From your personal computer to the food you consume and the car you drive, the results of deep tech innovations are everywhere. Early stage investments in promising new deep tech solutions is key in driving disruptive technological advancements. But how do technological innovations, often driven initially by small technical teams, scale up to such a level that they can address the most significant challenges of our time?
This is one of the questions we recently discussed with Sander Verbrugge, partner at deep tech Venture Capital firm Innovation Industries. We discussed how he ended up in Venture Capital investing, why he’s passionate about deep tech and the biggest challenges in scaling up promising innovations.
You have had a career as an academic, strategy consultant, and business developer in the semiconductor industry. How did you end up becoming a Venture Capital investor?
My career principle is straightforward: choose what brings me joy and energy, drawing from past experiences to guide future decisions.
After completing my studies, I was captivated by the academic world and pursued a PhD. Although I finished my PhD, I discovered that lab life wasn't suited for me. Inspired by acquaintances, I ventured into consultancy. It took time, but with training and supportive colleagues, I adapted and spent six years at Roland Berger, driven by ambitious and energetic peers.
Missing the world of technology, I joined NXP in Eindhoven, a hub for top high-tech industry players. Transitioning to venture capital wasn't planned, but an encounter with someone who shared my enthusiasm and the company’s / Innovation Industries’ DNA of actively supporting companies ignited my interest. By combining my physics, consulting backgrounds and the semiconductor sector experience, I found fulfillment in this role.
What exactly is deep tech, and why do you choose to invest in it?
Deep tech is an umbrella term that not long ago was often referred to as "high tech" before software companies adopted that term as well. To me, deep tech refers to a technological advancement that almost always incorporates a hardware component enabling something truly groundbreaking. While software plays a role in most deep-tech products, the essence of deep tech lies in the hardware innovation, bringing about unique products that can result in disruptive changes in existing markets or even enable new markets. The technology can stem from various fields such as chemistry, physics, biology, or materials science — any source of cutting edge technology research can be the foundation.
Why does Venture Capital investment in the deep tech space make sense?
Ultimately, what holds power in our society is a significant accumulation of capital directed towards a specific direction, that creates new and disruptive products. I have always been intrigued by how technology can positively transform the world. Joining Innovation Industries provided me with the opportunity to be part of selecting potential disruptive technologies and supporting promising teams. Bringing them to maturity. With deep tech, we have the chance to bring about disruptive changes that can have a profound impact on society as a whole.
What are the most promising disruptive deep tech ventures in your portfolio?
Among our investments there are many potentially disruptive ventures, some targeting for instance CO2 reduction, clean energy and food security. For example, one venture is working on a technology to capture CO2 from the air in an energy efficient way. While another one develops inherently safe batteries with enhanced charging capacity to meet the growing trend of electrification. There are many more promising portfolio companies, but these two are very appealing from the impact angle.
Another start-up that gets me very excited, even though I am not an expert in this field, is Solynta: a company that is developing a hybrid potato. It can enhance the functionality of potatoes via natural seed breeding. It for instance can offer starch-rich potatoes that contribute to the circular economy or potatoes that grow in arid areas to address food shortages. Because potatoes have a lower water footprint compared to rice or wheat, it is a very good option for a primary food source.
What are the biggest challenges you see in scaling up proven yet small-scale deep tech ventures?
While challenges may vary across sectors and products, in general we often see different types of challenging phases that a deep-tech startup has to navigate through.
Commercialisation is a common challenging phase. It is essential to have commercial professionals who can effectively market and sell the product, because regardless of the innovativeness of a product, it will need hard work and good marketing to generate sales as a start-up. Experienced commercial experts are also able to build an effective go-to-market strategy, limiting the need of investments to still grow the company aggressively.
Product specification is another one. Careful consideration of customer needs is crucial to ensure that the product aligns with market expectations and naturally this needs to be incorporated early on in the process.
Finally, there are also specific challenges that involve navigating market-dependent value chain hurdles. Such as meeting rigorous reliability standards for healthcare products or gaining market share against a few really powerful incumbents.
We are witnessing a change in the economic climate this year: interest rates are rising, and less money is being spent. Does this have an impact on VCs?
Despite economic fluctuations impacting VC firms, I believe the deep tech sector is less volatile than some other sectors due to the long-term investment approach. Fundraising remains strong for our fund and others in Europe, even though it is definitely harder than a few years ago. However, portfolio companies face challenges, with securing funding taking longer and target markets going into reduced growth or even shrink phases.
Lastly, do you have any advice for individuals aspiring to pursue a career in VC?
First of all: It is most important that you are passionate about investing in start-ups and scale-ups. To explore VC roles, seek guidance from your network. At Innovation Industries, we value a blend of technological expertise, business acumen and sector knowledge, especially for more senior roles. It can and will be different for other VCs.