Why traditional venture capital is struggling with deep tech — and how it can be improved.

      The future of deep tech in Europe depends on the evolution of investment strategies. This arises from the fact that conventional funding models fall short when meeting the long-term financial commitments that innovation requires. Europe faces a paradox: despite significant scientific research, an emphasis on quick commercialization and short-term objectives hinders the region from fully realizing its deep tech potential. While startups are essential contributors, the region still trails behind the US and Asia in translating laboratory breakthroughs into marketable products.

      To remain competitive, Europe must develop technologies such as AI, robotics, synthetic biology, and quantum computing, which are central to the deep tech landscape. These innovations are not merely lucrative; they possess the capacity to transform various aspects of life, ranging from cochlear implants that restore hearing to aerospace advancements for Mars missions. However, achieving these breakthroughs relies on sustained, long-term investment in science, engineering, and design.

      Startups targeting quick-launch SaaS or consumer applications can secure funding and commercialize rapidly. In contrast, deep tech firms navigate a significant “valley of death,” characterized by prolonged R&D timelines, substantial upfront investments, and a higher level of risk tolerance compared to traditional software companies.

      It is crucial to identify which new funding models are effective and beginning to gain traction in Europe. Leveraging insights from my investment practice at Zubr Capital, this analysis highlights the potential for Europe to harness deep tech and regain lost market competitiveness, rather than allowing its startups to migrate to more established financial ecosystems in the US, Asia, or Israel.

      Challenges traditional VC faces in deep tech

      Conventional software startups typically adhere to a standard funding cycle. They secure a 10-year fund, utilize the capital within three to five years, and strive for profitable exits in five to seven years. Success in this cycle is defined by rapid growth, scalability, and relatively low capital demands.

      Deep tech, however, does not conform to this conventional financial framework. Startups in this space often require development times exceeding a decade. Industries such as healthcare, energy, and aerospace impose stringent regulations necessitating extensive certifications and testing to validate advanced capabilities, a domain where generalist VCs often refrain due to the need for patient capital.

      Many deep tech companies also face specific industrial and geographical barriers. For instance, a French aerospace company may lack the necessary infrastructure to access financing in the same manner as a large US airline such as Delta.

      Established investment models create several hurdles for deep tech firms, including:

      - Pressure for immediate traction prompting startups to pivot away from deep tech to more commercial projects.

      - A lack of expertise among traditional VCs to accurately evaluate complex projects.

      - Smaller available funds in Europe for both initial and long-term expenses.

      - A "valley of death" that prevents deep tech from securing R&D funding from public sources.

      - EU investors’ tendency to be risk-averse due to the stigma surrounding failure.

      - Industry fragmentation, with varying markets, regulations, and heavy bureaucracy, impeding funding processes.

      - Late-stage funding often sourced from abroad, which leads to technology transfer out of Europe.

      Another challenge facing deep tech is the educational requirement. Leaders of traditional startups typically have two to three years of higher education, whereas deep tech necessitates approximately five to seven years of study due to its complexity. A significant 81% of deep tech founders believe that European investors lack the thorough understanding necessary to grasp the intricate details of their initiatives.

      Furthermore, there isn't sufficient capital available. A European fund with €150 million could issue a few €10 million to €15 million checks, but that amount is inadequate for developing complex projects such as a gigafactory or scaling a new fusion plant. This disconnect between traditional VC funding and deep tech needs in Europe results in systemic underfunding, stalled startups, and the loss of groundbreaking innovations. There is a concerning history of external entities like Amazon, Facebook, and Microsoft acquiring European tech talent to integrate into their R&D sectors, which hinders the advancement of deep tech within Europe.

      Evidence of VC shortcomings in deep tech

      The issues of incompatible VCs are not just theoretical; there are numerous real-world instances where funding failures have led Europe to lose deep tech opportunities to international rivals. Consider the following examples:

      **Prophesee in France**

      Prophesee develops neuromorphic vision sensors that allow machines to emulate human sight. The company raised €126 million across several funding rounds but entered judicial recovery in October 2024 after failing to obtain further financing. Despite receiving significant global attention for its technical validation, the lengthy and uncertain funding landscape hampered its development.

      **Mycorena in Sweden**

      Mycorena had to declare bankruptcy and is now permanently shut down. Initially promising with its mycelium-based protein for diverse industries, the startup struggled to secure Series B funding in the mid-2020s and was ultimately acquired for a minimal sum, highlighting the challenges deep tech companies face during scaling.

      **Blickfeld in Germany**

      Blickfeld, a rising leader in LiDAR