Sweden can become stronger in deeptech
With world-class research and successful large companies, Sweden has the conditions to be a pioneering country in deeptech, that is, science-based and society-changing companies. But in order to get there, there are big gaps to fill, states Vinnova together with the Agency for Growth in a recent report to the government. An image that is also shared by veteran investor David Sonnek at Navigare Ventures.
Hopefully some of the future solutions to today's problems lie on David Sonneks's table. New technologies with which to build brain-like computers. How to use T-killer cells in cancer therapy. Or research on how telecommunications can encode what we mean, not just what we say, to name a few examples. David Sonnek is CEO of Wallenbergstiftelsens Navigare Ventures, which invests specifically in Swedish deeptech companies, i.e. science-driven companies that, with their ideas and results from often ground-breaking research, want to take the solutions and transfer them to the commercial world.
- Deeptech is about new technology platforms that show the way forward towards future solutions, he sums up.
Deeptech is about new technology platforms that show the way forward towards future solutions.
David Sonnek, CEO of Wallenbergstiftelsens Navigare Ventures
Turn new science into business
However, there is no universal definition of what deeptech is. The Amerikanska Boston Consulting Group attributes to the deeptech companies the characteristics of problem-solving companies for major societal problems and which often use at least two different types of technologies - and preferably have patents in one of them. The consulting group also states that the business concept of deeptech companies is more often than not about developing physical products and about taking data power into the physical world. What is among the most essential, states both David Sonnek and Boston Consulting Group, is how deeptech ties together the new technologies with engineering and business building.
Deeptech has also become a broad label for various companies based on new technologies, for example sophisticated AI, or for all the innovative industrial companies that integrate various new technologies and change their industry or market – think Northvolt or Heart Aerospace. However, it will be somewhat misleading, says David Sonnek.
- However, these companies are completely dependent on having been preceded by deeptech companies that made the basic technology available. What we really mean when we say deeptech are young companies that are based on new technology and science that is hardly yet used at all in any products. It could be about completely new battery chemistry or completely new algorithms for integrating sensor data, technology that must be tested and established in several steps. It is not possible to build battery-powered airplanes or autonomous trucks with any technology that comes straight from the lab. Deeptech is about creating stable and well-functioning technologies for exciting new companies such as Heart Aerospace or Einride, technologies that took their first commercial steps perhaps ten years ago. But then no one had heard of these.
Therein also lies one of the major challenges for Swedish deeptech companies. Their activities could mean a revolution for the world we know and be an important part of the next innovation step, a science-driven enabler that can contribute to a more sustainable world. But who can decide that decades in advance?
Government assignment to promote deeptech
On behalf of the government, Vinnova together with the Agency for Growth has mapped and developed proposals that improve the conditions for research-intensive start-up companies to grow in Sweden. During the course of the work, Vinnova has identified strengths and weaknesses with the Swedish deeptech scene, but also carried out efforts aim making Swedish deeptech companies more successful in being granted research funds and risk capital that the EU offers and gaining access to important test environments. The final report was submitted to the government at the end of January 2023.
Anne Lidgard, who worked with the government assignment at Vinnova, points out some of the challenges that the survey has shown for Swedish deeptech companies. One is about the entrepreneurial driving forces needed to transform research into companies and also be able to carry them out on an international level.
Anne Lidgard, director, Vinnova
We talk about innovations, but we must not forget that if there is no entrepreneurial force in it, nothing will happen. - We talk about innovations, but we must not forget that if there is no entrepreneurial force in it, nothing will happen. We have plenty of knowledge and research, but it is the entrepreneur who is the fuel. I'm not saying that the researchers have to become entrepreneurs, but there is often a lack of insight and methodological knowledge about how to think about value creation about your research, says Anne Lidgard.
She also points to how the incentive structure within academia creates difficulties for young researchers to spend time on commercialization, as they are simultaneously pressured to publish results in order to qualify for the next research grant.
- This leads to certain lock-in effects, says Anne Lidgard.
Increased need for risk capital
At the same time, the report describes how Sweden, in comparison with other countries and with other startup areas, such as fintech or SaaS (software companies that offer cloud-based services), invests less in deeptech. One reason is that many investors do not have the competence and expert knowledge required to assess the future relevance of deeptech companies, to simply be able to determine which companies have the opportunity to make a big breakthrough tens of years from now, states Anne Lidgard. Deeptech companies' long development cycles also rhyme badly with venture capitalists' own business logic, where an investment and divestment generally go much faster.
She is calling for a national strategy where it becomes clear what financing needs, infrastructure needs, expert networks and the challenges companies face in the commercialization process look like. The entire ecosystem for deeptech needs to be developed, Anne Lidgard explains, and the government's responsibility would need to be clarified.
- Take France for example. They have assembled offerings that support startups throughout their journey. They even have a dedicated website (lesdeeptech.fr) dedicated to deeptech in France. You will also find similar examples in Great Britain, says Anne Lidgard.
The risks of not taking the challenges seriously are self-evident, she adds.
- We already see today that Sweden loses part of the added value when companies are bought up in an early phase, or that the commercialization potential of our research investments is not taken advantage of.
Missing the technology train
David Sonnek points out how there is a gap between research and industry, investors and even politicians.
- We have research that is of the highest international class. We also have a number of successful large companies. But our big challenge is that we have difficulty connecting research results today with industry tomorrow.
Our big challenge is that we have difficulty connecting research results today with industry tomorrow.
Here, both Sweden and Europe are behind the USA, which has a more developed ability to take the research results from the labs at universities and research institutes and give them commercial viability, says David Sonnek. One of the reasons is that the big companies have not always been so interested in new research results, but have instead focused on optimizing the technology they already have.
- We are so afraid of violating state aid rules and other things that we are happy to abandon the research at a less mature stage, long before commercialization is possible. I USA is home to many federally funded research institutes that take research all the way to a prototype or demonstrator. Then it will be easier to attract companies to take the technology further towards commercialization and the market.
Another of the reasons is that the big companies have not always been so interested in new research results, but have instead focused on optimizing the technology they already have.
- Several large Swedish and European companies have missed a number of technology trains because they have not connected their future planning with the opportunities that come from the lab, says David Sonnek.
"Government initiatives are needed"
From his own experience and with a background in atomic physics research, as well as being the former CEO of the state-owned Industrifonden, he also sees a greater need for the right kind of investors to contribute to reducing the gap.
- It requires a special kind of competence and risk appetite - this type of company building can be more expensive and slower, but is also potentially very profitable. We are only a handful who dare and we would need to be a few more.
That is why government initiatives are also needed to strengthen the deeptech companies, says David Sonnek. Market forces are not enough to secure Sweden's future competitiveness, is his message.
- We have rarely lived in an environment that is so technologically turbulent. The technologies of the late 1990s have had their broad, commercial period of success, but many of them have now reached "end of life" and cannot be further optimized. Which new technologies will be winners? How should they be built? Should quantum computers be based on superconductors, non-linear optics or ion traps? It is important to get politicians and other decision makers to understand how relevant it is right now with science and applied research and that this is connected to a greater degree with the innovation platforms that a competitive and sustainable industry needs.