Tech startups embracing accelerators, incubators and venture capital

18 April 2017 Consultancy.uk

Deep technology innovation has the potential to radically disrupt industries, ways of working and even the world. A new report finds that startups in the scene are increasingly keen on working within their ecosystem, with the large majority keen on nearly half making use of accelerators and incubators.

Deep technology (deep tech) innovations are technologies able to radically disrupt whole industries, leading to a form of industrial revolution. Deep tech solutions tend to be built around unique, protected or hard-to-reproduce scientific advances of technologies. These technologies, like anti-matter drives and other far out tech, come with considerable reward and risk profiles.

In recent decades the development of industry transforming technologies has been on the rise, with the internet, smartphones and other devices opening up opportunities for entrepreneurs to relatively easily, affect incumbent institutions and business models. In a bid to stay relevant, with examples like Blockbuster and Kodak highlighting the cost of failure, incumbents – whose own efforts may be constrained by cultural or risk adversity – have turned to accessing innovation externally.

In a new report from The Boston Consulting Group, titled ‘From Tech to Deep Tech’, the consulting firm explores trends in the market related to challenges faced by deep tech startups and incumbents alike. The research involved 400 a survey of around 400 deep tech participants.

Key challenges faced by startups

The study finds that deep-tech startups face a range of challenges in relation to getting their respective proposition off the ground. Time to market comes in as the number one issue, as cited by 27% of respondents, while 40% of respondents underestimate the time to market. Capital intensity comes second, cited by 25% of respondents. Technology risk and complexity come third, cited by 17% of respondents, while 14% of respondents uncertain commercial application is cited as the top concern. Regulatory framework and ‘other’ concerns come in at 13% and 4% respectively.

The firm notes that the challenges faced by deep-techs go beyond that of normal startups, in part because of the complexity and development time of the technologies involved in their propositions. The length of development as well as the capital cost of technologies needed to build the propositions lead to capital intensity concerns.

Most critical resources

The research also considered the most critical resources for deep-tech startups for the development and rollout of their respective offering. Funding took the number one spot, as cited by 80% of respondents, followed by market access, cited by 61% of respondents.

The areas of least concern in terms of critical resources were noted as talent, 22%, access to facilities, 23%, and business expertise, 26%. Access to technical expertise was cited as important for 39% of respondents however.

Corporate partnership interest and results

The survey of deep tech startups found that the vast majority, 97% of respondents, are keen to enter into partnership with corporate. The research also finds that the vast majority of survey participants have actively tried to establish contact with a corporate, of which 57% of respondents were successful in establishing at least one partnership.

Of the 25% of respondents that tried to establish a partnership with a corporate, but were rebuffed, 25% cited a ‘risk of misunderstanding on vision & objectives and time horizon’ as the key reason for not achieving a relationship, 25% of respondents cited a ‘lack of confidence in the technology and its maturity’, while a further 10% cited ‘fearing the lack of agility and reactivity’. Additional areas that created obstacles for partnerships include ‘lack of a high-level sponsor within the corporate’, or ‘lack of buy-in from businesses’.

Leveraged funding channels and targeted funding channels

Funding and capital

The research notes that deep tech startups leverage a number of different channels to access funding for the development of their offerings. The biggest channel for funding for this form of startup is friend & family, with around 40% of respondents having benefitted from the channel – respondents are however, the least keen on using this channel of all the channels for future funding, at 2%. Public sector funding channels come in second overall, with 30% of respondents saying that they have benefitted from this channel, while around 20% say that they rank the funding channel as preferred (#1) for future funding.

The private sector too is noted as offering respondents with a means of accessing funding for their projects, although, in general, access to the channels is considerably more reserved. 21% of respondents said that they have garnered support from business angels, while around 25% say that it is their number 1 preferred source for funding, VC funding comes second, with 12% noting it as a channel they have leveraged and 24% saying it is their preferred number 1 form of receiving funds. Corporate support is the least leveraged at 10%, while 17% of respondents say that it is their preferred funding source.

Use of CVC, incubators and accelorators by top 30 companies in seven industries

In terms of corporate activity towards startups, including deep tech startups, a change of attitude has occurred in recent years. Corporates re now increasingly leveraging corporate venture capitalism to provide startups with funding, the phenomenon increasing from less than 10% of the top 30 companies in seven industries in 1995 to 40% in 2015.

Corporates have also taken to leveraging accelerators & incubators as a means of accessing, and supporting, the startup scene. The phenomenon exploded onto the scene shortly after 2010, quickly rising to 44% of respondent corporates using the technique by 2015.

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