Deep Tech is quickly becoming a key focus in the global investment landscape, and it is expected to see significant growth, even during periods of venture capital instability. According to a 2021 report by Boston Consulting Group, investments in Deep Tech are projected to rise from around $620 billion in 2020 to as much as $2.09 trillion by 2025. This upward trend is also noticeable in Korea, where experts in the venture and startup industries predict the next decade will be the ‘Era of Deep Tech.’ In the first half of 2024, Deep Tech investment in Korea increased by 19% to 2.7 trillion won, with key fields such as AI and green technology leading the way. Venture investments totaled 2.4 trillion won, marking a 20% rise, and 469 Deep Tech startups received 1.2 trillion won, which is 47% of the total investment amount. At the forefront of this movement is KyungJin Hyung, CEO of Blissvine Ventures, who is recognized as a specialist in technology evaluation. His expertise is particularly vital in navigating the complex landscape of investing in Deep Tech companies at the cutting edge of technological innovation.
*Deep tech: A high-tech field characterized by the concentration of advanced technology built upon extensive research and innovation over a prolonged period.
Deep Tech startups have recently been receiving considerable attention from venture investors worldwide. What might be the reasons for this increased interest?
KyungJin Hyung: Deep Tech is getting much attention for two main reasons. First, consider interest rates. Usually, high interest rates make venture investments less attractive because they increase the cost of capital. However, Deep Tech startups often have an advantage because of their founders’ extensive industry experience. This experience acts like an ‘implicit subsidy,’ adding value to their lifetime of work. Moreover, many Deep Tech ventures are created from universities or research institutes and are supported by government R&D grants and subsidies. With this strong backing, these startups remain appealing investments despite high market interest rates. Besides, the returns on Deep Tech investments are comparable to those of other venture investments. An analysis in 2023 conducted by BCG of approximately 1,100 venture funds reveals that, over the past five years, traditional venture capital investors achieved a weighted average internal rate of return of 21%, while funds specializing in Deep Tech saw a return of 26%.
The second reason involves the role of new technology during economic downturns—it’s often viewed as a way to break through and drive new growth. Although these complex technologies might start small, as they develop, they frequently become foundational, supporting the rise of new service-driven startups. For example, the growth of internet technologies led to the dot-com boom, and advancements in mobile tech fueled a wave of platform service companies. There’s a renewed interest in Deep Tech areas like AI, quantum computing, and CCUS. As these technologies advance, we’re on the verge of seeing another wave of service startups, which could lead to another boom.
What differentiates Deep Tech startups from other startups?
KyungJin Hyung: Deep Tech startups stand out from other startups due to their advanced proprietary technologies and robust R&D capabilities, which set high entry barriers for competitors. This often results in high profitability and significant industrial impact once they are successful. Additionally, these ventures generally require substantial initial investment and long research and development periods.
For instance, Huject, a company in our portfolio, has developed world-class technology in piezoelectric power generation supported by over 40 original patents and significant government funding. This financial support has facilitated the commercialization of technologies that originated from collaborations led by a professor at Hanyang University, effectively acting as an explicit subsidy.
Another notable example is VD, co-founded by four experts from Seoul National University’s Department of Mechanical Design. These founders contribute a considerable ‘implicit subsidy’ through their extensive experience in robotics from major industry players. This deep-rooted industry knowledge and network greatly enhance VD’s strategic and operational capabilities. VD is setting new benchmarks in high-ratio precision reducers, challenging the current market dominance of Japan’s Harmonic Drive, which holds about 80% of the market. With its innovative Vernier Drive gear theory recognized and published in ASME, the premier mechanical engineering journal globally, VD is not only mounting a formidable challenge to established norms but also positioning itself for significant future growth as an industry leader.
What are some of the challenges associated with investing in Deep Tech companies?
KyungJin Hyung: Investing in Deep Tech companies comes with unique challenges. Many of these companies originate from academic, national, and corporate research labs. Founders from such backgrounds might not always have the business acumen of those starting service model-based startups and tend to engage less in self-promotion. This makes it crucial for investors to know where to look for these Deep Tech opportunities.
Identifying promising candidates among many potential technologies is a complex task. It requires evaluating which technologies have market potential, business viability, and a flexible founding team. Supporting their growth goes beyond just business model coaching. It involves connecting these startups with potential demand companies, helping them develop suitable global strategies, and ensuring a strategic mix of investors to secure timely funding. It’s also essential to align with complementary technologies.
Our expertise in identifying Deep Tech enterprises is supported by a strong pipeline created through academic, industry, government, and research collaborations. With a 20-year track record at the Technology Guarantee Fund and over a thousand evaluations of small to mid-size ventures, we have extensive experience in technical evaluation. We provide customized support through our cooperative networks with domestic and international institutions and mentors. Additionally, we facilitate proof-of-concept collaborations and follow-up investments with potential demand companies, such as our ongoing discussions for collaboration and investment with companies like Ampere Materials through Ecopro OI.
Do you anticipate the interest and investment in Deep Tech will be sustained over an extended period?
KyungJin Hyung: Absolutely, I can confidently say that the interest and investment in Deep Tech are expected to persist for at least the next 5 to 10 years. One notable point is that, unlike previous technology waves like the internet and mobile technologies, which saw a few major technologies dominate at their peaks, the current landscape features a variety of cutting-edge technologies, each with multifaceted applications. For example, advancements are occurring in diverse sectors such as quantum computing, electric vehicle technologies, semiconductor technologies, carbon capture and utilization, and biotechnologies. Each of these areas is experiencing significant developments, leading to a diversification of industries while also being driven by advancements in AI technology.
This diversification indicates that the commercialization timelines for these Deep Tech innovations will differ—some sectors may advance more quickly than others. Considering the various stages of development and the transformative potential of these technologies, it is likely that Deep Tech will continue to be a major focal point of startup investment for roughly the next decade. This ongoing revolution in Deep Tech represents a significant, enduring upturn in the technology sector, with potentially profound impacts across all industries.
What makes Korean Deep Tech startups particularly attractive for investment?
KyungJin Hyung: Korean Deep Tech startups have emerged from a meticulously prepared roadmap that began in the 1980s, and although just a decade ago, many were not quite at the level of their Japanese or German counterparts in terms of materials, components and equipment, today they are not only comparable but often surpass these advanced nations in technological prowess.
Among our portfolio, there are companies with unique technologies that are relatively undervalued yet demonstrate remarkable technological capabilities. For instance, SoulMaterial has successfully produced spherical magnesia (MgO), a high thermal conductivity material with improved hygroscopic properties used in electric vehicles. This was the first of its kind globally. The raw material, magnesium hydroxide, is extracted from seawater, and their technology uses a water-based process and low-temperature sintering, providing a clear technological edge over traditional ceramic fillers.
Plastal owns a proprietary Waterproof Adhesive Technology (WAT) that combines metal and plastic. They offer a complete solution, from source solution mixing to product processing. Unlike competing technologies limited to small products like smartphones, Plastal’s technology can be applied to larger heterogeneous junctions, making it suitable for use in hydrogen and electric vehicle batteries.
Lastly, LD Carbon is one of only four companies globally with technology to extract black carbon from waste tires, a resource recycling company poised to compete internationally, especially relevant as environmental policies become increasingly crucial.
These examples I’ve mentioned demonstrate that Korean Deep Tech ventures exceed international standards. Thanks to their cutting-edge technologies and global competitiveness, Korea is home to numerous companies that are highly attractive to investors.
The evolution of Deep Tech is set to drive contemporary technological innovation, capturing significant interest in the global investment landscape. The Korean government is prioritizing Deep Tech as a new catalyst for innovation-driven growth, with substantial support policies coming into effect. Initiatives like the Deep Tech Tips and the Innovation Startup Package, starting in 2023, are prime examples. Additionally, a ‘Special Listing Track for Breakthrough Technologies’ will be introduced, which is designed to streamline the listing process for Deep Tech startups. With these proactive efforts, Deep Tech companies are expected to become increasingly influential within the Korean startup ecosystem.
As we look to the future, the strategic focus on Deep Tech not only enhances Korea’s position on the global stage but also promises substantial technological advancements that could reshape industries worldwide. This is a transformative period for technology investors and innovators, suggesting a vibrant era of growth and development in the Deep Tech sector.
