The report said areas such as novel energy, AI and space-tech have grown as key emerging deep-tech markets, but Europe is still lagging behind the US in terms of investment.
Deep-tech was one of Europe’s strongest sectors last year despite economic uncertainty, according to a new report.
Start-ups within this sector raised $17.7bn for the year, which was less than 2021 but a 60pc increase compared to 2020.
The report – published by Dealroom, Lakestar and Walden Catalyst Ventures – claims deep-tech was Europe’s second-best performing segment for the second half of 2022, with energy coming out on top.
Deep-tech companies are described in the report as those that apply a novel scientific or engineering breakthrough to create a new product. These types of companies are known for having higher levels of risk initially, due to extended R&D and a need for early investment.
At Future Human 2022, Prof Catherine Welch of Trinity Business School explained that it can take decades to get a breakthrough innovation to market.
Emerging deep-tech sections
The report found that, as the deep-tech sector is constantly evolving, four business types have grown to be the top emerging segments. These are novel energy applications, followed by AI, future computing and space tech.
Combined, these four segments raised $4.4bn in 2022, which is their highest amount to date and double the amount they raised in 2020.
Novel energy start-ups in particular showed great success last year, raising nearly 50pc more than in 2021 and more than three times the amount raised in 2020.
The report also found that venture capital (VC) investment support remains strong for the deep-tech sector, being viewed as the second-most promising sector for investment.
David Dana, the European Investment Fund’s head of VC investments for disruptive tech and innovation, said the disruptive tech within this sector has “population-level impact potential” and that Europe is home to “huge numbers of highly skilled scientists and researchers”.
Dana added: “The deep-tech breakthroughs of the next decade will shape our societies well into the next century. It is therefore essential for Europe to lead from the front in shaping these revolutionary technologies and their real-world applications.”
Lagging behind the US
Despite the success the sector showed last year, the report said Europe is lagging far behind the US in terms of deep-tech investment. Between 2020 and 2022, the US invested $166bn in deep-tech, while all of Europe, including the UK, invested $52bn.
On its own, the EU has invested $30bn in deep-tech over those three years, lagging behind China’s $34bn investment total.
Last May, a joint report by the European Patent Office and the European Investment Bank said a lack of access to finance and skilled talent were key reasons the EU’s deep-tech businesses lag behind their US counterparts.
To boost this European sector, the report said measures should be taken to unlock the full potential of academic spin-outs, as many of the continent’s deep-tech successes “have their roots in academia”.
The report also claims that Europe falls behind when investing in the late stages of deep-tech companies. The share of funding coming from the US and Asia grows to nearly 45pc for deals worth $250m or more, compared to 11pc for seed or pre-seed funding.
There is also a long way to go to boost inclusion in the deep-tech sector, as only 3pc of VC funding went to start-ups that were founded by women only.
“Diversity of thought, opinion and creativity is essential for our deep-tech ecosystem to thrive,” said Lakestar deep-tech investor Christina Franzeskides. “To that end, we must strive towards inclusivity, across all backgrounds and genders, for the space to reach its full potential.”
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