Deeptech is perhaps overlooked for big returns by investors – but it’s a strategically important aspect of any national tech ecosystem. Leading in deeptech can establish a nation as a driving force of next-generation technology that poses a wide-reaching societal impact.

In Germany, for example, the government has established a €1 billion fund to invest in deeptech and climate technology companies. In Switzerland, 35% of total VC investment between 2016 and 2022 went into deeptech startups. That’s a higher share than any other European nation. It’s no coincidence that the same report found ETH Zurich to create the most spinout value of all European universities – deeptech startups very often have their roots in top computer science and engineering universities.

I’ve often argued that UK universities can do a much better job nurturing tech startup spinouts. But despite this – the UK’s deeptech prospects still look bright. BenevolentAI and Wayve are UK-based and rank among some of the world’s most innovative AI startups. Their specialist applications of cutting-edge AI are paving the way for a new wave of startups. UK startups are also pioneering quantum computing and virtual simulation modelling.

Appealing to entrepreneurs

The UK’s deeptech success story hinges heavily on the country’s reputation as multicultural and welcoming – drawing in fantastic founders and tech talent from across the globe. It’s a factor that sets the UK apart from other nations as far as tech ecosystems go.

An important driver of granting access to this global talent has been the UK’s Global Talent Visa. This initiative, introduced in 2020, aims to attract talented and promising individuals in science and research, digital technology and the arts to work in the UK.  A survey of holders of the visa revealed that these remarkable individuals are making significant contributions to the UK’s R&D. 31% are conducting research, 19% contributing to science and technology and 13% offering academic work as their main fields of interest.

The global talent visa is by no means perfect – but is unquestionably helping the UK capitalise on its welcoming, multicultural image to bring tech talent into the country minting cutting-edge deeptech startups.

The National Wealth Fund and deeptech

Attracting talent to maintain the development of UK deeptech is vital. But so is capital availability. The conundrum here is that while deeptech is hugely important – many startups that fall under the banner fail to offer the level of expected capital returns and route to profitability that traditional investors in early-stage technology companies are seeking from investments.

This makes the British state a great candidate on paper to invest in national deeptech startups. This would build on a clear prioritisation of deeptech. In 2023, for example, the government published a 10-year national quantum strategy paper setting out a vision to cement the UK’s lead in the development of quantum technologies.

The UK government’s recently announced National Wealth Fund, which will mobilise billions of public and private sector funds for the government to invest in ‘priority sectors’, holds the potential to be a great source of simple, less restrictive capital for fledging UK deeptech companies. Today it feels most likely that this will manifest itself in investment for startups in the climate space, given the government's focus on green industry. An ambitious Whitehall could widen the scope over the coming years to back some of the most exciting and innovative deeptech startups the UK has to offer.

This would only be a good thing for the ecosystem. It would be an alternative source of capital to venture capital and UK universities – which, as mentioned, haven’t been the best at developing spinout tech startups with realistic investment terms and required calculated risk-taking.

A discerning eye

Deploying the National Wealth Fund to invest in deeptech isn’t as simple as a ‘no brainer’. The startups working in the field are typically developing ultra-complex technology propositions requiring an understanding of the underlying science to grasp. Any civil servant or otherwise investing public money into these companies would need a very specialised set of skills to effectively vet founders and companies to identify those offering a powerful return on investment.

As alluded to, investing in deeptech also requires the kind of calculated risk-taking that’s not synonymous with the UK treasury. The government would need to change that to effectively deploy the National Wealth Fund to nurture deeptech. It’s not impossible. In France, for example, BPI France, the French public sector investment bank, has done a remarkable job allocating public capital into early-stage technology in a country that has its roots in heavy industries far removed from technology. It can be done.

Fostering deeptech

The UK has a strong scientific and R&D heritage that’s paying dividends in a deeptech startup ecosystem that’s going from strength to strength. If the UK government is serious about nurturing that ecosystem and ensuring its continued success – mobilising the newly created National Wealth Fund to do so with cold hard cash could be a great option.

There are question marks about whether the UK state is capable of sizing up tech startups and founders effectively – but it’s not impossible. State involvement combined with existing VC capital from investors that understand deeptech and its required investment cycles would be a winning recipe for UK deeptech to soar in the next decade.