Overview

Two years in the making, thousands of hours of research, hundreds of conversations, three startups, and two investing jobs later, here is my Unified Theory of Deep Tech. This piece is meant to capture all of my intellectual capital up to this point (July 2023) - a “brain vomit” if you will - so that I can look back and ridicule my obtuse thinking in the years to come.

→ What is Deep Tech?

There is no agreed-upon definition of Deep Tech startups, but a few common ones include:

  1. Startups involving extremely high technical or scientific risk.
  2. Startups building science fiction products, usually hardware.
  3. Startups tackling frontier markets.

My framework breaks down Deep Tech into three main categories:

https://twitter.com/koko_xu_/status/1678548819573882887?s=20

  1. Single-Product Plays

    Definition: Startups building one or a line of products with huge technical or scientific risks.

    Characteristics: long time horizons; capital intensive / high dilution; high technical and regulatory risks; high market risks; high defensibility; limited scale potential —> bad return profile.

    Examples: Autonomous Vehicles, eVTOLs, Fusion.

  2. Vertical Platforms

    Definition: Startups building a vertical solution in a highly fragmented market to deliver best-in-class service.

    Characteristics: long time horizons; capital intensive / high dilution; high operational complexity; low market risks; high defensibility; huge upside —> decent return profile.

    Examples: SpaceX (Aerospace), Hadrian (Industrials), Solugen (Chemicals).

  3. Horizontal Platforms

    Definition: Startups building infrastructure in frontier markets benefitting from the growth of the overall market.

    Characteristics: short time horizon; capital light; high growth potential; high margins; high market risk; low defensibility; huge upside —> great return profile.

    Examples: Cloud for X, OS of Y, Tooling for Z.

Time Horizon Capital Expenses Technical Risks Market Risks Defensibility Scalability Return Profile
Single-Product Plays Mid Mid Mid High Mid Low Low
Vertical Platforms High High High Low High Mid Mid
Horizontal Platforms Low Low Low Mid Low High High

For a more numerical breakdown of the top Deep Tech startups in the 21st century so far and their associated return profiles, see below.

https://docs.google.com/spreadsheets/d/1q-wKQfsMyYc6LLRKHTn45vnbR8yzFXQuS8a0k75P8pU/edit?usp=sharing

<aside> 💡 Deep Tech startups are simply Tech-Centric Frontier Markets, where technological and scientific breakthroughs ripen low-hanging fruits in otherwise overlooked orchards. We can meticulously tune our risk tolerance using frameworks. I’ll dive deeper in Playbooks.

</aside>

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→ Why Deep Tech?

Much ink has been spilled in recent years on the resurgence of Deep Tech. Here are a few select readings: