European deep tech has become a driving force in the continent’s innovation landscape, demonstrating remarkable growth and resilience amid global market turbulence. Yet a persistent question remains: why do so many of Europe’s most promising deep tech startups still look to the United States for their exits?
Resilience amid market fluctations
Over the past decade, European deep tech investment has soared from $1.5 billion in 2014 to $15.1 billion by 2024 — a tenfold increase that now accounts for nearly 30% of all venture capital funding in the region, reported Dealroom. “AI is the driving force behind deep tech growth. Every day, innovators are discovering new ways of building and using AI — and frequently, these discoveries are leading to new, exciting breakthroughs which entrepreneurs are rightly looking to commoditise and commercialise,” says Noel Hurley, CEO of Literal Labs.
This remarkable growth has established deep tech as a dominant force in European venture capital, now attracting approximately 28–30% of all VC funding in Europe. From a broader perspective, Europe’s share of global deep tech investment has nearly doubled, rising from 10% in 2019 to 19% in 2023.
As Jacob Ruiter, CEO of InnoEnergy Benelux, puts it: “Deep tech remains strong even in challenging periods because it addresses essential, long-term issues such as energy security, climate change, and Europe’s independence in key technologies. Many of these innovations are supported by industrial policy and public funding instruments that insulate them from short-term investor sentiment.”
The numbers tell a powerful story. “Macro-economic trends are probably the most dominant feature driving growth,” says Dr. Lee Thornton, Partner (Deeptech) at IP Group. “An ageing population and a declining workforce mean we have to do more as a society with fewer working-age people, and AI is a natural answer to this challenge. Freeing up people from menial tasks allows companies to become more efficient and lets workers focus on tasks where humans are truly needed.”
Boris Gertsovsky, Founder of FTT Labs, highlights three drivers: “First, the accumulated critical mass of research experience in academia is finally finding its way into commercial applications; second, structural support from European governments and the EU, including programs like Horizon Europe; and finally, a shift in investors’ perception of deep technologies-they now view them not just as risky investments but as strategic assets with the potential to transform entire industries.”
Why Europe’s deep tech is built to last?
Unlike the boom-and-bust cycles of consumer tech, deep tech has proven remarkably resilient. Following the 2021 investment peak, deep tech funding declined by only 28%, while regular tech investments crashed by 60%.
Susanne König, co-founder and CEA at Kraftblock, observes: “It’s kind of refreshing to see a part of the tech world that didn’t fall off a cliff post-2021. That’s probably because deep tech has always been playing a longer game. Investors in this space aren’t chasing the next unicorn-they’re backing meaningful progress in fields that actually matter, from advanced energy systems to quantum computing.”
Deep tech’s durability is rooted in its unique business model. “Deep tech companies typically operate on longer timelines, so the immediate impact of macroeconomic declines isn’t felt in quite the same way as in other areas of tech. These businesses often aren’t revenue-generating for some time, so the standard market metrics don’t apply as sharply. That gives them a bit of insulation. The upside to this is that these ventures continue to attract committed capital from investors,” explains Owen Thompson, CEO and co-founder of Cambridge Future Tech.
Ross Mason, Founding Partner of Dig Ventures, adds: “Unlike B2C or general SaaS where capital chases growth at any cost, deep tech startups often operate in spaces where the moat is real: data, science, IP, or infrastructure. Investors are gravitating toward durability and deep tech feels more substantial. It promises breakthroughs, not just better dashboards.”
Strategic partnerships are also vital. “In addition to VC funding, strategic partnerships also play a key role. Collaborations with Corporate Venture Capital (CVC) arms or directly with major tech companies such as Amazon, Alphabet, and Nvidia provide essential financial support and validation for DeepTech startups,” says Thea Vu-Bignand, CFO of Aqemia.
Eugenia Mykuliak, Founder & Executive Director of B2PRIME Group, adds: “. Even if investors and VCs refuse to finance deep tech, there are government grants, co-investment funds, and tax credits. Unlike tech, where the government also provides R&D tax credits and grants, deep tech gets “mission-driven” capital due to targeted programs developed by the government.”
The numbers back up the optimism: since 2003, deep tech investments have delivered an average IRR of 16%, compared to just 10% for traditional tech.
Where innovation lives: The UK, Germany, and France
The UK leads Europe, pulling in $4.2 billion in 2024 — a 21% jump. “The UK has always been seen as a science superpower,” says Dr. Thornton. “We have three of the world’s top ten universities and around 10 of the world’s top fifty, a statistic only beaten in numbers by the USA.” Roman Pakholkov, Founder and Board Member of Bridgio, adds, “We see promising cross-border collaboration- UK startups scaling in the EU via partnerships, not relocating. Our focus: help UK founders leverage European industrial networks while attracting EU talent.”
Hailey Eustace, Founder of Commplicated, agrees: “The UK has dominated in deep tech because of its excellent universities and research institutions. Companies built on solid research and innovation tend to hold more intrinsic value than trendy sectors that offer more ‘quick wins.’”
France and Germany follow, though France saw a 27% drop in investment. Sweden, once a rising star, experienced a dramatic 71% decline in its economy. Across the region, London, Paris, and Munich have emerged as the primary hubs for deep tech innovation.
But the race is far from over. König cautions, “But staying ahead is another story. Talent flows, policy changes, and how well the UK supports scaling companies will all be make-or-break. Other countries are catching up quickly, and Europe as a whole is becoming more adept at nurturing deep tech. So yes, the UK can keep its lead – but it’ll need to run hard to stay in front.”
The missing flywheel: Why the US still dominates exits
Despite these strengths, Europe lacks the “flywheel effect” that powers Silicon Valley. “The US has been essential for exits and scaling capital, but with companies like Synthesia, Quantinuum, and CMR Surgical, we can see that the UK can still create and scale new deep techs to that later growth stage as well. The current instability in the US with funding and capital markets I think will be good for the UK, where British and European talent will return with their hard-earned lessons and will attract more talent back to Europe, strengthening the UK’s flywheel effect,” notes Eustace.
Still, the challenge is structural. “The challenge for deeptech is that the flywheel takes longer. Talent is more specialised. Sales cycles are longer. And the number of scaled successes is still limited. But it’s happening. The solution? Keep seeding the ecosystem. We need more founders with commercial instincts and technical depth,” says Mason.
Thompson adds: “To achieve the kind of global impact they aim for, many of these companies require access to larger markets. The US is a natural next step, particularly from the UK, and it has far more available capital. So for the really big exits, that’s where they’re likely to happen.”
In 2024, M&A activity in European deep tech reached $12.2 billion, but the two largest exits – Darktrace and Exscientia – were acquired by US players. “To fix that, we need more successful late-stage companies staying in Europe, more local capital to back them, and more visibility for the founders who do make it,” says König. “The goal? Create an ecosystem where success doesn’t leave the continent – it multiplies.”
Building Europe’s own flywheel
So what’s next? Dr. Carmen Palacios-Berraquero, Founder and CEO of Nu Quantum, points to government action: “There’s strong government support, which has made deep tech a priority through targeted programmes and funding. For example, the UK government’s recently announced £121 million investment in quantum is designed to strengthen both the research pipeline and commercial pathways.”
Pakholkov advises: “Build local self-sustaining ecosystems: link startups to corporates early; turn universities into innovation hubs, where PhDs work on industry projects from day one. Accelerators should act as bridges: match corporate R&D budgets with academic IP and hungry founders.”
Ruiter concludes: “Innovation can require a long time and consume substantial capital and resources, without any immediate reward. The risks are high, with uncertain returns. This is why public support for research, development, but also demonstration is crucial to move innovations closer to commercialisation.”
Can Europe’s deep tech make the flywheel spin?
Europe’s deep tech sector is at a crossroads. The foundation is strong, the momentum is real, and the ambition is growing. But to truly rival the US, Europe must close the scaling gap, foster more late-stage capital, and create an ecosystem where success breeds more success at home.
As König puts it: “The global race isn’t slowing down. The U.S. and China are pouring billions into deep tech infrastructure. Europe has to move from playing defence to setting the pace – otherwise, we’ll stay in the lab, and others will keep building the factories.”
The flywheel is turning. The challenge for Europe is to make it spin fast enough to keep its best ideas and its brightest founders at home.
