How can USA compete in deep tech innovation?

Foreign Affairs: U.S. companies hoping to commercialize emerging technologies still have the advantage of U.S. capital markets, which are unmatched in the world. Private-sector investors provide discipline, helping ensure that funding is not squandered on hopeless projects when it could be better deployed elsewhere. Yet early-stage private investment is often characterized by a focus on short-term gains. Investors typically prefer companies such as software startups that require relatively little investment and offer quick returns. It is no coincidence that nearly half of new venture capital funding in 2024 went to software companies.

U.S. advantages in basic research are under threat.

Such a short-term approach does not work well for innovative startups trying to build physical products based on science and engineering breakthroughs, often called “tough tech,” “hard tech,” or “deep tech.” Investing early in first-of-a-kind tough-tech companies is risky. These companies have to invent a manufacturing process to go along with their products, and they have to build supply chains from scratch. They need to navigate regulations that were not written for them because the type of product they are making did not previously exist. It can cost billions of dollars and take years to launch a commercial pilot plant.

My Opinion: You need longer term investors who are willing to risk more capital, for deep tech. China provides government funding for tech industrial policy. You need patient capital. Private investors look for shorter term returns with less risk. While there are some recent success stories like SpaceX, they relied on government contracts, in addition to private venture capital. So if USA wants to be competitive in clean tech, they are going to need long term government contracts, combined with private capital.