In the Ventures team at Octopus, we think about deep tech as the technology that allows us to transcend the status quo. Current technologies eventually block progress and deep tech is the un-blocker. Existing computer chips, for example, can’t handle the ravenous computing demands of AI and machine learning algorithms. Deep tech describes the radical new solutions that break open these bottle necks. (Model T Ford motor cars weren’t just “faster horses”, to paraphrase Henry Ford.) Whatever examples you choose, deep tech is central to the accelerating flow of progress in the world. Advancing technology now touches every aspect of life, from agriculture to education, health, commerce and communication.
We’ve been investing in deep tech for over a decade. Our investment in Evi, in 2007, meant backing a small company that was doing something big in knowledge graphs and natural language semantics in Cambridge. In 2012, Evi was acquired by Amazon and went on to become the underpinning technology of Alexa. We have also had a string of other successes in deep tech with businesses like SwiftKey (acquired by Microsoft in 2016) , Magic Pony (acquired by Twitter in 2016) and Ultrasoc (acquired by Siemens in 2020). But our more recent investments in deep tech companies excite us too.
Dogtooth, for example, makes robots capable of harvesting soft fruit. The team has created a piece of hardware intelligent enough to see a strawberry and decide whether to pick it, then grade it and place it in a punnet over and over again. This area of agriculture has been facing a concerning labour shortage for years, but with Dogtooth’s delivery of the right kind of robot, the bottle neck is set to be smashed open.
Other companies we’ve backed include WaveOptics which creates the waveguides that make augmented reality a reality, Slamcore that gives spatial intelligence to robots, and Audiotelligence which helps humans and machines hear better in noisy environments. Our full portfolio of deep tech investments can be found here.
We’re focused on finding the pioneers who are reimagining the future. Within deep tech, the significant advances are often happening quietly, out of sight in laboratories, research centres and universities. We spend a lot of our time in the incubators and accelerators that provide the link between universities and the outside world. We have team members who have worked within university tech transfer offices and we understand the spin out and commercialisation journey intimately well. We also build relationships with Angels and Seed investors such as the Cambridge Angels, Bristol Private Equity Club and their equivalents at centres like Imperial, Manchester and Oxford. This way we interface with the real pioneers at the heart of the deep tech revolution.
What it takes
We understand that deep tech development is laborious and time-consuming, so investment capital must be big and patient. The wins can be enormous, but there are also many risks. The journey from laboratory to reality can be a labyrinth of decision-making and nerve-holding. Deep tech advances don’t always work as promised, they can be superseded or fail to adapt to unpredictably shifting markets.
Commonly, deep tech advances can be so pioneering that a market doesn’t yet exist to sell into. Creating markets is expensive and certainly makes sizing the opportunity difficult. Even so we often see teams discovering niches to establish themselves in before then expanding out and up. Our portfolio company Quantum Motion wants to build a scalable quantum computing architecture and another, Phoelex, wants to replace all chip to chip communication with optical connections. Both companies will need to focus on research, development, design and engineering before revenue is generated – and we are comfortable with this. At the same time, we pull forward the importance of truly understanding the customer and formulating a sensible route to market.
The IP issue
Another problem area where we have a lot of experience (and the scars to prove it) is in IP ownership. For spinouts there can be real challenges in navigating this thorny issue and every case is different, whether negotiating with corporates or universities. “Who owns the IP?” will often be a question at the front of our minds as potential investors and it will be also be asked by potential acquirers.
As they surface into the light, deep tech companies often face a common issue: when and from whom to accept help. The Googles, Facebooks, Amazons, Apples and Microsofts of the world are of course very keen to acquire deep tech as it emerges, but how do you know if or when to take that route? Do you grow within Google? Or stay out there, independent, fuelled by venture capital? Do you hold on tight to your IP or let a giant in on it now? What if they’re building similar technology themselves as a competitor? This is a key area where investors’ knowledge and advice can be invaluable.
So how do we, as the Deep Tech pod, spot genuine game-changers among ‘everyday’ innovations? We spend a lot of time tracking the past and thinking about future trends. We also go to conferences, speak to academics and experts, and read a lot too. Everyone in this pod lives and breathes technology. In this increasingly complex world, we also look for convergence. Convergence describes the way in which technology doesn’t necessarily follow a linear evolutionary path. Rather, it relies on the intersection of advances in complimentary but different fields. The renaissance in AI is a good example of this: the rise of big data, combined with increasing compute power (and GPUs in particular) has allowed the advances we’ve seen in machine learning over the last decade.
As you might expect, this landscape is constantly changing, but there are a few technology areas that we’re particularly focused on right now: quantum and edge computing, 3d printing, human computer interfaces, drones and robotics. We also always have one eye on technologies that can make a substantial difference to the climate crisis.
We’re biased of course – deep tech is our focus – but there’s no doubt that now is a great time to be a deep tech investor. To be surrounded by universities, hubs and research centres that are churning out radical advances that will change the world is a very exciting place to be.
In line with our deepening remit, we’re continuing to expand the team in 2020: Caitlin Wale brings a specialist focus on innovations solving climate change problems and Mason Sinclair adds his experience as an engineer (biomedical, electrical and computer), startup founder and technology advisor.
We like to share our obsession of cutting edge tech and the “hard stuff” through a regular newsletter called Deep Thoughts. It allows us to connect with others who share these passions. You’d be very welcome to sign up and read more here, click here.