May 10, 2022

Europe has a deeptech scaling problem, here’s why

Europe doesn’t have a deeptech startup problem, it has a deeptech scaling problem

Massimo Portincaso

Europe doesn’t have a deeptech startup problem, it has a deeptech scaling problem. That’s according to three members of the European Innovation Council’s (EIC) ScalingUp initiative, after their survey of founders and investors.

The EIC is the European Commission’s flagship €10bn vehicle for financially supporting innovation — including startups — in Europe. 

The ScalingUp initiative is one of the EIC’s programmes specifically looking to back deeptech companies. So far, it’s put money into 37 entrepreneurs who have previously received EIC funding, and aims to help them scale beyond their Series B. It’s run by Boston Consulting Group (BCG), TechTour, Bpifrance and Deepwave Ventures. 


Scaleups in the portfolio include French quantum computing company Pasqal — which has raised €32m and is valued over €100m — and Sulapac, a Finnish company that makes biodegradable packaging out of wood and is valued at €90m.

“We surveyed all 37 of them to understand what their issues are. We also interviewed investors, and surveyed companies and investors across the European deeptech space,” Massimo Portincaso, who is part of ScalingUp’s team and founder of Deepwave Ventures, tells Sifted. 

Portincaso and the team in charge of assessing the status quo for deeptech scaleups were trying to find out why European deeptech companies are having trouble scaling and keeping up with their US and Asian counterparts. They landed on four problems. 

'Ugly ducklings'

Jean-Michel Deligny
Jean-Michel Deligny

Scaling is crucial for “Europe’s long-term prosperity and strategic autonomy”, according to a recent McKinsey report — the continent stands to lose up to €4tn of value added by 2040 if it keeps “lagging behind on value and growth in information and communications technology (ICT) and on other disruptive innovations”.

To plug the gap, startups need to get better at crafting their narrative, the EIC team argue.

“It never ceases to surprise us that even later-stage European companies can still have difficulties in clearly setting out their stall,” says Jean-Michel Deligny, chairman of the EIC ScalingUp selection committee.

The technical-oriented founders of the selected deeptech companies often come from scientific backgrounds and “obsess about technology”, which leads to some complex pitches.

“Ultimately, there are plenty of really great companies that haven't realised that they’re a swan — they still think that they're ugly ducklings, but are not capable of telling that story,” Portincaso says.

One founder they spoke to suggested scaleups should focus more on marketing, "rather than being 101% ready on the technology”.

“Creating a culture of compelling narratives among entrepreneurs, investors and institutions would act as a massive accelerator for the scaling up of deeptech companies,” Portincaso says.

Credible and balanced boards

“I think the overall level of the quality of boards in Europe is much lower compared to the US,” Portincaso says. 


The surveyors found that companies often failed to given enough attention to non-executive directors and board composition. That holds startups back, because outside experts can provide valuable expertise to executives –– plus alert investors in their networks to interesting opportunities in deeptech.

“This virtuous circle is not there yet, despite an under-leveraged but deep pool of experienced C-level executives theoretically fit for the role,” says Portincaso.

Arnaud Legris
Arnaud Legris

Arnaud Legris of Deepwave Ventures — and another of the surveyors — found that boards were often crowded with investors whose responsibility to their fund clouded the long-term goals of the company.

One of the surveyed companies went as far as saying “we don’t have a board of directors, we have a board of investors”, Legris notes.

“Investors need to be invested in the company first and not for themselves. They need to  change their hat when they enter a board meeting. We heard some very good investors saying, ‘Actually, we don't report what we do as board members to the fund. We're independent when we are at a board meeting, we are working for the company.’”

Other board problems they encountered included too much emphasis on process, leading to a “bureaucracy of compliance”, and board members being “clueless" about what they were doing. 

Europe has a lack of lead investors backing deeptech startups

Many companies were also facing so-called “White Knight Syndrome”, which basically means that every potential investor is looking to another investor to lead a round. 

“This has a lot to do with the capital structure of the market. The point is that a round that is above €50m in Europe — particularly if you have to invest in hardware or in physical infrastructure — is almost impossible to finance,” says Deligny, who used to be an investment banker.

He says that because the average deeptech fund has €100m-150m to spend, it’s mathematically challenging to invest more than €5m-10m in a round.

“If you have a €50m-plus round, it's very difficult to find somebody who's going to invest €10m. And it's not because investors don't want to, but because they can’t,” Deligny says. 

“In many cases, when you have a situation where you have a €20m-30m round, and you need somebody to invest €15m, those funds don't exist. There are really two or three funds that can do this in Europe.”

Because of this, founders often can’t close a large round because there’s no one to lead. EIC support does help, as it can match investment tickets up to around €15m (and soon €50m), but it also refrains from taking the lead role. 

Deligny also notes that US VC firms opening up shop in Europe could alleviate the situation, but at the expense of European capital gains.

Corporates are too slow

“One investor told us, ‘we're talking about investing, the amount of capital needed, the lack of narratives, but forget all of that, corporates are the biggest problem for innovation in Europe,'” says Antoine Gourévitch, a BCG managing director and senior partner who also assisted with the survey.

Antoine Gourevitch
Antoine Gourevitch

Why? Because deeptech sales are overwhelmingly B2B, and in B2B the biggest clients are corporates. 

“If corporations are not collaborating or willing to run the risk of working with a deeptech scaleup, or worse, if it takes a year to get through their procurement process, your startup dies,” Gourévitch adds.

“This is something that we really need to have a call to action for, for European corporates to really change the way they interact with scaleups, because they are so crucial. 

“One of the people we spoke to said, ‘Look, in the mobile phone industry, Europe was leading the pack. But we lost everything, because the companies were not willing to pay for the innovation that was coming from the market, and the consequence was that they died out.’ This is the price that you pay if you're not willing to pay for the innovation coming from scaleups.”

Alejandro Tauber

Alejandro Tauber is a freelance tech and business writer based in Amsterdam. He tweets from @AlejandroTauber