Deep Tech Does Not Face One Valley of Death. It Faces Three

For decades, innovation policy has described the “Valley of Death” as the dangerous gap between research and commercialisation. A promising technology emerges from research and development, but funding becomes increasingly difficult to secure before the technology has been sufficiently de-risked to attract commercial investment.

For deep-tech entrepreneurs, this first Valley of Death is very real.

But we believe the conventional model is incomplete.

Getting a deep-tech innovation out of the laboratory and achieving first commercialisation does not mean that the company has crossed safely to the other side. In many cases, it has simply reached the next valley.

Our experience working with deep-tech, biotechnology and technology-based businesses suggests that entrepreneurs should think about three distinct Valleys of Death: the transition from R&D to first commercialisation; the transition from first commercialisation to meaningful market access and repeatable sales; and the transition from an established market presence to sustainable growth and expansion.

The academic literature increasingly supports a more nuanced view. Research published in Technovation argues that crossing the Valley of Death involves several distinct innovation processes rather than a simple linear transition [1]. A later study of high-technology startups similarly concluded that existing Valley of Death models are fragmented and that technology ventures face a broader series of challenges during their development [2].

For deep-tech startups, recognising these multiple valleys matters because each requires different capital, skills, partnerships and commercial strategies.

1              Valley 1: From R&D to First Commercialisation

The first valley is the one most people recognise.

A deep-tech startup may have years of research behind it, strong intellectual property and compelling laboratory results. But transforming that science into a commercially viable product requires considerably more.

The technology may need further development, engineering, prototyping, validation, regulatory approval, manufacturing scale-up and demonstration under real-world conditions. In biotechnology and medtech, the journey may include extensive preclinical, clinical, quality and regulatory requirements.

These activities consume capital long before meaningful revenue is generated.

This is the traditional Valley of Death, and innovation ecosystems have developed numerous mechanisms to address it. Research grants, technology development funds, university commercialisation programmes, incubators, accelerators, seed funds and other forms of non-dilutive support are typically concentrated around technology development and early commercialisation.

Crossing this valley is difficult, but at least the problem is widely recognised.

The greater concern is what happens next.

2              Valley 2: From First Commercialisation to a Real Market

A regulatory approval, first sale, pilot customer or successful demonstration is often celebrated as the point at which commercialisation has been achieved.

In reality, this may be when one of the most difficult periods begins.

A first customer is not a market.

Deep-tech companies still need to establish distribution channels, develop sales capability, educate customers, obtain procurement approvals, establish reimbursement where applicable, negotiate with distributors, build industry partnerships and prove that customers will repeatedly purchase the product at commercially sustainable prices.

This is the second Valley of Death: market access.

At this point, the risk has changed. The fundamental question is no longer simply, “Does the technology work?”

It is now, “Can the company sell it repeatedly, economically and at sufficient scale?”

This distinction is particularly important for deep tech. Research published in Research Policy describes a “missing middle” affecting startups that simultaneously face technological and downstream commercialisation challenges. Such businesses can capture a smaller proportion of the value they create precisely because solving the technology problem does not automatically solve the commercialisation problem [3].

South African evidence reinforces the importance of this second valley. A study of 310 SMEs found that both access to finance and access to markets had significant effects on business viability [4]. Research examining technology commercialisation in South Africa has similarly identified commercialisation as a critical part of the innovation value chain and emphasised the importance of collaboration between public and private actors [5].

Yet market development is expensive.

A deep-tech company may need two or three years of commercial activity before sales volumes become sufficient to cover its growing cost base. During this period, it needs salespeople, regulatory specialists, marketing, distribution, working capital, inventory and customer support. It may need to conduct additional demonstrations simply to convince customers that the technology is reliable.

Revenue may have started, but profitability can still be years away.

This is precisely why defining “commercialisation” as the first sale can be misleading.

3              Valley 3: From Market Entry to Growth and Expansion

There is then a third valley that receives even less attention.

The startup has developed the technology. It has regulatory approvals where required. Customers exist. Sales are growing.

Now it needs to scale.

This creates an entirely different capital requirement.

Manufacturing capacity may need to expand. New equipment may be required. Inventory and working capital increase. Larger teams must be recruited. Quality systems become more sophisticated. Distribution networks need to expand. International market entry may require additional regulatory approvals, local partners and new supply chains.

The company can therefore be commercially successful and simultaneously cash constrained.

This is the third Valley of Death: growth and expansion.

It is a dangerous stage because the company may no longer look like an early-stage innovation deserving grant support, while still being too small, too specialised or too risky for conventional debt finance. Equity capital may be available, but raising it can take considerable time and may require founders and existing shareholders to accept substantial dilution.

The funding requirement has also changed. A grant that was appropriate for proving a technology may be poorly suited to financing inventory, establishing international distribution, expanding manufacturing capacity or funding the working capital associated with rapidly increasing orders.

The company has crossed the innovation valley but can still fail in the growth valley.

4              South Africa Needs to Look Beyond the First Valley

South Africa has invested substantially in research, technology development and innovation support. These interventions are important and should continue.

But an innovation ecosystem should ultimately be judged not only by the technologies it develops, but by how many of those technologies become sustainable businesses.

This requires greater attention to Valleys 2 and 3.

The South African literature already identifies funding constraints, regulatory barriers and market-access challenges within the startup ecosystem. Research into SME financing has also argued for blended public-private funding models that use public resources to increase private-sector risk appetite [6].

In our view, this is where the next evolution of South African innovation funding needs to occur.

If public funding successfully spends years developing an innovative technology but support effectively diminishes just as the company begins the expensive process of building markets and scaling operations, much of the economic value created by that earlier investment remains at risk.

The objective should not simply be to fund innovation.

It should be to build sustainable innovation-driven companies.

5              Different Valleys Need Different Bridges

There is unlikely to be one funding instrument capable of supporting the entire deep-tech journey.

Valley 1 requires patient technology-development capital. Grants, seed investment, research partnerships and non-dilutive funding can be particularly valuable.

Valley 2 requires commercialisation capital. Funding needs to support market validation, customer acquisition, distribution development, regulatory market access, demonstration projects and working capital. Strategic corporate partnerships, distributors, licensing arrangements and co-development agreements can become as important as financial investors.

Valley 3 requires growth capital. This may involve later-stage equity, venture debt, development finance, export finance, asset finance and blended public-private instruments designed specifically for scaling technology companies.

Public procurement can also play an important role. Government does not always need to support a technology company by giving it another grant. In some cases, becoming an early customer or creating mechanisms through which innovative technologies can compete for procurement may be far more powerful.

Funding instruments should therefore evolve as companies evolve.

6              Entrepreneurs Also Need to Plan for All Three Valleys

The responsibility does not rest with funders alone.

Deep-tech founders need to build financial strategies that anticipate these successive capital requirements from the beginning.

A company raising capital to complete product development should already understand what it will cost to establish its market channels. A company approaching first commercialisation should understand the working capital required if sales increase. A business entering its domestic market should already be considering the capital and regulatory requirements for regional or international expansion.

This requires robust financial modelling.

Cash flow forecasts should not assume that first commercialisation immediately creates sufficient revenue to fund the company. Financial models should consider realistic customer adoption curves, procurement cycles, distributor margins, manufacturing scale-up, working capital, regulatory costs and future capital requirements.

The same applies to valuation and investor readiness. The value of intellectual property is important, but investors ultimately need to understand how that intellectual property becomes revenue, cash flow and sustainable enterprise value.

7              Commercialisation Is a Journey, Not an Event

Perhaps the most important change needed is conceptual.

Commercialisation should not be treated as a single milestone.

It is a progression from technological validation, through first commercialisation, into market penetration and ultimately sustainable growth.

For deep-tech companies, each transition creates a new risk profile. Technology risk gives way to market risk. Market risk gives way to execution and scale risk.

And each transition creates another potential Valley of Death.

If innovation ecosystems focus almost exclusively on the first valley, they risk producing technologies rather than companies.

The real measure of success should be whether promising technologies become sustainable businesses that generate revenue, create employment, enter international markets and continue investing in innovation.

8              How Maravion Can Help Deep-Tech Companies Cross the Valleys

At Maravion, we work with deep-tech and biotechnology entrepreneurs across the commercialisation journey, from understanding the value of intellectual property and evaluating commercial opportunities to preparing companies for investment, market entry and growth.

Our work includes intellectual property and company valuation, techno-economic analysis, market assessment, financial modelling, commercialisation strategy, investor readiness, due diligence and growth planning.

Importantly, these activities should not begin only when a company needs funding.

Understanding the likely capital requirements of all three valleys early allows founders to structure their commercialisation strategy, funding roadmap and partnerships around the realities of building a deep-tech business.

The first Valley of Death remains important.

But crossing it is not the finish line.

For many deep-tech entrepreneurs, it is only the first bridge.

References

[1] P. Ellwood, Ceri Williams & J. Egan (2020), Technovation, “Crossing the Valley of Death: Five underlying innovation processes”, 84 citations. The study argues that crossing the Valley of Death involves five distinct innovation processes and that there is more than one pathway through technology commercialisation.

[2] Saheed A. Gbadegeshin et al. (2022), Sustainable Futures, “Overcoming The Valley of Death: A New Model for High Technology Startups”, 62 citations. Based on a review of 128 scholarly sources and empirical work with technology startups, the study proposes a broader model of the challenges involved in moving high-technology ventures towards commercialisation.

[3] Ashish Arora, Andrea Fosfuri & Thomas Rønde (2024), Research Policy, “The missing middle: Value capture in the market for startups”, 15 citations. The authors show why startups facing both technological and downstream commercialisation challenges are particularly disadvantaged.

[4] T. Msomi & Odunayo Magret Olarewaju (2021), Problems and Perspectives in Management, “Evaluation of access to finance, market and viability of small and medium-sized enterprises in South Africa”, 18 citations. The study of 310 South African SMEs found significant relationships between both access to finance and market access and SME viability.

[5] N. P. Marule (2022), Triple Helix, “The Role of Technology Commercialisation in the Operationalisation of Innovation and Industrial Policies in South Africa”, 4 citations. The research identifies commercialisation as a critical step in South Africa's innovation value chain and highlights the importance of cooperation between public and private actors.

[6] Foster Baloyi & Moses B. Khanyile (2022), The Southern African Journal of Entrepreneurship and Small Business Management, “Innovative mechanisms to improve access to funding for the black-owned small and medium enterprises in South Africa”, 16 citations. The study proposes blended public-private funding and risk-reduction mechanisms to improve access to external capital.