The Dawn of the Deep Tech Ecosystem

Journalist Exclusive Content Release Embargoed Until 00:01 ET on 14 March 2019

MARCH 2019 BCG and Hello Tomorrow Deep Tech Publication First Abstract Release

"The report is based on in-depth interviews, market research, examinations of funding, patent and publication data, and a survey of more than 2,000 startups from the Hello Tomorrow Challenge, which assesses deep tech startups on four criteria: technological innovation, business model, team skills, and expected impact.

The report examines seven fields of deep tech endeavor and the roles of multiple types of deep tech ecosystem participant.

We take a tour of the evolving deep tech ecosystem and offer some observations on how the different types of participants can maximize the value of their efforts. If indeed we are on the cusp of a new era in technology R&D, we set the stage for what is to come and, in particular, how corporations, investors, and startups need to think about their roles in the future."

1 reserved. rights All Group. Consulting2019 © Boston by Copyright Agenda

1 2 3 4

Deep tech is on R&D is changing China and the US are Meet the new the rise globally leading the deep breed of tech race deep tech startups

Slides: 3-11 Slides: 12-16 Slides: 17-19 Slides: 20-27

2 reserved. rights All Group. Consulting2019 © Boston by Copyright 1. Deep tech is on the rise globally

3 reserved. rights All Group. Consulting2019 © Boston by Copyright DT Market Growth 1 Global Private Investments In Deep Tech Have Soared

+22% 17,886 16,407 14,509

9,854

2015 2016 2017 2018

Private investments in deep tech companies ($M) Includes investment in seven deep tech categories: advanced materials, artificial intelligence, biotechnology, blockchain, drones and robotics, photonics and electronics, and quantum computing. Private investment sums are based on transactions with disclosed amounts. Some 41% of private investments in deep tech companies remain undisclosed.

Source: Capital IQ, Quid, BCG Center for Innovation Analytics 4 reserved. rights All Group. Consulting2019 © Boston by Copyright DT Market Growth 1 Deep Tech Is a Global Phenomenon: ~8,600 Companies in

~70 Markets United States (4198) Greater China (746) Germany (455) United Kingdom (435) Japan (363) South Korea (329) Canada (312) France (241) Israel (195) Switzerland (147) India (129) Australia (107) Sweden (103) Netherlands (78) Italy (70) Spain (66) Singapore (65) Denmark (59) Finland (41) Belgium (41) Ireland (39) Austria (35) Norway (33) New Zealand (26) Russia (23) Poland (20) Sources: Tableau; BCG Center for Innovation Analytics. Portugal (10) Note: Analysis is based on 8,682 deep tech companies related to 16 technologies across seven categories: advanced materials, artificial intelligence, biotechnology, blockchain, drones and robotics, photonics and electronics, and quantum computing. Exhibit is missing geographic information for 199 companies. Greater China includes mainland China, Hong Kong, Macau, and

Taiwan. 5 reserved. rights All Group. Consulting2019 © Boston by Copyright . DT Market Growth 1 Deep Tech Companies Attract More Private Investment than Others

Median private investment funding $M (2015-18) Deep Tech 24.00 Non Deep Tech

8.52

3.97 3.85 3.89 4.39 2.00 2.64 0.80 1.00 1.80 1.07 1.27 1.30

Advanced Artificial Biotechnology Blockchain Drones & Photonics & Quantum Materials Intelligence Robotics Electronics Computing

Note Quantum computing has only 8 deep tech companies, with two raising a combined $64 million in 2016 and 2017.

Source: Capital IQ, Quid, BCG Center for Innovation Analytics 6 reserved. rights All Group. Consulting2019 © Boston by Copyright DT Market Growth 1 Corporate Investing in Deep Tech startups rising

Sum of private investments ($M) Count of private investments 6,000 300

4,179 4,000 3,773 200 3,464

2,212 2,000 100

0 0 2015 2016 2017 2018

Funding year Count of private investments with corporate participation

Includes investment in seven deep tech categories: advanced materials, artificial intelligence, biotechnology, blockchain, drones and robotics, photonics 7 reserved. rights All Group. Consulting2019 © Boston by Copyright and electronics, and quantum computing. Source: Capital IQ, Quid, BCG Center for Innovation Analytics Trends driving DT 2 What is Driving Deep Tech rise?

1 2 3

The Rise of New Falling Barriers Growth in Platform of Entry Available Capital Technologies

Source: BCG and Hello Tomorrow analysis 8 reserved. rights All Group. Consulting2019 © Boston by Copyright Trends driving DT 2 1/ Deep Tech is the Next Stage of Continuous Progress in Platform Technologies

Chips & Computers Internet Digital & Mobile Deep Technologies 1960s-70's 1980s-90's 2000's - Present 2010 – Future

Silicon chips enabling modern Processing power enabled new Available all the time, Giving more and more autonomy day computing level of advancements everywhere to machines, and engineering life at a large scale

Desktop computers Global instantaneous connectivity Information spreads like wildfire Impact on industries and society still hard to fathom

Source: Pew Research Center; Science & Technology Facilities Council; BCG and Hello Tomorrow experience 9 reserved. rights All Group. Consulting2019 © Boston by Copyright Trends driving DT 2 2/ Barriers to Entry have Significantly Decreased to Enter Cutting- edge Research Data Software and Computing

Open IP Ease of access More data Progress Increase of environment to information available in ML/AI computing power AI algorithms are public, Internet, 65-70% of global 90% of global data was Virtualization of research AWS; essentially TESLA making patents population owns a cell generated in last two years; exponential growth in available; Microsoft settling phone 66% by consumers power with Linux and joining the community Hardware Biology Process

Decrease Easier access Increase in use Gene sequencing Increase Dissemination of in overall cost to 3D printing of IoT and editing as a of interdisciplinary open innovation of hardware From home to industrial, 10 to 50 devices p.p. from service more reliable, more 2016-2022 research practices materials, millions of free and applications designs

Source: Expert interviews; BCG and Hello Tomorrow analysis 10 reserved. rights All Group. Consulting2019 © Boston by Copyright Trends driving DT 2 3/ Capital Investment in Startups Continuously Expanding

Current trends of increased capital Historic investment in tech startups deployment in tech fields Capital invested in tech startups globally (USD B) 250 215 ~30% 37% 200 Increased capital Non-tech corp. 172 invested in European investing in European 158 152 startups tech 150 5-yr CAGR 5-yr CAGR 12-17 12-17 115 100 75 67 65 57 54 47 50 50 37 38 29 30 23 22 26 ~20% 20% Increased deal Increased number flow in European 0 of unique investors startups 5-yr CAGR 5-yr CAGR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12-17 12-17

With such growth in AuM expected, anticipation of continued and

expanded investment in "other types of investments" (i.e. startups) 11 reserved. rights All Group. Consulting2019 © Boston by Copyright Source: Pitchbook; Dealroom; BCG analysis 2. R&D is changing

12 reserved. rights All Group. Consulting2019 © Boston by Copyright BCG and Hello Tomorrow Deep Tech Publication First Abstract Release

"Is the shape of technology R&D changing? Is a new model emerging for developing and commercializing deep technologies — novel technologies that still require some advances to be market ready but from which enormous impact is expected? Are the central roles with respect to the development of new scientific discoveries and their transfer to commercial applications traditionally played by large entities and institutions—corporations, governments, universities and others—being increasingly augmented, and in some instance replaced, by startups? Do the many stakeholders with a basic interest in technology R&D need to rethink how they play the game?

The overarching answer to all these questions is, yes."

13 reserved. rights All Group. Consulting2019 © Boston by Copyright DT Ecosystem Dynamics 3 The Deep Tech Ecosystem encompasses diverse types of actors

CORPORATIONS technology integration, industrial & commercial capabilities UNIVERSITIES & RESEARCH CENTERS USER IP, talent STARTUPS agility & speed to quickly find new product/market fit

GOVERNMENTS INVESTORS FACILITATORS investing in basic research, cash, business guidance, local & international connections, setting the right fiscal & legal network mentoring, facilities env. to foster innovation

Source: Hello Tomorrow analysis 14 DT Ecosystem Dynamics 3 Increased Sophistication Towards Innovation from corporations

Strategic objectives of internal and external innovation units Description CVC 1 Equity investments to assess and access Mergers Business Incubation new growth opportunities and acquisitions (Incubator and Accelerator) Incubator (“Hatch”) Create new and sustainable business models along a structured approach

New CVC 1 Business Incubation (Incubator and Accelerator) Partnerships Support of and cooperation with start-up companies in early stages

Tech transfer Tech Transfer Scouting/identification and transfer of innovation/technology by external sources Adjacent into corporate (e.g., IP licensing)

Proximity core business to Strategic partnerships Partnerships/joint ventures that Incubator (“Hatch”) drive incremental revenue for BU

Internal research and development Mergers & Acquisitions (M&A) Core Acquisition of developed companies with existing business 1–3 years 4–6 years 7–10 years Internal Research and Development Time to impact for BU Internal product development 1. CVC=Corporate Venture Capital

Source: BCG analysis 15 reserved. rights All Group. Consulting2019 © Boston by Copyright DT Ecosystem Dynamics 3 Ecosystems’ 4 Main Dynamics

Multi-entity Horizontal and • More types of players (startups, corporations, investors, Decentralized universities & research centers, • Rarely a controlling party governments, facilitators) • Each party can influence the • More diverse sources of players direction of the whole (public and private sector) • Orchestrator more like a magnet than a manager • Ecosystem development is driven by aligning visions, knowledge and goals Dynamic Structures and Relationships Non-financial • Often informal relationships Linkages • Emerging relationships & changing roles of players based on changing needs • Financial gains (ROI) are important but often not the focus of the relationships • Including also: knowledge, data, skills, expertise, contacts, market access (and cash) • Assessing value is different than traditional relationships: ROI takes a back seat to larger goals

Source: BCG and Hello Tomorrow analysis 16 reserved. rights All Group. Consulting2019 © Boston by Copyright 3. China and the US are leading the deep tech race

17 reserved. rights All Group. Consulting2019 © Boston by Copyright Geographical 4 dynamics The US Leads as a Deep Tech Hub, but Considerable Activity Is Occurring Elsewhere

Categories Top 5 deep tech markets for each deep tech category

Advanced Materials 61 725 United States 387 166 56 55 59 56 52 Greater China Artificial Intelligence 737 70 974 Japan Biotechnology 1,189 130 8178 68 1,546 Germany 59 9 7 7 5 South Korea Blockchain 87 United Kingdom Drones & Robotics 521 166 87 74 66 914 Canada India Photonics & Electronics 1,302 280 213 155 141 2,091 Singapore Quantum Computing 3 8 Australia 2 2 1 Sources: Capital IQ; Quid; BCG Center for Innovation Analytics.

Note: Greater China includes mainland China, Hong Kong, Macau, and Taiwan. 18 reserved. rights All Group. Consulting2019 © Boston by Copyright Geographical 4 dynamics Chinese government is putting considerable efforts into R&D to catch up

% growth of GERD financed by government in USD (2011 – 2015) 80 -6% 60 US decrease in gov. financed R&D 40 65 62 53 53 43 41 20 35 35 33 32 30 24 21 21 20 20 18 18 17 15 15 13 13 12 12 8 8 7 6 0 1 -6 -1 -2 -3 -9 -12

-20 62% -36 Chinese increase in gov. financed R&D -40

B USD 0.7 86.8 0.4 1.5 3.8 1.4 4.6 1.7 0.6 8.1 2.6 2.9 4.3 17.5 1.2 2.8 4.3 2.4 0.3 21.7 20.6 5.6 0.8 26.5 32 12.7 26.2 1 11.6 0.9 1.7 8.5 1.9 126.7 8.1 0.1 0.8

Ranking1 33 2 35 26 18 27 15 25 34 12 21 19 16 8 28 20 17 22 36 6 7 14 31 4 3 9 5 29 10 30 24 11 23 1 13 37 32

1. Ranking relative to current list of countries Note: Gross domestic expenditure on R&D (GERD)

Novelty Impact Time & Scale Investment Deep technologies are Many of these technologies Deep tech takes time to Continuous investment novel and offer significant address big societal and move from basic science to from ideation through advances over technologies environmental challenges a technology that can be commercialization and currently in use. and will likely shape the applied to actual use intensive capital way we solve some of the cases. requirements, complicated They require significant most pressing global by the technology risk R&D to develop practical problems. The amount of time varies adding to the market risk. business or consumer substantially by technology applications and bring These technologies have but it is almost always Generally requires both them from the lab to the the power to create their longer than an innovation public and private funds & market own markets or disrupt based on a widely available resources for full existing industries technology would take, development and can be more than 10 years.

Source: BCG and Hello Tomorrow analysis 21 reserved. rights All Group. Consulting2019 © Boston by Copyright Definition of Deep Technologies 5 Deep Tech "Impact": Share of Deep Tech Startups Targeting Each UN Sustainable Development Goal

SDG Number Share Good health and wellbeing 837 51% Industry, innovation and infrastructure 827 50% Sustainable cities and communities 469 28% Responsible consumption and production 413 25% Climate action 369 22% Decent work and economic growth 340 21% Affordable and clean energy 289 18% Reduced inequalities 231 14% Clean water and sanitation 165 10% Life on land 160 10% Quality education 160 10% Zero hunger 156 9% No poverty 137 8% Gender equality 100 6% Peace, justice and strong institutions 95 6% Life below water 79 5%

Total Number of Qualified Startups 1646 100%

Source: 1,646 deep tech startups of the Hello Tomorrow Challenge in 2018, Hello Tomorrow analysis 22 Definition of Deep Technologies 5 Deep Tech "Time & Scale": The Average Time Required from Incorporation to Market Varies for Each Deep Tech Category

4.5 4.0 3.5 3.0 2.2 1.8 1.6 2.5 1.4 1.2 2.0 1.0 1.5 Time (years) 2.1 1.0 1.8 1.9 2.0 1.7 1.4 0.5 0.0 Biotech Advanced Photonics & Artificial Drones & Blockchain Material Electronics Intelligence Robotics Incorporation to Prototype Prototype to Market

Note: does not take into account the time for research before incorporation Source: 1,500 startups (500 best startups from the Hello Tomorrow Challenge in 2016, 2017, and 2018), Hello Tomorrow analysis 23 Definition of Deep Technologies 5 Deep Tech "Time & Scale": Example of Facebook VS Lilium Aviation – winner of the Hello Tomorrow Challenge in 2016 Facebook : 20 months January February March August Sep. 2005 2004 LAUNCH OF EXPANDS TO STANFORD, INCORPORATION SPREADING “THE FACEBOOK” COLUMBIA & YALE WORLDWIDE IDEA AT HARVARD

Lilium Aviation : 12 years

2013 2015 2017 2019 2025 IDEA IN GLASGOW FLIGHT OF THE FALCON TEST FLIGHT OF FULL- FIRST MANNED YOU CAN BOOK A SIZED PROTOTYPE FLIGHT LILIUM JET

24 reserved. rights All Group. Consulting2019 © Boston by Copyright Definition of Deep Technologies 5 Deep Tech "Investment": The Average Total Funding (Equity and Non-Equity) Required To Build the First Prototype (TRL 5) Varies by Technology

$1,400,000 $1,269,508 $1,208,579 $1,200,000

$1,000,000

$782,727 $800,000 $614,387 $600,000 $457,976 $400,000 $217,755 $200,000 Total funding to reach first prototype $- Biotech Advanced Photonics & Artificial Dronnes & Blockchain Material Electronics Intelligence Robotics

Note: TRL 5 = technology readiness level 5 on NASA-originated scale of 1 to 9. At TRL 5, the technology has been validated in a simulated or real-world environment. Source: 1,500 startups (500 best startups from the Hello Tomorrow Challenge in 2016, 2017, and 2018), Hello Tomorrow analysis 25 Definition of Deep Technologies 5 Deep Tech Startups’ Most-Needed Resources Evolve with the Company’s Maturity

From Idea to Experimental Proof Of Concept (TRL 1-4) Prototype & Minimum Viable Product (TRL 5-7) 100% Industrialization & Commercialization (TRL 8-9)

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Funding Business Technical Technical Expertise IP, Lab & Testing Beta testers Market Access Visibility / Talents Knowledge & Expertise (for Expertise (for Legal, Financial Facilities (customer base, Credibility Expertise R&D) Industrialization) distribution network, etc)

Most critical for early-stage startups Most critical for mature startups TRL= technology readiness on NASA-originated scale of 1 to 9. Source: 1,646 deep tech startups qualified for the second round of the Hello Tomorrow Challenge in 2018 (from 4,500 applications), Hello Tomorrow analysis 26 27 bcg.com