Why you don’t need a PhD to invest in deep tech

Everyone agrees that building and backing deep technology startups is challenging.

Deep tech companies—advanced materials, AI, biotech, hardware, and quantum computing firms—are typically founded around tough-to-replicate scientific discoveries or engineering breakthroughs, carry greater technical risk, and require a lot of capital, research and development, and time to commercialize their products.

There is a renewed interest in deep tech in Canada. At NACO Summit in Ottawa on Thursday (which NACO supported BetaKit’s travel to attend), Canadian venture capitalists (VCs) from Adrenaline Fund, The SAIL Initiative, and TandemLaunch dispelled some of the biggest misconceptions about what it takes to invest in deep tech startups.

“When deep tech companies fail, it’s often nothing to do with the technology.”
Kyle Briggs, SAIL Initiative

While the path to commercialization and liquidity is often longer for deep tech startups than their traditional software peers, Randall Howard, general partner at Kitchener-Waterloo’s Adrenaline Fund, argued this is not always true. Howard noted on stage that there are “1,000 different definitions of deep tech,” some of which do not fall neatly into this mould.

That said, many require patient capital as they do take a great deal of time to generate returns. Fellow panellist Kyle Briggs, co-founder of the Ottawa-based SAIL Initiative, said this has led more funds focused on the space to build secondary exits into their investment strategies.

Deep tech failures often have nothing to do with the tech

While deep tech is hard and typically time-intensive, Briggs and TandemLaunch managing partner Émilie Boutros both highlighted that the tech itself is not always the problem.

“When deep tech companies fail, it’s often nothing to do with the technology,” Briggs said. “It’s usually founder dynamics. A lot happens in the 10 to 15 years it takes [to build in deep tech].”

The relevant takeaway for the folks investing in deep tech at the earliest stages, Briggs argued, is that it is important to index heavily on the founders and their coachability.

Howard noted that a particular problem is founders who are “bigger than the company” and maintain disproportionate control over startups, hindering their ability to grow. He said he has found this to be a more pronounced issue among professors who have become entrepreneurs.

“It is certainly true that not all scientists should be founders, and certainly not all scientists should be CEOs,” Briggs said. “But there are some that are very effective, and there are some that can be taught to be very effective.”

You don’t need a PhD to invest in deep tech

Moderator Erin O’Keefe Graham, managing partner at Halifax’s Imaginal, noted that deep tech due diligence can be tough, especially for folks without a background in the relevant vertical.

But Boutros takes issue with the commonly held notion that investing in deep tech requires a PhD. “There’s this idea that you need a PhD in photonics to invest in deep tech,” she said, noting that many B2B SaaS funds subscribe to this idea. Boutros argued that you do not, citing herself as an example: she has been investing in deep tech startups for 15 years without one.

Her team at TandemLaunch, however, is chock-full of domain experts. She recommended folks interested in dipping their toes into deep tech investing find firms like TandemLaunch with relevant knowledge and experience and coinvest alongside them to alleviate some of the risk.

“If you could just change that mentality for the angels and the institutions, I think everybody would win,” she said.

Feature image courtesy NACO Summit.