Scaling A Deep Tech Startup: Lessons From The Front Line
CEO of PragmatIC Semiconductor, Scott White is an experienced serial entrepreneur leading his sixth technology venture at PragmatIC.
A deep tech company is a very different beast than a typical technology company. Although there isn't a universally accepted definition, deep tech generally refers to the development of a fundamentally new technology platform as opposed to using existing technology in a new way.
For most tech companies, the primary challenge is market risk—i.e., whether enough people will buy your product. However, with deep tech, the main risk is not finding the right market but, rather, proving the underlying technology. If you get the technology right, there should be an obvious addressable market, including the potential for applications that haven't been thought of yet.
Below are a few lessons from our experiences at PragmatIC Semiconductor that could help founders currently building deep tech companies:
1. Don't compare milestones. Deep tech companies inevitably take longer to grow because of the time taken for the technology to mature. The things you focus on may look very different from the trajectory of a usual tech company. Development milestones are often more significant than commercial milestones because the biggest challenge is proving that the technology can do what it claims and be replicated at scale. Define your own target milestones based on key stages of risk reduction.
2. Dream big but execute small. Developing a new technology takes time, from coming up with a technical concept, taking it from proof of concept to the pilot stage and then through early production to high-volume industrialization. When building your team, you need to find people who believe in what you're doing and can sustain their enthusiasm and optimism despite the challenges and setbacks.
It's a bit like running a very long race. I run ultra-marathons for fun, and when you're running 100 miles, you cannot view that as just one goal—which, by itself, feels too big to achieve. You have to see each stage as a stepping stone and celebrate the small victories along the way.
3. Find "patient" capital. One of the crucial aspects of growing a deep tech company is finding investors who understand that investing in deep tech is a long game and who see this as a 10-plus-year journey that they're going on with you.
Choose your investors carefully; sometimes, taking money from the wrong investor is worse than not taking money at all.
4. Be willing to take risks. Four years into our journey, we had to make a key decision: Did we want to sell the technology or double down and maximize the potential? We had originally planned a licensing model and also had offers to buy the technology, but we felt there was a chance to do more by taking it all the way to volume manufacturing ourselves. This vision drove the decisions we made going forward.
5. When you hit roadblocks, take a step back. Another key point in our journey came a few years later when we started manufacturing at pilot scale but struggled to reach a suitable production yield. When you spend so much time convincing others about your work, it's hard to take a step back and consider whether there is a fundamental roadblock in the technology.
To solve this, we brought in external experts to analyze if the issue was technically unsolvable or if we just needed more patience and perseverance. We gained comfort that we could overcome the challenge and received useful input on how to tackle the problem. Less than a year later, we had improved yield to over 90%.
6. Your company will look fundamentally different from how it started. With a normal tech company, you start with a fairly clear idea of the technology and business model. With deep tech, you start with a concept, and almost everything else could change along the journey. You need to be sure of the roadmap to talk credibly to investors, but you also need to accept that there will be a continual reevaluation of goals and assumptions. Do they still make sense with what you now know?
We started developing our semiconductor technology as part of the printed electronics industry, but it became clear pretty quickly that printing was not the right approach, and the manufacturing platform we have now commercialized is radically different from the original expectation.
This is fairly typical for deep tech companies. Venturing into the unknown can mean fundamental changes in your business over the years.
7. Leverage existing ecosystems. When we started PragmatIC, I was not keen on targeting radio frequency identification (RFID) applications since it would mean competing directly with silicon. It turned out that we had some compelling advantages that many of our partners wanted to leverage. Most importantly, there was a large existing market with an established ecosystem—including key partners that became strategic investors in the company.
In deep tech, because of the high technology risk, you want to minimize other risks as much as possible. The best way to do this is to find a ready ecosystem to support your product with an early opportunity to sell into existing markets. We launched RFID as our first product category and it continues to drive most of our volume ramp.
My final piece of advice is somewhat of a truism across any business: Everything is going to take longer than you expect.
The wrong reason to build a deep tech company is to think that it's a quick way to get rich. Like running an ultra-marathon, you can't do it just for the prize; you've got to enjoy the journey. You need to be most excited about solving the challenges along the way and achieving something that is on the very edge of possibility.