Heidi Kakko: we should see Estonia’s first deep-tech unicorn in the next 10 years

Scientists are solving important and topical problems, and the implementation of their solutions in business, in turn, supports Estonia’s ambition to increase the added value of the economy. However, deep-tech companies need broad cooperation and support to reach market readiness. In order to support deep tech companies in Estonia, TalTech, University of Tartu, Tehnopol and Tartu Science Park have jointly created the Põhjanael (North Star) project. The aim of this unique accelerator pilot program is to take research-intensive companies to the new level through a mentoring network, helping the four teams reach market and investor readiness in nine months. The program also aims to create a long-term model of cooperation as a basis for creating a new accelerator.

Heidi Kakko, who is a mentor in the North Star project, told us in more detail what the program is about and how deep tech business differs from “regular business”. Kakko is a long-term mentor of the Startup Incubator, a partner of BaltCap Growth Fund, Chairman of the Supervisory Board of UniTartu Ventures, a member of the Investment Committee of the European Innovation Council and a member of the Innovation Policy Committee of the Estonian Research and Development Council.

What exactly is deep tech?

Actually, it is not possible to answer exactly which technologies are research-intensive or deep tech, as the list can be very long, but also vary considerably depending on the context of the issue. In English, we have the term “deep tech” or deep technology, in Estonian, we have also used “high or top technologies” to describe such technologies. In essence, we mean research-intensive technologies that are characterized by a time-consuming and capital-intensive development process and greater unknowingness or risk about the validity or applicability of this technology in business. In any case, it is certain that such technologies will not be completed in a few years, researchers need to be involved and they will have distinctive intellectual property, which is usually protected by a patent (or many patents). Simply put, deep tech are science-intensive technologies, which seek to solve practical problems using a process with a very high level of innovation and which are based on cutting-edge science. A good example here are genetic or space technologies, but also quantum computers and nanotechnologies.

Why did you join the North Star project?

Because the North Star project is very exciting! Of course also full of challenges. The main challenge is to find out how to apply science to solve practical problems so that the R&D team can gain a business perspective and be able to develop a business model in addition to the product or technology. Importing science to business in order to solve some key challenges through technological development has fascinated me for a long time – for the last 12 years I have tried to contribute to finding ways how scientific knowledge and skills can improve everyday life through innovation. My personal journey began with the management of Estonia’s first venture capital fund with the aim of investing in innovative companies, and of course we expected such companies to grow primarily from universities and research institutions – University of Tartu, Tallinn University of Technology, NICPB and others. Now I know they surely grow from these places, but the process is slower and more complex – just like the development of deep tech. I am currently helping as a mentor at the Põhjanael project and at Tehnopol Startup Incubator, also I’m a member of the University of Tartu Council and UniTartu Ventures Council, so that the intellectual property developed in science can be directed to business and innovative companies find their way to the market.

Why is it important to support the transfer of science to business?

Researchers who are able to see and solve complex problems can also innovatively address real-world bottlenecks based on the same approach. The transfer of science to business makes it possible to solve real problems in a way that benefits society more broadly, so the operating model is sustainable. Typically, research projects are funded through research grants, either from state or crossnational budget allocations. It works well and is probably the only option for basic science, but for the next levels – the application of science – it’s essential to reach funding models that continue to make money. This is the transfer of science to business – on the basis of technology that has grown out of science, it is possible to create products and services for which someone is willing to pay permanently. The Põhjanael project, on the one hand, encourages the identification of these bottlenecks even more precisely and, on the other hand, provides a framework for analyzing and testing the business model, i.e helping to find ways to finance technology that has emerged from science and charge for solving the problem.

What is the current state of deep tech in Estonia and why?

Recently, there has been a public debate in Estonia about the benefits of research to our country – that increasing the volume of research funding must be justified by the fact that research must provide more benefits to the economy, more concrete support for Estonian GDP growth and increasing the competitiveness and export of our companies. The same approach is outlined in the Estonian Strategy for Research, Development, Innovation and Entrepreneurship (TAIE) – to measure how science contributes to innovation and the competitiveness of enterprises. Being closely involved in many activities, I can confirm that we are moving in a positive direction – more and more spin-offs are growing out of science and existing companies are increasingly interested in newer technologies – not only in the application of technology developed elsewhere, but also against the development of innovative technologies. We have a long list from Regio, Asper Biogene, Icosagen to Crystalsol, Defendec and many others, both at the University of Tartu and Tallinn University of Technology.

The transfer of science to business can also take place through the demand for research and development by an operating company. One example of this is Chemi-Pharm, run by Ruth Oltjer, which is a chemical company that predominantly produces cleaning and disinfecting products, but is moving strongly towards the pharmaceutical industry to bring an anti-coronavirus spray to market. Of course, we would like there to be even more of these examples and that they would be world-class success stories. This requires the support of the whole ecosystem – adequate research funding, but also venture capital money to invest in high-risk research-intensive technologies and business-oriented core teams and a network to turn technologies into world-class successful companies. Several new initiatives are aimed at this – the Põhjanael Project, investment companies and research transfer teams established at the University of Tartu and Tallinn University of Technology / Tehnopol, accelerators of research-intensive entrepreneurship and a new investment fund focused on research-intensive start-ups.

Could you give an example of another country’s practice in supporting the introduction of deep tech into business, which we could also follow in Estonia?

In terms of best practice, everyone is, of course, looking to the United States – how top universities and technology centers have set up support systems to help high technology move faster into the business world – both through business partnerships and growing start-ups. A great example is the Stanford Research Institute, but also all other similar R&D centers that have consciously designed systems and processes to reduce the problems and bottlenecks that can arise in developing new technologies for products and services.

In Europe, Sweden is a good example, where, for example, Uppsala University pays a lot of attention to this issue. National legislation is also supportive in regulating the legal relations of intellectual property created by researchers by motivating researchers through intellectual property. In Europe, all countries are making efforts in this direction, and efforts are also being made to increase the competitiveness of European countries’ research and business, such as the EU Science HUB or the EIC (European Innovation Council), the latter of which has taken a startup approach. This means first identifying the challenges that innovative companies face in reaching the market, and then supporting, both in terms of network and money, the most innovative companies developing products and services based on breakthrough technologies to help them enter the market. For Estonia, it is rather a question of how our researchers, innovators and entrepreneurs can best access such structures (capital and networks) and benefit the most, because we cannot build all the necessary structures ourselves.

How have the teams in the Põhjanael project done so far?

The Põhjanael teams have progressed as expected so far – all the expected problems have arisen and all the difficulties and problems are clearly present and visible. For teams growing out of science, it is known that their strengths are likely in product, technology, development, and that they need more support in identifying the target group, testing the product and problem/target group/market compliance, and developing the team. From there, you can already focus on testing the hypotheses of different business models, but it usually takes a lot more time and effort to get there. It is also a step out of the comfort zone for teams growing and expanding from research teams – although for researchers who are constantly researching the new and the unknown, we believe that it should not be too difficult. At the same time, Põhjanael is a pilot project, therefore in the course of it all problems and bottlenecks should become even clearer so that it would be possible to develop an approach that would best support potential spinoff teams on their journey.

Do you have any favourite teams in the project?

I don’t have a favorite team – I’ve worked less with some, but just because these four teams are involved in the project, they’re all my favorites. I believe that they all have their chance – the question is rather whether they are all prepared to make a superhuman effort to take it, because building a start-up in a science-intensive field is not a marathon, but rather an ultramarathon.

How is mentoring a deep tech company different from mentoring a regular start-up?

I would not say that there are too many differences here in terms of research intensity – we are not mentoring companies, but people – all the founders are different, but there are many similarities between successful founders. They are committed to the goal, but open-minded, and understand that the key to success is the team – both the core team and the wider network, from which to get support from at different stages of the company’s development. In the case of research-intensive companies, this time horizon is significantly longer, which means that there must be more resilience and temporary setbacks must be taken as a learning experience. As scientific development is also long-term and scientists are used to the fact that an experiment can end with a negative result, there are certain similarities here. In the business world, however, the answer to the question of what an entrepreneur has learned from an experiment with a negative result and whether it is possible to build a new and more successful company on the basis of this experience is very important. The role of mentors is to help increase the likelihood that an experiment will end with a positive outcome and enable teams to raise capital to successfully develop scientific research into products and services that have enough paying customers because they solve an important problem or open up new opportunities.

Is there potential in Estonia for the emergence of a deep tech unicorn?

Certainly there is and I believe we will see one in 10 years for sure. Probably even faster, knowing how many very exciting deep tech start-ups are sprouting and how supportive we have been in developing the start-up support system and environment in Estonia.

For information

• It takes longer for deep tech companies to enter the market than usually in the traditional business sector or in the IT sector. In the case of biotech companies, market positioning usually happens at the 10.-14. year.
• The first years of deep tech companies are spent on product development and new technology to find the right niche in the market.
• Accelerators can help deep tech companies validate products in the market and develop a business model.
• The development of the technology itself can only be accelerated with additional financial support.

The Põhjanael program is supported by the European Regional Development Fund within the framework of the public procurement “Development of the Estonian Startup Ecosystem and Development Programs for Startup Entrepreneurs 2020” (project number EU50651).