Navigating Deep Tech Funding Shifts: How Businesses and Investors Can Align Around Sustainable Growth
Over the past four quarters deep tech has faced real headwinds. Investors have pulled back, interest rates remain high, and the cost of bringing scientific or engineering breakthroughs to market is more visible than ever. For founders and investors this means the approach has to shift. Those who focus on clear revenue, efficient development cycles, and disciplined capital use will have the advantage.
We have seen this trend pattern move in cycles here at TGS Tech. The focus often swings from simple and unique ideas, to deep tech and infrastructure-heavy innovation, and then back again to lighter, quicker-to-market solutions. Our work on Apex Engine sits at the center of this challenge. As a true PaaS and IaaS platform, it takes vision and long-term commitment to build something that changes how creators collaborate in real time. We are hopeful that the market will soon return to supporting foundational technologies, not just quick wins, and that investors will continue to recognize the long-term value of platforms like ours.
This is not just our story. Many other innovative small businesses are facing the same environment. The companies that stay focused and resilient through this cycle will be the ones shaping the future when the market swings back.
What Has Changed
Investor expectations are higher. It is no longer enough to promise future impact. Deep tech companies are being asked to show proof of concept, early customers, or recurring revenue streams. Some of the patterns we can already observe:
- Global venture funding is consolidating. Fewer deals are happening, but the ones that close are more likely to be for mature or “traction-ready” companies. F1GMAT+1
- Deep tech investment, which surged earlier years, has declined in many markets. One report shows deep tech VC dropped from about USD 160B in 2021 to around USD 105B in 2022, and further to ~USD 40B in first half of 2023. Boston Consulting Group
- Small business confidence is more fragile. According to the U.S. Chamber of Commerce & MetLife Small Business Index, revenue concerns have increased - more than 35% of small business owners cited revenue as their top concern in Q1 2025, up roughly 10 points from Q4 2024. U.S. Chamber of Commerce
How This Affects Founders & Small Businesses
Founders need to adapt how they build, what they pitch, and how they spend:
- Prioritize recurring revenue: ARR, contracts, subscriptions anything that shows predictable income. Investors are giving more weight now to revenue quality over just technical novelty.
- Plan shorter release cycles or modular products: pilot projects, MVPs, early customer trials matter more because they show real feedback, reduce risk, and let you adjust quickly.
- Be more capital-efficient: burn must be managed so runway lasts. Every spend needs justification relative to clear milestones.
For small businesses, even outside of “deep tech” strictly defined, the pressure is similar: cost pressures, interest rate drag, cash flow challenges. Alternative financing, more frequent smaller rounds or smaller loan amounts are more doable than trying for big speculative raises.
What Investors Should Be Watching
Investors are increasingly called to balance short-term results with the long-term value of businesses demonstrating real traction.
- Look for evidence of revenue traction: ARR is not just a buzzword, but a signal that a company’s product is solving real problems for real customers.
- Demand milestone-based financing: Align funding in phases that map to technical or market progress. It helps reduce downside and aligns incentives.
- Consider deep tech subsectors differently: Some (AI infrastructure, robotics, sensors) have shorter time to product or less regulatory overhead and may bounce back earlier than others (e.g. heavy biotech, materials with long lead time).
- Pay attention to non-dilutive or public funding: grants, government programs, strategic corporate partnerships can help projects that are otherwise capital-intensive get past early stages without losing too much control or diluting too much.
Signs of Positivity This Quarter
Despite tightness, a few outcomes are encouraging:
- SBA-backed financing rose 7% in fiscal year 2024 to $56B, driven largely by smaller loans. That tells us there is still capital flowing, especially to smaller-dollar needs. AP News
- Small business owners are still invested in the idea of growth: many expect revenue increases and are making investments despite inflation and uncertainty. U.S. Department of the Treasury+1
- The broader deep tech ecosystem is not going away. Reports and forecasts suggest strong projected growth: for instance one study estimates the deep tech market might reach $714.6B by 2031, with a compound annual growth rate of ~48.2%. StartUs Insights
- Investors are becoming more disciplined. Larger rounds still happen, but there is more scrutiny, more focus on fundamentals, and more patience for realistic timelines. That makes companies that do things well more likely to stand out.
What To Do Going Forward
For founders and small businesses:
- Build toward recurring revenue even if small to start. Subscription, maintenance, licensing, early pilots all count.
- Structure releases, experiments, or pilots so you can get feedback and iterate sooner. Lean product development helps manage risk.
- Keep financial metrics clean: retention, customer concentration, cost of acquisition, lifetime value. These will matter more than ever in fundraising.
- Stretch runway: negotiate better terms, control overhead, avoid overcommitting until you have evidence of demand.
For investors:
- Ask hard questions about revenue quality: Is the revenue recurring? What proportion of customers are repeat? How long are contracts?
- Use phased investment tied to milestones, not just promises.
- Diversify across subsectors and stages. Blend early bets with more mature deep tech companies.
- Leverage policy, grants, public programs as part of the ecosystem. These can reduce risk and cost for deep tech ventures significantly.
Our Takeaway
Deep tech is going through a reset. The old model of high valuation based mainly on promise is giving way to a new model that values revenue, demonstration, speed to market, and capital discipline. For founders who adjust and for investors who prioritize fundamentals, there are real opportunities to build durable and impactful businesses.