In their report, Hello Tomorrow and Deepbright Ventures identify what makes deep tech a worthwhile investment:
- Early-stage deep tech startups in Europe are as competitive as those in the U.S.
- Hardware startups deliver significantly higher returns than software ventures.
- Accelerators and universities play nuanced roles in predicting success as deep tech startups require sector-specific mentoring to grow.
Paris, France – November 27, 2024 – Deep tech outperforms traditional tech on profitability and challenges conventional investment wisdom, according to Deep Tech Decoded: The Strategic Investor’s Guide, a new report published by Hello Tomorrow and Deepbright Ventures. With a net internal rate of return (IRR) of 19.6%-22.8% for selected startups, deep tech surpasses industry benchmarks, such as the Cambridge Associates Private Investment Benchmark.
“Over the last decade, deep tech has emerged as a powerhouse VC asset class, with over 1,000 investors in Hello Tomorrow’s network,” says Arnaud de la Tour, co-founder of Hello Tomorrow and Deepbright Ventures. “Yet investors still lack the deep tech-specific insights needed to succeed. Traditional tech models simply fail to capture the unique dynamics of deep tech – such as timing, capital intensity, and risk profile – which demand a specialized investment approach.”
Why Deep Tech is Set to Replace Traditional Tech
The investment landscape is shifting as a growing number of investment experts warn that traditional tech stocks might be overvalued. In parallel, three critical factors contribute to deep tech becoming the next investment frontier:
Megatrends Powering Market Growth
Deep tech tackles pressing global challenges, including climate change, healthcare, and national security. These startups, supported by favorable regulations and an $8 trillion addressable market in Europe alone, are positioned to deliver both societal impact and strong profitability.
Democratization of Technology
Radical reductions in technology costs enable startups to innovate in domains previously dominated by large corporations. For instance, genome sequencing costs have dropped from $3 billion in 2003 to nearly $100 today, opening up new opportunities for disruptive innovation.
High Barriers to Entry
Patents, intellectual property protections, and domain expertise make deep tech startups inherently defensible, providing sustainable competitive advantages and long-term growth potential.
The Profile of the Most Promising Deep Tech Startups
Despite a common misconception that Europe is lagging behind in the deep tech race, Hello Tomorrow and Deepbright Ventures’ report states that this is not the case when it comes to the financial returns of early-stage investments. Instead, Europe and North America are equally competitive within this asset class, with disparities emerging at later funding stages.
Based on an analysis of over 860 startups, the report identifies the following characteristics of high-performing deep tech ventures:
Hardware Dominance
Hardware-focused startups deliver a gross internal rate of return (IRR) of 27%, outperforming their software counterparts at 13%. This challenges the long-standing preference for software investments, signaling a paradigm shift in how value is created.
Accelerators and Universities’ Complex Roles
While university spin-offs perform well, with startups achieving a 26% IRR compared to 23% for non-spin-offs, success is not limited to academic origins. Similarly, startups unaffiliated with accelerators often outperform those that are, prompting a need to reimagine how these programs can better serve the unique needs of deep tech ventures.
Patents as Dual Enablers
Startups with patents outperform non-patented ventures, achieving a 25% IRR versus 20%. Patents act as market moats and enable early monetization through licensing, which is particularly valuable given the extended timelines typical of deep tech commercialization.
For more insights, see the full report “Deep Tech Decoded: The Strategic Investor’s Guide”.
“Deep Tech Decoded” draws on data from 860+ startups vetted through the Hello Tomorrow Global Challenge. The dataset spans diverse industries and geographies, focusing on startups that raised at least $500,000 in funding before 2022. Internal Rate of Return (IRR) metrics were calculated using benchmarks from Cambridge Associates and proprietary valuations validated through Dealroom and Crunchbase.
About Deepbright Ventures
Founded in 2024, Deepbright Ventures is on a mission to redefine early-stage deep tech investing. Powered by Hello Tomorrow, Deepbright Ventures is a venture capital firm that leverages a decade of expertise and global connections to identify and support the world’s most promising deep tech startups. Partnering with visionary founders and a network of forward-thinking investors, it fuels science-driven innovations to tackle humanity’s greatest challenges — from clean energy, to precision medicine, to regenerative agriculture, and beyond.
Press contacts:
Ksenia Etcheverry: ksenia.etcheverry@hello-tomorrow.org
Massera Winigah: massera.winigah@hello-tomorrow.org
