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What Are Deep Technology Startups and Why Are They Good Investments?

By Swati Chaturvedi, CEO

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At Propel(x), we fund deep technology startups. Only deep technology startups. Our goal is to propel mankind by helping finance technologies that matter, such as: medical devices and pharmaceuticals that help save lives, big data technology aimed at solving world hunger, computer science aimed at the lofty goal of securing the cloud, or clean energy to help stem global warming.

We define “deep technology startups” as companies that are founded on a scientific discovery or true technological innovation. The term is purposefully vague because no list that we create can comprehensively cover all new technologies. Most technologies today cross boundaries and are interdisciplinary. However, broadly, we focus on the following five areas:

1.  Life Sciences (drugs, devices, diagnostics)

2.  Computer Science

3.  Energy and Clean Technologies

4.  Materials

5.  Other

Notably, “Other” is a bucket in and of itself and will likely be significant.

Why are these important?

We believe these technologies are important for a couple of reasons:

1.  They advance mankind, and

2.  They are undervalued today, and make tremendous financial sense.

#1 above is obvious. We will not cure cancer by investing in a health tracking app. Nor will we grow more food, improve our energy efficiency or perform more efficient surgery by investing in internet companies or mobile apps. To achieve these goals, we will have to invest in real things – in cancer drugs, new energy sources and storage, new medical devices … That is why investing in deep technologies is important – because without these technologies, mankind does not move forward.

But, equally important is the economic incentive. After all, we aren’t talking about a donation, but rather an investment. Why should you invest in these deep tech startups if your return would be inferior to that of an investment in non-deep tech – mobile apps, internet companies and the like?

We are at an inflection point today, where the valuations of these deep tech companies are low enough to make investing in them attractive.

The success of companies like Facebook, LinkedIn, Twitter, Instagram, and Pinterest catapulted interest in social/mobile startups over the past few years. As investors pumped their money into these companies, their valuations skyrocketed. In turn, interest in deep tech companies waned, and their valuations fell.

Now is the time to invest in deep tech startups, because their valuations are remarkably low. Deep tech investments still carry risk and sometimes face longer roads to liquidity, but their low valuations can provide for significant returns. At the given moment on Propel(x), we are helping raise Series A and B rounds for medical device/diagnostic startups at valuations similar to seed rounds for internet startups – as low as $2.25M pre-money for a Series A. Each of these companies is built around a cutting-edge innovation, already cleared significant barriers in product testing, and already raised money from other sources. In other words, deep tech startups pose very attractive opportunities to make returns – and this is the most compelling reason to invest in deep technologies today (it should come as no surprise then that the New York Times reported on October 12, 2014 that “Venture Capitalists Return to Backing Science Based Startups”).

Categories:
Angel Investing Tips Deep Technology
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