Europe risks squandering its global advantage in deep tech innovation

It’s a somewhat crude yardstick by which to measure innovation in deep tech — and the result perhaps reflects historic bias as much as it does actual leadership in innovation — but Europe leads every other continental region when it comes to the number of Nobel laureates it has produced in chemistry, medicine and physics.

These three categories are most closely associated with what we classify as deep tech: startups that don’t merely apply a technology layer or wrapper to an existing product, service or business model, but rather push forward ideas based on substantial, R&D-intensive and IP-protected, scientific advances and high-tech engineering innovation.

These advances — and the startups turning them into businesses — often originate from university research teams. On this front, Europe also leads the way as home to the two top-ranked universities in the world for quality of research, the Universities of Oxford and Cambridge. Another European institution, ETH Zurich, rounds out the top 10.

However, if you rank universities around the world by the amount of venture capital investment secured by startups founded by their graduates, the top of the table takes on a distinctly American flavor, with Stanford (fourth in the research quality ranking) taking top spot ahead of eight other U.S. universities in the top 10 (including several that do not feature in the top 10 of the research quality ranking). Tel Aviv University is the sole European (depending on your definition) representative in the top 10 ranked by funding for spin-outs.

In Europe, we have not historically been good at translating academic research into commercial success, as there has been a strong divide between academic and commercial focus. There is a huge opportunity to help the continent’s world-leading research talent translate their discoveries into world-leading businesses. But in order to prevent European academics-turned-founders from failing to capitalize on their innovation, we need to understand the factors behind their struggles so far.

Barriers to maximizing commercial potential

There are three principal issues that need to be addressed:

  1. Shortfall in commercial expertise. Having spent their entire careers in academia progressing seamlessly from undergraduate to postgraduate degree, doctorate and post-doctoral study, deep-tech founding teams typically haven’t acquired much, if any, commercial experience. If they have left academia for time in the private sector, it is often to work with large established companies.
  2. Reliance on academic-first principles. Academic teams often want to apply academic-first principles to business questions, as this is the approach they have been trained to apply to their research. This is a natural approach, but one that — while occasionally providing strong business innovation — often results in long gestation cycles and steep learning curves. By bringing in a proven entrepreneur with experience in the markets the company is looking to sell into, they can dramatically improve the startup’s probability of success and reduce the stress on the founders, allowing them to focus on the technology and product.
  3. Strategy and commercial advice for early-stage spin-outs. Many successful entrepreneurs are interested in engaging with companies once their technology is proven. Given the relatively long gestation period for deep tech, it may not make sense to have a full-time commercial lead in the very early stages, but it is still critical to gather market insight and develop a viable strategy for the company. Bringing in investors, mentors and business angels with expertise in startups markets and technology can transform the focus and success of a nascent company. It is critical that the advisors and founders can work well together and that the commercial advisors have a sufficient understanding of the tech and market to ensure there is a strong mutual respect between the advisors and founders.

A manifesto for catalyzing commercialization

To realize the full potential of European deep tech innovation, we need to help instill a commercial mindset into the academics that complements their strong technical abilities. We need to build a support ecosystem of investors, angels and advisors that can nurture these companies and instill in them the ambition to build world-class companies.

I see five important ways in which we can help catalyze commercialization on a scale not previously achieved in Europe:

  1. Grow the community. There is a growing circuit of startup and investment events and groups around the world dedicated to deep tech that need our support to grow and form closer bonds with universities and their spin-outs.
  2. University spin-out process. Universities and their commercialization groups need to further develop investor and founder-friendly terms. The U.S. universities offer more compelling ownership models that help support spin-out success. Having a smaller share of a very successful company is much more attractive than a larger ownership stake in an unsuccessful one. It is also very helpful for startups to maintain strong ties with the university and the ongoing research there that can help them develop their technology and products.
  3. Provide more relevantly skilled commercial talent. In deep tech, it is more important than in other sectors that investors, advisors and operational talent joining the business have both a background that equips them to understand what the business is doing and the operational experience within startups to enable them to impart critical operational knowledge. With deep tech (businesses typically having longer gestation periods than consumer businesses, and requiring more patient capital as a result), it is particularly important for investors to embody this duality. A VC with a technical background and experience in a research lab environment will be better able to understand the deep tech founder mindset, speak their language and bridge to commercial ways of thinking.
  4. Funding. Because of deep tech startups’ longer growth journeys and need for patient capital, VCs need to be equipped to provide multi-stage investment and understand the timing and critical milestones during this development period.
  5. Exits. Every bit as important as funding is helping startups secure exit opportunities. This is especially the case for deep tech spin-outs, where the resources and scope of a larger company may be needed to drive wide adoption of core technologies and to return value to investors and founders. Investors can add value by helping universities and their spin-outs cultivate relationships with potential acquirers worldwide and often help the startup to see their technology widely deployed by larger tech players.

The investment ecosystem and support structures around the innovators within university research teams is still developing in Europe, especially when compared to the U.S., where there is a long history of success. But Europe has an extraordinary opportunity to establish itself as the best place to spin out and scale a deep tech startup, with an abundance of the necessary raw materials — from academic talent to commercial experience and funding.