Funding for DeepTech companies hit approximately $15 billion in Europe last year, making it one of the most resilient categories in venture capital.
DeepTech can tackle some of the most pressing challenges facing our society – from climate change through to food security – and in doing so, deliver great financial returns for investors.
DeepTech companies by their nature solve these challenges with unique technology that is hard or impossible to replicate. It is that core technology that gives them a competitive advantage and gives rise to large companies over the long term. Eight of the top 10 companies in the world by market cap have a technology advantage at their core.
However, a funding gap at the later stages of DeepTech VC risks stunting its potential growth in Europe and the UK. While there are specialist DeepTech VCs funding the sector at the early stages, generalist VCs at the later stages have been more cautious, and this investment is essential if we are to deliver on the promise of European DeepTech.
It’s a commonly held belief that DeepTech takes longer and costs more than technology enabled companies, but the cost and time to scale to a company worth $250m or more is roughly the same, and once a company has reached this point it has a much stronger position based on the time and investment which has gone into developing and protecting its core technology.
Generalist VCs should consider allocating a small (or large!) part of their portfolio to these companies, which have the potential to deliver the real outlier returns they are looking for.
It’s a mindset displayed by our counterparts in the US. The numbers speak for themselves: the US invested $36.7bn into AI startups in 2022, compared with only €9bn raised in Europe. Generalist VCs risk missing out on this long-term advantage.
But generalist VCs do not have to do this alone. At British Patient Capital, we address the later-stage funding gap by both investing in venture and venture growth funds and co-investing alongside funds in the most promising later-stage companies based in the UK. Syndicating these investments can help funds diversify, bring in specialist knowledge and connections, and fund companies to be internationally competitive.
A recent example is Pragmatic Semiconductor, where BPC invested £10m in the company’s Series C round, and the company went on to raise the largest ever European semiconductor venture funding round – co-led by M&G Catalyst and the UK Infrastructure Bank, with a wide range of value-add co-investors including BPC.
It can be easy to focus on quicker wins in B2B software and services today, but DeepTech is the place to look if you want to find the technology giants of tomorrow.