How deep is your tech? By Nick Freer

A report published by McKinsey in October, titled ‘Europe’s deep-tech engine could spur $1 trillion in economic growth’, reminded readers that Europe has lagged behind the United States when it comes to building billion-dollar technology companies, with the region clocking lower related GDP growth along the way.  

McKinsey defines deeptech companies as those that “turn technological breakthroughs into scalable, value-generating businesses to solve societal problems”, and believes Europe could be on the verge of attaining the global leadership role that has eluded it so far.  

Writing for this column last month (‘Deeptech’s economic prize is significant for Scotland’), tech founder Allan Cannon concurred that deeptech, “built on advances in engineering, science, and applied research, is moving back to the centre of economic and strategic importance”. 

The accepted formula is that greater prosperity can be gained outside of recognised tech superpowers like the US and China centred on venture capital-backed intellectual property (IP) developed here.  

So, where are analysts looking at for breakout happenings in European deeptech?  Munich in Germany certainly appears to be one of the tech hubs to watch.  In 2017, I visited IBM’s global IoT headquarters in the city, the Technical University of Munich (TUM), and the Munich Technology Center (MTZ) which houses many of Bavaria’s most highly-rated startups, and it was apparent that big shakes in tech were afoot.  

Fast forward almost a decade, and a handful of those startups have become unicorns, companies valued at over $1 billion, or as some commentators have christened them, ‘Munichorns’.  One of them, Proxima Fusion, which has raised €200 million to date, plans to build what it calls a “stellarator’, a device it believes will translate to commercial fusion power, producing limitless amounts of clean and safe energy. 

While fusion companies like Proxima could help to reduce Europe’s reliance on foreign oil and gas, vertical farming technology is tackling some of the world’s greatest societal challenges - largely food production and climate change - while rockets and drones have become increasingly important for national security.  

The technologies supporting the progress in deeptech - quantum computing, robotics, augmented reality, and semiconductors among them - are maturing and driving innovation across multiple industry sectors. 

While AI is helping to ease the high costs of deeptech development, when you’re a startup trying to address a worldwide societal challenge, you’re still going to need much bigger investor cheques.  Unlike software or consumer technology, deeptech investments have longer development timelines, greater capital expenditures, and are characterised by a higher degree of scientific or engineering innovation.  

Following last year’s Mansion House Accord, European and UK pension funds can now invest more in startups here, but for our most ambitious startups the likelihood is that they will still have to access deep-pocketed VCs on the other side of the pond. 

Back to McKinsey’s report, the global management consultancy firm says: “Founders, academics, government officials, industry leaders, and investors will need to collaborate to create a supportive ecosystem that provides the funding, networks, and regulatory support that deep-tech businesses need to scale”.