4 Insights For Deep Tech Innovation: The Real Driver of Deep Tech Investment Success

Over the last two years, we have engaged with some 50 ‘deep tech’ startups. Among these, only around a few non-biotech and non-Medtech startups successfully progressed through our Deep Due Diligence stage. Out of this group, our investment was ultimately directed towards a singular startup named Kite Magnetics™. Kite Magnetics has already showcased their inaugural product, the KM-120, at the Avalon Airshow. They have forged a strategic alliance with H3 Dynamics, a prominent name in hydrogen aviation development, at the Paris Airshow. My personal background as an investor trained in Condensed Matter Physics, coupled with my history of exiting a startup that pioneered China’s first digitalised highway surveillance system two decades ago, compels me to offer insights on the intricacies of investing in deep tech startups. Initially, I wanted to encapsulate these insights in a single article, with 4–5 key focal points. However, it became evident that a more productive approach would involve developing 4–5 distinct articles. This marks the inaugural article in this series.

Part I — Market Pull: The Real Driver of Each Innovation Success”

When discussing deep tech startups and investment, people often think that success is driven much more substantially by ‘technology pushes’ rather than ‘market pulls’. I argue that not only is this notion inaccurate, but also counterproductive. It often harms founders and scientists whose pure faith in the (not unfounded) ingenuity of their products can cause them to believe that their technology can independently ‘push’ to the market.

All instances of what’s referred to as ‘technology push’ are, in fact, ‘market pulls’

The existence of this dilemma (in reality, a unity) arises from a lack of profound market and customer understanding. Advocates of it often cite examples like Apple and Tesla, highlighting how Steve Jobs and Elon Musk conceived products that customers couldn’t have envisioned desiring or requiring. While exceptional individuals like Jobs and Musk are necessary for creating ingenious new products, it’s also misleading to view these products as the fruits of pure, overflowing technical ingenuity rather than a synthesis of indeed that ingenuity with a deep understanding of customer needs.

Before 2007, the debut year of the iPhone, the market was already grappling with the limitations of conventional mobile operating systems (such as PalmOS, BlackBerryOS, Windows CE, etc.). The prevalence of standalone digital cameras, MP3 players, and other specialised ‘mobile’ devices clearly symptomised this limitation. While consumers couldn’t have foreseen the iPhone precisely, the broader trajectory towards integrating technology into mobility foreshadowed the concept of a multi-functional smartphone, whose first incarnation would go on to become the iPhone.

The same principle holds true for Tesla. In 2002, a Toyota Camry would have been nothing more than a refined iteration of the Ford Model T — the prototypical gasoline-powered automobile introduced in 1903. Perhaps the Camry also had a radio and brighter headlights; but for a century, the gasoline automobile retained a stagnant monopoly on the market, with brand diversity rather than functional or experience variety. Traditional players were aware of this increasingly perilous stagnation — which accounts for the emergence of such products as Apple Carplay, or BMW’s iDrive. However, these players — old automobile manufacturers — were constrained by their size, legacy, and self-satisfaction, preventing them from pivoting towards radical product redesigns. This paved the way for Tesla’s emergence. Reflecting on my own experiences, and perhaps resonating with yours, it becomes evident that the majority of Tesla buyers are primarily motivated not by environmental concerns, but by the desire for a vehicle with a futuristic allure; in other words, they were motivated by the perennial human need for novelty.

The efficacy of applying new technology alone is insufficient. Take, for instance, BYD — colloquially known as ‘the Chinese Tesla’ — the current world leader in EV manufacturing. During the early 2000s, when both Tesla and BYD were entering the market, Tesla surged ahead in consumer adoption while BYD primarily found its niche within taxi fleets, often thanks to government incentives. Why did consumers, including those in China, opt for Tesla over BYD? The answer lies in the fact that early BYD EVs outwardly and internally resembled mid-range gasoline cars; the very thing everyone was tired of. What people want is not an electric motor in their car; they want the experience of driving an electric motor; a fine, but crucial, distinction.

Technology never autonomously ‘pushes’ or reshapes consumer behaviour; it invariably responds to it, even when customers themselves aren’t cognisant of their desires. Hence, when the next time when you read the term ‘technology push’, try to find the meaning behind the euphemism.

If there’s no ‘technology push’, what’s the best way to bring our technology to market?

Commercialisation is not just submitting a patent and waiting for the company to buy it or waiting for the customer to accept it. It’s about customer discovery, about really knowing what the market is pulling, what customers want, which entails consciously understanding that which subconsciously drives them. This is the most significant problem for early-stage founders. I was a mentor on both CSIRO’s ‘On Prime’ program and Cicada Innovations’s ‘Medtech Commercialisation’ program, both of which have a “Customer Discovery” session and firmly emphasise the importance of articulating customer problems.

Grasping customer needs, feeling the pulse of the market, and artfully placing your technology lay the bedrock for triumphant commercialisation. Reflecting on my own transition 16 years back, when I left my startup to embrace a management consulting role for broader insights, I etched a mantra in one of my programming books: ‘Technology is a tool, an enabler, but it needs a business model to bloom’.

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