Deep tech startups targeting critical global challenges such as climate change, longevity, semiconductors, and AI now account for 20% of venture capital investments, according to a recent Boston Consulting Group report. But what exactly is deep tech?
The definition of deep tech that I often use is a company that spends significant research and development resources to solve extremely difficult scientific or engineering problems. Typically, these companies spend 3-5 years developing their technology and then create a huge opportunity. This means deep tech startups are not lean. Instead of being assembled in a garage in three months, it requires an investment of tens of millions of dollars before the first product is sold. But once they start selling, they usually generate huge amounts of revenue right away.
One area of deep tech that I have been personally involved with for over a decade is encryption and privacy protection technologies. Privacy is often seen as a nice-to-have, but it's actually critical to cybersecurity in nearly every application, from AI to blockchain to defense. Without encryption, secure messaging apps, online banking, and other commoditized services would not exist. So what will be the big crypto trends in 2024? As an entrepreneur who has founded two privacy-first companies, and as an investor who has invested in over 60 deep tech companies, This is my analysis.
Recognize the long-term value of privacy technologies
First, there is increasing awareness and demand for data privacy. Consumers are becoming increasingly aware of the value and vulnerability of their personal data, increasing demand for products and services that prioritize user privacy. The fact that the total global value of digital advertising is now estimated at $300 billion, according to McKinsey research, has caught the attention of consumers. This shift in consumer behavior has been further accelerated by high-profile data breaches and targeted advertising on social media and other web platforms, increasing public awareness of the need for robust security measures. .
Regulatory pressure and compliance
Regulatory pressures and compliance requirements are also key drivers of this trend. Five years later, the introduction of strict regulations such as GDPR in Europe still requires significant investment in privacy and security solutions to ensure compliance. Additionally, the impact of European privacy laws has a global impact, influencing companies around the world and encouraging them to invest in technologies that meet these stringent standards.
Technological progress and challenges
Technological advances and the challenges they bring are further accelerating investment in this area. With the proliferation of AI and big data technologies, protecting personal and sensitive data is more complex and important than ever. Additionally, cybersecurity threats are becoming increasingly sophisticated, making it imperative for businesses and governments to invest in advanced security solutions.
Investor recognition of long-term potential
Investors recognize the long-term potential of this space and view privacy technology not only as an immediate need but also as a strategic investment. It is clearly understood that this area has great potential for innovative solutions that provide both privacy and functionality. This foresight guides investments toward sustainable and impactful outcomes.
As a deep tech investor myself, I have witnessed firsthand the shift in investor decision-making throughout the pivotal year of 2023, particularly in the privacy technology space. This change can be attributed to several important factors.
- Potential value: My experience has shown me that investors increasingly recognize privacy technology not just as a trend, but as a fundamental requirement for future technological advances. This realization has led them to shift their focus to more sustainable, long-term investments in this area.
- danger: As big data continues to evolve and become more integrated into our daily lives, the risks associated with privacy violations have become more apparent. I, along with many of my colleagues, recognize the critical need for technology that can protect against these risks.
- Product/market suitability: Consumer sentiment towards privacy has changed markedly, driving demand for products and services that protect personal data. This consumer trend has become a key factor guiding investment decisions.
Deeply embedded in Europe's deep tech ecosystem, I have observed that Europe's strong regulatory framework for data protection has placed it at the forefront of the privacy technology industry. This environment has fostered innovation and attracted investment into the sector. The collaborative spirit within Europe's deep tech ecosystem is fostering unique solutions to privacy challenges, making it an attractive market for investors.
Finally, market dynamics and opportunities in niche markets are influencing investment trends. The diversity of threats and regulatory requirements has developed numerous niche markets within the privacy and security domain. In a market where data integrity is a growing concern, startups that offer unique and effective solutions are considered valuable assets. This competitive differentiation is critical in situations where the ability to provide robust privacy and security solutions can differentiate companies.
Looking to the future: A continued focus on privacy
As we head into 2024, the realm of privacy technology is rapidly evolving due to increased digitalization and the associated need for robust data protection mechanisms. Among the many emerging technologies, there are a few that have the potential to change the way we approach privacy and data security.
Homomorphic Encryption (FHE)
Fully homomorphic encryption represents a breakthrough in the field of data privacy and security. This technology allows you to perform calculations on encrypted data without having to decrypt it first. The implications of this are significant, especially for industries such as healthcare and finance, where maintaining the confidentiality of sensitive information is paramount. As FHE becomes faster and easier to use, FHE companies (including my own in Zama City) are raising large amounts of capital, two issues that have historically plagued its adoption. . In 2024, he expects FHE to be able to use blockchain to enable confidential smart contracts, AI to enable both confidential training and inference, and more generally sensitive cloud applications where data breaches are not an option. It is expected to attract attention.
differential privacy
Another important technology to focus on is differential privacy. This approach allows us to calculate some aggregate statistics without learning anything about individual data points. This is especially useful for web and mobile analytics because it allows you to capture cohort patterns without having information about what individual users are doing. It also helps with government censuses, road traffic analysis from anonymized GPS tracking, pandemic tracking, and more.
Federated learning
Federated Learning is a machine learning approach that enables model training on many distributed devices that hold local data samples. This technique is particularly important for privacy because it does not require sharing raw data. Instead, insights are gained locally and only learnings from data are shared. The First International Symposium on Federated Learning in 2023 highlighted the importance of federated learning (FL) as a pivotal technology for the advancement of future intelligent applications. This includes areas such as autonomous driving, smart manufacturing, and healthcare, where the role of FL is recognized as increasingly important. This approach will gain even more attention in 2024 as organizations seek to leverage AI without compromising user privacy.
zero knowledge proof
ZKP allows one party to prove to the other that a statement is true without revealing any information beyond the validity of the statement itself. This has serious implications for identity verification and secure online transactions. ZKP is also widely used in blockchain applications. Several chains such as mina, ZCash, and Celo already use zero-knowledge cryptography in production. As blockchain technology becomes more popular, ZKP will become an essential tool to maintain privacy and security, along with promoting secure digital transactions of all kinds.
Looking ahead, it is clear that privacy will continue to be a central focus in the deep technology space. The challenge is to balance the incredible potential of AI and big data with the fundamental need to protect individual privacy. The investments made in 2023 are just the beginning of continued interest and growing interest in privacy technologies as they become an integral part of our digital future.
