How is Deeptech developing?

Researching the latest databases teaches us that over 40.000 startups today are classified as deeptech companies. Over 2 million jobs are filled in startups with another 1.5 million in public or subsidiary companies. More than 6000 companies have already raised 10 million USD, and the total predicted valuation of this group was above 7 trillion USD in 2021⁵. So where is all this happening, because those businesses are not equally distributed in our world.

Quality of research and patents in a region are two methods to get first insights into where deeptech hubs are located. While this has it limits, for example about half of patents classify as software², it gives us a first indication on interesting hubs to dive into.The 2022 global startup ranking³ on research shows Silicon Valley, NYC, Boston and LA as hubs of knowledge and innovation within Northern America, matched and challenged by London, Beijing and Tel Aviv. Another way of assessing the potential of this field is by adding startup, investment and talent data. Dealroom.co⁴ has done this to highlight Eindhoven, Munich and Zurich as “science hubs” within the EU.

Deeptech doesn’t happen overnight either, so the next step is to look at developments today. The United States still remains the front runner when it comes to both regular and deep tech startups. As they have a greater amount of capital available for this capital intensive branch, the performance of their deeptech businesses is better with a scaleup rate 3 times higher than in Europe⁵. But, with 1,372 funding rounds in 2022, Europe is participating in the deeptech game too⁵. Its $17.7B in funding this year still outpaces the Chinese economy, who was predicted to speed up growth before the covid crisis⁶. Especially looking at per capita deeptech activity Israel stands out raising $395 per capita, outperforming the U.S.

Alarmingly, the recent year has been one of stagnating growth all over the world. New research by Dealroom shows that European Deeptech startups raised 22% less than the 2021 total, though still 60% more than in 2020. Positively, the funding decline of 9% in the second half of 2022 compared to the previous year is less than in other sectors, and will most likely be negatively biased with a reporting lag. We see that the distribution of funding rounds in the total raised capital has been comparable with other sectors, hinting just at a slightly higher percentage of rounds above $100m in 2022 and a higher percentage of those deals going specifically to deeptech.

It is key to learn if growth is still in the pipeline. In 2021, Angels and LPs in Europe saw Deeptech as the 2nd most promising segment in venture capital, behind only Planet Positive⁷. They might have been right, as France is an example where steady growth in deeptech investments continued in the past year and generally since 2016. Especially looking within deeptech at the climate startups, a growth is visible Europe-wide even in the past year.

The luxury position that Europe is in, when it comes to the high share of tech talent might bring us in the right direction. For example, the percentage of graduates in STEM in Germany is double that of the U.S⁸. Though a talent shortage has been affecting economies everywhere. Secondly, the valorisation of academic knowledge will be a key indicator to future successes. Today, the U.K. already produced more than 1000 spinout companies from academics. Thirdly, Switzerland, Sweden, Finland are countries which financially have doubled down on deep tech companies, with Deeptech percentages as part of VC investment over 30%.

What do you think are interesting indicators for the future of deep tech? Get in touch today, via info@techleap.nl and share your thoughts, experiences and hopes for the deeptech future!

In the upcoming months, further research will show the impact that policy has on deeptech commercialisations. What hurdles there are for startups to raise the funding outlined in this commentary paper, and what policy worked both in Europe and in key hubs like the U.S. and Israel to ease those hurdles. Sabine Kerssens will be working together with Techleap, the Charlemagne Academy, Erik Stam from the University of Utrecht’s School of Economics and the Charlemagne supporters such as the European Investment Bank, Landesregierung Nordrhein-Westfalen, Volksbanken Raiffeisenbanken & schwartz GmbH to find how the can EU leverage the scientific knowledge, through deeptech startups, to strengthen its position in a changing world. Stay tuned!