Liquidity refers to the ease and efficiency with which an asset can be converted into cash without affecting its market price. Deep tech refers to companies founded on scientific discoveries or engineering innovations, often involving cutting-edge technologies like AI, nanotechnology, advanced materials, etc. Space technology companies are generally considered deep tech companies.
Liquidity is an important consideration for deep tech investments because:
- Deep tech companies often require substantial upfront capital investment for R&D and commercialization before generating revenue. This makes exit strategies and paths to liquidity for investors more complex.
- The technologies behind deep tech startups can be highly complex. This creates information asymmetry between founders and investors, making it harder for investors to assess the viability and value of the technology.
- Deep tech operates on long time horizons from development to monetization. This is at odds with the short-term orientation of many investors, creating a mismatch in expectations around liquidity timelines.
- The innovative nature of deep tech means there are fewer comparable valuations. This makes exits more difficult, as acquirers have a hard time assessing the value.
- Deep tech startups tend to stay private longer before going public or seeking acquisition. This limits liquidity options through public listings or mergers & acquisitions.
Summary
“Liquidity within deep tech” refers to the challenges investors face in being able to realize returns and exit their investments in an asset class characterized by long timelines, high capital needs, valuation difficulties, and lack of comparable exits. Addressing the liquidity challenges is key to improving funding for deep tech innovation.
