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Why deep tech investing is different, the Power Law, fund-return math, and what VCs really screen for (team, market, capital efficiency).

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1. What Deep Tech VCs Actually Want

Deep tech venture capital is fundamentally different from software investing. While software VCs can take market risks and iterate quickly, deep tech VCs need a more disciplined approach due to the longer development cycles and higher capital requirements.

The Economics That Drive Everything

Venture capital operates on the Power Law: most investments fail, a few do okay, and one or two generate massive returns that make the entire fund profitable. For deep tech VCs, this math is even more extreme.

The brutal reality:

• 50-80% of deep tech companies will fail or go sideways.
• Of those that succeed, most will generate modest returns.
• Only 1-2 companies per fund will deliver the 30x+ returns needed to make the fund work.

This means deep tech VCs need each investment to have credible potential to return the fund.

It's not enough to build a good business – you need to build a business that could theoretically return an entire fund on its own.

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Fund size matters: A $20M fund can get excited about a $100M exit. A $200M fund needs billion-dollar outcomes. Understanding your VC's fund size and return requirements is crucial for alignment.

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The Core Trade-off

Because deep tech carries inherent technical risk – will the science actually work? Can you build what you're proposing? – most deep tech VCs compensate by minimising other types of risk:

• Market risk: We prefer obviously large markets over markets we need to convince ourselves about
• Team risk: We need technical founders with deep domain expertise, not just entrepreneurial ambition
• Capital risk: We want to see a clear path to follow-on funding and eventual exit

What This Means for Founders

Deep tech VCs are looking for the intersection of:

• Breakthrough technology that creates genuine competitive moats
• Massive market opportunities with clear paths to billion-dollar outcomes
• Technical founders who can navigate both the science and the business
• Capital-efficient milestones that systematically de-risk the path to scale