From Perceived Risk to Proven Success: Hard Tech’s Evolution
Hard tech has historically been viewed as a risky investment. The capital-intensive nature, long development timelines and lengthy qualification and adoption cycles have all contributed to this perception. However, recent successes, like Pangaea Ventures’ $85 million fundraise are shifting this narrative. As global challenges demand bold and innovative solutions, deep science, advanced materials, biosciences, and more are emerging as the necessary tools to tackle these problems.
Hard tech startups, from lesser-known innovators like pH7 Technologies and Kanvas Bio to more established players such as Carbon Cure and Redlen Technologies, demonstrate that sustained investment in this sector is critical for both technological advancement and societal impact.
Investing in hard tech has traditionally been viewed as a high-risk endeavor. This is largely due to:
Capital requirements: Substantial upfront investments may discourage many investors who are looking for quicker returns.
Longer development cycles: Unlike software solutions, hard tech’s extended timelines can make them less attractive to short-term investors.
Technical uncertainties: The innovative nature of hard tech means there are often significant technical challenges to overcome.
Despite these challenges, a shift in the investment landscape is happening. In February 2024, Y Combinator updated its ‘request for startups’ list for the first time since 2018, with a specific call for founders in climate tech, manufacturing, and other hard tech sectors. This endorsement by one of the most influential accelerators signals a new era of opportunity for hard tech.
Pangaea’s recent Impact Fund is also a clear example of growing confidence in the sector. The success of our fifth fund reflects a shift in investor sentiment toward the long-term potential of hard tech, especially in addressing global challenges. Pangaea’s portfolio companies seek to address pressing issues such as climate change, healthcare, and sustainable manufacturing. By focusing on these critical areas, we ensure that our investments are not only profitable but also impactful.
Kanvas Biosciences provides an excellent example of how sustained investment can lead to transformative breakthroughs in hard tech. Specializing in microbiome drug development, the company has made significant progress, despite the sector’s inherent challenges.
A recent $12.5 million raise has allowed them to continue developing their groundbreaking microbiome platform. Its proprietary technology promises to revolutionize the drug development process, showing how hard tech innovations can have transformative implications for public health.
One of the keys to hard tech success is continuous investment. Unlike software, which can scale quickly with minimal resources, hard tech requires significant and ongoing financial backing to thrive. With adequate funding, hard tech companies can focus on research and development without the constant pressure of short-term financial returns. This long-term outlook is crucial for fostering innovation in sectors like advanced materials, biosciences, and energy solutions.
In recent years, non-dilutive funding sources have also become increasingly pivotal in supporting hard tech development. Programs such as the Inflation Reduction Act (IRA) and Department of Energy (DOE)-sponsored initiatives have collectively deployed billions of dollars to accelerate technology addressing climate and energy challenges. For instance, the DOE's Loan Programs Office alone committed more than $40 billion in available loan authority to advance clean energy and hard tech projects. These non-dilutive funding opportunities are crucial as they allow startups to scale their innovations without ceding equity, thereby supporting long-term growth and impactful technological breakthroughs.
Hard tech companies are increasingly proving that they can deliver meaningful returns, both in terms of profit and impact. This growing track record of success is encouraging more investors to enter the space, further accelerating innovation. With sustained financial support and a growing number of success stories, the future of hard tech looks brighter than ever.
