Deep tech ventures face struggles with conventional venture capital funding, and this piece explores the key reasons for their failures while suggesting potential remedies.
Europe's deep tech sector faces unique challenges, including long development cycles, high upfront costs, and greater risks. Traditional venture capital (VC) often struggles to support these ventures, favouring quicker-return, lower-risk ventures. To address this issue, Europe must adopt new investment strategies that recognise the unique challenges of deep tech.
First, the need for patient capital is crucial. Deep tech requires sustained funding over longer periods to cross the "valley of death" between scientific research and commercial deployment. Therefore, Europe must move towards investment vehicles designed for patient capital, such as funds with longer horizons, co-investment schemes, and larger-scale investments targeting strategic scale-ups.
Second, a diversified funding ecosystem is essential. This includes public grants, crowdfunding, business angels, institutional VCs, and corporate partnerships. Public grants should support early-stage R&D without dilution, while crowdfunding can provide proof-of-interest and early capital with community validation. Business angels contribute strategic mentoring alongside capital, and institutional VCs focus on scaling and international growth. This convergence promotes a more inclusive and resilient ecosystem fostering deep tech breakthroughs.
Third, public funding instruments can leverage private co-investments and bridge financing gaps. European initiatives like the European Innovation Council’s (EIC) 2025 work programme are already channeling significant funds into deep tech, including the STEP Scale-up scheme providing €10–30 million investments to help startups scale and reduce strategic dependencies on other global markets.
Fourth, improving Europe’s capital markets and liquidity mechanisms is crucial. Lessons can be drawn from countries like Sweden or Canada where public-private growth capital and long-term institutional investors actively support tech and infrastructure with appropriate risk-return profiles. Europe also needs strong corporate buyers to co-develop and help de-risk technological deployments, strengthening the entire innovation-to-market pipeline.
Examples of funding failures leading to Europe losing deep tech opportunities to international competitors are not uncommon. Companies like Prophesee in France, Mycorena in Sweden, and Blickfeld in Germany have been picked up by foreign entities, highlighting the need for more robust investment strategies.
The mismatch of traditional VC funding with deep tech in Europe is what drives systemic underfunding, stalled startups, and the loss of world-changing innovations. Europe's deep tech sector requires evolving investment strategies due to long-term financial commitments that traditional funding models cannot support. Most deep tech companies have to overcome specific industrial and geographical thresholds that traditional VCs may not be able to assist with.
Pressure for visible traction pushes deep tech startups to pivot from their original focus to commercial projects, which may not always align with their long-term vision. This underscores the need for patient capital and a more diversified funding ecosystem.
By embracing patient capital models, integrating different financing sources, expanding public funding programs, and reforming capital markets, Europe can create a more robust investment environment. This will enable it to translate scientific research into transformative market-ready deep tech innovations.
- The lack of patient capital in Europe's deep tech sector leads many startups to abandon their long-term vision by pivoting towards commercial projects, highlighting the need for investment vehicles designed for patient capital.
- To cater to the unique challenges of deep tech ventures, a diversified funding ecosystem is necessary, incorporating public grants, crowdfunding, business angels, institutional VCs, corporate partnerships, and bridging financing gaps with European initiatives like the EIC's STEP Scale-up scheme.
