A Deep Dive into Deep Tech Scaleups in Europe

It is almost impossible to imagine solving today’s most pressing problems without the help of technology, and increasingly Deep Tech is being adopted across many industries. Deep Tech refers to technologies based on fundamental science built on advances in biotechnology, robotics, electronics, Artificial Intelligence, and other advanced technologies with strong societal implications and the potential to be commercialized. It is crucial for these solutions to scale into sustainable organizations to realize this potential and make a positive societal impact. However, since Deep Tech companies are rooted in (multidisciplinary) scientific or engineering breakthroughs and are research- and development-intensive, they are highly dependent on external funding. This makes them notoriously difficult to finance and scale, especially in Europe, where the typical fund size tends to be smaller than in the United States or Asia.

Scaling up is a challenge familiar to companies across the globe, regardless of industry. Data from the European Scaleup Monitor 2023 "Cracking the Growth Code: Traits and Strategies of High-Growth Firms in Europe" confirms a scaleup gap in which only around one in 10 European firms manages to grow more than 10% annually, on average. But how do Deep Tech startups fare? We put European scaleups under the magnifying class to identify their unique traits. Before diving into this, we first need to clarify what we define as a scaleup.  

What is a Scaleup in the European Context?

While many of us recognize the importance of shifting our focus towards scaling, we tend to overlook that there is no single path to doing so. Scaling is a multifaceted phenomenon, which makes it particularly difficult for different ecosystem stakeholders to use the same definition. At the European Scaleup Institute, we focus on a firm's growth dimension over time (a three-year period) given these companies' dynamic and transformational character. To quantify this, we look at the average annualized growth rate in employees and/or revenue, following the OECD's definitions of “scaler” (10%) and “high-growth firm” (20%) and further apply growth (40%) and age (10 years old) thresholds from Jansen et al.'s typology in the paper “Scaling‐up: Building, Leading and Sustaining Rapid Growth Over Time” to uncover the multidimensionality of scaling up.

According to the European Scaleup Monitor 2023, scaleups are an exceptional group of firms that only capture 0.15% of our European sample of comparable firms. Scaleups are defined as hypergrowers that are 10 years or younger. Hypergrowers are companies with average annualized growth greater than 40% per annum over a three-year period that have grown 40% or more for at least two out of three years, with 10 or more employees at the beginning of the observation period. The rest of this article dives into subsamples of Deep Tech versus non-Deep Tech scaleups to reveal key patterns that emerge in the European landscape.

What Do We Know About Deep Tech Scaleups in Europe?

The key characteristics of a scaleup remain intact regardless of whether it is Deep Tech or not

• They tend to be small organizations. The majority (60.41%) of scaleups employ 50 or fewer people and the majority (74.26%) earn a turnover of $10,000 or less per year.

• Female founders are underrepresented. However, Deep Tech demonstrates a longer path to gender equality with 6.08% female founders, whereas non-Deep Tech scaleups have 11.86% female founders.

There are deep pockets for Deep Tech

• The majority (71%) of Deep Tech scaleups are backed by external funding, while just under half (48.54%) of non-Deep Tech scaleups are funded in Europe.
• Deep Tech scaleups make up 58.82% of Deep Tech hypergrowers, but these scaleups secured an impressive 91.51% of total Deep Tech funding. Comparably, each Deep Tech scaleup secures, on average, 1.41 funding rounds more than non-Deep Tech scaleups. Non-Deep Tech hypergrowers older than 10 years seem to secure the most funding (73.67%), with only around a quarter of funding going towards non-Deep Tech scaleups (hypergrowers 10 years or younger).
• Funding in Deep Tech scaleups is concentrated in energy (44.58%) and transport (43.87%). These are the top Deep Tech industries by relative volume of investments. Health (15.15%) and Robotics (13.64%) are the top Deep Tech industries by number of scaleups. Non-Deep Tech investments in Europe are more evenly distributed, with the highest proportion of funding going towards food (26.50%) and marketing (16.5%), while non-Deep Tech scaleups are most commonly active in Fintech (15.31%) and enterprise software (14.33%).
• The trend revealing hypergrowth as a catalyst for funding explored in the European Scaleup Monitor 2023 is reflected in the non-Deep Tech case, where scaleups experience a surge of later-stage rounds (mostly Series C) in their third year of hypergrowth. In contrast, Deep Tech scaleups steadily receive investment rounds throughout their hypergrowth period. The exponential growth occurs in growth equity rounds (of $100 million+), further signaling the importance of deep pockets for scaling Deep Tech.