The Dawn of Deep Tech in Europe
There currently is a lot of talk about the resurgence of Europe on the global start-up stage. The proponents of this claim argue that the momentum is moving away from the Silicon Valley based consumer internet and SaaS companies and towards tech-heavy start-ups founded in Europe.
The next wave of billion-dollar start-ups will be created in Europe with its industrial roots, its leading academic research universities with world-class engineering talent and its large number of established manufacturing companies, the argument goes.
We at Creathor Ventures were curious whether we could find any proof of this so called “Deep Tech” trend in the data. For our analysis we used data from Pitchbook and included companies active in the following sectors:
- 3D Printing
- Artificial Intelligence
- Augmented and Virtual Reality
- Autonomous Cars
- Big Data
- Drones
- Internet of Things (excluding B2C)
- Life Sciences (when applicable)
- Robotics
We only included companies headquartered in Europe. Our data set is as of November 15, 2017 and we extrapolated to the full year 2017.
European Deep Tech on the Rise
Over the last five years, the number of Deep Tech investments has almost tripled. Back in 2013, 136 financings fell into our Deep Tech categories. By 2016, the number reached 399. There was a slight decrease of financings in 2017 with approximately 369. To put the number of 369 Deep Tech deals into perspective, the entire number of venture capital financings in Europe in 2017 was 3.306 according to Pitchbook. Hence, the Deep Tech segment made up about 11% of all financing. Back in 2013, only 3% of financings could be attributed to the Deep Tech segment (4.197 deals in total).
The picture is even clearer when looking at invested capital in Deep Tech companies in the last five years. Back in 2013, €202 million was invested into our Deep Tech categories. By last year, the value had reached over €1.7 billion — more than an eightfold increase. Even between 2016 and 2017, there was an increase of over 30%. The fact that the invested capital increases while the number of deals remains constant might be explained by the fact that maturing Deep Tech companies are raising larger follow-on rounds. Deep Tech deals made up about 10% of deal value in Europe in 2017 (the entire amount of invested capital stood at €16.9 billion last year, according to Pitchbook). Back in 2013, Deep Tech deals represented a negligible 2% of invested capital in Europe.
Regional Split: UK in the lead
Let us next look at the regional breakdown of Deep Tech companies within Europe. The UK is clearly ahead with 452 or about 30% of all Deep Tech deals since 2013. German-speaking Europe or “DACH” (an acronym based on the international codes for Austria, Germany and Switzerland) has seen the second highest number of deals with 301. The Nordics (226) come in third, followed by France (184).
Looking at the ratios for invested capital by region, we see that the UK is also taking the top spot here. Interestingly, until 2015 the DACH countries were ahead of the UK. France and the Nordics are going back and forth to take the third spot, with France in front in 2017.
A look at the average funding sizes shows that they have steadily gone up in the four core regions over the last five years. Since 2013, funding rounds in German-speaking Europe are the largest with on average €6.3 million. The average funding rounds in the UK have almost doubled in the last year from €3.2 million to €5.7 million.
Spotlight: German-speaking Europe
Since Creathor Ventures is hailing from German-speaking Europe, we were especially keen on finding out more about the developments in the DACH countries — the hypothesis being that the strong industrial fabric in our home countries can be detected in the data. The data confirms this hypothesis: The number of Deep Tech financings has increased significantly since 2013. The number of financings have, however, remained largely unchanged in the last 3 years. As expected, most of the deals have been made in Germany, with Switzerland coming in on the second place consistently.
More importantly, the invested capital in German-speaking Europe has increased almost tenfold, from €52 million in 2013 to €494 million in 2017. The last year was the strongest since 2013. Several large capital raises, like Lilium Aviation’s $90 million financing round or Sophia Genetics’ $30 million raise are strong contributors to this record year.
A breakdown of the various Deep Tech categories shows some surprising results. The Robotics & Drones category only plays a relatively small role. We would have expected this category to be more prominent, given the strong mechanical engineering talent as well as the large number of automation companies in the region. Since 2013, Internet of Things (“IOT”) deals are on a slow but steady decline on a relative basis. The Big Data category lost the top spot to Artificial Intelligence (“AI”) last year. The two disciplines are related, and Artificial Intelligence is often considered the next evolutionary step of Big Data. Hence, we would expect this trend to continue. The other Deep Tech categories (3D Printing, Autonomous Cars and Life Sciences) are not included in the below chart, since they each make up less than 5% of Deep Tech deals.
Towards a bright Deep Tech future?
The data confirms that Deep Tech in Europe is on the rise — in absolute as well as relative terms. This is especially true for invested capital. The UK is home to the largest number of Deep Tech start-ups, followed by German-speaking Europe and France. In the DACH countries, Germany is ahead in terms of number of deals and invested capital. Switzerland is showing a consistently high activity, especially compared to its size. Start-ups focusing on data and algorithms are dominating the Deep Tech landscape in DACH, followed by Internet of Things and Virtual Reality (“VR”) companies. Robotics play a surprisingly small role in terms of VC funding. Upcoming fields of frontier technologies such as New Space or Quantum Computing have not played a significant role in our data but might become increasingly relevant within the Deep Tech sector.
Whether the new European Deep Tech companies will manage to become legitimate successors of today’s billion-dollar start-ups from Silicon Valley remains to be seen. It is still early days.
We at Creathor Ventures are actively investing in young start-ups in the Deep Tech category and would be glad to hear from others interested in the space.
Thank you to my colleague Fabian Degenhardt for his help and feedback.
