DEEP TECH: In the global transition to net zero, deep tech science and engineering could see us achieving greater strides in a shorter period of time, and investors are searching for the next big thing.
Deep tech is a loose term referring to scientific and engineering breakthroughs that are transformative in nature and have applications that spiral exponentially outwards.
Some examples are wifi, the silicon microprocessor, genetic engineering, block-chain, computer imaging and VR. Breakthrough applications of AI are also considered forms of deep tech, such as programs that predict natural disasters or identify diseases from previously unreadable data.
Partner at ethical investing firm SDGx, Zarmeen Pavri told The Fifth Estate her company was uniquely interested in the power of deep tech startups to help the planet, while creating highly attractive investor returns.
SDGx recently launched what they say is Australia’s first climate tech impact VC fund, looking to match investors and startups from across Australia, Asia and Europe.
“Our focus is very much on deep tech startups, focused on climate solutions across the sub sectors of energy, manufacturing and transport,” Pavri said.
“The reason why we picked those is they’re the three biggest sectors that emit greenhouse gas emissions into the atmosphere.”
The sort of breakthroughs Pavri and her company are looking for don’t come cheap, generally being labour and time intensive in the R&D stages. Which is why deep tech and venture capital have become closely linked in recent years.
While investors provide funding for early product development, deep tech startups offer high returns through game-changing intellectual property that is difficult or impossible for competitors to replicate.
“They’ve got protected intellectual property which is a big competitive advantage, but they’re quite heavy with R&D investment so that creates high barriers to entry,” Pavri said.
SDGx’s fund is in the early stages of attracting outside investment and currently investigating multiple deep tech startups that are required to show significant potential in reducing carbon emissions.
“One of our metrics with these startups is that they need to be able to reduce greenhouse gas emissions by half a gigatonne per annum within 10 years. And that half a gigatonne metric is an ambitious goal, but that’s to counteract what we’re emitting right now which I think is around 43 gigatonnes each year,” she said.
While deals are yet to be made, in looking to identify startups for investment Pavri and her team encountered a range of deep tech that could qualify.
“Things like technology platforms that help automatically keep the energy grid supply and demand imbalance. It optimizes efficiency, minimizes outages. The platform turns the grid into a collection of micro grids and it uses data, AI, renewable energy sources and it connects directly to consumer connections,” Pavri said.
In the engineering space they saw a process to convert excess heat from industry into usable energy to increase profitability and reduce carbon footprint.
Another was magnetic bearings, capable of reducing friction in industrial electric motors, which are one of the largest electrical end uses. They showed the potential to cut electricity usage in that space by around 50 per cent.
Taking deep tech solutions to change the planet
As an international organisation, SDGx is well placed to take advantage of a range of markets. For instance South East Asia which Pavri says presents a unique opportunity for Australian and European startups.
“If we take that startup from Europe who’s doing a great innovation, but can’t find room in their more established local markets, we can actually take it to one of the countries in Southeast Asia with the global tech transfer. And the Asian countries don’t have any legacy. They’re still developing their economies, so they can quickly adopt all of this new technology really quickly,” she said.
“So for the startup, it’s great for global scale. And for where the impact really is it’s in the Asian and Southeast Asian countries where there’s energy poverty, there’s so many different things that are happening in that region alone.”
Pavri says through talking with investors in Australia and overseas, the growing interest in ESG investing was clear, with more opportunities ever to invest responsibly without compromising on returns.
“Every investment has an impact. You may be ignorant of that impact, but it does cause impact on people or planet.
“And so we’re hoping investors have a look at their portfolio and really look at how to create a hedge or an insurance on the climate risk that’s sitting in their portfolios.
“This is investing in solutions. You can mitigate risk, but you need to then be able to deploy that into opportunities. So we’re providing a new pathway for investors to achieve above market returns and positive impact.”
Once the startups have been selected, funding will occur in two stages, starting with a smaller investment of between $US50,000 to $US100,000 as the technology progresses over the next 6 to 18 months. SDGx can then follow up with larger investments of crucial long term capital.
“We’re right now, putting in our own money as general partners. So the typical VC will need to contribute 1 per cent of total capital, so we’re planning to raise $100 million. And we’re looking very fast at a lot of deal flow right now so we can deploy the money and open up the fund to external investors.”