European deep tech in 2022 – short term resilience, long term potential

In 2021, we predicted a pivotal year for Deep Tech. Was it? A lot has happened in the tech world since then. In collaboration with Lakestar and Walden Catalyst Ventures, we’ve checked back in on Europe’s deep tech credentials, hurdles and opportunities.

Download the full report:

Key findings:

• European Deep Tech startups raised $17.7B in 2022, 22% less than last year total, but still +60% on 2020
• In H2 2022, Deep Tech had the second-highest growth rate for VC funding behind Energy
• LPs in Europe see Deep Tech as the 2nd most promising segment in venture capital, behind only Planet Positive
• The four main emerging areas of Deep Tech – Novel AI, Future of Computing, Novel Energy, and Space Tech – raised record levels of funding in 2022
• To boost European Deep Tech, the report calls for utilizing the potential of academic spin-outs, bridging the gap between early-stage dedicated Deep Tech investors and generalist funds, and increasing diversity and inclusion.

Resilience in long term bets

Despite recent market turmoil, the report highlights the strong growth and resilience of Deep Tech in Europe. European Deep Tech startups raised $17.7 billion in 2022, 22% less than 2021, but still 60% more than in 2020.

Deep Tech has been the second-best performing sector in Q3 and Q4 of 2022, with funding dropping by 9% from 2021, but that pales in comparison to the 45% drop in the overall VC market. 

"The approach and process used to invest in Deep Tech is often quite different from traditional SaaS investing. It requires a unique investor skillset, a specialized bottom-up investment strategy and the ability to operate independently."

Evolving deep tech – novel AI, energy, space tech and computing

The key segments of Deep Tech are by nature constantly evolving. Some segments are maturing to the scaling and mainstream phases, while new ones are emerging to push the boundaries of what is possible.

Four core emerging segments of Deep Tech have been identified – Novel AI, Future of Computing, Novel Energy and Space Tech – raised $4.4B in 2022, the highest amount ever raised and more than double than what was raised in 2020.

“We are looking for the next Marie Curie or Max Planck, scientists and entrepreneurs taking disruptive technologies out of the lab and turning them into commercial products. Distributed at global scale, these technologies eventually make their way into everyone's life, and have the potential to solve some of the many challenges humanity is facing.”

Geographic distribution

Europe is dotted with important deep tech cluster, many of which are outside of the major European capitals that have historically dominated startup ecosystems. The UK lead by deep tech funding in European, but beyond London, hubs like Oxford, Cambridge and Bristol are important pieces of the deep tech puzzle.

And while the usual suspects of the UK, Germany, France and Sweden have raised the most deep tech funding in the last five years, Switzerland, Finland and Norway are among the most deep tech focussed ecosystems, with a large proportion of their funding going to deep tech startups.

Growth hurdles for competing internationally

The report calls for key enablers to unlock the growth of Deep Tech including bridging the gap in funding between early stage dedicated Deep Tech investors and generalist funds, and increasing diversity and inclusion. 

Europe’s leading academic institutions are a breeding ground for excellent talent and breakthrough technologies. But this potential is still far from being realised in entrepreneurship and commercial applications. Smoothing the path for startups to spin out from universities remain a key challenge for unlocking Europe’s deep tech potential.

"More must be done to avoid unconscious bias. Last year, only 3% of VC funding in Deep Tech was invested in startups that were female-only founded. However, diversity of thought, opinion and creativity is essential for our Deep Tech ecosystem to thrive. To that end, we must strive towards inclusivity, across all backgrounds and genders, for the space to reach its full potential."

“At the frontier of innovation, Deep Tech’s disruptive technologies - such as AI, Space, Quantum, Hardware, and Cybersecurity - have population-level impact potential. Europe is already home to huge numbers of highly skilled scientists and researchers. The EIF is now supporting an emergent community of Deep Tech VCs, to bring their smart money and know-how to this underserved segment.”