Are partnerships the key to commercialization for deep tech innovations?
A key focus of our new $200-million Deep Tech Venture Fund will be to support Canadian start-ups in their efforts to bring world-class innovations to global markets.
In researching deep tech industries before launching our fund, it quickly became apparent just how big the opportunity is for firms that are able to commercialize their innovations and scale up to meet international demand.
The market opportunity is evident in the large number of deep tech unicorns—companies with market valuations of US$1 billion or more—that have already emerged. Deep tech firms attracted 11% of start-up funding between 2014 and 2019 but were responsible for 17% of unicorns in that period.
The term deep tech refers to cutting edge, research-based technologies in such areas as quantum information science, photonics, electronics, foundational artificial intelligence and blockchain. These technologies have the potential to transform whole industries in the years ahead.
An increasing number of deep tech start-ups have been launched around the world and the sector has drawn intense interest from venture capital investors and corporations. However, Canada risks falling behind other countries that have been more successful in commercializing deep tech applications.
Bringing innovations to market is a big challenge
One way to measure our underperformance in commercializing innovations is by looking at the gap between Canada and other countries in patent applications.
Canada’s annual patent output has stagnated since 2010 at a growth rate of just 1.1%, while most of our peers have grown much more strongly (U.S. by 19%, U.K. by 10%). Canadian patent applications lag GDP growth, and foreign ownership of Canadian patents continues to increase.
As part of our analysis of deep tech industries, we conducted roundtable consultations with some 60 stakeholders from government, the private sector and academia. These discussions highlighted several important challenges to improved commercialization.
4 strategies to facilitate deep tech commercialization
To address these challenges, our deep tech fund team will focus on deficiencies at both the firm and ecosystem levels to help companies realize their market value in a more compressed period.
1. Improve coordination among government departments
Many countries have made it a priority to develop strong deep tech ecosystems. Canada is no exception. Numerous federal departments and agencies are keen to increase collaboration with deep tech firms. However, government players often have a hard time engaging with the private sector, while start-ups struggle to access public procurement programs.
BDC Capital’s Deep Tech Venture Fund team will try to act as a matchmaker between government and start-ups. Our goal is to connect departments and agencies with leading technology companies.
For example, quantum company Xanadu recently secured a $150,000 federal research project and a follow-on $1 million prototype project. We believe that this kind of industry-government collaboration can go a long way to helping commercialize these technologies in Canada.
2. Strengthen links to corporations
Large corporations are not investing enough in Canadian R&D and, as a result, our country is losing talent and important IP to other countries. While many large local and foreign corporations are eager to collaborate with Canadian deep tech firms, start-ups are often ill-equipped to explain their value proposition and generate interest. In general, the ecosystem is still young and needs to do more outreach to corporations.
Our deep tech team has a successful track record of building relationships with the senior management of leading corporations interested in supporting the development of Canadian firms. The fund will work to encourage corporate support for Canadian deep tech firms by becoming major customers and/or development partners for them.
3. Bolster technical and managerial support
The development of start-ups is often slowed by gaps in technical and managerial expertise. Because the ecosystem is so young, there is also little engagement and coordination between deep tech communities in Canada. Instead, deep tech clusters tend to coordinate more with foreign markets than with each other.
Our team we will provide technical expertise, insights on specific segments and facilitate market entry to portfolio companies. We will also provide them with coaching, networking opportunities, market insights and access to potential customers. At the ecosystem level, we have many partnerships that position us well to cultivate a Canadian deep tech community, bringing together a diverse set of participants from different industries for mutual benefit.
4. Compress the runway to commercialization
Deep tech firms typically have a longer timeline to maturity than other VC-backed firms. Besides their novel technologies, applications often have a hardware component, which requires a longer development period. Additionally, a lack of funding for Canadian deep tech companies has tended to slow their development.
We recognize the longer development timelines for these industries and that’s why our fund’s life is 12 years in contrast to the usual 10-year life of a general VC fund. We will be a patient partner for firms, investing enough capital in successive funding rounds to allow them to scale up and develop their products. Nevertheless, we believe that with better funding, stronger links to government and private sector actors and better access to technical and managerial support, start-ups in this domain can substantially accelerate their timeline to commercialization.
On the path to a vibrant deep tech sector
As BDC Capital, we are confident that Canada has everything it needs to build a vibrant, globally competitive deep tech sector. However, much work needs to be done to ensure that start-ups have the support they need to turn exciting discoveries into transformative products and services.
Our new Deep Tech Venture Fund knows bringing Canadian innovations to global markets will take more than just dollars. That’s why we will play a leading role in nurturing partnerships between government department and agencies, private sector players and start-ups to grow international champions for the benefit of Canadians for decades to come.
Contact us if you’d like to partner with us to help build a stronger deep tech ecosystem.