Voima Ventures is having its first anniversary of second fund closing so it is a suitable time to share some thoughts and insights how we see the world under the current circumstances. As the key investment theme for our fund is deeptech it probably makes sense to start off by opening what it means in our context.
The first criteria for deeptech is that the core innovation is science based. In practice it often means the innovation originates from university or research center background. Tech transfer startups are the ones which have spun off from that academic base or external teams who acquire the technology and develop it further. Another defining angle is that deeptech companies often deal with fundamental and “world-changing” solutions rather than incremental ones. In order this approach to be successful commercial success usually either requires changes in value chain or replacement of old, incumbent technologies and thus buy-in from the end customer. The third angle to the definition is less quantitative and more ideological: many deeptech companies are developing solutions which address and aim solving one or more global challenges such as climate change, clean water scarcity or more recently COVID-19 related problems.
There is a flip side of the coin. By taking too orthodox approach for categorizing companies into deeptech and others may lead to overlooking teams and innovation which do not tick all the boxes. That is why we accept the fact that the definition of deeptech is not binary while still being loyal to our strategy.
COVID-19 has a major impact on the economy, and hence on deeptech companies as well. During a time of a crisis investors are allocating more resources to make sure their portfolio companies survive through the difficult period. The acute impacts are different depending on the development phase and the industry of the company; for pre-revenue startups impact in a short run is smaller whereas companies in expansion phase deal with several issues starting from more difficult component sourcing to postponed projects and revenues.
One impact applies to all startups: it is significantly more difficult market for raising new funding. Based on just recently announced statistics by FVCA Finnish startups raised slightly over 500M€ of funding in 2019 out of which almost 300M€ came from foreign sources. It is very likely that especially the foreign funding will decrease significantly in the short term and that is why our guidance to all companies is trying to secure a runway for 18-24 months. On a positive note it is delightful to see how Finnish government and public sector have started to take swift actions in collaboration with the private sector in order to find ways to mitigate these challenges.
What does the crisis and the following era of new normal mean from deeptech VC’s point of view; will there still be demand for this category of innovation?
Let’s first make a couple of predictions:
a) after the most severe restrictions are dismantled travelling will remain to be more limited and controlled
b) investments to healthcare system will grow while people will continue to be more aware of viruses and bacteria and
c) pace of digitalization will accelerate.
I would claim all these predicted changes – especially the first two – will create huge opportunities to address the underlying challenges by taking benefit of science.
The part which is already visible are the hundreds of teams globally who are developing either a vaccine against COVID-19, diagnostic tests to different phases of the illness or software to help tracking people who have been in contact with an infected person. In a hospital environment new ways to disinfect clothes, tools and other materials will be needed and there are already at least uv-light and gas-based solutions being developed to address the issue. Different kinds of touch-based displays are part of our everyday life but many of us are hesitant to type any publicly used displays. Short term fix is to increase cleaning frequency but long-term solution will lay in deeptech; self-cleaning materials. I’m tempted to continue making predictions and I predict it will not take long before airports’ security checks and other border inspections will be equipped with new technologies to reveal people suffering from different infectious diseases.
I personally just hit my first 100 days mark with Voima Ventures. I have been truly positively surprised by the amount of high-quality teams and startups there are dealing with innovations and solutions based on deeptech across Nordics and Baltics. Obviously, the current circumstances are challenging for all of us and everyone’s priority has been keeping people safe. However, that has not restricted us from actively seeking and progressing interesting opportunities.
Many have said the world will not be the same after the crisis – that remains to be seen. Meanwhile, let’s focus on the opportunities and possibilities to learn something with Winston Churchill’s words: “Never let a good crisis go to waste”.