Breakthrough science and the future of venture capital

Sam Lessin’s recent article The End of Venture Capital as We Know It has received a lot of attention in the startup community. Lessin argues that a monumental shift in startup investing is coming to fruition as software has already eaten the world, and larger institutions continue to jump into the software venture capital market at an unprecedented rate. I think he is largely correct. I believe that today, the future of venture capital is breakthrough science transforming billions of lives in sectors like energy, transportation, infrastructure, manufacturing, agriculture and human augmentation. In the coming two decades, almost every layer of our physical world is likely to be reshaped and the best venture capital investors in these areas will not only be poised to produce phenomenal returns but also contribute massively to creating a better world for generations to come.

In the energy sector, technology that addresses climate change is a rapidly growing—yet still under-appreciated —trend. In the past, investors have felt jaded by overhyped clean energy solutions, which fell short largely because they failed to provide a lower-cost alternative to existing energy sources. That is not the case anymore. Groundbreaking advances have occurred over the past decade in nuclear fusion research, energy storage, solar energy, and countless other areas that will produce energy at a fraction of the cost of coal or natural gas in most regions of the country.

As the world shifts to these cleaner forms of energy, industrial processes will likely undergo dramatic transformation at the same time. While these changes may take time given the existing infrastructure, the returns for investors can be significant. New platforms for energy production, storage, and transmission will emerge as category leaders and present opportunities for early-stage investors who have the technical expertise required to evaluate them.

At the same time, a transportation revolution is underway—with supersonic commercial aircraft, electric aviation, self-driving cars, and space. Each of these is a massive transformation in the fundamental infrastructure of our civilization. These revolutions could fundamentally change how people build cities and communities, manufacture new goods (perhaps in space) and commute to work.

Already this year, electric vertical takeoff and landing (eVTOL) providers Joby Aviation and Archer Aviation have gone public, signaling a new era of urban air transportation. (Full disclosure: Prime Movers Lab is an investor in Archer Aviation.) Each of these advances could impact other industries. For example, eVTOLs are already being adopted by large farming operations to fertilize and monitor crops. In the years ahead, they may find more applications, such as fighting wildfires and last-mile delivery.

Meanwhile, human health is undergoing an even larger—and more nascent—shift. For far too long, Western medicine has focused mainly on treating symptoms, not causes. However, with major advances in modern biology unfolding at an unprecedented pace, many are developing a more holistic approach to disease treatments and aging. The COVID-19 pandemic has also shined new light on the mental health epidemic across the country. Thankfully, the understanding of neuroscience is also rapidly accelerating, heralding a new era in mental and integrated health. Advances in brain-computer interfaces and vaccine development platforms are a couple of the most exciting areas, and they’re at an even earlier point in that cycle than the other industries I’ve mentioned.

The impacts of these advances are just beginning to appear in the public markets, with the present wave of special-purpose acquisition company (SPAC) transactions. While many are critical of SPACs, investors should expect this trend to continue longer than most people think. As of the second quarter of 2021, there were still more than 400 pending SPACs. Even when a significant market correction occurs, I believe companies that have developed real breakthrough solutions will not only survive, they will thrive. That is why recognizing the difference requires a deep technical understanding of the industry.

Similarly, breakthroughs in space, robotics, semiconductors, communications, synthetic foods, and advanced farming continue to transform the landscape. Needless to say, for those in venture capital who have the technical expertise required to invest in these frontier technologies, it is an exciting time to be partnering with breakthrough startups.

Dakin Sloss is the Founder and General Partner of Prime Movers Lab, the world’s leading partner of breakthrough scientific startups.