Measurable Impact: How Deep Tech is Transforming Industries and Generating Profitability

Deep Tech investments cover a wide variety of industries, most of which are growing at a breakneck pace. For example, the U.S. aerospace and defense industry alone is estimated to grow from $416 billion to $550 billion from 2020 to 2021 . Moreover, as countries turn to clean and renewable energy, the clean energy industry has also experienced incredible growth that is projected to reach $1.9 billion by 2030 .

Peter Thiel , co-founder of Paypal and hedge fund manager and venture capitalist states, "The most valuable companies of the coming decades will be created by entrepreneurs who seek to empower people rather than try to make them obsolete." It has been proven that those interested in deep tech investments understand the value of transformative technology.

A few decades ago, it seemed implausible that spaceflight was in the hands of private, commercial organizations; similarly, artificial intelligence is no longer confined to isolated academic labs or applications: it is in our phones, enhancing photos and translating languages in real-time. Both revolutions were made possible by investors who had the vision to back visionary innovators.

Investing in Deep Tech can also contribute to meeting the UN Sustainable Development Goals (SDGs) , beyond what governments are doing. To facilitate private access to these challenges, an initiative led by the Founder Institute translated the SDGs into metrics called Key Impact Performance Indicators (iKPIs) that startups and venture capitalists can address.

This approach provides a framework for private entities to align their objectives with global sustainability goals and measure their contribution, fostering a culture of accountability, transparency, and improvement.

An iKPI is a quantifiable metric used by "For Progress" companies to assess their direct contributions to achieving Sustainable Development Goals by providing a clear and objective method for measuring the effectiveness of a company's mission, products, or services in addressing global challenges. They are essential metrics that help these companies assess their progress, guide their strategic decisions and ensure transparency by publicly sharing their achievements and impact on a regular basis.

The creation and monitoring of iKPI exemplify a company's commitment to social and environmental change, thereby fostering a culture of accountability and continuous improvement.

Where do entrepreneurs fit into this picture? According to the UN, entrepreneurs cannot stand idly by and wait for governments and large organizations to solve the world's problems, and if a better future for humanity is to be created, it requires the efforts of all companies and organizations, large and small.?

While not all entrepreneurs can (or want to) "change the world," they can all do their part to advance the Sustainable Development Goals. This is what "Businesses for Progress" is all about, with the components corresponding to a stage in a company's evolution: from alignment with the SDGs, to designing a product or service that impacts the iKPIs, to reporting metrics.

First-time investment funds in Deep Tech can have a higher rate of return; they typically start with a small fund, which allows for more focused and strategic investments, and they have the opportunity to prove their investment thesis and build a track record, which attracts more investors in the future and increases initial investment and internal rates of return (IRR).

Venture capital in the healthcare sector will continue to grow as funding opportunities and incentives persist. The average IRR in this sector between 2010 and 2021 was 27.5% compared to 21.1% for other sectors over the same period. In the climate and environment sector, 90% of carbon emission reductions come from energy efficiency measures and offer an average IRR of 16.7% (companies in Latin America and the Caribbean have an IRR of 13.4% for their renewable energy investments. In infrastructure, a survey conducted by Deloitte found that approximately 70% of investors reported that they are earning at or above their target IRR, which typically ranges from 12% to 14%.

It is clear that deep technology will play an important role in the future for all of us, but not all are equal. The most successful companies in the next decade will be those that understand how technology matures over time and know when to act to take advantage of it. The key to harnessing the power of deep tech is to cultivate this awareness in order to correctly identify the sweet spot.?

Being truly innovative and achieving success requires a certain degree of calculated risk, but understanding what deep tech is makes it much more likely to get the timing right.