Edition 4: The future of Deep Tech
There have always been entrepreneurs whose innovations effect radical change, but Deep Tech businesses have notoriously struggled to access funding to transform their visions into reality. Recently, the way investors talk about the sector has changed. Even as software starts to lose its shine, there is a buzz around Deep Tech.
The past five years have seen investor perceptions of Deep Tech slowly transform. Whereas it was once considered something too risky and too complex to be involved with, it is now a sector that is too exciting and impactful to ignore.
Mercia is one of the rare UK asset managers that has consistently invested in Deep Tech for over a decade. We know the highs and lows of the space. With insights derived from a depth of sector knowledge, we are more enthused than ever before about its prospects.
This issue of The Insight explores where Deep Tech has been and where it is going. We will explore in more depth how – and why – investor perception around Deep Tech has changed and explain how this optimistic mood can provide answers to a world facing increasingly complex challenges. We will also take you to South Yorkshire, where today’s manufacturing draws inspiration from the region’s historic industries to future-proof the local economy. You will then see how our new Knowledge-intensive Impact Fund is designed to back solution-focused businesses – and how we will draw on our legacy of expertise in this field to create a robust portfolio.
Get ready and dive in – we are heading to tomorrow’s tomorrow!
A point of view
Dr Mark Payton
History often informs our actions. Today, we see many similarities with the 1970s – high inflation, energy price hikes, climbing interest rates pushing up national debt and full employment – albeit conceivably temporary in nature. With indicators pointing towards a sharp economic levelling with the real possibility of a near-term recession, regardless of whether you recognise these as parallels in history or as new challenges, refreshed attitudes are needed.
Dive in: Where Deep Tech has been – and where it’s going
Ash Kumaraswamy, Investment Director
Deep Tech is now a fashionable sector for investment. Since 2015, global investment in Deep Tech has increased 20% year-on-year. This is not because the visionary ability of entrepreneurs has improved – there have always been big-picture thinkers – but the Deep Tech ecosystem around them has changed. Critical resources like financing, skilled workers and technology are more readily available to entrepreneurs to help them take their pioneering ideas to market.
The Manufacturing Renaissance: Spotlight on South Yorkshire
Pete Sorsby, Deputy Fund Principal – NPIF Debt
Sheffield Steel remains the international benchmark for quality, and South Yorkshire owes much of its pre-eminence as a metal manufacturing hub to its geology: iron ore and coal were mined from the hills surrounding the city, and nearby quarries provided the sandstone that allowed grindstones to sharpen blades. At the outset of the industrial revolution, Sheffield’s five rivers were perfect for the water-powered grinding mills, and the conurbation known today as the South Yorkshire Region is now witness to a new manufacturing renaissance.
South Yorkshire metal working can still be classified into its historic forms. There are manufacturers who produce light metals, like cutlery and edge tools, and those who work in heavy metals, including steel and armaments. Some, such as relatively new Mercia investee Tinsley Bridge, do both.
Patient capital for impactful Enabling Tech
Mercia first invested in Faradion at the seed stage, as Mercia recognised that a new kind of battery could generate a long-lasting, positive impact on the planet.
Our Investment Director, Ashwin Kumaraswamy, was instrumental in introducing experienced battery technology experts to Faradion’s board and establishing good governance procedures to secure its success.
Mercia supported Faradion for 11 years, over fifteen investment rounds. This patient capital approach gave Faradion the time to focus on developing its IP. Faradion sold to Reliance New Energy Solar in December 2021 for £100million.
The deal further helped Mercia fulfil our commitment to create value in the regions, as it brought £25million of investment into Sheffield for Faradion’s next phase of growth.
Sounds like a revolution
Warwick Acoustics is continuing to advance acoustic technology and is increasingly recognised for its developments in car manufacturing, thanks to its super-lightweight sound systems.
The business was positively profiled by Autocar magazine earlier this year. Journalist Steve Cropley described the listening experience as “astounding”.
As outlined in Autocar, Warwick Acoustics’ electrostatic panels are almost entirely recyclable and contain none of the poisonous or hard-to-handle rare-earth materials often found in magnetic/voice coil transducers. This advantage will become increasingly important to car manufacturers as they strive to decrease their products’ environmental footprint.
The small, light and high-performing speakers can conserve as much as 75% of the electricity required to run a sound system of comparable quality in a premium car.
More than responsible: Our Knowledge-intensive Impact Fund
Jill Williams, Deputy Fund Principal & Head of ESG
Responsible investing is increasingly at the forefront of investors’ minds, and, while ESG provides the framework to support responsible investment, Mercia wanted to take this commitment further. Through a bespoke impact fund, Mercia is actively creating a strategy to support businesses that seek to create positive change and societal benefit. With this approach, Mercia is striving to build on its heritage of significant investment in businesses that are providing solutions to global issues at a local level.
Critical solutions for 43 out of 45 UK police forces
Queen’s Awards for Enterprise winner Forensic Analytics joined the Mercia portfolio in October 2021 as part of a £4.5million cross-fund deal.
Forensic Analytics provides software solutions that rapidly decode forensic data and allow the police to respond to criminal activity at an elevated pace. Its technology has assisted in prosecuting some of the UK’s most sophisticated organised crime networks.
Mercia’s cross-fund approach enabled us to propel the business toward further growth and expand its product pipeline, with a view to international expansion on the horizon.
In conversation with Lewis Stringer
Mercia Investment Manager Kiran Mehta sat down with Lewis Stringer of the British Business Bank to talk about how businesses can approach equity funding and green innovation in the regions.