In my previous article we were tackling the topic of the challenges the Spanish Deeptech faces. This time around, I'd like to take a look at what can be done to build a strong and long-lasting Deeptech ecosystem?
Looking at, and analysing these challenges, there are a series of different actions we must take to face them. In order to boost the Spanish Deeptech community, we must first implement the right framework(s) to build a productive and long-lasting economy.
Over the past few years, a growing number of researchers, scientists, and engineers are founding new companies. Many of them engage in what we call Deeptech innovations or the combination and application of software with science and vice versa.
By solving problems of high complexity and high value in sectors such as agriculture, energy, industry, life science or health, they are taking on many of the 17 United Nations Sustainable Development Goals.
These innovations look at finding solutions to the most pressing problems facing society today, and building a strong Deeptech ecosystem based on the integration of both; economic viability and positive impact.
The following information is taken from interviews with various Spanish universities (UPC, UPF, IQS, UB, and UAB) and the Boston Consulting Group - Henderson Institute partnership with Hello Tomorrow reports ("The Dawn of the DeepTech ecosystem"; "From Tech to DeepTech").
1. It takes a collaborative ecosystem ...
Deeptech ecosystems are more dynamic and fluid environments than other types of ecosystems. As emerging technologies or specific industry grows, so do the relationships between the ecosystem's stakeholders.
Diverse types of players, from public to private, need to contribute to a decentralized and interdependent collaboration. Each partner can influence the direction of the whole. These powerful participants play an influential role in steering the direction of the collaboration. A prime example: converse to a commercial venture, Deeptech research and market development take priority towards the market.
A highly dynamic ecosystem needs to operate with a strong research base, transforming business models and industries. Ecosystem development is driven by alignment around a common vision, knowledge and concrete goals. However, for these goals to be sustainable, stakeholders need to share goodwill and competencies.
This type of knowledge share requires mechanisms to manage expectations and commitment.
Funding isn't the only means of exchange as other challenges including technical, business expertise, and market access are all key components to strengthen the ecosystem. Traditional financial measures such as revenues and profits are not always the best measurements to assess the value of Deeptech innovations.
Deeptech ecosystems often involve relationships built around non-financial linkages (i.e. data, lives saved, emissions reductions).
These links push corporations, startups, investors and other parties involved to develop new models that adapt key performance indicators to track startups' long-term results, build collaboration amongst relevant ecosystem players and find new ways of remuneration.
Time, scale and impact are relevant factors to move the science to a market application in ways that transforms lives, economies and societies, and goes far beyond the financial realm.
Deeptech ecosystems are nascent and operate in emerging (therefore not yet stabilized) technologies and industries. They might be hard for traditional companies to navigate due to unfamiliar territory. These innovations can affect entire value chains and therefore require a more thorough analysis of value creation models to :
- align goals
- set strategies and
- organise interaction with others.
All the while, requiring significantly more time than many other avenues, specifically in research and development, testing and, the industrialization phase.
As a result, Deeptech collaborations rely less on a central orchestrator and more on multifaceted interactions. Each one of them looking to impact society in a positive way, far beyond financial returns as money is not the only means of exchange; knowledge, data, skills, expertise, contacts and market access are of value here.
Therefore, building collaboration among each stakeholders is vital to build a long-lasting Deeptech ecosystem.
2. ...where players contribute differently...
While universities and Research Centres provide talent, learning and intellectual property, public institutions (i.e. town cities, governments) support Deeptech R&D with varying degrees of resources and funds.
Universities and R&D centres are not only actively involved in helping faculty, students and alumni foster, test, and develop novel ideas, but also invest in basic research that fuels long-term innovation.
When it comes to public institutions, if a country or city want to emerge as a major force in technology R&D, funding is crucial. Support must come in different funding grants and then, the possibility to provide equity funds. Their main role is to facilitate investment and foster a sound fiscal and legal environment where the investors community are attracted to invest in Spanish Deeptech innovations.
When it comes to Deeptech startups, they should come equipped with agility to quickly find a new product and market fit. Ideally, they should work hand in hand with corporations to integrate the technology at greater speed and more efficiently.
Large corporations have long incorporated external innovations through diverse mechanisms (joint ventures, acquisitions, partnerships, licensing). The biggest challenge many companies still have to overcome is the not-yet-invented mindset and to bring a new idea forward and implement it.
Startups are key to provide this mentality, however, Deeptech innovators can not bring a new solution from scratch to market on their own. They need access to data, labs, testing infrastructure and, production lines. Big companies' technological and industrial capabilities enable them to play an important role in due diligence, especially their industrial and commercial capabilities to test and accelerate technological advancements without unnecessary bureaucracy.
Investors also play a key role by providing funds, business guidance and a network. As the number of Venture Capital firms have importantly increased in the last years, competition has led to an increasingly specialised approach.
These cirumstances have led investors to focus on a few technologies or sectors, adjusting their time horizons to generate return. Entrepreneurs focus not only on the highest financial offers, but also, on funding that can provide them access to critical resources (especially market access). Focusing solely on the return on investment can be a mistake, as they also need to keep an eye on the impact their investments have on society (i.e. climate change). Selecting investments that integrate both factors is crucial, while at the same time being mindful of the industrialisation stages is key.
Last but not least, facilitators, which include incubators and accelerators, laboratories and groups that organise competitions / hackathons / mentorship, and facilities provision are a differentiating factor for Deeptech ecosystems.
Providing market opportunities and networking access is an important advantage for them. Building a local and internationally connected community, providing the right mentoring, at the right time, and opening doors to key facilities, boost the creation of a Deeptech ecosystem.
Much like a world class orchestra, each one of these players needs to be interconnected, and long-lasting synergies need to be formed between them.
3. ...to establish strong community partnerships...
Before structuring the relationship, corporates should consider entering a less formal relationship with limited commitment on both sides so the startup can demonstrate its potential as a business partner. This process should function only as a temporary transition and remain part of an agile environment until the startup is mature enough to function as a normal business partner capable of handling business processes.
Several types of partnerships can be leveraged to reach specific business goals (each complemented by the right type of investment through the Corporate investment arm) and, help the startup grow faster. The partnerships should be based on the startup's market readiness (low vs. high) and, its maturity level (early/mid stage as TRL 1-7 vs. late stage as TRL 8-9):
(a) Low market readiness + early/mid stage: product development partnership for technology bets.
(b) Low market readiness + late stage: go-to-market partnership.
(c) High market readiness + early/mid stage: product development partnership for development bets.
(d) High market readiness + late stage: commercial partnership with a potential for quick wins.
Additionally, a first guide to collaboration between corporations and startups can be found in the above framework.
Corporates can set up partnerships with startups that identify a clear business goal for both partners. The nature of this partnership depends on the objective and technology/product maturity. When the technology/product becomes more mature, corporates can more easily assign internal staff to work on product co-development.
However, corporates should identify the right framework for collaborations at each stage of maturity, including a checklist to validate a go/no go, and, a knowledge and skills framework for each stage.
They should also weigh the value of an exclusivity-based relationship and leverage corporate venture capital to achieve financial and strategic goals.
4. ...to boost each innovation stage...
Following the different archetypes mentioned in part 3, each of these four startup types has its own critical needs:
(a) Low market readiness + early/mid stage: These are startups that have identified a promising technology not yet fully developed and that lacks a market application.
Their objective is to develop a viable product that answers a market need. The two challenges startups find here are: long development time and technological uncertainty. This situation makes funding risky which usually tends to be covered by university and public funding; and, access to corporate knowledge difficult.
(b) Low market readiness + late stage: These are startups with a mature product to be launched but that does not yet have a broad commercial application.
The main challenge for these startups is to identify and create a market for their technologies. They lack a distribution network and face a market resistance to change. Their most important resource, apart from funding, is market access and business knowledge.
(c) High market readiness + early/mid stage: These startups have identified a market opportunity and defined a value proposition. They are developing a technology to deliver it but have not yet created a market-ready product. They are focused on accessing technical expertise and overcoming technological uncertainty.
(d) High market readiness + late stage: These are startups with a commercial ready-product and a market that is ready to adopt the technology/product. Their immediate challenge is to scale up and therefore need fresh funding, market access and talent.
Additionally, in the above chart, you can find a guide for the most needed resources startups have as they evolve over time.
In order to build a Deeptech ecosystem there must be a win-win situation. Corporates can benefit from the agile environment and technological innovation a startup brings, while startups can benefit from corporates resources, knowledge and access to market.
5. ...to build an ecosystem that goes beyond financial returns.
Traditional financial measures are not the best means for assessing value for Deeptech startups. Deeptech ecosystems often involve relationships that go far beyond financial returns and enhance a positive social impact.
The United Nations 17 SDGs (Sustainable Development Goals) to solve by 2030 are a good guide to start with. Deeptech applications look to solve most of these challenges, which would greatly benefit from intermixing such as:
(1) How climate change is transforming biodiversity life?
(2) How sustainable economies are impacting the clean energy sector?
(3) How laboratory engineered food is affecting our health?
Deeptech ecosystems trade in different ways at the same time meaning that they often involve relationships built around non-traditional and non-financial linkages.
Economic viability and technological innovation are a must-have, however, impact usually makes the difference to boost the Deeptech ecosystem. New Key Performance Indicators must be put in place for all key players especially for both, investors and corporates towards deciding whether to invest and/or collaborate with a determined startup.
To build a Spanish Deeptech ecosystem we need all key players to be involved.
How each participant approaches the ecosystem affects its ability to create value as well as influence others and the whole.
Since ecosystems operate on a win-win model, each participant needs to think about not only their own goals, but the goals of the collective, in order to advance a particular technology and/or market.
All participants need to contribute to make the ecosystem stronger. They should engage with, and nurture the entire ecosystem to look for winning startups or technologies to emerge from.
Keys to the success of an ecosystem is for each participant to:
- Demonstrate the ability to build collaborative relationships that extend beyond those that already exist in current value chains
- Align around a shared vision with short and long term goals
- Bring expertise and a shared knowledge
- Jump start nascent or nonexistent markets
- Identify the capabilities that potentially provide value to the ecosystem (access to customers, mentors, networks, etc.).
However, how can we build a strong Spanish Deeptech ecosystem through new collaboration partnerships between startups and corporates?
More in part 3. Stay tuned.