For decades traditional venture capital firms’ partnerships were built around three broad specialties:
- Enterprise (infrastructure and software)
- Consumer (internet and mobile)
- Healthcare (biotech and medical devices)
Look around a majority of venture firms and you will still see roughly the same broad structure. Firms built practices in these spaces by hiring multiple partners over the years, and have entire platforms built to support the ecosystem in those industries. Some firms have spun-out their biotech practices over the years, but otherwise the formula remains.
So until a few years ago when entrepreneurs outside of those sectors approached VCs it was often a challenge to find appropriate attention. If you were a hardware company, an energy company, or an automotive company which partner(s) would take up your case and be engaged? Who would feel comfortable in their knowledge of the industry, regulatory risks, key players, and channel/margin situation? Who would push their own boundaries and
This was a real issue for entrepreneurs working on new, interesting, and breakthrough technology areas. I remember in 2004 I pitched my startup (advanced materials for next-gen automotive emissions control) to a leading VC firm with 8 partners including half on a video conference, and they seemed puzzled where to place us. During the pitch one of them remarked “Ah, so are you like a biotech firm?” We knew then that they just wouldn’t get us. Today, that firm has a well developed deeptech practice that would never say such a thing again.
That firm has since then transformed itself to become more open to emerging spaces. And the same seems to be happening across the venture landscape. Not only are existing VC firms adding partners and other team members to support these new spaces that are being called deeptech or frontiertech, but entirely new VC firms are emerging that only focus here. This is great for entrepreneurs, and for the startup ecosystem broadly. We saw a little bit of this during the energy/cleantech boom, but in most cases it was semi-conductor and biotech folk trying their hand in these new areas because the fields looked a bit similar. Hopefully this time will be different.
A lot of innovation today is happening at the intersection of several different disciplines. Great ideas are no longer silo’ed inside biology, computer science, or mechanical/electrical engineering departments in our universities. In fact some of the most amazing ideas we learn about every day on the internet are brainchildren of non-conformist, misfits and crazy rebels who refuse to accept the world as it is. From new satellite and space companies to autonomous car and drone companies, augmented reality experiences, brain-machine interfaces, and AI-enabled home connectivity solutions — these are all amazing futuristic areas that would not fit traditional VC silos.
There are two more factors contributing to the excitement around deeptech/frontiertech:
(a) Software is eating the world. While some have apparently taken this to mean hardware has become easy, or largely irrelevant, the reality is that software has made hardware immensely more powerful and effective, and iteration cycles to push out new features in between hardware revisions has allowed customers to become more engaged, and consumer feedback to become a critical part of hardware development and design.
(b) Over the last 5–7 years we have seen some remarkable commercial success stories in areas that would be considered deeptech today: SpaceX, NEST, Tesla, Oculus, FitBit, DJI, etc, and many others that look like they can be great commercial success stories. This has pushed venture firms to be more introspective and evaluate what they may have been missing out on. I recently heard a senior partner at a major VC firm comment: “We seem to be missing someone doing deeptech at our firm”. Deeptech is not for everyone, but I bet some others are thinking the same.
Lux Capital has been investing in deeptech/frontiertech for 15 years now. We don’t take credit for inventing this field, or popularizing it. Amazing entrepreneurs like Elon Musk, Tony Fadell, and Frank Wang have done that work for us. We have always tried to invest in the ‘other’, in spaces often considered too science-y or strange by others. And that is OK by us. To be honest, we actually want other VCs to agree with us and also find our spaces lucrative, just a little bit later 🙂
Jokes aside, its great to see the interest in new, emerging areas by VCs — it allows Lux to build strong syndicates for our portfolio companies, its great for entrepreneurs whose experiments deserve a chance, and for the entire ecosystem as new opportunities for innovation emerge where there weren’t any. And finally, all of us at Lux are happy to share our experience and lessons learnt with those who wish to do more deeptech, and learn from them.