Let’s delve into the fascinating world of value investing in a tech-driven landscape. In this blog post, we’ll explore the challenges and opportunities that value investors encounter as technology continues to shape our markets.
The Rise of Deep Tech
Deep tech, also known as emerging technology, has become a mainstream destination for investors across various asset classes. These technologies tackle significant societal, technological, and economic problems, unlocking substantial markets. Here are some key takeaways:
- Market Share: Deep tech claims a stable 20% share of venture capital funding, up from about 10% a decade ago.
- Returns: Deep tech returns are similar to those of other venture investments. Over the past five years, deep tech-focused funds have achieved a weighted average internal rate of return of 26%, outperforming traditional venture capital investors.
- Big Bets: Investors are making bigger bets on deep tech companies, with many investments now reaching $100 million or more. Billion-dollar funding commitments are no longer uncommon.
Challenges Faced by Deep Tech Investors
While the rewards are attractive, deep tech investments come with their share of challenges:
- Scientific and Technological Risks: More than 80% of deep tech ventures involve building physical products, which introduces risks related to engineering, unit economics, and commercialization.
- Long Timelines: Deep tech investments take longer to mature than other tech investments, requiring 25% to 40% more time between funding stages from seed capital through series D.
- Securing Later Funding: Early investors need to consider how to secure later funding as startups seek to prove the commercial viability and scalability of their products.
Value Opportunities in Technology
Value investing in technology can be approached in two ways:
- Turnaround Opportunities: Identifying attractively valued companies exposed to Covid-19-driven structural growth potential.
- Cyclical Recoveries: Seeking companies that are poised for recovery in the technology sector.
Balancing Business and Technical Value
Companies often struggle to balance the business and technical value of emerging technologies. For instance, cloud adoption offers immense potential but requires careful consideration of costs and capabilities.
Conclusion
As technology continues to evolve, value investors must adapt to the changing landscape. By understanding deep tech, embracing its challenges, and identifying value opportunities, investors can navigate the tech-driven world successfully.
Remember, investing is a journey, and staying informed about emerging trends is essential. Whether you’re a seasoned investor or just starting, the tech-driven world offers both challenges and exciting opportunities.