Deep Tech Eats Venture Capital
Two years after we called it, the data is in.
Deep tech is rapidly transforming venture capital landscape, growing from a niche category into one of the dominant forces shaping global investment. Fueled by breakthroughs in AI, robotics, defense, energy, semiconductors, and advanced manufacturing, investors are increasingly backing companies solving large-scale real-world problems with science and engineering at their core. This report explores the data behind deep tech’s accelerating rise, the market forces driving demand, and why many believe the next decade of venture capital will be defined by deep technology.
ABOUT THE AUTHORS:
Matt Caspari
Managing Partner, Strawberry Creek VenturesMatt is a two-time venture-backed founder/CEO with a decade of startup operating experience. Before joining Strawberry Creek Ventures, he was an Investing Partner at Spike Ventures, where he participated in over twenty investments. Matt holds an MBA with a Certificate in Entrepreneurship from UC Berkeley’s Haas School of Business and a BS in Biochemistry from Georgetown University.
Sam Vatcha
Venture AssociateSam is a Venture Associate at Alumni Ventures, bringing a wide-ranging set of work experiences spanning the US Air Force, Amazon, and most recently BlackRock. At BlackRock's Financial Engineering Group, he partnered with the firm's largest institutional clients on tactical portfolio management and asset allocation strategies, gaining deep exposure to the alternatives space, which has been his focus ever since. At AV, his investment interests include Defense, CleanTech, Robotics, and Space. Sam graduated Magna Cum Laude from the University of California, Berkeley's Haas School of Business with a B.S. in Business Administration and a B.A. in Data Science.
Marc Andreessen’s prescient assertion in 2011 that “software is eating the world” has been a guiding mantra for the tech industry. In 2024, I published Why Deep Tech Is Eating Venture Capital, and argued that we were standing at the brink of a new era where deep technology, or “Deep Tech,” was poised to eat venture capital. At the time, Deep Tech investing represented approximately 20% of venture capital funding, up from around 10% a decade earlier. Today it’s at 36%, and accelerating.
As Managing Partner of Alumni Ventures’ Deep Tech Fund, I’ve had a front row seat to this transition. In this blog, we analyze the latest data on deep tech venture investing, explain why the sector has strong investor appeal, and highlight trends in the sector. For more insights, please sign up for our upcoming webinar on the topic.
Deep Tech’s Voracious Appetite
Deep tech focuses on complex, long-cycle technical challenges that, if successful, may offer significant return potential. Companies in deep tech sectors offer innovative and disruptive products with the possibility to reshape entire sectors and verticals — a key reason why one in four unicorns minted in 2026 came from robotics, defense and aerospace alone — a significant increase from one in five at the time of the 2024 blog, when we first flagged these frontiers as the next wave.
Celesta Capital’s analysis, presented at Deep Tech Week NYC in April 2026, shows deep tech investment rapidly accelerating over the past two years and now accounting for 36% of total global VC funding.
Europe tells a similar story on a regional level. The Lakestar, Walden Catalyst, and Dealroom 2025 European Deep Tech Report showed Deep Tech capturing 28% of all VC funding in Europe in 2024, a record share, and now the single largest category in European venture capital, ahead of every other sector. Approximately €15 billion flowed into European deep tech in 2024 even as broader European tech VC contracted roughly 60% from its 2021 peak.
Tracxn reports deep tech companies raised $177 billion across 2,650 rounds globally in 2025, an 82% jump year-over-year, with the sector now home to 336 unicorns and over $1 trillion in cumulative funding. PitchBook’s Q4 2025 Robotics & Physical AI VC Trends report reinforces the shift toward the physical: robotics alone attracted $27.6 billion across 1,009 deals in 2025, with defense and industrial automation leading. Crunchbase’s 2025 European Venture Review tracked the same shift, with hardware ranking as the third-largest sector behind AI and biotech, driven by investment in data centers, defense, quantum, aerospace, robotics, and energy.
Two notable fund developments:
- Founders Fund, behind SpaceX, Palantir, Anduril, and Neuralink, closed back-to-back record growth funds at $4.6 billion in April 2025 and $6 billion in May 2026, the fastest fundraising cycle in its history.
- Andreessen Horowitz’s American Dynamism fund, with its thesis on deep tech for national interest, nearly doubled from $600 million in 2023 to over $1 billion by January 2026, now anchors an annual summit in Washington, D.C., and backs a portfolio that includes Anduril, Shield AI, Saronic, Hadrian, and Castelion.
Across funds, sectors, and research reports, nearly every recent datapoint has supported the thesis we laid out in Why Deep Tech Is Eating Venture Capital.
Building Software Startups With Little to No Venture Capital
In the 2024 blog, the advent of AI and cloud computing was predicted to dramatically lower the cost of building new software businesses.
Sam Lessin of Slow Ventures cleanly laid out the thesis.
$1B Seed-Backed ‘Small Businesses’ FTW:
“It has never been easier for super small lean teams to build serious businesses with extreme capital efficiency and getting profitable early.
There will be more software and community-driven ‘billionaire’ founders of tightly held companies in the coming years than ever before, and seed investors are ideally positioned to provide the single ‘shot’ of high-risk capital for liftoff. The democratization of technology development challenges the traditional requirement to raise significant amounts of venture capital. This will redirect venture capital dollars from software investments to investments that require a higher amount of outside capital — such as deep tech.”
— Sam Lessin, The State of VC in 2023
Lessin’s prediction has aged remarkably well. By 2025, CB Insights data showed newer AI unicorns generating 83% more revenue per employee than the broader unicorn cohort ($814,000 vs. $446,000). Solo-founded startups jumped from 23.7% of new starts in 2019 to 36.3% by mid-2025, an acceleration directly attributable to AI coding assistants and agentic tools. The U.S. is now home to 29.8 million solopreneurs generating $1.7 trillion in revenue — 6.8% of total U.S. economic output, per U.S. Census Bureau non-employer statistics. More than 80% of U.S. small businesses now operate with zero employees.
Deep Tech’s Investment Appeal
Deep tech sectors like space exploration, advanced materials, and renewable energy require significant capital investment and carry meaningful execution and market risk, but for investments that succeed, the return potential can be substantial. Iconic examples include SpaceX, Palantir, Anduril, and Tesla, each of which disrupted its industry while delivering massive returns to early investors. To that list we can add the AI-native deep tech companies OpenAI and Anthropic, valued as of May 2026 at roughly $850 billion and $900 billion respectively.
In October 2025, McKinsey published a landmark analysis finding that Europe’s deep tech ecosystem alone could generate $1 trillion in enterprise value and up to one million jobs by 2030. The underlying economics help explain the momentum: in the U.S., deep tech companies already create 87% more jobs per $1 million of enterprise value than traditional software and AI companies, a sign that capital deployed into deep tech delivers outsized real-world impact. Investors on both sides of the Atlantic are drawing the same conclusion. By the end of 2024, a third of all European venture capital was flowing into deep tech ventures, a fivefold increase from a decade prior.
BCG’s An Investor’s Guide to Deep Tech found that over the prior five years, the weighted average internal rate of return was 21% for traditional venture capital investors and 26% for deep tech-focused funds. The report concluded: “Investors that do not understand the opportunities of deep tech, which are significant, and learn the ropes, which can be complex, are missing out on attractive returns.”
Jordan Nel’s analysis from his substack sharpened the math: “Historically, deep tech has received 7–10% of global venture. The ±120 sector unicorns minted from this have produced ±$463 billion in aggregate value, with a rough time to IPO of 5–10 years… So, butchering nuance, 7–10% of venture has been responsible for 10–30% of the unicorns.”
The Demand Side Has Only Gotten Bigger
Deep tech investments span a wide variety of industries, many of which are growing rapidly. In the 2024 Why Deep Tech Is Eating Venture Capital blog, we cited three illustrative end-markets: defense, renewable energy, and semiconductors. Every one of them is rapidly expanding.
Defense:
Defense tech VC funding hit a record $49 billion in 2025 per PitchBook, nearly doubling year over year, with 10 new defense tech unicorns minted and Anduril alone closing a $5 billion Series H at a $61 billion valuation in May 2026.
The U.S. fiscal year 2026 national defense topline was authorized at $882.6 billion, up 7.8% from an $818.8 billion budget in 2023. The Stockholm International Peace Research Institute (SIPRI) estimates total 2025 U.S. defense spending hit $950 billion in current dollars. The primary drivers in 2024 — Russia’s invasion of Ukraine, tensions in the South China Sea — have since been compounded by the war in Gaza, Houthi attacks in the Red Sea, and the U.S.-Iran conflict of early 2026. The deterrence calculus has shifted from stockpiled weapons to manufacturable mass, and incumbents built for decades-long procurement cycles cannot move at this tempo. FIRESTORM, an AV portfolio company, is one of the new entrants reshaping the field, operating forward-deployed manufacturing cells that produce drones and critical components 10x faster and cheaper than traditional defense primes, redefining what the modern defense supply chain looks like.
Renewable Energy:
The International Energy Agency’s Renewables 2025 report projects global renewable power capacity will double by 2030, adding 4,600 GW, equivalent to adding China, the EU, and Japan’s combined power capacity to the world’s grid. Solar Photovoltaic (PV) alone accounts for around 80% of this growth, with market-sizing forecasts clustering around $2 trillion globally by 2030. Doubling the world’s renewable capacity in five years is unprecedented, and even that may not keep pace with the energy demands of the AI buildout. The grid of 2030 will not be solved by deploying more of what already exists. Pacific Fusion, another AV portfolio company, is pursuing a novel approach to fusion that uses pulsed magnetic fields to compress fuel into ignition, aiming to deliver clean, virtually limitless power at grid scale. It raised a record $900 million Series A alongside General Catalyst, Lightspeed Ventures, and former Google CEO Eric Schmidt, making it one of the world’s most heavily funded fusion companies.
Semiconductors:
Semiconductors have become one of the fastest-scaling deep tech markets on the planet. Global sales hit $627.6 billion in 2024 (+19.1% YoY) and $791.7 billion in 2025 (+25.6% YoY), with the Semiconductor Industry Association (SIA) and World Semiconductor Trade Statistics (WSTS) projecting the industry will cross $1 trillion in 2026. In just 24 months, the addressable market grew by roughly the size of the entire semiconductor industry of 2013.
The story of the last two years has been training. The next two will be defined by inference, where margins, latency, and energy efficiency separate the winners from the also-rans. Groq, an AV portfolio company, is positioned at that inflection point. Its proprietary LPU architecture delivers ultra-high-performance, energy-efficient AI inference at lower cost than incumbent GPU stacks. The market made the call in December 2025, when NVIDIA paid roughly $20 billion to license Groq’s inference technology and absorb its core team: the largest deal in NVIDIA’s history and roughly 3x Groq’s valuation just three months earlier.
These are just three examples. The demand for science-backed solutions to complex problems is at an all-time high, and continues to rise.
Deep Tech Opportunities
McKinsey’s 2025 Technology Trends Outlook tracks 13 frontier technology trends across three categories: the AI revolution, compute and connectivity frontiers, and cutting-edge engineering. Equity investment rose in 10 of the 13 trends in 2024, with energy and sustainability technologies and the future of mobility leading.
From where the Deep Tech Fund sits, the most active areas of our pipeline map closely to the themes below. Bain & Company’s Technology Report 2025 sharpens the lens further, naming three strategic battlegrounds where the opportunity and the challenge scale together:
- AI’s appetite for compute: Global AI compute demand could hit 200 GW by 2030, requiring roughly $500 billion in annual data center investment, and leaving an $800 billion funding shortfall even after AI productivity gains.
- Humanoid robotics: Billion-dollar valuations are real, but commercial deployment depends on ecosystem readiness still years away.
- Quantum computing: A potential $250 billion market across pharmaceuticals, finance, logistics, and materials, with the question of when, not if.
The Future of Venture Capital: Embracing Deep Tech
Looking ahead, the next decade promises a continued realignment of venture capital priorities. The challenges and opportunities presented by the physical world — from climate technology to biotechnology to defense to advanced manufacturing — necessitate substantial capital injections. Deep tech ventures, characterized by substantial risk but equally high potential for societal impact and financial return, are set to constitute the majority of venture capital investments in the categories that matter most.
The implications are manifold. First, venture firms are recalibrating expertise and networks to support and scale deep tech ventures. Second, investment criteria are evolving, with greater emphasis on interdisciplinary innovation and long-term societal impact. Third, this transition signals a broader change in the entrepreneurial landscape, where success is increasingly defined by the ability to harness technology for tangible, real-world solutions.
As deep tech continues to “eat” into the venture capital space, the contours of investment and innovation are being redrawn. The VC community has a pivotal role to play, not just as financiers, but as catalysts for sustainable, impactful change. AV’s Deep Tech Fund is actively deploying capital across prominent themes outlined above. To go deeper on where we see the next wave of opportunity, please join our upcoming webinar.
Disclosures:
Portfolio companies are shown for illustrative purposes only; not necessarily indicative of any AV fund or investor. Investments shown are not available to future investors, except potentially in the case of follow-on investments. No representation is intended that any investment outcome presented is representative of the experiences of any AV Fund or investor. Past performance does not guarantee future results. Venture capital investing involves substantial risk, including risk of loss of all capital invested.
This communication includes forward-looking statements, generally consisting of any statement pertaining to any issue other than historical fact, including without limitation predictions, financial projections, the anticipated results of the execution of any plan or strategy, the expectation or belief of the speaker, or other events or circumstances to exist in the future. Forward looking statements are not representations of actual fact, depend on certain assumptions that may not be realized, and are not guaranteed to occur. Any forward-looking statements included in this communication speak only as of the date of the communication. AV and its affiliates disclaim any obligation to update, amend, or alter such forward-looking statements whether due to subsequent events, new information, or otherwise. While the information herein is collected and compiled with care, to the extent such information was obtained from portfolio company management and/or other third party sources, neither AV nor any of its affiliated companies warrants or guarantees the accuracy or the completeness of such information.
Original article: av.vc/blog/cme-why-deep-tech-is-eating-venture-capital