From Ivory Tower to IPO: How to Win Big in Deep Tech

Photo by SpaceX on Unsplash

Picture this: You’re a brilliant computer scientist. Your lab has created a groundbreaking system for machine vision. Your invention could help computers understand the world around them, making autonomous vehicles safer and more reliable.

Or imagine this scenario. You’re a molecular biologist who’s just developed a novel gene-editing technology. Your discovery could enable life-saving new gene therapies for cancer.

How do you bring your invention to market? How do you raise money and turn it into a successful business?

These topics were the focus of the SXSW 2019 panel: “Investing in Game Changing Deep Tech.”

Also known as “frontier tech,” deep tech is based on tangible engineering innovation or scientific advances and discoveries. It’s about building things at the edge of human capabilities to solve the most important human problems.

It’s the kind of innovation that got humans to the moon. It’s how we’ve been able to shift from fossil fuels to clean energy sources like solar and nuclear.

Investors have traditionally shied away from deep tech. There’s a high level of scientific and technical complexity. It’s really hard and often really expensive.

Today, the landscape has shifted. Investors are pouring billions into deep tech startups. It’s never been a better time to launch new businesses in VR and quantum computing, self-driving cars and surgical robots, CRISPR and CAR-T immunotherapy.

These ventures typically have a unique and highly protectable platform technology at their core. Traditional categories like biotech, semiconductors, materials and computing are blurring with the rise of new technologies like synthetic biology and quantum computing that cut across disciplines.

Spend enough time with founders of deep tech ventures, and you realize: The gap between science fiction and science fact is shrinking.

Deep tech startups are inventing the future.

The SXSW panel was moderated by Shahin Farshchi, PhD, partner at Lux Capital. Lux was in the news recently for Johnson & Johnson’s $3.4 billion cash deal to buy Lux-backed Auris Health, developers of a robotic system aimed at improving diagnosis and treatment of lung cancer. It was the largest acquisition of a venture-backed medical-device company.

Michael Biercuk, University of Sydney Professor and Founder of Q-CTRL, Australia’s first VC-backed quantum technology company, noted the shift in mindset from academia to entrepreneurship:

“Some academics think they can just take their research grant proposal and turn it into a business plan — but it’s often missing the mark. You need to focus on solving an existing problem, not just asking the most interesting questions.”

Dr. Kiersten Stead, Managing Partner at DCVC Bio, noted the challenges researchers face when looking to commercialize their research and attract investment. Being a successful entrepreneur requires a different skill set.

Dr. Farshchi said: “When you’re an academic, you’re pursuing truth. You’re trained to dive deep: break down hard, complex problems, and ultimately improve humanity’s understanding of nature. When you’re a deep tech entrepreneur, you’re leveraging the state of the art across a diverse set of fields to address an emerging, unmet need. You need to articulate and communicate a vision, convince amazing talent, investors, partners, and customers to take chance on you to realize that grand vision.”

Academics are trained to look at a problem domain and extract elegant, global truths.

Industry is about reducing those truths to practice.

Venture Capital is about funding new businesses that adopt those practices to address emerging problems that can turn into massive market opportunities.

The best deep tech VCs help entrepreneurs go from idea to implementation toward building tomorrow’s iconic companies.

When you start a company, it’s less about creating elegant new solutions, and more about dealing with a heavy tail of integrating those solutions into a simple business that’s almost intuitive. You’re faced with a never-ending list of problems. You need to come up with answers quickly.

The panel noted that entrepreneurs coming from academia should surround themselves with a good team and well-rounded advisory boards: “A critical sign for a startup is the ability to get a scientific advisory board and commercial advisory board,” said Biercuk.

Why are more investors today focused on deep tech?

The barriers between academia and industry are shrinking. The pace of innovation is increasing. We’re seeing more academic discoveries turn into billion-dollar businesses.

Universities are modernizing their technology transfer function. NYU, Chicago, and USC have launched early-stage funds to invest in university-based startups. There’s an expanding array of resources to help entrepreneurs commercialize on-campus innovations — licensing IP, offering startup competitions, and creating innovation centers for startups.

Dr. Farshchi noted 4 questions to ask when looking to commercialize academic research:

  1. What does this technology allow you?
  2. What are the broader societal implications of this?
  3. What’s the business case — i.e. Why would a company that owns this IP be valuable?
  4. Why should I be a shareholder in this company?

Adam Wardell, Head of Innovation & Strategy at Novartis Australia, spoke about his work with ANDHealth, an Australia digital health accelerator. Healthcare giants like Novartis are casting a wider net to find and invest in the most innovative medical technology and biotech startups.

Biotech companies like Recursion Pharmaceuticals are using AI to transform the drug discovery process.

Google’s DeepMind is using AI to predict the three-dimensional structure of proteins from a list of their composites, potentially paving the way to treat diseases such as Parkinson’s and Alzheimer’s.

The use of “generative adversarial networks” (GANs) could transform research in every field of science.

There’s a high-stakes arms race for AI talent. Facebook and Google employ an estimated 80% of all PhD-level AI talent. Some experts see China surpassing the US in AI implementation.

Capital will continue pouring into deep tech, the panel agreed. Traditional VC firms are facing competition by family offices and corporate VCs. Softbank’s $100 billion Vision Fund is angling for a piece of the action.

More startups are popping up in emerging fields like AI, quantum computing, robotics, and autonomy. They’re high-risk and capital intensive, but the potential outcomes are huge.

Deep tech companies are typically built around patentable inventions.

The panel talked about how deep tech founders should think about IP. They should consider the strategic value of filing patents: Is it more of a defensive move, or is it more about value creation?

Dr. Stead said founders should take a portfolio approach to building solid IP. You should get guidance from IP firms that specialize in your field. They can help you understand where there may be opportunities to write IP that generates value for the company.

Biercuk said: “Find the expert in your field who’s writing all the IP for all the quantum companies. Don’t worry about the hourly rate. It will cost you less in the long run.”

Einstein famously wanted “to know God’s thoughts.” His theory of general relativity redefined how we see our world and universe. It paved the way toward our modern information age.

Scientific breakthroughs drive economic growth. They impact every part of our lives — from the medicines we take to the mobile phones we rely on.

Deep tech innovation holds the promise of solving our most important problems: climate change, hunger, disease.

Biercuk had one last piece of advice for academics seeking to launch a startup: “Target investors who are wealthy and have FOMO.”

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