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From deep tech to unicorns: Looking for the next wave of Canadian high-growth tech ventures

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As Canada’s largest VC investor, we keep a close eye on the full range of emerging technologies and how our country is performing in each.

Before the COVID-19 crisis, we were seeing remarkable progress on innovations that are collectively known as deep technologies. These technologies are influencing every industry and attracting an ever-growing share of VC investments around the world.

While Canada is blessed with outstanding universities that produce world-leading fundamental research, we need to make a concerted effort to continue developing key deep technologies that are essential for our future prosperity.

It’s essential that we support seed and early stage deep tech companies that will transform Canada’s strong research capabilities into world leading businesses.

In a recessionary period, it’s essential that we support seed and early stage deep tech companies that will transform Canada’s strong research capabilities into world leading businesses.

Deep tech refers to a wide range of research

Deep tech encompasses such areas as quantum computing, photonics and electronics, biotech, advanced materials, artificial intelligence (AI) and machine learning, and drones and robotics.

Recent increases in deep tech investments show these technologies are already starting to come out of university labs and into the hands of entrepreneurs. Global investments in deep tech grew at a compound annual growth rate of 22% from 2015 to 2018 (Fig. 1). The investments were primarily in biotech, AI and photonics and electronics.

Highly impactful technologies

Deep tech has the potential to address major societal and environmental challenges and the power to create their own markets or disrupt existing ones.

However, these applications typically take longer to develop than innovations based on widely available technology, a period that can stretch over more than 10 years.

They also require continuous investment and have intensive capital requirements while carrying substantial technology and market risk. Full development generally requires both public and private investments and resources.

Despite these challenges, research shows deep tech businesses are disproportionately more impactful than traditional VC-backed firms. Deep tech firms attracted 11% of start-up funding between 2014 and 2019 but were responsible for 17% of unicorns in that period (Fig. 2).

Impact is felt in every industry

Deep technologies not only produce highly impactful businesses, but their influence is felt in every industry, often delivering game-changing benefits (Fig. 3). And, as their importance has grown, development and control over these technologies has become a critical national security issue as countries seek to gain advantage and exploit weaknesses in adversaries.

We believe Canada must do more, especially in the context of the COVID-19 recession, to bolster our position in deep tech and continue building the next wave of world-leading tech ventures.

Canada lags on IP creation

One area of worry is Canada’s lagging intellectual property production. For example, none of Canada’s top three universities (in the overall global top 50) figure in the top 50 university patent applications under the Patent Cooperation Treaty (PCT). What’s more, Canada’s annual patent output has stagnated since 2010 as compared to other leading industrialized countries (Fig. 4).

This is partly why we recently launched a new intellectual property-backed financing fund. This first of its kind $160 million fund provides customized, patient capital in the form of debt, quasi-equity and equity to scaling Canadian companies who have monetized their IP portfolios. Our hope is that we can inspire like-minded investors to support knowledge-based companies in emerging sectors such as deep tech.

Canada needs to accelerate deep tech development

As I discussed in an earlier blog post, our research suggests that during recessions, investors appear to shy away from high-risk, high-reward companies such as the ones working in deep tech.

However, these periods have also been when some of the world’s most impactful companies have been launched. That’s why investors need to be on the lookout for deep tech investment now to avoid missing opportunities.

We need to take leadership in developing these fields; deep tech is too important for our country’s future prosperity and national security. Acting together, private and public participants can create the conditions that will allow Canada to produce world champions in these exciting technologies now and in the years ahead.

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