The Tesla Gigafactory planned to be built in Mexico should be seen, Bloomberg argues, “as a graduation moment for Mexican manufacturing.” And there’s hope that the CHIPS bill, which President Joe Biden promoted to supercharge semiconductor production in the U.S., will benefit its southern neighbor as well.

While the prospect of new factories and more jobs is good news for Mexico, the country and its Latin American and Caribbean (LAC) peers can harbor higher hopes when it comes to deep tech, a new report posits.

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Titled “Deep Tech: The New Wave” and created in collaboration with the Inter-American Development Bank’s innovation laboratory (IDB Lab), the report concludes that there is room for a twentyfold increase in VC investment into LAC deep tech startups over the next decade.

While such projections are always open for debate, the reasoning and data behind this conclusion are worth looking into.

Diving deep

What “deep tech” means changes according to who’s using it. The consulting firm behind this report, Surfing Tsunamis, used this definition by Propel(x) CEO Swati Chaturvedi:

Deep technology companies are built on tangible scientific discoveries or engineering innovations. They are trying to solve big issues that really affect the world around them. For example, a new medical device or technique fighting cancer, data analytics to help farmers grow more food, or a clean energy solution trying to lessen the human impact on climate change.

Based on this definition, the report says LAC’s “most notable deep tech success story to date” is cybersecurity startup Auth0, which Okta acquired for $6.5 billion in 2021.

Despite this fairly broad definition covering everything from cybersecurity to biotech, most LAC startups don’t fit the bill. Inferring from a previous report, Surfing Tsunamis estimates that deep tech companies represent roughly 10% of the regional startup ecosystem.

“The vast majority of startups from Latin American and Caribbean (LAC) [regions] focus on product and business model innovation, with limited technology risk,” it said.

Venture capital investment into LAC deep tech represents an even smaller share of overall VC dealmaking in the region. However, it is on the rise, both in absolute numbers and proportionally, growing from $96 million (0.59%) in 2020 to $172 million (2.2%) in 2022.

What do the recipients of this venture capital look like? They are fairly diverse, both in terms of sector and country of origin.