A Closer Look at Our Popular Deep Tech Fund

Deep tech investments cover a wide variety of industries, nearly all of which are growing at blistering rates. For example, the U.S. defense and aerospace industry alone was estimated to have grown from $416 billion to $550 billion from 2020 to 2021. As countries turn to renewable and clean energy, that industry too has seen incredible growth and is projected to reach $1.9 trillion by 2030. In short, the demand for science-backed solutions to complex problems is at an all-time high.

Alumni Ventures’ Deep Tech Fund will invest in a portfolio of diverse startups solving these types of technically complex challenges. From developing safe, net-zero energy solutions to planning and implementing the future of infrastructure in low-Earth orbit, these startups employ precision engineering, bleeding-edge scientific discoveries, and visionary entrepreneurship to reshape the world. AV is currently raising the third vintage of its Deep Tech Fund, which has proven to be one of our most popular Focused Funds.

For a sense of AV’s investments in the space, please review our existing Deep Tech Fund portfolios. These indicate the types of companies we’ll aim to source for Deep Tech Fund 3.

To learn more about how AV’s Deep Tech Fund operates, we spoke with Alumni Ventures’ Chief Investment Officer Anton Simunovic. He further explains the fund’s thesis and reviews our process for sourcing and vetting deep tech opportunities.

What’s the mission statement of the Deep Tech Fund?

Our Deep Tech Fund offers the ability to own a portfolio of companies creating products using leading-edge technological advances. This can be anything from new sources of fuel for nuclear reactors to composite materials for use in the next generation of low-Earth orbit space stations. Deep Tech investments possess the opportunity to not only transform existing markets through extensive research and development, but create entirely new industries around these technologies.

The fund’s portfolio will consist of approximately 20-30 investments diversified by stage, geography, and investor syndicate. Approximately 20-25% reserves are maintained for follow-on investments in startups that distinguish themselves through their operational traction, scale of opportunity, and capital momentum. By adhering to this strategy, we retain the ability to reinvest in well-performing portfolio companies.

How are deep tech investments vetted for their potential?

The core appeal of a solid deep tech startup is its ability to develop and offer a product that is either fundamentally transformative or harnesses emerging technology in a new way.

Take Tesla as an example. Powerful electric motors existed before the company was founded in 2003, as did advanced lithium-ion batteries. But Tesla was able to combine them, develop a practical product, and successfully market that product. Tesla is now worth as much as the nine largest conventional automakers combined — despite accounting for less than 1% of global car sales. They’ve effectively remade the auto industry, forcing other manufacturers to follow their lead regarding electrical vehicles.

Of course, not every investment can be a moonshot like Tesla. But a startup’s ability to successfully develop a product using advanced technologies and bring it to market is key. Intellectual property in the form of patents is also crucial, as it can lead to lucrative licensing agreements with other companies who want to use the tech. We also like to see deep tech companies with knowledgeable staff — people well versed in R&D who are intimately familiar with the ins and outs of a given technology domain such as cryptography, AI, or aerospace, for example.

Other criteria we consider when vetting a potential investment:

• Market opportunity. Is there a market that is in need of a defined solution, and can the market’s size support multiple networks?
• Strong founders / teams. Founder / market fit is critical. Ideally, we like to see previous startup experience and success on their resumes.
• Experienced co-investors. A strong syndicate of investors can help shape strategy, products/services, assist in recruiting, and make valuable introductions.
• Solving difficult problems. This generally means there is a technical complexity / IP and the potential to build strong competitive moats.
• Attractive valuation and terms. We look for prices and terms that will not inhibit management’s ability to raise downstream rounds, pro-rata rights, and a compelling potential reward vs. risk ratio.

How does the team identify investments for the fund?

Investments included in the Deep Tech fund go through a rigorous due diligence process honed by AV’s team. We grade companies against our internal scorecard and subject them to three rounds of scrutiny from experienced VC professionals. This established process allows us to assemble a portfolio of high-potential projects that adhere to the fund’s investment thesis.

Beyond our investment approval process, we rely on the deal flow of our ~50 in-house investing professionals, geographically dispersed across six U.S. offices in key venture hubs. Every member of our team brings unique experience and a broad network of entrepreneurs, industry experts, and fellow VCs to our deal sourcing pipeline.

Can you share an example of a Deep Tech investment that’s done well for AV?

Axiom Space is an excellent illustration of what a deep tech company can attain in terms of revolutionary potential. AV invested in the company’s $130 million Series B led by C5 Capital in 2021. The company provides transportation to low-Earth orbit — specifically to the International Space Station (ISS). In 2022, Axiom safely delivered the first fully private crewed mission to the ISS.

The Texas-based company was founded in 2016 with the mission of increasing private access to low-Earth orbit. Since its creation, it has inked contracts with NASA to provide modules for the ISS, as well as develop the next generation of space suits for future manned missions to space. Axiom’s vision of commercialized space travel combined with its proven efforts to make its vision a reality demonstrate the kind of values we like to see in a deep tech investment.

What kind of investors add Deep Tech to their portfolio?

We’ve found that individuals interested in deep tech investments are those that understand the value of transformative technology, even when such a technology is in its infancy. Just a few decades ago, it seemed implausible that space flight would be handled by private and commercial organizations. Today, companies like Axiom Space and SpaceX are now responsible for the revitalization of space exploration.

Similarly, artificial intelligence is no longer confined to laboratories or isolated academic applications; it’s in our phones, enhancing photos, and translating language in real-time. Both these revolutions were made possible by investors with the foresight to back visionary innovators.