Software startups can build a minimum viable product in months with modest funding. Deep tech startups — companies developing advanced materials, quantum computing, synthetic biology, or new hardware technologies — need years of R&D and millions in capital before they have a marketable product.

This creates a funding challenge. Australian venture capital tends to favour software and fintech companies with faster paths to revenue. Deep tech companies struggle to raise the capital they need, especially in later stages before commercial validation.

The result is that promising Australian deep tech research often dies in the lab or gets acquired cheaply by overseas companies before reaching commercial scale. Here’s what’s behind the funding gap and what’s being attempted to address it.

Why Deep Tech Is Different

Software startups can iterate quickly. Build a product, test with users, refine based on feedback, scale if it works. The timeline from concept to market can be 12-24 months. Capital requirements for the first few years might be $1-3 million.

Deep tech startups can’t move that fast. Developing a new battery chemistry requires years of lab work, safety testing, prototype development, and manufacturing process development before you have a product to sell. The timeline is 5-10 years. Capital requirements for that period might be $20-50 million.

The risk profile is different too. Software startups face market risk (will customers want this?) and execution risk (can we build it?). Deep tech startups also face technical risk (will the science work?) and regulatory risk (will we get approval?). More risk categories mean more things that can go wrong.

The Australian VC Landscape

Australian VC funds are generally smaller than US or European equivalents. A large Australian VC fund might have $200-300 million under management. That sounds substantial, but it needs to be deployed across 15-20 companies over the fund’s life.

If a fund commits $10-15 million to a single company, that’s a significant concentration of capital. Most funds prefer to spread risk across more companies with smaller initial investments.

This works fine for software startups where $2-3 million gets you to revenue and the next funding round. It doesn’t work for deep tech where $2-3 million might barely get you through initial R&D.

Deep tech companies need $5-10 million in early funding, then another $20-30 million to reach commercialisation. Very few Australian VC funds can write those cheques without blowing their concentration limits.

The Valley of Death

The “valley of death” in deep tech refers to the funding gap between research grants (which fund early proof-of-concept work) and commercial investment (which requires demonstrated market demand).

A university research group might get $500,000 in grants to prove a concept works in the lab. That gets them published papers and perhaps a patent. But taking the technology from lab bench to manufacturable product requires $5-10 million that grants don’t cover and VCs won’t provide without more commercial validation.

The startup can’t get commercial validation without building prototypes and testing with customers. They can’t build prototypes without funding. They’re stuck.

Many promising technologies die in this valley, not because the science is wrong but because the funding isn’t available to cross the gap.

Who’s Trying to Fill the Gap

Main Sequence Ventures, backed by CSIRO, specifically targets deep tech. They’ve invested in quantum computing, advanced materials, agtech, and space technology. They’re one of the few Australian funds with the mandate and capital to support deep tech through the valley of death.

Horizons Ventures and similar family offices invest in deep tech because they have longer time horizons than traditional VC funds and can tolerate higher risk.

The National Reconstruction Fund, a $15 billion government fund, is meant to support advanced manufacturing and critical technologies. It’s still in early deployment phase, but the intention is to provide capital for exactly the types of companies that struggle to raise private funding.

University commercialisation funds like Sydney’s INSPIRED and Melbourne’s UniSeed bridge the gap between research and commercial funding for university spin-outs.

These are helpful, but collectively they don’t provide enough capital to fund all the deep tech opportunities emerging from Australian research institutions.

The International Comparison

The US has substantially more deep tech capital available. Funds like Lux Capital, DCVC, and Khosla Ventures regularly write $10-20 million checks for deep tech companies. Corporate venture arms from companies like Google, Boeing, and Lockheed Martin invest in deep tech aligned with their strategic interests.

Europe has government-backed deep tech funds and stronger public-private partnership models. The European Innovation Council provides grants and equity funding specifically for deep tech.

Australia’s ecosystem is smaller, younger, and more risk-averse by comparison. That’s changing, but slowly.

The Strategic Concern

Australia produces excellent research. We have world-class universities, strong CSIRO capabilities, and innovative researchers. But we’re not converting that research into commercial outcomes as effectively as we could.

Technologies developed in Australia get licensed to overseas companies or Australian startups relocate to the US to access better funding. Either way, the economic value generated by Australian research often accrues elsewhere.

From a national economic perspective, that’s a problem. We’re funding the research (through university funding and grants) but not capturing the commercial returns.

What Deep Tech Founders Face

If you’re starting a deep tech company in Australia, the path is:

1. Get research grants or university funding for proof of concept
2. Apply for CSIRO or state government grants for further validation
3. Try to raise a seed round ($1-2 million) from angels or early-stage VCs
4. Bootstrap as far as possible on limited capital
5. Either relocate to the US to access growth funding, or try to raise from overseas VCs while staying in Australia
6. If you’re lucky, reach Series A funding ($5-10 million) from a deep tech-focused fund

Compare that to a software startup:

1. Build MVP with founders’ savings or small angel round
2. Launch product and get early traction
3. Raise Series A ($2-5 million) from multiple available VC funds
4. Scale revenue and raise Series B if needed

The deep tech path is longer, more uncertain, and requires navigating more funding gaps.

Success Stories

It’s not all negative. Some Australian deep tech companies have succeeded:

Q-CTRL (quantum control software) raised $30+ million and is now a global leader in its category.

Morse Micro (WiFi chip technology) raised over $200 million and is commercialising innovative wireless technologies.

Silicon Quantum Computing is developing quantum computing hardware with significant government and private backing.

Nanosonics developed healthcare disinfection technology and is now a publicly traded company with global sales.

These examples prove it’s possible, but they’re exceptions. Most deep tech companies don’t reach that scale, often due to funding constraints rather than technical failure.

What Needs to Change

More patient capital. Funds structured with longer time horizons (12-15 years rather than 8-10) can support deep tech timelines better.

Larger fund sizes. Australian VC funds need to reach $500 million - $1 billion to comfortably write the large checks deep tech requires.

Government co-investment. Programs where government matches private investment in deep tech can de-risk investments and attract more private capital.

Better commercialisation pathways from research. Universities need more support for spin-outs, including professional management, commercial expertise, and patient capital.

Industry partnerships. Large corporations with strategic interest in deep tech could partner with startups more actively, providing capital and commercial pathways.

The Role of Corporate Innovation

Some Australian corporations are starting to invest in deep tech through corporate venture arms or innovation partnerships. This is promising because corporates can provide not just capital but also:

• Commercial validation and pilot customers
• Manufacturing and distribution capabilities
• Industry expertise and mentorship
• Patient capital aligned with long-term strategic goals

More corporate engagement with deep tech startups could help fill the funding gap while creating strategic value for both parties.

My Take

Australia’s deep tech funding gap is a solvable problem, but it requires deliberate action from government, institutional investors, and the VC community. The capital exists — superannuation funds, government investment vehicles, family offices. The question is whether it gets allocated to deep tech.

The opportunity cost of not solving this is high. We’ll continue producing excellent research that generates wealth and jobs in other countries rather than here. That’s economically inefficient and strategically unwise.

For deep tech founders, the current environment is challenging but not impossible. Success requires persistence, willingness to navigate multiple funding sources, and possibly international engagement. It’s harder than starting a software company, but the potential impact is often larger.

The next five years will be telling. If the National Reconstruction Fund, larger VC funds, and increased corporate engagement deliver meaningful capital to deep tech, we’ll see more companies scale successfully in Australia. If not, the talent and innovation will continue flowing overseas.

I’m cautiously optimistic. The awareness of the problem is increasing, and there’s genuine commitment from some players to address it. But awareness alone doesn’t deploy capital. We need execution.