Last week I was invited to take part in a panel hosted by the British Business Bank (BBB) as it launched its 7th annual Small Business Equity Tracker. Amongst the findings, the report showed that investment in the UK deep tech sector has grown significantly in the past five years, rising 291% to £2.3bn, but still lags behind the US, the market leader. The panel discussion was a deep dive into the sector discussing fundraising, how the UK can level up with US investors, challenges with scaling UK deep tech businesses and predictions for the next few years.
I was joined by Tobias Rijken Co-Founder and CTO, Kheiron Medical Technologies, Amelia Armour, Partner, Amadeus Capital, Vinoth Jayakumar, Partner, Draper Esprit and the panel host, the CEO of British Business Bank, Catherine Lewis La Torre.
There is no doubt that there has been a surge in interest in the sector. Reporting and analysis that was historically only read in academic journals are now seen in the broadsheets and founders and investors alike are aligning themselves with the market terminology and predicted value. McKinsey research suggests that artificial intelligence alone could add another $13 trillion to the global economy over the next decade. Deep tech is certainly not a new concept, however. Cambridge has been the home to the collision of engineering and science for decades. Speechmatics itself was born out of a concept developed in the 1980s – applying neural networks to the problem of speech recognition. It wasn’t until the early 2000s however that the computing power was fast enough to bring the concept to life. Most deep tech businesses are hugely R&D heavy with years of work even before the commercial journey starts. To that extent, the panel agreed that it is critical for deep tech founders to be clear on, and to pitch the long-term vision and not just the immediate milestones to attract the big funding cheques. The BBB report highlighted that after six rounds of funding, the average UK deep tech company raises £24m, compared to the £113m raised by the average US deep tech company. On the assumption that bigger rounds mean you can go further, faster, this does present a challenge to the UK deep tech sector. Speechmatics is fortunate to have VC investors that not only have a real history and depth of experience investing in deep tech companies but also the patient capital structures and follow-on networks to stick with us. More broadly however, I do think we need to have a cultural shift in the UK towards accepting that risk is a big theme in the fast-growth tech sector and particularly in deep tech when you are often investing against a vision and unpredictable financial metrics. The panel discussed this challenge and ways the UK can spread that early risk and give VC investors and beyond more confidence and therefore commit to bigger rounds. The absorption of that risk needs to come from all stakeholders. The Government’s Advanced Research and Invention Agency that launched in March already has a question mark over it, due to the level of investment (£800m) and the lack of ‘focus’. We really need initiatives like this to work if we are to keep a seat at the global table – the US has DARPA and China is investing $10bn into a quantum and AI centre. Likewise, University spin-out protocols need to change. Universities are a hotbed of deep tech innovation and currently, UK spinouts need to hand over x10 the amount of equity on incorporation compared to their US counterparts. From a cash supply point of view, there is a huge potential to unlock pension funds to boost the investment pots available to the UK’s deep tech businesses. Not only will this lead to bigger rounds – allowing exec teams to focus on growth rather than fundraising – but will also give pension funds access to this hugely fast-growing asset class. As a deep tech CEO, when you have significant growth potential, you don’t want to be constrained by capital or any other resource shortage including talent. The panel agreed it is vital that we bring in more talent to the deep tech sector – not just engineers but those with the skills and appetite to commercially scale these businesses – we need to constantly feed the talent pipeline if we are to further grow the UK’s deep tech sector.
At Speechmatics, we regularly invite interns to experience the world of deep tech and would encourage other fast-growth companies to do the same – we need to inspire and engage new talent and show the potential career paths this sector can offer. As the BBB report shows – the growth in this market is phenomenal and it is a huge privilege to be part of it. Katy Wigdahl, CEO, Speechmatics