The biggest challenges facing the world today — combating climate change, improving public health, reducing construction’s carbon footprint, and so on — largely cannot be addressed with a smartphone app or consumer device.
For that, there’s “tough tech.”
Tough tech extends beyond lines of software code to apply technology to processes, materials, or systems that exist in the real world.
It’s solving real problems — and it’s attracting real money. There’s Form Energy, which builds batteries that can store wind and solar energy for days. It has the potential to tip the scale in favor of alternative sources of energy. The company raised $450 million in Series E funding in October.
Or there’s Cellino Biotech, which automates the process of removing unwanted cells during the stem cell therapy manufacturing process. Automation cuts overhead costs, allowing production to scale faster. The company raised $80 million in Series A funding in January and has Bayer in its corner.
Tough tech is setting out to “redefine industries,” said Katie Rae, CEO and managing partner of The Engine, a venture capital fund with an infrastructure and ecosystem network for tough tech, built by MIT.
Speaking at the ClimateTech conference hosted by MIT Technology Review, Rae discussed what she and her team look for in tough tech companies, and what it takes to help them grow.
Think big, but start small
As the name implies, tough tech addresses problems that won’t go away overnight. Rae assesses tough tech startups accordingly.
“I look for a founder or a set of founders who are on a mission, who want to go on a long-term and extreme journey of self-actualization,” she said. “Then I think, ‘Who is this team? Why do they want to do it? What is the problem they’re trying to solve?’”
The next step is diving into the technology itself, Rae said. Will it solve the problem the team intends to address? Can it scale globally? How will it gain market share?
While these are big-picture questions, tough tech companies can still start small. The aim of Commonwealth Fusion Systems, for example, is to provide clean energy through nuclear fusion. When the company approached investors, it sought funding not for a full-fledged tokamak (which confines plasma in such a way to make fusion possible) but for the magnets that create the magnetic field to confine the plasma.
“What is the smallest thing you can build to prove that your idea can work?” Rae said. “From there, you can build larger ones as you go.”
Upon proving the concept with the magnet, Commonwealth Fusion raised $1.8 billion in Series B funding in December 2021 to build its “net energy fusion machine.”
Leadership can be taught, and incumbents can be partners
The Engine describes tough tech as existing at the intersection of science, engineering, and leadership. For Rae, the third component is where the ecosystem around tough tech founders can have the biggest impact.
“The problems that we’re facing are solved by incredible, cutting-edge technologies. A lot of the founders are going to be postdocs, PhDs, and people with true scientific and engineering knowledge,” she said. “We take the stance of ‘embrace that community of people.’ We think leadership and entrepreneurship can be taught — not in a vacuum, but alongside other people who have done it before.”
Those “other people” can include industry incumbents, Rae added. That’s a differentiator from other technology industries — especially software development, where investing alongside competitors would be “anathema” — and it’s an opportunity for tough tech startups to find partners.
“Most R&D labs have been gutted in large companies, so the startups and incumbents are much closer in some ways. If you think about a large steel company, and then you think about green steel, these marriages often do make sense,” she said. “There's a lot that incumbents know about how to get to market and how to scale, and a new company might be able to open up different kinds of markets that an incumbent isn’t able to get to now.”