier Specialist firms are all energy focused (compared to the rest of the dataset,
where Specialists exhibited significantly more variety in sectors and technologies). This demonstrates a
capital gap at larger check sizes for the bulk of DeepTech categories, as they’re relegated to raising
capital from Generalists, a few later stage DeepTech funds like Lux and DCVC, and CVCs.
Portfolio Strategy Trends by Market

We also wanted to understand whether any thesis strategies were more common in certain markets.
For example, what is the geographic breakdown of funds that employ a Specialist strategy? Are
Specialists more common in certain cities?
- While likely no surprise, the San Francisco Bay Area has a distributed range of investment
strategies deployed by its DeepTech VC firms.
- For a large market, New York has the highest ratio of Thematic firms, and few Broad DeepTech
firms. This high presence of Thematic strategies may be fueled by impact-investors (perhaps
influenced by the UN and other major NGOs present in New York) using DeepTech to target their
issue areas.
- In contrast, both the LA and Boston metros have relatively few Thematic firms, instead
predominantly composed of Broad DeepTech and Specialist firms.
- In other metro areas, specialization is the most common strategy for DeepTech firms — between
1/3 to 1/2 of the market for Seattle and Chicago, and over 80% for the Washington, D.C. and
Denver metro areas. These firms are typically specialized around a market's notable industries,
such as cybersecurity in D.C.
- Finally, Tech-Transfer Specialist firms, while a very small component of the DeepTech firms
market, predominantly reside in Boston.

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Strategies of DeepTech VC Firms, by Region
San Francisco Bay Area New York Metro Area
4%
14% 17%
35%
40%
14%
27%
19% 29%
Boston Metro Area Los Angeles Metro Area
14% 6%
13%
41% 38%
18%
31%
18% 13%
9%
Specialist Thematic Broad DeepTech Generalist Other
Portfolio Strategies and DeepTech Concentration

VCs in the top quintile for the DeepTech Concentration Score (firms with portfolios of 80%+ in
DeepTech) are much more likely to operate under a Specialist thesis than all other firms. Over 60% of
firms in the top quintile specialize in some way. In contrast, Generalist theses become much more
common among less concentrated VCs, which makes sense — as by definition Generalists are not
exclusively investing in advanced technology companies.

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Sectors and Technologies — AI Is Everywhere

So in what sectors and technologies do DeepTech VCs invest? Do all sectors have ample capital, or are
there certain fields or disciplines that are significantly undercapitalized? These questions fueled
another component of our research.
Before discussing specific DeepTech sectors or ‘categories,’ it’s important to caveat all of this:
DeepTech startups are incredibly multidisciplinary. Frequently, a single DeepTech startup will leverage
research and technologies from multiple disciplines and sectors — a robotics company that uses AI to
train its robots’ decision-making capabilities, a materials science company that uses chemistry,
physics, IoT and AI to charge vehicles through cement, an AgTech company that uses drones to deliver
new “clean” fertilizers — the list is as long as innovation is creative.
This greatly complicates classification. Like with defining musical genres and classifying ‘crossover’
songs in the music industry (ergo, is Lil Nas’ ‘Old Town Road’ a country or hip hop song), classifying
DeepTech startups and DeepTech firms is nuanced and open for debate.
How do you weight and rank companies by sector and tech, especially when assessing over 4,500 of
them? In our analysis, we chose to allow overlap, whenever it happened. (See page 87 for further
discussion).
Bearing this in mind, a few interesting trends emerge.
Firstly, AI is everywhere. Three-quarters of the firms in our dataset invest in at least one AI-related
portfolio company. And this isn’t due to there being a lot of artificial intelligence “pure-play” portfolio
companies: the number of investments being made into AI companies drops in half after excluding AI
startups that overlap with any other DeepTech category. The AI count is so high because artificial
intelligence and machine learning are the types of technologies that can be applied to basically
anything that uses data (which essentially means everything), and so a significant proportion of the
portfolio companies in our dataset overlap with AI in some way. As top VC Fred Wilson said in his 2019
wrap up post:
“Machine learning finally came of age in the 2010s and is now table stakes for every tech
company, large and small.”
Similarly, the Internet of Things (IoT) is also prolific, with nearly 70% of VC firms investing in at least
one IoT-related company. Like with AI/ML, IoT can run through nearly every other DeepTech category.
And while it’s difficult to say which categories draw the least activity from DeepTech VCs, a couple
standout for noticeably low levels of involvement. Defense is all but completely ignored by the VC firms
in our dataset. Less than 5% of our DeepTech firms invest in any defense portfolio companies. Less
than 15% have invested in a Neurotech or FoodTech deal.
Investments in Quantum/Computing, Drones, Autonomous Vehicles, Neurotech, or Aerospace deals are

more likely to come from Generalist or Broad DeepTech funds. There are a few possible reasons for this.
It may be that there are fewer specialists investing in these categories (or they have smaller roles). It
could mean these fields attract more attention from these other VC firms because they feel more
“commercial” and or have more typical KPIs. Or it could be that there's not enough deals in these fields
to support specialist funds.

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Lastly, energy stands out for the opposite trend: most investments made into EnergyTech are done
by large energy specialist funds. Part of this gap follows from the mega-sized energy specialist firms in
our data set (e.g. Breakthrough Energy Ventures, Energy Impact Partners). But these big energy
specialists may really just reflect the scale of resources required to make meaningful investments into
energy innovations like fusion. Smaller funds may struggle to invest in energy startups because of their
capital requirements; energy-focused VCs may simply need more than a $100M capital pool to have
any significant influence or be of value to companies innovating energy.
Team Construction
Another component of our research examined the education and career backgrounds of the investing
partners (specifically General Partners, or ‘GPs’) at these venture capital firms. In our next section, we’ll
assess this in depth at the individual level. But first, we wanted to look at VC firms and their partners
overall. What is the composition of typical DeepTech GP teams? Do firms have partners with an
archetype background or level of education? To help set the context, bear in mind that these are small
firms, with a median number of GPs of 2 individuals.
Given the complexity of the technologies and prevalence of PhDs among scientific entrepreneurs, one
might expect a high density of partners with PhDs at these VC firms. But in fact we found the opposite:
77% of firms in our dataset have no partners with a PhD.
Overall, DeepTech VC firms are less likely to have GPs with PhDs, but more likely to have some form of
prior technical operating (as ex-engineers, ex-scientists, etc) or founder experience on the team. Firms
with prior GP experience on the team are mixed, but on the whole, a majority of DeepTech VCs are new
to venture investing.
In contrast, VC firms investing more of their portfolio in DeepTech (those with high DTC Scores) are
more likely to have partners with advanced degrees in STEM or computer science and/or prior
DeepTech operator experience, and less likely to come from venture capital or startup backgrounds.
Moreover, 1 out of 8 VC firms (12%) have no advanced technical degree, no prior DeepTech experience,
no prior founder experience, and no prior GP experience on the team. So where did they come from,
you ask? Well, they tend to be lawyers or come from financial services / private equity; they’re generally
at smaller funds; are more likely in New York; and are quite likely white men. They are professional
investors looking for Alpha in a new, largely untapped, market.

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DeepTech VC Firm Composition
GP Experience Founder Experience
10%
19%
30%
35% 56%
51%
No Prior GPs No Prior Founders

At Least 1 Prior GP At Least 1 Prior Founder
All Prior GPs All Prior Founders
Teams with PhDs DT Operating Experience
5%
13%
18%
46%
77% 42%
No PhDs No Prior Operators

At Least 1 PhD At Least 1 Prior Operator
All PhDs All Prior Operators

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The General Partners: Backgrounds of Investing Partners at DeepTech VC

Firms
A VC firm is only as good as its partners. And in order to understand the landscape of DeepTech VC
firms, it’s key to understand the composition of their partners. So as part of our research, we examined
the education and career backgrounds of the partners (specifically the General Partners, or ‘GPs’) at
these firms. (See the Appendix for our methodology.)
Geographic Distribution — Across 50 Markets

Individual GPs are distributed in much the same way as firms’ headquarters: the top four metro areas
account for over 70% of all GPs in our dataset. The remaining GPs are spread (quite thinly) across 50
other unique markets. St. Louis emerges as perhaps an unexpectedly common location for DeepTech
GPs, in the top 5 markets; however, this is mostly driven by a few outlier firms with large teams of 10+
GPs. These exceptionally large St. Louis firms have lower DeepTech concentrations, and have a heavy
AgTech focus.
Looking at the geographic distribution of partners within firms, the trope that San Francisco is the
center of the VC universe appears to hold true. Roughly one-third of DeepTech VC firms have partners
permanently located in two or more metro areas; and for firms headquartered outside Silicon Valley
with distributed partners, those partners are most likely located in the Bay Area.
In contrast, firms headquartered in the Bay Area and Boston are less likely to have a partner in another
city. And for firms that do, that partner typically is on the other coast, either in Boston or San Francisco
(wherever their firm is not).
Percent of DeepTech GPs

Residing in Each Metro Area
31% San Francisco Bay Area

37%
New York City Area
Boston Area
Los Angeles Area
Other
6%
8% 18%

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Undergraduate Education — Elite Colleges in the Minority

Contrary to the typical belief that venture capital is full of Harvard and Stanford grads, the distribution of
undergraduate schools among DeepTech GPs is quite diverse. In fact, no school garners more than 5%
of the total GP pool.
Top tier schools also appear less important than popular knowledge might suggest. Less than a third
(30%) of GPs attended an elite undergraduate school, with only half of those elite schools in the Ivy
League. And when looking at DTC Scores, firms with lower DTC Scores correlate with a higher presence
of Ivy League partners. This demonstrates the importance of national research universities in this field.
Undergraduate Schools
4%
4%
4%
4%
3% Harvard
MIT
39% Univ. of Michigan
9% Univ. of Pennsylvania
Stanford
Other Ivy
9% Other Non-Ivy Elite
Other Private
Other Public
26%
Graduate Education — Few GPs Have PhDs

Just 10% of DeepTech GPs possess a PhD, with about 90% of those PhDs being STEM or computer
science related. (As a reminder, this excludes Life Sciences firms which operate quite differently.)
Advanced Degrees of DeepTech GPs

50%
40%
30%
20%
10%
0%
MBA MA/MS PhD JD MD
As previously discussed in the report, while the prevalence of advanced technical degrees rises sharply
with DeepTech Concentration, the actual percentage still remains lower than we expected. For firms
allocating at least 80% of their portfolio to DeepTech investments, more than 2 out of every 3 GPs
completed no advanced technical education. For those who did, most are in natural sciences or
engineering.

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More broadly, graduate degrees of any type are fairly common across GPs: 66% of GPs have a graduate
degree, with MBAs being the most common type (40% of GPs possess an MBA). Law degrees and MDs
are fairly rare. Interestingly, only 2% of GPs hold both a PhD and an MBA, and in terms of sequence —
getting the PhD almost always comes first.
Finally, compared to undergraduate school choice, preferences become slightly more concentrated at
the graduate level. Of note, Harvard was not in the top 10 schools for advanced technical degrees.
Most Popular Graduate Schools

STEM Graduate Schools MBA Schools
13% 18%
11%
8%
6% 54%
63% 8%
4%
3% 7%
6%
Stanford MIT Harvard Univ. of Pennsylvania

UC Berkeley Univ. of Michigan Stanford Columbia
Duke Other MIT Other
Career Backgrounds — Forging Their Own Paths

All-in-all the career backgrounds of DeepTech GPs vary widely, but tend to converge around 3 themes:
prior founder experience, prior venture capital experience (particularly prior GP experience), and prior
operator experience in a DeepTech industry.
Nearly half of GPs (40%) have previously started and run a business. Over a third of GPs (35%) have
previously held some role in a venture firm, though not always as investing partners. Of those with prior
VC experience, almost 60% were full-time decision-making partners (GP) before joining (or launching)
their current DeepTech VC firms. Another 12% of DeepTech GPs had prior experience in other
investment roles, spread evenly between angel investing, corporate venture capital, accelerators/
incubators, and private equity.
Operator experience in DeepTech is less common in the overall pool of GPs, though as noted previously,
is more prevalent at VC firms with high DTC Scores.
One unexpectedly large group of GPs (30%) are those who have no prior founder experience, no prior
VC experience, and no prior operator experience in DeepTech industries. It’s difficult to say how
exactly these GPs ended up managing advanced science portfolios (they have lower rates of PhDs,
Master’s, MBAs, and MDs). Collectively, they tend to hail from finance or private equity, tend to be at
large generalist firms and/or be in NYC. And interestingly, they frequently went to the same undergrad or
grad school as other GPs at their firm (i.e. they're found/chosen by former-classmates).

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Life Sciences — Overview of a Specialized, but Large Segment of the

DeepTech Landscape
Those in the DeepTech ecosystem readily recognize that Life Sciences / BioTech looks and functions
quite differently. Life Science companies are DeepTech companies, but they operate in a world with
clear paths to commercialization, well-defined growth trajectories and milestones, and significantly
more capital than the rest of the DeepTech economy. As noted in Section 5 according to the MIT-
PitchBook report, Life Science companies consistently raise more money than the rest of the DeepTech
ecosystem combined. The sector also benefits from fairly standardized IP-tech transfer processes
(many Tech Transfer offices have optimized for Life Science IP), and “well-established pathways to
liquidity via IPOs.” (In 2018 alone, there were ~$35B in Biopharma exits through IPOs.15
Simultaneously, many institutional investors and family offices have discrete Life Science practices or
strategies, where they regularly allocate to Life Science VC and PE funds. These practices are often
times led by ex-Life Science founders or VCs.
Ultimately, Life Sciences is a more mature and better understood category, so it makes sense that there
is more capital across all the cycles. Here, if there are capital gaps, they’re less acute. And unlike the
rest of DeepTech, there's a continuum of capital from the seed stage to the public markets. There's even
a NASDAQ BioTech Index — that doesn't exist for any other DeepTech industry. 16
Knowing all this, we analyzed Life Science VC firms separately, to allow us to focus on the rest of the
DeepTech ecosystem and ensure they wouldn’t skew our analysis.
So at a high level, what does the Life Science investing landscape look like?
First, there are a lot of Life Science funds, and they tend to be much bigger and much older than the
rest of the DeepTech venture capital firms. There’s also a high presence of Corporate VCs (such as
Johnson & Johnson and Novartis) as well as many family offices, private equity funds, and international
funds. The capital stack is further augmented by large generalist VCs such as GV and Kleiner Perkins
(which are also quite active in Life Sciences and sometimes have their own discrete life science funds).
Life Science VCs tend to be conviction funds, investing larger checks into fewer deals. Their
partnership teams have high numbers of PhDs and MDs. Geographically, funds are commonly located in
the metro areas of San Francisco, Boston, and New York, with San Diego and Seattle having sizable
presences as well. Outside of those markets, VC firm locations vary but tend to cluster near other
medical and health research centers.
15. Wilson Sonsini Goodrich & Rosati: Life Sciences Report, Winter/Spring 2019. Available here.
16. Per Nasdaq. website.

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In terms of fund size, they’re larger than other DeepTech firms. We identified over 150 firms making
Life Science investments. These included everything from emerging managers to established CVCs.
Unlike the rest of DeepTech, where a large number of smaller firms compose the vast majority of the
market (69%), there is a broader distribution of firms by size and deal stage in Life Sciences. While
discerning fundraising data is tricky given the size and complexity of the Life Science landscape,
emerging Life Science VCs have a median size of $100M, vs. $52.5M for other DeepTech funds. When
incorporating larger established firms, the data skews up dramatically, with a median fund size of
$200M and an average of $302M. There are numerous firms managing billions across multiple
investment vehicles.
Median Fund Size Average Fund Size

$350M $350M
$302M
$263M $263M
$200M
$175M $175M
$86.3M
$88M $88M
$52.5M
$0M $0M
DeepTech VCs Life Science VCs
Challenges in Life Science Investing

While we didn’t do an extensive review of Life Sciences, a few of our interviews did mention challenges
particular to this field. They include:
- Diagnostics: Some investors believe diagnostic startups are underfunded and under-pursued.
Per one expert, “All the forces around computation, visualization, and simplifying hardware can be
leveraged in diagnostics. But it’s deeply unsexy...nobody wants to be a diagnostics funder.” This
is in part due to perceptions of capped upside: “if 90% of things work, you’ll sell to 1 of 30 or 40
acquirers with an occasional IPO. With BioTech funds as large as they are, they can’t risk capped
returns.”
- Rigid Linear Pathways / Unwillingness to try other angles: Others argue that some therapeutics
R&D (and funding) is stuck in a rut, with scientists and investors trying the same suboptimal paths
repeatedly. They argue that therapeutics can be a “disconnected ecosystem of moving linear
assets along the pipeline,” where investors prefer products that fit a known pattern and move
from phase to phase, which leads to markups and exits. This leaves unpopular (but possibly
viable) solutions in the lab.
- Limited Lab Space: As with the rest of DeepTech, early-stage Life Science startups struggle to
find adequate labs outside of university and corporate environments.
While there are significant challenges for Life Sciences entrepreneurs and investors, there are greater
capital gaps in other fields of DeepTech.

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DeepTech vs. Software — Different Investing Models?

Now that we understand the landscape of what VCs exist and where they hail from, the next question is:
how well does the venture capital model work for DeepTech startups? Does the 10+2 year time horizon
of a typical VC fund align with the development timeframes of the companies? Do investment returns
meet the expectations of the VCs and their LPs? Through our 50+ interviews with VCs across the
country, we’ve discerned distinct perspectives as well as some clear contradictions. There’s
disagreement among GPs around capital gaps, capital requirements, and time-to market-fit with
DeepTech startups.
Does DeepTech Take Longer?

How a VC answers this is directly tied to when (what stage) a VC invests in a DeepTech company. Very
few VCs will invest in companies that are still enmeshed in applied R&D (eg.; de-risking a technology,
translating research into products), instead preferring to let government and philanthropic capital ease
that transition. Some firms will invest once a technology is ‘proven’, but before any pilot customers,
though they usually expect a pilot within 12-24 months after they invest. And more firms become
comfortable once a startup has a commercial pilot application underway. Depending on the technology
and sectors, the time frames between each stage range from months to years.
The majority of VCs we spoke with agree that DeepTech companies do tend to take longer to get to
market or a liquidity event than their pure-software counterparts. They note that fundraising for the
companies typically takes longer at each stage, that the technical challenges are higher and can delay
time-to-pilots, and that the sales cycle is often slower as startups sell into established industrial
processes (many of which cannot tolerate product failure or bugs). Many of these startups build and sell
tech to corporations with slow sales-cycles and slow integration-times, and sometimes a pilot can
require years of testing before other corporations follow.
Yet some firms ardently disagree, insisting that DeepTech companies can progress and exit on similar
timeframes. Some VCs point to a “compression of cycles” or a “compression of time-to-market,” where
DeepTech startups are able to layer on new tech or tools and speed up their progress. Others highlight
new business models like Robotics-as-a-Service or Sensors-as-a-Service that can lower the barriers to
entry for corporations. (These models can decrease the upfront capital expenditure a large corporate
needs to pilot a new technology.) In other cases, some VCs mention that corporations are re-
engineering internally, establishing faster sales and product development frameworks that allow them
to pilot and buy new technologies faster.
As noted by one VC, “With my DeepTech startups, frequently the issue isn’t that they need more
time...just that there isn’t much capital to begin with, so everything takes longer because of tight
budgets.” In some cases, startups report that the only possible sources of funding come from large
competitors that may invest with an eye towards stealing their technology or squashing the value of the
company so they can acquire the IP cheaply. 

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Does DeepTech Require More Capital?

Again, answers vary depending who is asked. Almost unanimously, experts agree that DeepTech
companies need more capital than other startups to get started (which makes sense given the active
role of grants), but there’s disagreement on financial requirements at later stages.
Some argue resoundingly yes — DeepTech companies simply require more capital throughout their
life cycles. Whether it’s building lab space, running expensive tests, acquiring unique resources,
iterating on physical products, buying costly equipment, building factories or underwriting enterprise
sales teams facing long industrial buying cycles, DeepTech startups face larger financial requirements
than found with software or tech-enabled startups.
Others argue no, DeepTech companies don’t require more capital — it’s just that their capital needs
are heavily front-loaded. These startups are more likely to need large amounts of capital earlier in their
trajectory while they’re prototyping and refining their initial pilot products. This occurs during basic,
applied, and translational research phases, and continues through commercialization and the early
stages of venture capital. These investors argue that, once you have a successful commercial pilot,
selling to large customers becomes more cost-efficient. At these later stages, DeepTech companies
have acquired protective moats, and may scale more efficiently than their software-only counterparts.
They point to consumer and enterprise software startups that blitzscale to rapidly acquire market share
once they achieve product-market-fit. For these startups, their protective moat isn’t around IP or sticky
customers — it’s in massive market share and economies of scale. Some of these startups have raised
billions in private capital to fuel their growth while still not turning a profit (think Uber, WeWork, Slack,
Robinhood, Airbnb, and many other ‘unicorns’). When you compare these startups to those in DeepTech,
the collective capital requirements may not look any different.

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So Where Is the DeepTech Capital Gap?

The DeepTech capital gap is pervasive and substantial, but appears at different times for different types
of companies.
Most experts consulted for this project agree that there is a substantial capital gap for DeepTech
companies but, depending on their perspective, disagree on where. In exploring the capital gaps, we
have to bear in mind that many of our interviewees are experts in a particular component or segment of
the overall DeepTech ecosystem, and their responses tend to hone in on those areas. If your business is
funding Series A DeepTech companies with breakout traction via commercial pilots, then you may not
even think about all the scientific startups that have never made it through your funnel … they’re just
not part of your daily algorithm.
There is a small segment who believe there to be no capital gap whatsoever: these individuals are
almost always VCs based in the San Francisco Bay Area. On a few occasions, we also found resistance
to the idea of capital gaps from VCs who did not want more capital in DeepTech; to the extent we could
surmise, our read is those individuals either 1) liked being the ‘only game in town’ and didn’t want
potential competitors or 2) were concerned about ‘dumb money’ flowing into DeepTech and creating
issues.
Fundamentally, the DeepTech capital gap appears as soon as the government grants start to phase out
and continues through mid-to-late stage VC. There are several stages that are particularly acute.

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Pre-Seed and Lab-To-Market: the Earliest Stages

While there are sector-specific gaps even before this, the DeepTech capital gap fundamentally emerges
once government and philanthropic capital eases out of the equation. (It is worth remembering that less
than 3,600 firms receive USG grants each year, a minority of total DeepTech startups.) But for those who
do receive grants, the gap really begins as the Phase II SBIR program winds down. At this point,
companies are encouraged to ‘go forth and commercialize’, but all too often, their technology is not yet
ready, and private-sector capital still sees too much risk in the products. Companies may be 6 to 60
months from sufficiently de-risking their technology, identifying a business model, or being ready to
seriously negotiate a commercial pilot.
Part of what contributes to this gap (and subsequent gaps) is that the technology is hard to diligence.
These companies frequently lack the performance metrics (users, revenue, customers, etc.) of software
companies at a similar stage. Without revenue or commercial partnerships, VCs must rely on
substantial in-house expertise and/or the right network to vet a DeepTech company.
“The gap is really in the initial translation stages from government funding to private funding —
going from being an SBIR-funded organization to a venture funded one.”
Noted one expert. Per another:
“You can count on both hands the number of groups that will do the really early pre-seed, pre-
product stage investing.”
For many scientific founders this stage is particularly problematic. With limited resources, and often
before a business lead joins the team, these founders are out of their depth when trying to find
investors and convince them to back the company. They’re scientists, not given to waxing poetic about
the potential virtues and opportunities of their startup. They’re wading through a dark, undercapitalized
landscape, driven solely by the belief in their technology and the vision they have for a better future.
Part of what’s given rise to SBIR ‘Research Mills’ is that those scientific teams can’t find any capital to
continue their work long enough to reach private capital on the other side. So instead, they return to the
only capital source they’ve found: they throttle their dreams for their product, devise another line of
research, and go back to SBIR.
Seed and Series A: Competing for Scarce Capital

For companies that successfully bridge the pre-seed translational gap, their fundraising challenges
persist. As a startup approaches or achieves its first pilot, the bulk of DeepTech VC funds enter the
market. But invariably, there are not enough of these firms. And all too often, the firms themselves are
undercapitalized.
It’s worth remembering that the vast majority of DeepTech VCs are emerging managers: smaller, newer
firms, with less institutional backing. When they struggle to meet their own fundraising targets, that
means there’s less money to go around for DeepTech startups.
This issue is particularly poignant outside of the San Francisco Bay Area and Boston. Across most of
North America, DeepTech VCs are rare. Moreover, these funds are typically considering deal-flow with a
wide geographic lens, and will sometimes restrict deal sourcing to the major markets (leaving less
capital for everywhere else).

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For any given DeepTech sector, there may be (at most) a few Specialist VCs … but that’s usually it. If a
startup is lucky, its technology also aligns with the mission of some Thematic-based funds. Beyond
that, they’re competing with all other DeepTech startups for attention from the Broad DeepTech or
Generalist VCs. Few Corporate VCs meaningfully participate at the seed-stage. As a result, seed-stage
capital options are extremely limited. As noted by one accelerator director who helps startups raise
seed capital:
“There’s just hardly any DeepTech VCs to begin with … that’s the problem!”
Series A isn’t much better. Considering that the majority of DeepTech VCs are smaller funds with
conviction strategies, they don’t have sufficient capital to meaningfully invest at later stages. Less than
20% of all DeepTech VCs have funds larger than $100M. (Generally the threshold for writing larger
checks to startups, and for institutional LP investment.) At the Series A Stage of a company, more
(though not all) CVCs are willing to invest, but many won’t lead a deal, and no one considers them a
panacea. Per one corporate investor:
“Lots of startups are coming to us with convertible notes, and looking for a lead; to me, that
signals it's hard to raise post-Seed.”
Several VCs note widening gaps for A-Stage capital outside of the major hubs, with fundraising taking
longer across the board.
Of course, some DeepTech companies are able to raise Series A rounds from generalist VC funds … but
anecdotally, these companies tend to be significantly de-risked and have a rockstar team, with the right
network, that excels at both science and storytelling. “There’s lots of money out there, but only for the
select few. Even in DeepTech, you can see a herd mentality and a perception of deals being hot.” So
most deals are underfunded.
Series B: Different Key Performance Indicators (KPIs)

As capital sources become more institutionalized, DeepTech companies fall behind. The most
common reason why? Their KPIs look different.
In DeepTech, “when you look at metrics like customers or revenue versus their target fundraise, it is less
progressed than with most other startups. They’re often a whole stage of KPIs behind,” notes one
investor. And because of the technical challenges involved, companies often miss their milestones.
Even more challenging is that DeepTech companies may need their own unique KPIs in order to
effectively measure progress. “DeepTech companies have components that look similar to other
companies, but sometimes you have to make new KPIs or invent new mental models and frameworks
about what the KPIs ought to be that you’re investing in,” said another VC. How do you diligence a
company that has KPIs unlike any other you’ve ever seen?
“This is the challenge of betting on the future … you’re trying to be the smartest blind man in a
dark cave."

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This is a problem because, at Series B, there are very few DeepTech-focused VCs investing large
checks. This means startups compete for capital from Generalist VCs and other later-stage investors
who also look at startups in SaaS, marketplaces, consumer products, and virtually every other sector
and business model. These investors hunt for traction (e.g. standard progress metrics), and don’t
necessarily know how (or want) to adjust their KPI expectations.
“In a world where you must compete for funding against companies that seem to be doing
better, investors are risk averse … they’d rather spend more money on those with more traction.”
Even though DeepTech companies may have far more defensibility (through unique IP and industrial
corporate moats) than their pure-software peers, traction often reigns supreme.
Project Finance: No-One Underwrites Critical CapEx

One pervasive capital gap that exists across the DeepTech lifecycle is ‘plant-based capital’ or ‘first-
project finance.’ Basically, there isn’t any.
First-project finance is the money to build the first instance of a physical plant, industrial infrastructure,
or production facility that allows companies to prove whether their DeepTech product actually works.
The DeepTech ecosystem consistently reiterates that no one funds these first critical capital
expenditures.
This gap is rooted in the outsized technical risks and the amount of required capital: it’s not just the
DeepTech in question that may or may not work — in building the first infrastructure to test it, countless
other things could go wrong in its construction. “There are no milestones in project finance, no signal till
it’s done,” notes one VC.
Funding resources for this have existed in the past, most recently during the CleanTech wave in the
2000s. During this time, the federal government extensively underwrote this kind of finance for
companies like Solyndra and A123 Systems to the tune of hundreds of millions of dollars. When those
companies failed, risk appetites for project-finance disappeared across both government and the
private sector.
But, as clarified in multiple interviews, most DeepTech startups in need of plant-based capital today
don’t need hundreds of millions of dollars. Instead, they typically need between $2M and $50M,
depending on the technology (some materials and chemical startups need only a modest amount of
capital for a basic production lab, while some EnergyTech may need to build a mini-power-plant). Once
the first project is proven successful, investors note that corporations or infrastructure funds are more
likely to step in and buy the tech / fund follow-on infrastructure.
Of course, first-project finance isn’t required by every DeepTech company. But for those who do need it,
it’s a crucial— and sometimes insurmountable — hurdle.

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One Size Does Not Fit All

Not all DeepTech companies are venture back-able. Sometimes their markets or business models
just won’t result in a large enough exit to be attractive to a VC that needs to meet the return
expectations of their LPs. Some Series A investors mentioned seeing compelling DeepTech startups
that could be acquired for $100M to $200M but said they didn’t invest in them because the potential
exit was too small. “There’s a gap on the funding infrastructure for that kind of company, where the
power law venture requirements don't really fit the company’s potential” said one VC.
What do those companies do instead? While most investors don’t pay close attention once they’ve
decided to pass on a deal, their anecdotal feedback is that some of the companies die and others
continue making progress albeit slowly. If they are able to survive, it’s usually through corporate
partnerships or a family office driven by an impact story.
Others have noticed capital gaps for DeepTech companies in areas with no proven exits or an
unproven business case. For those startups, “The underlying markets are large, but with no proven
exits, it’s harder for us to invest. Those founders also tend to be exclusively technical without a layer of
partners on the business side to shepherd them through commercialization,” explains one VC.
(Synthetic biology that’s not therapeutics-related, as well as some materials science and climate
change-related companies, have been particularly highlighted for this challenge.)
Finally, the early grant-funded research stages can have gaps too. Some in the ecosystem argue that
while government grants can be hugely helpful, the application and review process comes with
considerable friction. “SBIR kills everyone with the cycle time,” said one investor, noting that many
startups can’t survive the nearly year-long process from application to money in the bank.
“But there are some new, faster models such as AFWERX that can fix the issue … anything with a
shorter cycle time and non-dilutive money will help immensely.”
The DeepTech venture landscape is complex and complicated. While bearing many of the same
characteristics as other venture investors, there are some distinct differences. These differences
inform the behavior of their own investors, or Limited Partners, and when and how they choose to
allocate capital to DeepTech.

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DeepTech Limited Partners: the Money Behind the Money
The LP Landscape & Portfolio Construction

The third pillar of the DeepTech investing ecosystem is the Limited Partner (LP). Serving as capital
allocators, LPs are investors — whether in a company or security — whose ownership and rights are
limited to the specific investment they hold. LPs can be
individuals or institutions. The financial services industry 2018 AUM:
segments individual investors according to income and US Institutions & HNWIs
net worth. Many of the available DeepTech investments
are restricted to those with a high net worth and/or 2%
income (e.g. Accredited Investors). Individual LPs are
often structured as a family office. Family offices range 30%
from one investment professional working for a sole
principal, to hundreds of employees covering a large, 54%
multigenerational family. Families with less than $100M
of investable assets will often engage the services of
13%
multi-family offices: third-party investment advisors that
offer bundled products at competitive rates, since these
entities achieve economies of scale by interfacing with
banks and investments funds using a combined total HNWIs: $18.6T Family Offices: $4.6T
Pensions: $10.4T Endowments: $609B
assets under management.17
Institutional LPs range from foundation and university endowments, to pension funds and asset
managers. Institutions vary in the size of the assets under management, risk profiles, and the time
horizons for their investments. They are broadly connected by the fact that they are investing capital
that is not their own, that is, they have a fiduciary responsibility regarding the investment decisions they
make. Whether it is a foundation whose capital is earmarked to support charitable causes, or a
university endowment or pension investing in order to return more capital to the students or employees
it respectively serves, these institutions are bound by prescribed governance and asset allocation
standards. Asset managers — usually banks, wealth managers, or investment funds — similarly are
investing pooled capital from their clients with a defined risk-return profile.
Additional Chart Notes: 5.3M HNWIs, managed by ~9K RIAs; 6,000 Family Offices; Top 1,000 Pension Funds: 500
Endowments (AUM $100M+). 
17. PI Online 2018; NACUBO 2019; Campden Wealth 2018; CapGemini 2019; Preqin Global Alternatives Reports
2017; PWC 2015 Report on Alts; PWC Alternatives 2020; NVCA 2017 Yearbook, Barclays Hedge 2017

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How Do They View Investing?

For both individual and institutional LPs, investing starts by establishing the required governance
structure to build an investment portfolio. Most professional advisors will begin by developing
investment objectives based on the parameters of time horizon, volatility, risk, and return profile.
Individual LPs, investing their own capital, will want to consider their own spending needs, the needs of
their beneficiaries, and tax concerns. While these investing objectives do not need to be codified in a
written investment policy statement, such formalization is prudent. Institutional LPs must develop a
formal investment policy since an institutional investor is required to invest with the best interests of the
beneficiaries at heart.
In financial services, this is referred to as fiduciary responsibility. Using the example of a pension plan,
the board and external investment advisors serve as fiduciaries, while the employees covered by the
plan are the beneficiaries.
Portfolio allocation is determined by an examination of

asset classes, through the aforementioned
parameters. Returns, volatility, liquidity, transparency,
scale and consistency are the primary drivers of
portfolio construction. The main categories, or asset
classes, are equities, fixed income, and cash. Other
investments fall into the general category of
alternative assets. Included in alternative assets are
hedge funds and private equity funds. Other
alternative assets include commodities, currencies
and real estate.18
Venture is a subset of private equity. In institutional

portfolios it is usually a very small proportion; for
example, for the Florida Retirement System Pension
Plan, which has nearly $200B AUM, venture makes up
less than 0.3% of the total asset allocation, including
later stage and generalist funds.
An asset allocation strategy is intended to deliver the return necessary to meet investor goals over a
full market cycle. This includes cash flows which can be a net positive (accumulation) or net negative
(decumulation). Rebalancing — or reassessing the asset allocation periodically — is the key to beating
the benchmark in modern portfolio theory.
The financial services industry favors investments that provide daily liquidity and valuations, are easy to
custody, report on, buy and sell, and are transparent. Institutional investment advisors are able to make
the case for investments outside these parameters only when the LP possesses a pool of assets that is
both of significant size, and has a sufficient time horizon. In such a case, we can see a double-digit
allocation to alternatives, as exemplified by Ivy League university endowments such as Yale, Stanford
and Harvard.
18. Wall Street Journal: New Force on Wall Street: The ‘Family Office’, March 2017. Available here.

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Who Are the Decision Makers for These Investors?

Individual LPs, who accumulate wealth through some combination of labor, investing and/or business
ownership, will typically hire an investment advisor to manage their money. Institutional LPs hire an
investment advisor in order to meet their fiduciary duty requirements. These investment advisors
control the investment decision making and seek investment opportunities in line with the institutions
they represent. Additionally, Institutional LPs such as pensions and endowments typically set
investment and allocation policies via a committee of the institution's Board.
Where Does DeepTech Fit in the LP Portfolio?

LPs Are Most Likely To Invest in DeepTech Using Alternative Assets
Alternative assets is a catchall term used to describe anything outside of the traditional asset classes
of equities, fixed income, and cash. Generally alternative assets are investments and strategies that are
not correlated to traditional equities and fixed income investments. The first alternatives were hedge
funds, founded in the late 1970’s. At the time, hedge funds primarily employed strategies to invest in
publicly-traded securities to produce outsized and non-correlated returns using concentration,
leverage, and shorting. Later, private equity and venture capital were added to the umbrella of
alternative assets. Alternative assets historically complemented the other asset classes specifically
due to their lack of correlation. It was not until 1995, when modern portfolio theory was first broadly
applied to portfolio construction, that investors looked at investments through the lens of a single
portfolio. This new way of assessing investments — comprehensively and in comparison to one
another — emphasized correlation and risk adjusted returns as measurements. Since the use of
alternative assets in portfolios addressed these two measurements this shift led to the codification of
the category of alternative investments and their use in portfolios expanded.
Private equity has now surpassed hedge funds as the most popular alternative asset investment. 19 LPs
have also increased their allocations to direct investments in companies. Alternative assets are,
therefore, ever changing.
2018 Alternative Asset Allocations
4%
28% Hedge Funds

42% PE Real Estate Funds
Natural Resources
Infrastructure Funds
Funds of Funds
Private Equity
Venture Capital
4%
5% 6% 10%
19. Ernst & Young: Global Alternative Fund Survey 2019. Available here..
UBS & Campden Wealth: The Global Family Office Report 2019. Available here.

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Additional Possibilities for DeepTech Investing

The three possibilities for DeepTech investing — public equity, private equity, and venture capital —
demonstrate an asset class-driven access problem. On the whole, alternative assets provide a more
natural entry point for LPs looking to invest in the field, given that there are so few public equity options
for DeepTech investors. An investor can buy shares in companies such as Nvidia, Tesla, or Virgin
Galactic: publicly traded companies that have either large R&D operations or are explicitly building
advanced technologies, such as genomics, nanotechnologies, autonomous vehicles or advanced
materials. Public equity investors can also purchase a handful of Life Sciences equities: publicly-listed
BioTech and BioScience companies such as Crispr Therapeutics AG or Intrexon, for example. But when
it comes to other publicly-listed products, such as exchange traded funds (ETFs) or mutual funds, there
are very few options. To access DeepTech investments, fund managers will either own shares of the
aforementioned companies — leading to a very similar exposure — or will sometimes buy shares in
special purpose acquisition companies (SPACs). (Publicly-traded vehicles that raise capital for mergers
and acquisitions from public investors.) SPACs are not commonly employed in capital markets.
On the private equity side, LPs generally only have access to later stage growth capital opportunities,
again concentrated heavily in Life Sciences, Biotech, and Pharmaceuticals. Large buyout firms such as
KKR, Warburg Pincus, and Bain lead this field.
LPs, therefore, do not have many options for DeepTech investments in public or private equity. This lack
of supply speaks to the very early stage in which DeepTech companies exist, (somewhat excluding here
Life Sciences), from both a technological and company state. Most DeepTech companies have not
existed long enough to go through an IPO cycle into public markets. And while one could look to Tesla
as an example of a DeepTech company that IPO’d early in its technology development (pre-revenue and
prior to the launch of its affordable electric vehicle brands) its track record is more likely the exception
to the rule thanks to its eccentric founder Elon Musk. Therefore the majority of LPs’ investments in
DeepTech are through venture capital, which, as previously stated, makes up a tiny subset of the overall
pool of alternative assets. A former wealth manager further confirmed how tiny the subset is when he
noted that — until two years ago — the large, institutional wealth management firm where he was
working did not even have a venture option for clients on its platform.
LP Investments in DeepTech
Limited LP Investment in Advanced Technologies
With a better understanding of the investment structure of public and private markets, it is clear that
LPs’ options are limited when investing in DeepTech. Given the low supply in public equities markets,
and few options in private equity, the primary mechanism for LPs to access DeepTech investments is
through direct investments or venture capital funds; venture itself being a small subset of the
alternative investments space.
Our qualitative research reflected these trends.
To complement the third party data analyzed in this section, we spoke to 40 LPs for their insights on
investing and to understand specifically how they think about DeepTech. Given the small sample size,
these discussions were intended to provide color commentary for the data. Over half of the LPs were

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single or multi-family offices; while the balance of the discussions were held with asset managers,
financial advisors, fund of funds, endowments (Foundations, Universities) and outsourced chief
investment officers (OCIOs). We used publicly available data and a few conversations with pension fund
CIOs to supplement this LP data. Our outreach primarily centered on U.S.-based offices and institutions,
although we did speak to a handful of LPs in Europe, the Middle East, and Asia.
The LPs’ total assets under management range from $100M to $1.8T. A majority have an allocation to
alternative investments in their portfolios, ranging from 10-50% of the overall asset allocation. A
majority also have an allocation to private equity and venture capital investments. These figures are
broadly in line with conventional data. About half of the LPs make direct investments, and of those who
do, half are single or multi-family offices, while the rest are asset and wealth managers.
Given that investment in DeepTech is an investment in science-driven technology, we also asked LPs to
assess their portfolio allocations to science. Responses ranged from 0% to 50% of the portfolio, but
more telling were the comments in response to this question. Many traditional asset managers noted
that “science” is neither a portfolio construction term nor a proscribed asset allocation bucket, i.e. this
is simply not a category that investors use to measure their investments. Other respondents asked if
we meant Life Sciences when using the term “science.” Others still asked for a definition of what we
meant by “science,” suggesting a broad unfamiliarity with the term when it comes to thinking about
portfolio construction and investing. Not a single respondent indicated that they invest in public
equities with a science component, and no one responded using the term “DeepTech.” In fact, our
conversations appear to suggest that, unless an LP has a science background (rare), they are not
thinking about science at all when they are making investments.
When LPs were asked how they would define the term DeepTech, there was a distinct non-consensus
on terminology. Some LPs took issue with the designation “frontier,” noting that word refers to frontier
capital markets, that is, equity investments on stock exchanges in developing countries. Others
understood the word “frontier” to denote being on the edge of discovery and thought it quite suitable to
define investments in technologies such as AI, ML, and IoT. And yet some, when presented with a list of
technologies that our DeepTech research encompassed, simply responded “we just call that all tech.”
One of the more thoughtful comments came from a family office that makes significant investments in
renewable and clean technologies. They emphasized that:
“... the terms themselves do not matter, we are simply looking for long-term, sustainable
business models. These models happen to be heavily technology-driven, so we spend the time
to understand the complexities of that technology before investing.”
Another thoughtful response linked, unprompted, the definition of DeepTech to that of impact investing,
noting that:
“... the definition actually crosses over into that of impact investing, that is, hard tech solutions
are addressing some of the world’s biggest problems.”
With this LP observation in mind, we will transition to another finding of our discussions: the confusion
and opportunity surrounding DeepTech and impact investing.

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Impact Investing and DeepTech — Confusion and Opportunity

The confusion and opportunity linking impact investing and DeepTech arise from a parallel lack of
uniformity in terminology. impact investing as a term was coined by the Rockefeller Foundation in 2007,
and has been marred since inception by both a conflation with philanthropy and a belief that it implies
giving up quantitative returns for qualitative environmental, social, and governance outcomes. The
definition of impact, as one investor we spoke to said, is “fuzzy, objective, and evolving,” much like that
of DeepTech.
Some investors connect DeepTech and impact seamlessly; one LP interviewed noted that “DeepTech is
absolutely impact investing, I would think everyone doing DeepTech would consider it to have a social
impact.” Another LP, bemoaning the standard environmental, social, governance (ESG) investing
paradigm as a poor excuse for impact, said, “if you really want to do sustainable and environmental
investments, you need to really challenge society; DeepTech is sustainable by its very nature.”
Most LPs surveyed, however, noted that — whatever the terminology — ESG/Impact/Sustainability are
not part of the primary decision making criteria when making an investment, and that any positive social
outcome is an added benefit. These findings present a marketing opportunity: one could potentially
draw more DeepTech investors by specifically targeting impact investors, but could also create further
confusion given the lack of well-defined terms and metrics for return measurement in both fields.
Examples of Unique LP Approaches to DeepTech Investing
Family Office That Started With Direct Investments in Companies, Then Pivoted To
Venture Funds
After attending a four month long program at Singularity University, a family office decided to start
investing in DeepTech; the goal was to find a way to enable this type of technology to address the
United Nations’ Sustainable Development Goals. Straining their network for the right kind of assets, the
process was unstructured and complicated. One of the major roadblocks they encountered with
DeepTech was the lifecycle: because of the nature of disruptive business models, the life cycle is
significantly longer and there is a higher variance in outcomes.
The investment advisors eventually realized they were not good at picking companies and started to
actively exit the direct investments in favor of partnering with GPs and investing in venture funds. The
family office feels more empowered by this approach, since the GPs have the capacity for both the due
diligence and ongoing management of the underlying companies.
Foundations As Pre-VC Capital

There is a market gap for patient capital to finance mature academic research. While academics are
much more motivated by social impact than financial returns, most are not opposed to working with a
company. Three scientists based at Stanford — a computer scientist, agricultural scientist, and an
economist — who had completed research on how to use machine learning to analyze satellite imagery
data around crop yields in Sub Saharan Africa teamed up with a foundation, who proposed they start a
company, as a more scalable way to find a product fit for the market.

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The foundation brought in a CEO and CFO, and invested the initial tranche using the Y Combinator safe
note model (“simple agreement for future equity”). This early stage investment allowed the scientists to
take the necessary time to develop the platform as open access.
The company is now in the midst of raising a Series A round, speaking to financially oriented VCs that
would not have been interested without more proof of a business model. They are looking to close this
round in the low double digit million dollar range, which will buy the company another couple of years to
really become a product-driven company.
A Family Office and Investment Company Wholly Focused on Sustainability

The family wealth was created running an operating business that developed world-class air
purification systems. After selling the business, the family used the proceeds to fund its family office,
which they refer to as their new family business. The office is linked by an underlying mission to foster
global ingenuity. The core business supports environmental entrepreneurs and organizations all around
the world. One third of the assets under management are diverted to this operational effort as the
family is trying to solve how to bring scientists and entrepreneurs closer together. One third of the
assets are in a traditional managed portfolio, and the final third are invested in non-liquid, high-risk
assets, intended to have a higher impact over the long term. This portion of the assets are focused on
DeepTech, with the mindset that these investments will take longer to realize over time.

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Challenges of Moving More Capital Into DeepTech
The Allocators (LPs)

Overview: Why Do So Few LPs Invest in DeepTech?
According to PwC, the advised or brokered global capital pool of assets in the United States in 2016
was $46.9T, projected to be $58.6T in 2020.20 As discussed, the LP investor has been largely forced
outside this managed asset structure to access venture capital opportunities such as DeepTech. Given
DeepTech’s limited availability, the reality is that most LPs are not exposed to DeepTech investments.
Additionally, financial advisors lack the technical expertise to understand DeepTech, which leads to low
client demand for such investment opportunities. Institutional LPs must, as fiduciaries, balance specific
risk and return profiles for their beneficiaries. The analysis resources and perceived risks of advanced
technologies cause consultants and OCIOs to avoid most DeepTech investment opportunities.
Additionally, transparency and regulatory requirements increase the perceived fiduciary risk of
DeepTech investments. Our discussions with LPs also revealed a strong “network effect”, most LPs are
sourcing deals from their existing networks, relying on a closed loop of investment referrals. The issues
with DeepTech are therefore twofold: the structural complications in the market around venture
investing, and the difficulty for LPs to access and understand DeepTech.
The Market for DeepTech

Allocator Requirements: Size, Return, Risk
Our research identified three roadblocks that keep LPs from investing in DeepTech: size, return, and risk.
The vast majority of LPs capital is sitting in large pensions or endowments. These institutions do not
have the capacity to be nimble, nor do they have an incentive to search for new or non-conformist
strategies within their allocation to alternative assets. Additionally, most LPs are looking for outsize
returns from this allocation to alternative assets, and using return on investment as the primary tool to
screen an investment opportunity. On the risk side, LPs do not have the capacity for extensive and
comparative due diligence on many small venture funds; in turn, due to their size, these funds cannot
offer data to support a standard “best practices” due diligence.
Additionally, institutional investors and asset managers prefer to limit the number of managers they
work with, and generally set a minimum check size of 1% of total AUM ($5M - $10M), as they seek to be
less than 10% of any fund in which they invest. The result is that these LPs focus on funds with an AUM
greater than $100M.
Further complicating the mismatch, many wealth managers want to write small tickets, some as small
as $50,000 — $100,000, and there are very few venture funds willing to take checks that size. In respect
to check and fund size, family offices are often flexible, but generally prefer direct company investing in
the venture category. This preference is supported by data from UBS’s 2019 Family Office Survey,
which notes that 11% of family office portfolios are direct investments, compared to 7% in private
equity funds.21
20. PwC: Asset and Wealth Management Revolution: Embracing Exponential Change, 2017. Available here.
21. UBS & Campden Wealth: The Global Family Office Report 2019.

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LP Expectations on Venture Returns (IRR) Have Been Set by the Outliers

A majority of LPs we spoke to consider the internal rate of return (IRR) or performance as the primary
factor when making investment decisions; other investment decision making metrics didn’t even come
close. When asked for a range, most LPs we spoke to are looking for 20-30% returns from their venture
allocations. These expectations are much greater than reality according to recently available venture
performance data. LPs are furthermore trained to look for ‘top quartile performing funds’ to achieve
their IRR goals. One institutional LP we spoke to explained that they had done a study demonstrating
that software tech investing was the only way to get 100X returns; they had the impression that
DeepTech investments such as Life Sciences have lower return profiles, higher loss ratios, require more
money, and take longer for investments to be realized. This sentiment expresses why exit returns
(multiples) needed to achieve those goals are largely confined to software companies.
LPs Believe DeepTech Investing To Be Higher Risk

LPs see DeepTech venture as investments with outsized technical and business model risk, within the
context of the higher risk asset class of alternatives. As one former pension CIO said to us, “you know
that there is just no data that is usable on venture.” A barrier to entry specific to DeepTech is the
additional technical expertise required to make an investment. When asked to describe their concerns
on the field, many LPs we spoke to demonstrated an overall lack of confidence in their ability to properly
due diligence science-based entrepreneurs and technologies. Indeed, it is time consuming to value
companies pre-revenue or even pre-market, much less built on complex technical foundations.
Vast Majority of LP Capital Sits in Large Funds Without the Capacity To Invest in Emerging
Managers
The financial services industry defines an emerging manager as a fund manager investing between
$500M to $2B, and earlier tenure (Fund I, II or III). It is important to note that these managers are
substantially larger than the vast majority of VC firms. An emerging venture manager is generally
defined by the industry as managing less than $100M in assets and running Fund III or earlier. 22 Due to
this gigantic size disparity, venture emerging managers generally fall outside LP investment
consideration. As we note previously, there are very few DeepTech venture capital firms run by
established managers. Therefore the majority of DeepTech fund products are being created by
emerging managers, creating a mismatch in supply and demand. While many LPs we spoke to
expressed their support of emerging managers, the data shows a gap institutionally between what LPs
will say they invest in regarding emerging managers and how they execute. Very few institutional
investors have significant Emerging Managers programs, and those who do tend to have a minuscule
allocation of capital to these programs. One of the more recent programs was developed by pension
fund Massachusetts Pension Reserves Investment Management Board (MassPRIM), which invested
$50M in each of three emerging hedge fund managers in fall of 2018.23 But with a total AUM of $71.9B,
this $150M allocation represents less than 0.2% of total assets. Even more problematic, in May of 2019,
Ohio Public Employees Retirement System (OPERS) voted to end its $520 million emerging manager
22. First Republic Bank: A Data-Driven View of Emerging Managers, March 2019. Available here.
23. Institutional Investor: MassPRIM Invests $150MM in Emerging Hedge Funds, November 2018. Available here.

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program.24 And in December of 2019, CalPERS significantly reduced its equity emerging manager
program from $3.5B down to $500M.
DeepTech Deal Sourcing & Access

When studying LPs’ deal sourcing and access to DeepTech, we find a disrupted supply/demand model.
Generally speaking, LPs do not have access to the highest performing funds: the top 5% outliers who
produce extraordinary returns. Conversely, institutional asset managers do not have appealing venture
products. The second part of the deal sourcing and access problem is network-driven.
Asset managers (investment advisors, wealth managers, etc.) typically charge fees based on the total
assets under management. Since venture funds are smaller than the typical hedge fund or private
equity fund, asset managers are not motivated to offer venture products, given the fact that they would
have lower compensation for greater effort and risk. This also illustrates how existing products
complement the performance metrics currently in place for asset managers. There is simply no
incentive to innovate. Without an array of venture products to choose from, LPs will seek venture
investments outside of the traditional asset managers. One LP even went as far to say that “banks are
just for custody and lending these days.”
The vast majority of LP allocators who do invest in venture — from family offices to institutional
investors — therefore rely on their personal networks and measurements such as track record to make
venture investments. UBS reports a home bias for families making real estate investments: that is,
families select investments from existing friendships and social networks. 25 Our discussions with LPs
confirmed this network bias, as a majority of those we spoke to — individual or institutional — noted
that they primarily sourced investments from their networks. Speaking to this investment decision
making process, one LP told us that they “source [investments] from our network, recommendations
are very important, who the other LPs are is important.” We also heard from an institutional LP who
simply refuses all inbound manager requests. This closed referral loop further confirms our finding that,
if LPs do not have some pre-existing exposure to science and technology, it is unlikely they will step
outside their networks to make investments in the sector.
It appears that the network bias effect is also related to LPs limited capability for DeepTech due
diligence, forcing them to over-rely on investment recommendations from their networks. Many LPs
told us they are “only investing in what [they] understand.” If that is the case, then they will prioritize
recommendations from existing managers, trusted advisors, and friends, rarely stepping outside that
deal flow comfort zone.
24. Institutional Investor: OPERS Board Votes to End Emerging Managers Program, May 2019. Available here.
25. UBS & Campden Wealth: Global Family Office Report 2019

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Other Issues
Time Horizon
There is a significant gap between time-to-market of DeepTech and the ideal investment time horizon
for LPs. Traditional asset managers rely heavily on fund structures that are three to seven years,
primarily due to a preference/need for quarterly liquidity. Longer investment time horizons are
challenging for asset managers, but most DeepTech venture investments do not materialize within such
a short time frame.
Endowments have the benefit of a longer investment time horizon, managing assets in perpetuity; we
have seen an uptick in recent years of endowments such as Stanford, MIT, Harvard and Yale investing in
more DeepTech funds, or seeking out higher-risk technology investments. Depending on the
generation in control, family offices can sometimes take more risk with capital that is designated as
long term or multigenerational. But just because an endowment or a family has a longer investment time
horizon, does not mean they will be comfortable with the risk of a DeepTech investment; of the LPs we
spoke with, a majority tend to invest only in what they can take the time to understand.
When looking at time horizon issues specific to DeepTech, it is clear that the Sand Hill Road VC model
doesn’t work for DeepTech, due to a need for longer cycles and adjusted return expectations. The issue
of commercialization — certain science-based technology can take years, or decades, before a
prototype is ready for the market — is a major driver here. Potential alternatives to the Sand Hill Road
model would be to use an evergreen model, or a longer term fund structure, such as that of MIT’s The
Engine, which is a twelve year model with automatic 2-year extensions until eighteen years.
The question to pose to LPs would be whether or not these alternatives would even be attractive. We
considered examples of evergreen fund models used by international investors and foundations and
endowments. However for LPs who are U.S. taxpayers this is not a tax-efficient model. For this reason
the evergreen fund model has not been widely adopted. There is a perceived lack of demand for this
type of investment vehicle.
In the previous section we shared a model being tested using foundations to provide patient capital, but
return data on this fund is yet to be confirmed. Unless this model managed to produce a multiple of
outsized returns, a larger time denominator would actually serve to lower the returns over time. In
practice, there are already structure manipulations in place. Some VCs simply extend their 10+2 year
funds to allow them to continue in high performing investments, while keeping these deals off LP
balance sheets until liquidated. These complications, along with the broader issues around
performance comparisons between alternative assets and other investors, serve as strong
disincentives to experiment with fund structure. It would require a new and innovative way of measuring
return on investment, and demand widespread acceptance from investors and the financial services
industry as a whole.
Sustainability and ESG: Awareness but Little LP Focus

As discussed in the previous section, the disparity in the definitions of sustainability and impact
investing creates a general disorganization of this field for investors. Despite this issue, there is a strong
sentiment that this type of investing is rising in value. Preqin’s 2018 survey of alternative asset
managers notes “investors and fund managers alike see ESG practices and policies becoming ever

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more important to the alternatives industry over the next five years. This being said, the role of ESG in
the investment decision-making process varies from asset class to asset class.” Their survey also
shows that 70% of venture investors and fund managers believe that ESG will matter more in the next
five years. 26
In its data, UBS classifies sustainability and impact as two separate investment categories. It is notable
that while both types of investments met or exceeded family office performance expectations, about
twice the amount of capital was allocated towards the category of “sustainable investments.” Some LPs
we interviewed even see the UN Sustainable Development Goals as foundational to investment
selection and have an interest in solving global problems through tech:
“... there are not enough impact investments out there and maybe it's a marketing problem, but
there needs to be more and perhaps looking at DeepTech as impact would be a good way to do
that because these types of investments usually produce very high returns and are distinctly not
philanthropy…”
The question then is, how to position DeepTech as ESG or impact investing, and would this even solve
anything? When asked directly, nearly half of the LPs we spoke to agreed DeepTech could have an ESG
angle, but many had never thought about it that way. The angle of impact is one that has yet to be truly
explored, and yet is plagued by many of the same gaps in understanding observed within DeepTech.
“At the end of the day most of what VCs are doing in tech, is impact investing in different shapes,
when you give people access to things that they could have before all these services, you are
actually impacting without the label of “I am doing impact investing”
Lack of Background in or Understanding of Science

Returning to an earlier observation that LPs are not thinking about science when investing, let’s tie this
finding back to a larger data set. In 2018, UBS surveyed families on the primary industry of their
operating business: 21% made their wealth in the finance and insurance business, 15% in
manufacturing, 14% in rental and real estate leasing, and 6.3% in tech. On a list of twenty options —
with over half of the industries garnering less than 2% of respondents — an applied science or science-
based industry as the source of family wealth creation was nowhere to be found. 27 If LPs are not
‑
familiar with science from an investment or operating business experience, then perhaps lack of access
and/or understanding are the main reasons why LPs do not invest in DeepTech.
We have also identified three missing links specifically between scientific entrepreneurs and LPs, which
relates back to the previous-mentioned issue of closed-loop networks.
1. Most LPs don’t hail from DeepTech industries, so they rarely encounter DeepTech deals. If LPs
are making investment decisions primarily using their networks, and, by nature, those networks
lack access to science-based technologies, it would be challenging for an investment
opportunity in a scientific entrepreneur to cross the desk of an LP.
2. Inability to due diligence DeepTech. Furthermore, if LPs are not making investments in fields
they do not understand, then the upfront due diligence required to consider such an investment
would likely be the next roadblock.
26. Preqin: The Future of Alternatives, October 2018. Available here.
27. UBS & Campden Wealth: The Global Family Office Survey 2019

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3. Poor marketing by DeepTech Founders and VCs. There is also a communication and marketing
problem, as highlighted by a conversation we had with an investor: “science entrepreneurs are
not good at pitching, they are coming from an intellectually rigorous discipline, which doesn’t
translate into sales.”
Finally, Silicon Valley has an uneven track record when it comes to expanding into science-based
venture investments outside of software. Nearly a decade ago, Silicon Valley was burned by clean
energy technology (CleanTech) investments. Venture capital firms funneled $25B into CleanTech
startups from 2006 to 2011 and lost over half their money. MIT undertook an analysis of publicly
available data related to this bust, and came to the conclusion that “betting on CleanTech startups
simply does not make sense for VCs, who require a profile of risk and return from their investments that
is better found in other sectors. In particular, CleanTech companies developing new materials,
hardware, chemicals, or processes were poorly suited for venture investment because they required
significant capital, had long development timelines, were uncompetitive in commodity markets, and
were unable to attract corporate acquirers”.28 LPs reference the CleanTech bust as an example of just
how wrong an investment can go if the technology is not well-understood and proper time is not taken
to due diligence complex investments.
MIT’s findings echo problems identified in our analysis of the DeepTech market — from liquidity, time to
market/scale, and a lack of acquisition interest from institutional investors — therefore lessons learned
from the rise and fall of CleanTech venture investing should be layered over any proposed solutions for
DeepTech.
Conclusion
LPs associate a significant amount of binary risk when it comes to DeepTech: many cited that they
believed the outcome of such investments to be “all or nothing.” One of the most interesting comments,
however, came from an LP who doesn’t invest in DeepTech, but does invest in alternatives and
software-based technology. When the project was described to him, he posed a question in his
response, saying:
“... explain to me why this time period for technology investing is different from when the Internet
started? In all of these periods throughout history there are a bunch of people who, on the one
hand are interested in, and capable of, understanding and researching these types of DeepTech
investments, and, on the other hand, have the risk profile and liquidity to actually be able to invest
in them. But there will always be a group of people who cannot make these types of investments
because this field is so technical, requires a deep understanding of a range of projects, and a high
risk tolerance”
This is a realistic, and certainly somewhat pessimistic outlook on the DeepTech opportunity, but one we
cannot ignore. It is clear from our research and speaking to LPs that there are significant problems in
the structure of the market and product offerings, risk analysis, as well as network and communication
gaps. As we turn to challenges in bringing more capital to the venture investing ecosystem, it is
important to keep these problem frameworks in mind.
28. MIT Energy Initiative Working Paper: Venture Capital and CleanTech: The Wrong Model for Clean Energy
Innovation, July 2016. Available here.

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The Investors (VCs & CVCs)

Challenges Specific to DeepTech Venture
There Are Fewer DeepTech Venture Funds, and Fewer Potential DeepTech GPs
Compared to the overall VC ecosystem, DeepTech VCs are fairly rare, and what firms exist are
concentrated in just a few major metro areas. Two fields (AI/ML and Life Sciences) absorb the vast
majority of DeepTech investment, leaving less than 20% of capital for the other fields. A handful of
larger, outlier funds command a disproportionate amount of capital and attention. The remainder are
emerging managers, who like their counterparts in other sectors, face numerous challenges (both real
and perceived) in reaching their fundraising goals and scaling as firms.
Starting any venture capital fund, let alone one focused on DeepTech, is hard. An individual must first
decide to pursue venture, over all other potential uses of their time. (Alternatives might include
academia, research, or corporate and government roles.) From there, they must have the personal
financial resources to devise (and sometimes demonstrate through one-off deals) their strategy, form a
fund, and weather the first fundraising effort with no form of income. This can take years. [Worth noting:
GPs are expected to commit capital to their funds (“skin in the game”), usually 1% of the target fund size.
This further reduces the pool of prospective GPs to those with sufficient wealth to make that financial
commitment.]
Factor in a DeepTech thesis, and the calculus becomes even more complex. Recall that most DeepTech
VCs today have some form of experience in advanced technologies. They are, frankly, a small subset of
the population. Additionally, to be a DeepTech VC often requires great expert networks to support due
diligence, great corporate networks to add value and help their deals commercialize, plus some
technical interest and know-how.
"For really technical deals, you can ask three PhDs and they’ll all have differing opinions. As the
investor, you won’t know who to believe — you can’t evaluate the quality of the expert any better
than you can evaluate the quality of the subject.”
Often for DeepTech companies there are additional regulatory requirements. DeepTech GPs must be
fluent in navigating these issues and agencies. Finally, some VCs who may consider investing in
DeepTech simply believe they can make money more easily elsewhere (namely, in software,
applications, or tech-enabled products). Other investors would rather manage large PE funds, where the
income from management fees is much higher.
All this combines to yield a small pool of people who are both capable and interested in being DeepTech
VCs.
DeepTech VCs Face Additional Fundraising Hurdles

As discussed in Section 7, a handful of DeepTech funds command large capital resources, while the
remainder are struggling emerging managers. Firms investing more of their portfolios in DeepTech, eg.
with a deeper concentration in this field, tend to have smaller AUMs. Some firms have a comparatively
easy time raising capital, meeting or exceeding their target AUMs, but many do not.
Getting to the heart of this issue is tricky, as VCs are hesitant to reveal they’ve missed their targets.
Fundraising is a game of managing perceptions and confidence. Detecting missed targets often

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requires reading between the lines and watching how publicly reported targets get revised downwards.
But from interviews and assessments of what data exists, we can confirm that missing fundraising
targets is a large and pervasive problem.
This undercapitalization is driven by all the reasons noted in Section 9, many of which are general to
early stage venture investing. It is exacerbated by the technical and business model risks of this field.
And it can be compounded by the profile of a new DeepTech GP, who often has a limited fundraising
network and skill sets different from typical VCs.
Someone may be great at investing in startups, but not have the skills or network to successfully raise
capital from LPs. This is as true for DeepTech VCs as is it for the rest of the venture capital industry. But
the prevalence of former founders and DeepTech operators in this field suggests that they may lack the
connections and marketing skills needed to achieve fundraising goals.
So what happens when venture firms are undercapitalized? Ultimately, it means less capital for startups.
VCs cope with underfunding through a few methods:
- Stay in-market, prolonging the fundraising experience. Sometimes, more time is sufficient to
reach fundraising goals. But this can also be distracting, especially if VCs already have a portfolio
or are deploying capital.
- Modify investment strategy, such as by writing fewer or smaller checks. If funds modify their
strategies to smaller AUMs, it can cause issues with the performance model. Also, the check
sizes may no longer work for their DeepTech categories or sectors (e.g. the startups may just
need more capital than the fund is able to deploy).
- Deploy capital more quickly. More often, underfunded VCs maintain their investment strategy,
but with less capital it means they deploy faster and/or have less capital available for follow-on
investments. This causes them to go back to the fundraising market more quickly (1-3 years
instead of 4-5).
- Of course, some firms simply never launch.
We have observed that many VC firms deploy capital more quickly than the 5 year investment period
commonly specified in LP Agreements. This is particularly true for undercapitalized funds, leading them
to raise their next funds sooner than anticipated. For DeepTech, this is doubly problematic, as its
unlikely firms have much in the way of progress (markups) in such short time frames. Early success
indicators are needed to support storytelling for the next fundraising effort. In DeepTech, this cadence
may be too fast to achieve up-rounds or compelling performance data, which can raise objections
from LPs. Prospective fund investors may summarily reject these funds. (“Well, you don’t fit the
pattern ...”) Which means the VC’s next fund will also be underfunded or fail outright.
Prior DeepTech Exits and Customers Required

Some sectors and technologies don’t offer the return profiles or exit visibility (M&A, IPOs) to attract
venture investment. As discussed in Section 7, it’s hard for VCs to invest in categories where there have
been no large exits (yet). Some fields like AI or Life Sciences have established track records from early
stage to IPO. But for many others this is not the case.

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This assessment is also influenced by past behavior of large corporations. What is their track record on
commercial pilots? How many possible customers or acquirers really exist? Categories with few
potential customers present outsized market risks that VCs may choose to avoid.
This is particularly severe for defense-related DeepTech companies who face ‘single customer risk’,
where the predominant customer is the U.S. government. VCs are hesitant to invest unless they’re
convinced of a “dual-use” for a commercial market. As mentioned by several DoD experts, the defense
prime contractors such as Lockheed and Raytheon are more likely to squash or rebuild a startup’s
technology than acquire it. Additionally, national security issues and CFIUS prevent some VCs, who
may have international LP investors, from investing in defense technologies.
The “Sand Hill Road” VC Model Doesn’t Easily Fit DeepTech Startups
Finally, there are challenges in applying the typical “Sand Hill Road” venture model to DeepTech. And in a
world of multiples, competing risks and investment options, LPs are rarely willing to stray beyond that
model. Unlike software companies, DeepTech startups can’t boot up an MVP in a garage over a
weekend. The transition from idea to working technology in the lab often takes years. Moving from that
to a paying customer can also be a lengthy process. It is difficult to put the round peg of DeepTech early
stage investing into the square hole of typical LP timeline expectations. This, combined with less-
established exit strategies and the perception of inferior returns, results in LP inertia towards investing
in this field.
Challenges for DeepTech Corporate VCs

Corporates Tend To Be Risk-Averse
Corporations play an outsized role in the DeepTech landscape. The vast majority of DeepTech
companies are enterprise startups, their customers are corporations or governments, not consumers.
Across the board Corporations are increasing their influence in venture investing, expanding the
number of CVCs and participating in more deals. This is also the case for DeepTech venture.
Some corporations have greater success and commitments to innovation than others. Corporate VCs
require C-suite commitment and typically are structured as part of an existing business unit that draws
funds off the balance sheet. As such those structures and commitments change as executive moves
and quarterly market demands require. Corporations often have mismatched timeline expectations
around CVC performance, demanding results within a typical corporate cycle vs. the venture return
cycle.
While on the one hand corporations expect faster results, on the other hand they’re known to move
more slowly than typical VCs.
“Corporates move very slowly. There’s no imperative to move fast. People won’t lose their jobs if
they move too slowly, but they will if they move too fast,”
These slow cycles, paired with internal politics and shifting budgets can frustrate talented DeepTech
VCs and crush DeepTech companies.

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Geography — Most Corporations Aren’t in Major Tech Hubs

Large portions of North America have limited DeepTech investment capital, with over 70% of DeepTech
assets managed from the traditional VC hubs of San Francisco, Boston, New York, and Los Angeles.
But as noted by one expert, DeepTech startups are “as likely to succeed outside of the Bay Area as in it,
and do not benefit as much from Silicon Valley infrastructure and culture.” Given the importance of
pilots with large corporations, as well as the role of universities...it’s surprising that there isn’t more
venture capital closer to these key resources. Mapping DeepTech AUMs against Fortune 500
headquarters (let alone large research universities) shows just how stark the divide really is.
Land-grant and other American universities with sizable R&D budgets and IP ready for spin-out are
scattered across the country. Fortune 500 companies and advanced manufacturing hubs are also quite
distributed. But the majority of DeepTech venture investors — and funding — reside in the the leading
tech markets. This can make it harder for CVCs to find syndicators and upstream capital for their
investments. To some extent, the geographic capital gaps may simply be a function of travel:
sometimes, places are just hard to reach.
Another major challenge with CVCs comes down to investor incentives: in many cases, they don’t
inspire risk-taking. This may lead CVCs to fund companies that are ‘singles or ‘doubles,’ rather than the
deals that may become home runs. Related,, some believe CVCs are often used as stepping-stones to
yet another position in a corporation. Without vision, conviction, and C-Suite support, CVCs often
flounder.
“The way CVCs are run, the people on the ground just have no incentive. Their incomes are not
tied to carried interest.”  

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The Government
While the federal government is one of the largest — in fact the largest — single source of seed stage
capital — there are challenges for this segment of DeepTech investors. First, while growing in terms of
absolute dollars, the proportion of funding available (as compared to U.S. GDP) has shrunk by nearly
2/3's since its peak in the 60’s. We are losing ground vis-a-vis China and other competitive nations and
need to increase our commitment to this critical funding resource.29
Second, we need to do a better job of using the capital already allocated to this work. U.S. government
funding helps DeepTech companies navigate longer and more painful “valley of death” cycles. Yet the
primary mechanism for startups to access this capital, the SBIR program, requires reform in order to
better achieve its goal of being “America’s Seed Fund”.
The SBIR program as administered by many federal agencies is more attuned to the needs of small R&D
shops focused on development of solutions to agency-specific problems, than to startups with the
potential for high growth. There’s a role for this type of funding and work, but the government could do a
better job of supporting the latter without sacrificing its own interests and work with the former.
Related to this, it's often the case that these small R&D shops create solutions which can only be
implemented by one of the federal government prime contractors — the so-called Beltway Bandits.
Large DoD contractors are favored for DoD grants and are known to buy and shut down small
companies whose innovative products threaten to make their own obsolete. Thus SBIR grants
inadvertently benefit enormous consulting organizations vs. fueling small businesses.
Additionally, the structure of SBIR doesn’t operate on startup time. With established annual cycles and
lengthy decision-making processes, by the time a Phase I application is completed and money
received, an actual startup is likely to have pivoted to a new business model or withered due to lack of
funding. As one Accelerator director said, the SBIR program “kills startups with cycle time”.
Finally, the government focuses time and resources on Tier 1 universities. While logical, this misses a lot
of great innovation from other universities. Care should be given to more evenly distribute focus across
markets, vs. concentrating on the top technology hubs.
There are individuals within the government championing the need for change and driving innovation.
However the inertia of incumbents, federal bureaucracy and culture make this a daunting task. It may be
easier to create an alternative patient capital funding source — without the existing entanglements and
entrenched interests — than to reform the current program. 
29. Bruegel: China is the world’s new science and technology powerhouse, August 2017. Available here.

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Research Universities
Universities are, quite literally, the fonts of innovation. In university laboratories and classrooms
countless innovations are conceived and tested. Universities offer unique environments in which
innovators can think, solicit advice and develop new technologies. However they frequently pose some
challenges as the inventor moves from research to commercialization.
Faculty Expertise & Incentives

As noted previously, faculty incentives are rarely aligned with commercialization milestones.
Universities often promote research as the end goal, and are less involved with the outcomes of that
research as it moves from the lab to the customer. Faculty tend to be measured in terms of scientific
accomplishments and publications instead of companies founded or follow-on financing. Few faculty
members have entrepreneurial experience themselves, and are not well equipped to provide guidance
as the innovator moves towards commercialization. And university systems are siloed by department
and domain expertise. Startups, who tend to have fluid, interdisciplinary requirements, do not fit well
into the rigorous (and rigid) department and research structures of academia. As a result, students
(particularly graduate students) don’t always get to work on preferred projects with commercial
potential and many promising projects never achieve their potential.
Technology Transfer
University technology transfer offices (“Tech Transfer”) often compound these problems. Staffed by
university administrators and attorneys who typically have limited entrepreneurship experience, these
organizations are focused on securing royalties — in perpetuity — for the innovations created on
campus. Often the structure of these agreements create substantial barriers for VCs who wish to invest
in the company at a later stage. A few VCs make it a point of renegotiating these agreements up front,
most just avoid them. Complicating matters further, the innovators are scientists, and lack the business
acumen needed to avoid being subject to egregious IP ownership terms.
As anyone who has ever served on a university board knows, these organizations have deeply
entrenched traditions and commonly are averse to change. Despite widespread acknowledgement that
academia needs to do a better job of preparing students for life after the classroom, translating that
into action is often slow and painful. Senior, tenured faculty, who typically carry the greatest weight
among faculty discussions, are also the greatest beneficiaries of institutional inertia. The challenge is to
find administrators and faculty leaders who both understand the potential benefits of better facilitating
entrepreneurship and can navigate the political pitfalls of affecting change among the faculty.

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The Innovators & Inventors

Finally we turn to the entrepreneurs themselves, the heart of the DeepTech ecosystem. While these
founders share many of the same characteristics and challenges as entrepreneurs in any other domain,
there are some specific to DeepTech.
Lab-To-Pilot Customer Transition

Steve Blank and Eric Ries popularized the Lean Startup methodology for development of high-growth
technology companies. A central tenet of this approach is the concept of the rapid development of a
Minimum Viable Product (MVP), customer discovery and continuous iteration, an approach most
startups follow today. This is very difficult to do for a DeepTech startup. Advanced technology
companies require complex maker spaces and testing environments for longer periods of time to get to
commercial pilots (product-market-fit). And often DeepTech startups need multiple customer pilots
(government, corporate) to prove sufficient value for subsequent investors. This stage between a
working technology and commercialization (e.g. product-market-fit) is the Valley of Death for DeepTech
entrepreneurs who have fewer investor options.
Scientific Founders
Related to this is the issue of team expertise. By and large, DeepTech startups begin with the researcher.
It is uncommon for scientists to also possess the business skills needed to build and secure funding for
a startup. And given their experience and networks, they often struggle to find business-savvy co-
founders who can help navigate these challenges.
Out-of-Network Founders
Many (some say most) DeepTech innovators are seeded with government grants and university
fellowships. However, shrinking costs and emerging platforms are enabling more entrepreneurs to get
through the early stages of discovery and technology development outside the university setting. Once
outside that traditional ecosystem, these entrepreneurs then struggle to find alternative resources and
funding, and lack mentors to guide them along the way.
There are many ways to invest in startups: time, talents, networks and capital. While this report is
focused on the capital side of the equation, the others are equally critical. Entrepreneurs are by their
very nature rule-breakers, unsatisfied with the status quo. The startup community needs to move
beyond its status quo, and do more to address the unique needs of these founders.

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Strategies To Overcome DeepTech Investment Barriers
Where Do We Go From Here?

Our assessment of the DeepTech capital gap paints a bleak picture. The challenges are both structural
and systemic. Market perceptions contribute to confusion, with the result that there is limited capital
available to DeepTech entrepreneurs and venture funds.
Fortunately, there is a community of people thinking about how to focus our best talent on this. The
DeepTech investment ecosystem is comprised of individuals and organizations as entrepreneurial as
the startups they seek to support. They are an interdisciplinary and dynamic group, working in a variety
of ways to advance this field. We were inspired by their optimism and creativity.
Strategies To Close the DeepTech Capital Gap.

Through the course of our expert interviews we heard hundreds of ideas to solve this puzzle and
increase the amount of DeepTech capital available to founders and funds. We leveraged our experience
across the spectrum of investment roles (entrepreneur, GP, LP) to identify some of the most promising
ideas. Four themes emerged from that preliminary analysis.
Foster Better Utilization of Government Grants and Other Capital Sources.

While the federal government is one of the largest -- in fact the largest single source of seed stage
capital -- we need to do a better job of putting this capital to work. U.S. government funding helps
DeepTech companies navigate “valley of death” cycles. But the primary mechanism for startups to
access this capital, the SBIR program, requires reform in order to better align with the cadence of
startup development.
The SBIR program as administered by many federal agencies is more attuned to the needs of small R&D
shops focused on development of specified solutions, than high-growth startups. Further, the structure
of SBIR doesn’t operate at startup speed, with annual cycles and lengthy decision-making processes.
And finally, there is not enough awareness of the availability of this capital within the broader startup
community.
Sources of Seed Capital & Grants

$8.00B
$7.50B
$5.33B
$2.67B $3.10B
$0.785B
$0.00B
DeepTech Seed VC SBIR Grants Total Seed VC
Comparison of Seed Funding Sources (Billions)

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Startup marketing and outreach programs would expand awareness of USG funding options and
opportunities like AFWERX Demo Days. This, coupled with online support to help entrepreneurs
navigate USG resources, could improve utilization and expand the universe of DeepTech startups
engaged with government agencies.
Expand the Pool of DeepTech VC Firms.

Compared to the overall venture market, DeepTech VCs are fairly rare. Two fields (AI/ML and Life
Sciences) absorb the vast majority of DeepTech capital, leaving less than 20% for all other fields. Less
than a dozen large, outlier funds absorb a majority of the industry capital and attention. The remainder
are emerging managers, who like their counterparts in other sectors, face numerous challenges (both
real and perceived) in reaching their fundraising goals and scaling as firms.
DeepTech VC undercapitalization is driven by all the reasons noted previously, many of which are
general to early stage venture investing. It is exacerbated by the technical and business model risks of
this field. And it can be compounded by the profile of a new DeepTech GP, who often has a limited
fundraising network and skill sets different from typical VCs. The prevalence of former founders and
DeepTech operators in this field suggests that many lack the connections and marketing skills needed
to achieve fundraising goals.
Median Fund Size Average Fund Size

$350M $350M
$302M
$263M $263M
$200M
$175M $175M
$86.3M
$88M $88M
$52.5M
$0M $0M
DeepTech VCs Life Science VCs
There’s an opportunity to take a page from the international development finance book, and employ
some of the same techniques to support promising DeepTech VCs. Additionally, refinement of
programs such as Kauffman Fellows to focus on the challenges and opportunities of investing in
DeepTech could expand the GP universe and improve success rates for emerging VCs.

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Make It Easier and More Attractive for Capital Allocators To Invest in DeepTech.
The U.S. capital pool is immense, with nearly $1T allocated to venture investment (funds and startup
companies). That said, DeepTech receives a disproportionately low amount of capital. Given DeepTech’s
limited availability in many investment vehicles, the reality is that most capital allocators (LPs) are not
exposed to DeepTech investments. Additionally, investors often lack the technical expertise needed to
understand DeepTech. Our discussions with LPs also revealed a prevalent “network effect”: most LPs
are sourcing deals from existing networks, relying on a closed loop of investment referrals. The issues
with DeepTech investment are therefore twofold: the structural complications in the market around
venture investing, and the difficulty in sourcing and diligencing DeepTech investments.
2018 Alternative Asset Allocations
4%
28% Hedge Funds

42% PE Real Estate Funds
Natural Resources
Infrastructure Funds
Funds of Funds
Private Equity
Venture Capital
4%
5% 6% 10%
To overcome these challenges we need to devise solutions that enable LPs to move beyond VC
incumbents in “mainstream” investment strategies. These solutions vary by startup stage. Early stage
investment requires “patient capital” that’s comfortable investing at a higher risk profile, for longer
periods of time, and with greater unknowns about commercialization and return outcomes. Later stage
investment offers the opportunity to adapt existing structures to better accommodate DeepTech
investment. Finally, there is an overwhelming need for greater awareness of DeepTech among investors
of all types. Similarly to Impact investing, DeepTech requires additional marketing and investor
education.
Extend Resources for DeepTech Founders

Finally we need to provide additional resources for DeepTech founders, particularly those operating
outside academia. While these founders share many of the same challenges as other entrepreneurs,
there are some specific to DeepTech. In particular, DeepTech startups typically begin with scientists; it is
uncommon for them to also possess the business skills needed to build and secure funding for a
startup. Given their experience and networks, they often struggle to find business-savvy co-founders
who can help navigate these challenges. 

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While the majority of DeepTech startups do not begin in a university lab, a majority of DeepTech startup
resources do. Universities offer unique environments in which innovators can think, solicit advice and
develop new technologies. However they frequently pose challenges as the inventor moves from
research to commercialization. This manifests in faculty focus on basic research, siloed departments
which prevent interdisciplinary work, and tech transfer agreements which create disincentives for
follow-on investors.
There is an enormous gap in the resources available to DeepTech founders compared to other
founders. There are hundreds of technology accelerators in the U.S., but just a handful focused on
advanced technologies. There are a huge variety of coworking spaces available to startups, but few
specialized maker spaces and labs needed to test and develop DeepTech. Opportunities abound to
expand the accelerator and maker spaces available to scientific entrepreneurs.
There is wide acknowledgement of the need to expand the USG iCorps program, but few fellowships
available to “grad school dropouts” and other innovators building outside the university system. And
within the university system, there is the potential to raise awareness of commercialization outcomes
among faculty, and to improve effectiveness of university tech transfer agreements.

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Conclusion: Funding the World’s Greatest Challenges

The field of DeepTech investing poses both daunting challenges and extraordinary opportunities. While
the technologies advanced by the field captivate our imaginations and seek to address some of the
world’s greatest problems, broadly speaking, the field is undercapitalized and struggles to meet its
audacious goals.
The factors behind this capital gap are complex themselves. Many are specific to this field while others
are more general to venture capital as a whole. When you follow the money to the ultimate backers of
DeepTech, the Limited Partners, you find the barriers to investment are both perceived and structural.
Consequently, the field of DeepTech venture capital is dominated by emerging managers who
themselves are undercapitalized. The result? DeepTech startups are woefully underfunded, and many
promising technologies which could potentially transform millions of lives and provide attractive
investor returns languish on the lab bench.
Fortunately, there is a community of some of the brightest minds in the country focused on this work.
While spread thin in certain aspects, the DeepTech investing landscape is composed of individuals as
innovative and talented as the entrepreneurs they seek to support. From complex maker spaces to
specialized venture capital funds to dedicated government programs, this work is thoughtful and
dynamic. These leaders are inspiring. But when asked, they come to the same conclusion. We need
more capital in this field.
There are likely hundreds of ways to solve this puzzle and increase the capital available to scientific
entrepreneurs. Through the course of this work we composed a substantial list of ideas ourselves. But
we know it will take a village, or likely in this case a solar system, to achieve this goal.
We hope this report serves as a stake in the ground, a call to action on behalf of scientific
entrepreneurs. We hope it encourages those who may have considered backing DeepTech, funds or
companies, to take the next step. Ultimately, we hope it convenes the constellation of individuals and
organizations leading this work to collectively move forward in advancing this critical field.

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About the Different Team

DifferentFunds, Inc.
Different is the first platform built to scale venture capital. We help institutions and family offices
discover, analyze, diligence, and select venture capital funds. Different combines a deep understanding
of the venture ecosystem with institutional-grade research and due diligence. Our network spans 100+
markets, in the U.S. and internationally. We track the venture industry, monitoring funds that invest in
30+ sectors and with over 50% GP diversity. Our team blends expertise in venture, technology and
financial services. Learn more at differentfunds.com.
Leslie Jump, Chief Executive Officer

An experienced venture capitalist, startup investor, board member, and limited partner, Leslie has
dedicated over 30 years to building, advising and investing in new companies and funds across the
globe. Previous experience: CEO at Startup Angels, Partner at Sawari Ventures, Board of UP Global.
Alumna of St. Johns College, and member of its Board of Visitors and Governors.
Harold Hughes, Chief Investment Officer

With over 30 years of international financial services and FinTech experience, Harold brings deep
working knowledge of investment products, portfolio construction, private wealth management, and
institutional investing to his work at Different. Previous experience: CEO of Alliance Bernstein
Investments, Head of Wealth Management / Strategy at Legg Mason. Alumnus of St. Johns College.
Series 7, 66 (65 & 63), 8 (9 & 10), 31, 24.
Mack Kolarich, Chief Product Officer

A seasoned entrepreneur and startup community leader, Mack leads Different’s product design and
development as well as its research and due diligence team. He leverages his deep expertise and
networks in 50+ global startup ecosystems to help source and assess funds for Different. Previous
experience: VP Product at Startup Angels, CEO at SceneSquid. Alumnus of Carleton College.
Ellen Brooks Shehata, Investment Director

An experienced private wealth advisor with an emphasis in the Middle East, Ellen helps drive
institutional relations, research and support at Different. Previous experience: Vice President at J.P.
Morgan Private Bank, U.S. Relations at The American Chamber of Commerce in Egypt, Office of the
President at The American University in Cairo. Alumna of Columbia University (M.A.) and UCLA (B.A.).
Series 7 & 63.
Jacob Tasto, Venture Market Analyst

Leveraging his prior work on economics and entrepreneurship communities, Jacob handles research,
data collection, and data analysis for Different. Prior experience: Research at Dream Big Foundation,
Seed Spot. Alumnus of the University of Maryland.

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About This Project

Schmidt Futures, a philanthropic initiative founded by Eric and Wendy Schmidt, is supporting Different
in our effort to assess the current state of investing in scientific entrepreneurs, with the goal of
quantifying market gaps, and better understanding their challenges and opportunities. Using this
information, we can advance solutions designed to catalyze more capital into emerging companies that
have the potential both to impact millions of lives and to become successful businesses.
About Schmidt Futures

Schmidt Futures is a philanthropic initiative, founded by Eric and Wendy Schmidt, that bets early on
people who will make our world better — helping people to achieve more for others by applying
advanced science and technology thoughtfully and by working together across fields. Learn more at
schmidtfutures.com.

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Appendix: Methodology
This report and our analysis is built on a combination of original research and first-person interviews,
proprietary data, and existing 3rd party research and reports.
We identified over 200 North American (U.S. and Canada) venture firms investing in DeepTech, and
another 150+ firms investing in Life Sciences (a subset of DeepTech). We analyzed these firms using a
combination of interviews and online surveys as well as publicly available data. Additionally, we
analyzed the DeepTech investing ecosystem from Accelerators to Limited Partners (LPs) using a
combination of interviews and 3rd party data. We consulted with over 150 experts in the course of our
research, reviewed 350+ venture firms and analyzed 4,500 portfolio companies.
In selecting interviews, we sought to include a range of perspectives across the entire DeepTech
landscape. We interviewed multiple entities for every ‘role’ across DeepTech, including universities,
foundations, NGOs, government, maker spaces, accelerators, training programs, VCs, CVCs and
beyond.
We similarly diversified our LP interviews, interviewing organizations with wide variations in their size of
managed assets, structure and decision-making frameworks, as well as allocation strategies.
Interviewed LPs included family offices, pension funds, university endowments, foundation
endowments, outsourced chief investment officers (OCIOs), registered investment advisors (RIAs),
large private banking institutions, and other investment managers.
Interviews
Thought-Leaders / Advisors 15
Ecosystem Players 30
VC & CVCs 55
Allocators (LPs) 50
Total 150
Analysis
DeepTech VC & CVC Firms 200+
Life Sciences VC & CVC Firms 150+
General Partners 650
DeepTech Portfolio Companies 4,500+

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VC Analysis: Overview and Approach

We collected data on active, DeepTech-positioned venture capital firms with a U.S. and/or Canadian
presence, their portfolios, and their general partners. In our definition of “DeepTech-positioned” firms,
we sought to include any and every VC firm that has an explicit or apparent DeepTech focus of some
kind (including those using DeepTech to meet an impact mission or as a subcomponent of a generalist
strategy). Sometimes this was based on how a firm positions itself to the outside world, while others
were recommended by DeepTech experts for inclusion in our dataset. This data includes pre-existing
firms that are actively investing, as well as firms that raised (or were raising) funds through the end of
2019.
In total, our analysis includes over 200 VC firms, 4,500 portfolio companies, and 650 general partners.
The final data set excluded firms without a U.S. or Canadian presence (defined as not having any
partners located in the U.S. or Canada), defunct firms (defined as firms having no known activity in the
last 3 years or no known partners still associated with the firm), BioTech/Life Science pure-play firms
(defined as having an explicitly Life Science oriented thesis), and Corporate VCs (unless, in rare cases,
they had outside LPs).
The 150+ Life Sciences investment firms excluded from the main analysis were treated separately and
were predominantly assessed for fund size, geographic location, and LP Structure (CVC, etc).
Firm-level data was gathered and compared from interviews, surveys, firm websites, PitchBook,
Crunchbase, SEC filings, as well as published articles from sources like TechCrunch, Business Insider,
Wall Street Journal, Chicago Business, etc. When we found discrepancies between multiple sources, we
made judgement calls that weighed the credibility of each source and, in general, gave priority in the
following order: interview, firm website, SEC filing, PitchBook, published article, survey response,
Crunchbase.
Portfolio data was collected mainly from VC firm websites and portfolio company websites but we also
consulted PitchBook, Crunchbase, and published articles to fill gaps. When possible, all portfolio
companies for each firm were recorded. However, for firms with more than 40 portfolio companies per
fund, only 40 portfolio companies were sampled from the current fund and 35 from past funds.
(Approximately 10% of firms in our dataset required sampling). Random sampling was attempted when
required, although it is imperfect.
Individual-level data on GPs was collected primarily from LinkedIn but, when gaps existed, we also
scraped current and past employer websites for partner biographies, alma mater publications for year
of graduation and undergraduate degree, and published interviews and articles for career and
education history.
All data and analysis in this report is based on claimed or reported information and is accurate to the
best of our knowledge.

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VC Analysis: Firm-Level Definitions

The following definitions were used for firm-level attributes:
Geography
- Geographic Location: defined as the core business location for a firm, determined from the
location registered for a firm’s SEC filings or the first office listed on a firm’s website. To draw
meaningful conclusions, “City” was treated as “Metro Area” (i.e. San Francisco Bay Area, Greater
New York City Area, etc.)
Firm Structure and Strategy

- Firm Size : defined as the number of GPs (full-time partners with a decision making role) at the
firm.
- Firm Type or Tenure : defined as the number of primary venture funds (excluding opportunity
funds, sidecar funds, special situation vehicles, etc.) that a given firm has raised (e.g. I for a first
fund, II for a second fund, III for a third fund). Evergreen and Accelerator funds were denoted
accordingly as separate fund types.
- Fund Size (Target AUM): defined as the target or final raise for a firm’s most recent venture fund.
Since firms don't always file their Form D’s with the SEC under known monikers or update them
with revised fundraising numbers, and since they sometimes conflate multiple fund AUMs
together, or round up their AUM for publicly reported or surveyed numbers, this is the best proxy
for current and potential capital that could be invested into new portfolio companies.
- Investment Strategy & Thesis: defined as falling into one of the following four categories, taking
into account firms’ self-reported strategies and actual portfolio construction (if the actual
portfolio diverged significantly from the self-reported strategy):
• Broad DeepTech: firms that invest across a wide range of advanced tech innovations,
without a clear specialization or overarching theme.
• DeepTech Specialist: firms that invest in specific fields or a more narrow set of
technologies. Examples may be “energy” or “aerospace + drones” or “BioIT, Neurotech,” etc.
• DeepTech Thematic: these firms have a thesis built around an overarching theme or vision
such as ‘advancing the UN’s Social Development Goals,’ ‘striving for a cleaner environment,’
‘health and wellness,’ ‘founders of a certain background’ or ‘founders from this specific
university’ etc. Some describe these firms as outcomes or problem-driven. Thematic firms
generally consider deals across a range of technologies or disciplines (including less
technically-advanced startups such as marketplaces or SaaS), so long as a company
contributes to the thematic vision of the firm.
• Generalist: firms that invest in all kinds of companies, technologies, and business models
(beyond DeepTech). Sometimes these firms have a primary investment lens that is
delightfully vague, such as “we invest in great founders.” Note that we looked to include in
our analysis only VCs that were positioned or commonly referenced as doing DeepTech
deals. The DeepTech component at these firms may be driven by a specific partner who’s
particularly focused on advanced technologies. Or the firm may just be a generalist that is
comfortable with greater technical risk.

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• Other: A small portion of firms practiced more niche strategies, ranging from firms that
prioritize geography-first to firms that specialize in tech-transfer and IP negotiation with
universities.
- Most Recent Fund’s Portfolio Size : defined as the number of known investments that had been
made out of a firm’s most recent venture fund as of the date of data collection (newer funds will
continue to make investments beyond the date, meaning this attribute does not reflect final
portfolio size). In some cases, it was difficult to discern from publicly available data which of a
firm’s funds were allocated to which portfolio companies, and in these instances, this attribute
may have been inflated upwards by old investments.
VC Analysis: the DeepTech Concentration Score

Overview of our Approach
As part of our VC analysis, we needed to understand just how much of a firm’s portfolio was actually
invested in DeepTech startups. In our initial research and interviews, we observed that while some firms
characterized as “DeepTech VCs” invested heavily in advanced technology companies, others barely
did so at all. And there were a host of firms in between, with varying degrees of exposure to DeepTech in
their portfolios. To understand the nature of today’s DeepTech capital landscape, we had to understand
the portfolios of the DeepTech VCs. So we created our DeepTech Concentration Score.
In doing this, we examined over 4,500 individual portfolio companies that had received investment from
the 200+ VCs included in our research.
For each of a VC firm’s known portfolio companies, data was collected on 4 variables:
- The company’s name,

- A brief description containing keywords for classifying the company into DeepTech categories,
- The company’s ‘degree of advanced tech legitimacy’ (with the three options being “Yes,” “Maybe,”
or “No”),
- And, when possible, whether the company received investment from a current fund or a previous
fund.
Keyword descriptions combined the exact language used on portfolio companies’ outward-facing
websites with more consistent, internally defined keywords to simplify the classification process. Exact
language was substituted when it would lead to misclassifications in subsequent keyword searches.
Portfolio companies were assessed on their degree of advanced tech legitimacy by reviewing each
company’s website for: use of keywords (i.e. robotics, quantum, artificial intelligence, etc.); an indication
of genuine use of advanced research in chemistry, biology, physics, materials science, engineering, or
other natural or computer sciences, with a particular focus on in-house R&D; and the novel nature of the
company’s model, purpose, and application. Recognizing the imperfection of this method (due to
potential use of hyperbole on company websites, the prevalence of AI and other “science-washing”, and
incomplete information), portfolio companies could be classified as “Yes, DeepTech,” “Maybe
DeepTech,” or “Not DeepTech.” This classification was applied in accordance with our definition at the
beginning of the report. Companies falling under the “Maybe DeepTech” designation generally either:

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1. Use many of the keywords in their company description but not have any evidence of a genuine
use of advanced research in natural or computer sciences and/or not appear to be a novel
application of advanced research, or
2. Are in “stealth mode” (thus limiting the available data on the details of the venture) but provide a
tagline that includes keywords.
Although usually difficult to determine, portfolio companies were also delineated as being an
investment out of either the VC firm’s current fund or a past fund (where applicable). This variable was
determined by consulting the date of investment (if provided by either the VC firm’s website,
Crunchbase, or published articles) and comparing that to the most recent fund’s date of closing (if
known/applicable).
This raw data was then rolled up into firm-level variables for each VC firm. This report incorporated a
DeepTech Concentration Score that assessed the density of DeepTech startups in a firm’s portfolio, and
a set of proportional breakdowns for the percent of a firm’s DeepTech portfolio falling into each
DeepTech category.
Calculating the DeepTech Concentration Score

The DeepTech Concentration score was a weighted average of the DeepTech concentrations of the
current and past funds, where “Maybe” startups were weighted at half a “Yes” startup. The overall score
was defined as follows:
NC,Y + 0.5*NC,M NP,Y + 0.5*NP,M

( ) ( )
0.75* + 0.25* ,
NC,T NP,T
where NC,Y is the number of “Yes, DT” portfolio companies invested in out of the current fund,
NC,M is the number of “Maybe DT” portfolio companies invested in out of the current fund, NC,T
is the total number of portfolio companies invested in out of the current fund, NP,Y is the number
of “Yes, DT” portfolio companies invested in out of past funds, NP,M is the number of “Maybe DT”
portfolio companies invested in out of past funds, and NP,T is the total number of portfolio
companies invested in out of past funds.
When a firm did not have prior funds, the first term was weighted by 1 instead of 0.75 and the second
term was ignored. The DT Concentration variable was constructed in this way to: 1) account for
changing strategies between current and past funds, placing greater importance on the strategy of the
current fund, and 2) account for questionable portfolio companies by neither overweighting science-
washing companies nor penalizing stealth mode companies (an implication of which is that a portfolio
of all “Maybe” companies would be scored as 50% DeepTech, which we looked to take into account
when assessing the results).

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Calculating Portfolio Allocations to Specific DeepTech Categories

The portfolio allocations attribute fueled our analysis of DeepTech capital gaps by specific sectors and
technologies, seen on pages 39 -- 40. It is an assessment of each firm’s relative preference for different
DeepTech categories, when they choose to invest in DeepTech.
The set of proportional breakdowns for each DeepTech category was constructed by determining the
percentage of a firm’s DeepTech portfolio companies that registered a keyword in each category’s
keyword list. It was defined as follows:
For each DT category 𝛾,
NDT, γ
,
NDT
where NDT, γis the number of portfolio companies classified as “Yes, DT” or “Maybe DT” and that
contain at least one of the keywords for DT Category 𝛾 (e.g. AI/ML, AR/VR, IoT, etc.) and NDTis the
total number of portfolio companies classified as “Yes, DT” or “Maybe DT.”
A few important notes:
1. This definition does not rely simply on the keywords for determining the percentage of a firm’s
DeepTech portfolio companies in each DeepTech category, rather it requires that a portfolio
company have been independently assessed as definitely or possibly DeepTech in addition to
registering a keyword — thus excluding from the calculation companies that used a keyword but
were non-DeepTech applications of well-established innovations (e.g. a media company that uses
drones made by another company for filming), or that were non-DeepTech companies applied to
a DeepTech category (e.g. air traffic control for drones);
2. Our DeepTech categories are not mutually exclusive, allowing a single portfolio company to
register as multiple categories (e.g. a robotic farm equipment startup would register as both
AgTech and robotics) — thus
n NDT, γ
∑ NDT
γ=1
does not equal one, but the amount of investment activity in each category is more accurately
reflected;
3. Due to the overwhelmingly common use of AI/ML across all DeepTech categories, for the AI/ML
proportional breakdown, the portfolio companies included in the numerator were restricted to
companies leveraging only AI/ML and that did not fall into any other category (e.g. a robotics
company utilizing AI or ML to train their robots decision making would register only as “Robotics”
and not “AI/ML”).

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VC Analysis: Individual Partners and Definitions

In addition to our firm-level research, we also collected data on the individual GPs at each VC firm
(where GPs were defined as full-time partners with a decision making role in the firm — referred to as
“General Partners,” “Managing Partners,” “Partners,” “Managing Directors,” or other titles depending on
the specific VC firm). This data fueled our assessment of team compositions as well as the
backgrounds and experiences of individual GPs. The following definitions were used:
Geography
- Geographic Location: Metro Area and State of current residence as reported on LinkedIn or on
their website bio (as with firm location, GP location was treated as greater metro area for
meaningful conclusions).
Undergraduate Education
- Undergraduate School : defined as the institution from which a GP received their Bachelor’s
degree (if applicable); this does not include schools attended prior to their final semester (e.g. for
study abroad, for an Associate’s, etc.).
- Ivy League: defined as whether the GP’s undergraduate school (as defined above) is classified
as Ivy League (Harvard, Princeton, Columbia, Yale, University of Pennsylvania, Dartmouth, Brown,
and Cornell).
- Elite School: defined as whether the GP’s undergraduate school (as defined above) is classified
as elite according to the following definition: the top 10 non-Ivy League institutions as ranked by
U.S. News & World Report’s 2019 top National Universities, plus the top 10 private colleges as
ranked by U.S. News & World Report’s 2019 top Private Liberal Arts Colleges. While some studies
take a very constrained definition to ‘elite’ (adding two or three schools only to the Ivy’s), we felt a
slightly more expansive definition was justified. This ensures that this category includes schools
such as Notre Dame, Williams, and Wellesley (schools that have been excluded from the ‘elite’
categories in other reports).
- Public vs Private: defined as whether a GP attended a public or private undergraduate institution
(if applicable).
Graduate Education
- Graduate School defined as the graduate institution from which the GP received an advanced
degree (excluding certificates and other non-degree granting programs) (if applicable). For GPs
with multiple advanced degrees, each graduate institution from which the GP received a degree
was denoted and paired with the corresponding degree.
- Advanced Degree: defined as the type of advanced degree received from each graduate
institution of the GP (MS, MA, MBA, MD, JD, or PhD) (if applicable). For Master’s and PhDs, the
speciality of the degree (e.g. Biophysics, Cellular Biology, etc.) was recorded. For GPs with
multiple advanced degrees, each type of advanced degree was recorded (with the specialty of
each Master’s or PhD also recorded, if applicable).

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Career Backgrounds
- Prior Founder Experience : defined as whether the GP founded a startup company prior to
joining their current VC firm. To capture only founder experience that would enhance skills
relevant to venture capital portfolio companies, startup companies were limited to those with
“significant growth potential,” i.e. we did not include (as examples) experience founding a
restaurant or individual consulting business in this definition. The individual must also have spent
at least one year as a founder of their business.
- Prior GP Experience: defined as whether the GP held a general partner role prior to joining their
current VC firm (excluding angel investing, PE, and non-VC investment management).
- Prior VC Experience: defined as whether the GP held any role in a VC firm (principal, associate,
analyst, etc.) prior to joining their current VC firm (excluding internships and Entrepreneur-in-
Residence positions, as well as angel investing, PE, and non-VC investment management roles).
- DeepTech Operator Experience: defined as whether the GP held a technical role (i.e. an
engineer, scientist, researcher, etc., not a marketing, business development, managerial position)
in a DeepTech company prior to joining their current VC firm.
- Time in Venture Industry: defined as the number of months the GP has worked in a VC firm,
including how long they have worked at their current firm (excluding years spent in angel
investing, PE, and non-VC investment management).
Demographics
- Gender: defined as the gender a GP identifies with; for simplicity, gender was constrained to
man or woman based on the chosen pronoun of the GP (every GP in our data set used “she” or
“he”).
- Race : defined as the race of the GP, where the options were Asian, Black, Latinx, Middle Eastern,
South Asian, and White.

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DeepTech Investment Timeline Citations

Date Event Citation
1947 Creation of the NSF NSF: Science The Endless Frontier, 1945. Available here.
NASA: The Decision to Go to the Moon: President John F. Kennedy's May

1957-61 Sputnik / Space Race 25, 1961 Speech before a Joint Session of Congress, 2013. Available
here.
Peak USG R&D AIP: US R&D Spending at All-Time High, Federal Share Reaches Record
1964 Spending Low, 2016. Available here.
Paul Gompers: ”The Rise and Fall of Venture Capital." Business and
Rise of Early Economic History, 1994. Available here.
1970’s Computing, first VCs ZDNet: Technology that changed us: The 1970s, from Pong to Apollo,
2019. Available here.
SBIR Program
1977 SBIR: Birth & History of the SBIR Program. Available here.
Founded
Ashish Arora, Sharon Belenzon, & Andrea Patacconi: "Why the U.S.
Corporations begin to
1980’s Innovation Ecosystem is Slowing Down." Harvard Business Review, 2019.
shut down R&D labs
Available here.
Deregulation and
1981 Reagan Library: The Reagan Presidency. Available here.
“Reagonomics”
National Museum of American History: The End of the Cold War, 2000.
1989-91 Cold War Ends
Available here.
Internet Adoption Susannah Fox & Lee Rainie: "Part 1: How the internet has woven itself into
1990’s Skyrockets American life." Pew Research Center, 2014. Available here.
Financialization of US Forbes: “Wall Street and the Financialization of the US Economy”, 2015.
2003 Economy Available here.
Reinhilde Veugelers: "China is the world’s new science and technology

2006 China Prioritizes R&D
powerhouse." Bruegel, 2017. Available here.
Peter Cohen: "Macworld Expo Keynote Live Update." Macworld, 2007.

2007 iPhone Debut
Available here.
CleanTech Winter Francis O'Sullivan: "Venture Capital and CleanTech: The Wrong Model for
2011 Begins Clean Energy Innovation." MIT Energy Initiative, 2016. Available here.
CNN: Edward Snowden Fast Facts. 2019. Available here.

Unicorn Debut and
2013 Snowden Revelations Aileen Lee. "Welcome To The Unicorn Club: Learning From Billion-Dollar
Startups." Tech Crunch, 2013. Available here.
USG Investment Hits

Late James Manvika & William H. McRaven. "Innovation and National Security:
All-Time Low, Private
Keeping Our Edge." Council on Foreign Relations, 2019. Available here.
2010’s Investment Surges
China Threatens to CRS: Global Research and Development Expenditures: Fact Sheet, 2019.
Overtake US in R&D Available here.
2030
and Venture Spending

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DeepTech Investing Report

©2018 DiﬀerentFunds, Inc. ● PROPRIETARY & CONFIDENTIAL Page 1 of 87

“Increased investment in frontier technologies is critical to solving

©2020 DiﬀerentFunds, Inc. Page 2 of 92

What Is DeepTech? .....................................................................................................................................8

What Makes DeepTech Different? .......................................................................................................11

The DeepTech Investment Landscape ..............................................................................................17

How Is DeepTech Changing? ................................................................................................................23

State of DeepTech Investing .................................................................................................................25

DeepTech Investors: USG — America’s Seed Fund......................................................................31

DeepTech VCs: Investing From Concept to Commercialization ..............................................34

©2020 DiﬀerentFunds, Inc. Page 3 of 92

So Where Is the DeepTech Capital Gap? ...........................................................................................52

DeepTech Limited Partners: the Money Behind the Money ...................................................... 57

Challenges of Moving More Capital Into DeepTech ......................................................................64

Strategies To Overcome DeepTech Investment Barriers ............................................................77

Conclusion: Funding the World’s Greatest Challenges ...............................................................81

About the Different Team .......................................................................................................................82

Appendix: Methodology ........................................................................................................................84

For more information, please contact:

©2020 DiﬀerentFunds, Inc. Page 4 of 92

The goal of this report is to answer three questions:

- What challenges can we address to close that gap?

Yes, There Is a Capital Gap in DeepTech Investment.

©2020 DiﬀerentFunds, Inc. Page 5 of 92

What Are the Causes?

- A combination of structural issues and optics fuel LP resistance to investing in DeepTech

What’s Next — Closing the Capital Gap.

©2020 DiﬀerentFunds, Inc. Page 6 of 92

©2020 DiﬀerentFunds, Inc. Page 7 of 92

Science-Based, R&D-Based, Multidisciplinary, Transformational

DeepTech encompasses innovations in biology, chemistry, physics, engineering, and hardware —

“Something you can't just build in your garage.”

And one of our favorites:

©2020 DiﬀerentFunds, Inc. Page 8 of 92

Commonly Included Technologies

Artiﬁcial Materials Robotics Bioinformatics AR/VR Quantum AgTech

Nanotech Drones Autonomous Cybersecurity IoT / CleanTech / SpaceTech

©2020 DiﬀerentFunds, Inc. Page 9 of 92

An Alternative Perspective: DeepTech Means Solving Big Problems

- Technology (e.g. quantum computing)

Choosing a Moniker: DeepTech, FrontierTech, HardTech?

©2020 DiﬀerentFunds, Inc. Page 10 of 92

What Makes DeepTech Different?

Pasteur’s Quadrant presents an alternative: a box

1. Washington State Magazine: Pasteur’s Quadrant, Summer 2009. Available here..

©2020 DiﬀerentFunds, Inc. Page 11 of 92

Government Research Grants

Specialized Development Spaces

©2020 DiﬀerentFunds, Inc. Page 12 of 92

©2020 DiﬀerentFunds, Inc. Page 13 of 92

- Deregulation and the ﬁnancialization of the U.S. economy,

©2020 DiﬀerentFunds, Inc. Page 14 of 92

And another of our experts:

©2020 DiﬀerentFunds, Inc. Page 15 of 92

DeepTech Investment Timeline (Post-World War II)4

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The DeepTech Investment Landscape

©2020 DiﬀerentFunds, Inc. Page 17 of 92

Facilitators and Enablers

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Accelerators, Maker Spaces & Studios

©2020 DiﬀerentFunds, Inc. Page 19 of 92