A VC’s perspective on deep tech fundraising in Q1 2023

Like almost every other industry, deep tech faced significant headwinds in 2022. As interest rates rose, deep tech companies, which inherently require more capital than other types of software companies, became less risky for many venture capitalists and their LPs.

For example, while quantum computing suddenly became popular in public markets when D-Wave, Rigetti and IonQ went public last year, private investment has fallen significantly: the industry has raised just over $600 million in venture capital by 2022, below $800 million. . million. according to Crunchbase in 2021.

Savvy investors and traders across a range of deep tech industries have adapted to these changes in real time as the days of easy money fade into the background. In that environment, space technology start-ups, for example, could never have raised the amounts they raised in 2021 to implement the technologies they are working on today. As Delian Asparouhov, director of Founders Fund and founder of Varda Space Industries, Divided Last month, in the current market climate, it would have been impossible to find the $42 million his startup raised in 2021 for its space factory “idea.”

While some investors will remain on the sidelines until 2023, it’s important to note that many funds are still sitting in dry dust like never before. This doesn’t mean they or their LPs are in a hurry to deploy this capital, but the money will be available to startups that can demonstrate current demand and are realistic about their valuations. As it becomes increasingly difficult to make major exits in the coming years, the deep tech technologies that are transforming entire industries provide some of the only routes to “10x exits”.

These are all positive signs for deep tech founders gearing up to raise money this year. Another positive observation is that part of the reason VCs stay away from deep tech startups in bear markets may be unfounded. Our team recently analyzed deep tech unicorns to understand how much money it took to reach the $1 billion mark. The results confirmed what we knew from experience: the capital and time requirements of deep tech startups are similar to those of companies in other industries. In fact, it took the mid-tier deep tech startup $115 million and 5.2 years to become a unicorn.

With that in mind, let’s take a look at some of the areas where deep tech will spark investor interest in 2023.

Startups that go beyond space technology

While Delian rightly noted that moonlight long-term funding will be hard to come by in today’s market, I still believe investors will look for startups that are closer to commercialization in this industry. To date, 99% of the total investment in the space technology market has been spent in the satellite and launch industries. Now it’s time to focus on moving objects around in space instead of just placing them there.

For example, investors are increasingly interested in astrodynamics or propulsion solutions for controlling the motion of satellites and other spacecraft; For example, AI startups are working to simulate scenarios and create maneuver plans so operators can avoid collisions in space. Investors are also interested in future use cases for machine learning and neural networks for astrodynamics, such as B. Orbit predictions and spacecraft flight modeling.

Space missions also require amplified software and hardware. As we search for innovative solutions for objects and vehicles in space, there will be a demand for startups that can develop radiation-safe applications. So while the space economy will continue to provide countless opportunities to invest in atoms, there will also be an opportunity to invest in the bits that make the atoms move in our air.

The wave of deep tech driving climate regulation

Software alone will never solve the myriad of problems that contribute to our climate crisis. Hardware solutions and technical innovations in deep technology are needed to solve our most pressing climate challenges.