Can deeptech startups become unicorns?

By Majdoline Wahbi
25 October, 2019

It has been a few months since deeptech has become a priority for the French government, having already invested 1.3 billion euros to fund and support such innovations. France appears to be on the right track to establish itself amongst the “deeptech powers”. According to a recent study, 61% of investors rank the Hexagon in the top destinations to invest in deeptech. And this trend should increase as there are more and more promising French deeptech startups, such as Bioserenity and CardioLogs. In addition, the ecosystem is getting more dense, with new players such as talent investor Entrepreneur First, which helped create 18 deep tech companies in France in 2019. This follows a global trend. According to the recent Global Startup Ecosystem Report, deeptech is the fastest-growing category globally in terms of early-stage funding deals over five years. There seems to be a convergence of different factors that allow us to presume this trend is here to last: a technological momentum, a decrease of barriers to entry to cutting-edge research, a soaring interest by investors, a political will of the developed countries and a strong entrepreneurial dynamic.

If governments and investment funds are increasingly betting on such technologies, it’s because they expect them to disrupt entire industries and create a lot of value in the next decade, like the Internet did in the 1990’s with the creation of Google, Microsoft and all the companies that shaped our current digital era.

Yet, when we think about unicorns, we rarely think about deeptech startups. Is that likely to change in the coming years? Can deeptech startups become unicorns and replace the Facebooks and Amazons of this world in our collective unconscious?

The expert panel

On October 23rd at Station F, the Entrepreneur First team hosted a panel discussion moderated by Coralie Chaufour. It was composed of the following experts:

  • Lionel Mora is the CEO of Neoplants, a deeptech startup designing plants for the future that he co-founded in the Entrepreneur First program
  • Alexandre Terrien co-founded Future Positive Capital, a Venture Capital firm that invests in companies that apply advanced technologies and science to solve massive global needs 
  • Raphael Biojout working for the Deeptech Direction of BPIfrance on the growth actions for the Deeptech Plant 

Below are some key highlights and insights that came up during the panel.

Defining deeptech

If we take a step back, what do we mean by deeptech? According to BPI’s definition, as Raphael Biojout explained during the panel, deeptech companies rely on four pillars:  (i) teams that have a strong scientific background, (ii) companies that have strong technical barriers, (iii) a strongly differentiating advantage over the competition and finally, (iv) and companies characterized by a long, complex and intensely capitalistic go to market. 

Creatively tackling the challenges of this century with deeptech

This century carries unprecedented challenges, especially regarding global warming. If BPIfrance, represented by Raphael Biojout, is investing so heavily in deeptech startups, it’s because some of their solutions are still in the labs and need to be deployed on markets to transform entire pans of resource intensive industries. When Alexandre Terrien thinks about previous decades, he thinks about the digital disruptions brought by the internet, mobile and e-commerce. Yesterday’s solutions brought efficiency gains and digital complexity. Today’s solutions are powered by science and don’t rely only on digital anymore. As he states, “we are beyond the simple tech of the last decade, now is the time to invest in very complex and cutting-edge technologies”. When it comes to solving the most urgent problems of our time, deeptech has a non-obvious comparative advantage compared to traditional technology: it boosts creativity. “If you want to build radical products today, deeptech is the only way,” states Lionel. Neoplants is, indeed, one of these radical product innovations empowered by its “hardcore science” 

The need for a more specialized funding ecosystem

A lot of the discussion has revolved around the question of funding. Coralie Chaufour, General Manager of Entrepreneur First France , reminded us that the early stage deeptech startups created in the EF program face specific challenges when it comes to seed fundraising.

Different funding needs

“Science is really hard,” says Lionel Mora with his entrepreneur perspective. Deeptech requires patience, “you are not building an app that can bring you metrics on a daily basis,” metrics that investors like to analyze before taking an investment decision. There are also some other complex, and therefore costly, challenges such as regulation, that imply a bigger need of initial capital than a software startup. 

The need for technical Venture Capitalists…

How to incentivize more French investors to invest in early stage startups then? Alexandre Terrien believes that it is the role of highly technical VCs, “they need to focus on complex industries such as energy or space”. While fundraising in the US with his startup, Neoplants, Lionel has noticed that the best american VC firms, such as Andreessen Horrowitz, were partly composed of highly technical investors, “people that we could have hired as our scientists,” he says. The mentality was different. 

… With deeper pockets and longer fund horizons

Alexandre also believes that the real problem is the accessibility of capital: “we currently don’t have the mandate from our Limited Partners to invest in such companies, we need more pockets of institutional funding if we want to deploy new strategies”. American investors have bigger funds, that can reach billions of dollars, “they take virtually no risks when investing one million dollar in an early stage deeptech startup”, highlights Alexandre. The structure of Venture Capitalism and the amount of capital in the US simply allow them to take higher risks on a longer timeline compared to French investors.

Funding R&D without VCs

Even with more technical VCs or the right mandates from the LPs, Alexandre is not convinced that VCs are always the right funding partners for deeptech startups, at the beginning of the journey at least, stating, “in the US or the UK there are many alternative investment models, such as Oxford Sciences Innovation, that are built to fund research and have 20 years to return their investments”. In France, one of the options is to rely on non-dilutive funding strategies for research and development. It is the role of the entrepreneur to decide which funding strategy is the best at each stage of its startup life.v

To become unicorns, deeptech startups need to switch from the lab mindset to the product/market fit mindset

Aside from the funding ecosystem, what do deeptech startups need if they want to become unicorns? For Lionel, it’s “all about the product”. Building a complex science-based startup is not an excuse not to focus on the business. Deeptech founders need to understand their product, the clients that are going to use it and the reasons behind that. It is really important to incorporate a strong product culture from day one in a deeptech startup. At Neoplants for instance, they only hire scientists if they have a product mindset embedded in their DNA. From the investor standpoint, Alexandre wants to see more technical founders that have transitioned into true entrepreneurs: “The transition from scientist, to entrepreneur, to manager is very hard. But when you succeed it’s incredible!” Raphael Biojout explains that BPIfrance is working on the entrepreneurial mindset of the French Academic ecosystem. They organize a Deeptech Tour, on 20 university campuses, to bridge the gap between research and entrepreneurship and turn PhDs into entrepreneurs. Changing from the lab mindset to the product/market fit mindset is fundamental. If deeptech startups achieve that, they will become unicorns.

“It’s only day zero”: Deeptech’s future looks bright and we can expect more deeptech startups to grow and eventually become unicorns

Deeptech is only at its nascent stages. The ecosystem is maturing, and, as Alexandre says, “the timing is right, new markets are emerging, and the talent is coming together with the help of talent investors, universities and BPIfrance”. By investing 80 million euros in projects and working more closely with tech transfer agencies and universities, BPIfrance is aiming at increasing the number of French deeptech startups – there are only 1500 French deeptech startups today, only 10% of the total of French startups. With such initiatives, there will be more and more exciting and impactful products developed. Lionel has focused on synthetic biology but he is also very interested in other deep technologies, such as clean meats: “Impossible Foods are pushing a scientific innovation to the consumer, it is really hard but they are opening the way for future deeptech entrepreneurs, it’s only day zero”.

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