Calling All DeepTech Startups: Who Will Transform Europe's Industrial Base?
 
Europe largely missed out on the growth in consumer technology that reshaped the US Tech market. Silicon Valley led the software revolution by building platforms that scaled infinitely at near-zero marginal cost. Copy, paste, deploy - that was the magic of SaaS. But the AI revolution will play out by very different rules.
 
The fundamental difference? Whilst software could be abstracted from physical reality, AI's greatest value will arguably come from understanding and transforming it. Training a large language model might happen in a data centre, but making that AI diagnose cancer, operate a factory, or manage an energy grid requires deep domain expertise, regulatory knowledge, and years of industry-specific data. You can't build industrial AI in a garage over a weekend - it takes decades of engineering knowledge to revolutionise manufacturing.
 
This is why Europe's vast industrial base - long seen as too slow for the digital age - has suddenly become its greatest asset. When Volkswagen implements AI in its production lines, when BASF uses it to discover new materials, when Sanofi deploys it for drug discovery, the stakes are measured in billions of euros and, sometimes, human lives. They need AI solutions that understand their specific challenges, comply with their regulations, and integrate with their existing infrastructure.
 
The opportunity for DeepTech startups that can bridge this gap in Europe is enormous. And the smart money has already noticed.
 
 
Big Tech and Big Capital Are Betting on Europe's AI Transformation
 
DeepTech is capturing an unprecedented share of European venture funding. In 2024, it attracted more capital than any other sector, securing $15.1 billion - significantly outpacing healthcare ($8.7 billion) and fintech ($8.5 billion).
 
But here's the crucial distinction: whilst European AI startups overall raised $8 billion in 2024, the real growth opportunity is in ‘DeepTech AI’ - where artificial intelligence meets hardware, robotics, materials science, and industrial systems. Not another chatbot wrapper, but AI that can control a manufacturing line or discover new molecules.
 
Big Tech has recognised Europe's unique position in this AI-physical convergence. As we highlighted in our recent newsletter, Microsoft, Google, and Amazon are racing to establish data centres across the continent. NVIDIA is pouring in billions.
 
Meanwhile the European Commission has launched InvestAI, mobilising €200 billion for AI investment, including €20 billion for AI gigafactories. This isn't about competing with OpenAI on foundation models - it's about building the infrastructure for industrial AI applications.
 
Why this massive influx? Europe's industrial complex must transform through AI or risk obsolescence. But this is not about another AI chatbot productivity tool – it’s about AI that understands thermodynamics, materials science, and regulatory compliance.
 
The companies that can bridge this gap - combining cutting-edge AI with deep domain expertise - will capture immense value. This presents a remarkable opportunity for European startups – and the investors that will back them (wherever they are based).
 
 
Europe's Industrial Heritage: Once a Liability, Now an Asset
 
Remember when Europe's industrial legacy was seen as dead weight in the digital economy? Those sprawling research institutes, conservative engineering cultures, and lengthy development cycles seemed hopelessly outdated compared to Silicon Valley's "move fast and break things" ethos.
 
But DeepTech doesn't work that way. You can't quickly iterate your way to a quantum computer or pivot your way to a fusion reactor. These breakthroughs require patient capital, domain expertise, and engineering rigour - precisely the qualities Europe has cultivated over decades.
 
DeepTech founders average five to seven years in higher education compared to traditional tech founders who usually spend two to five years. Europe's universities aren't just producing these founders - they're providing the ecosystem to support them.
 
Europe boasts strong foundational research, with six of the top 20 computer science institutions located in Europe, and a well-educated talent pool with nearly 1.5 times the number of STEM graduates compared to the US.
 
For investors seeking outsized returns, these ‘assets’ have built a compelling opportunity: DeepTech investments already outperform traditional tech, producing an average net IRR of 17 percent compared to 10 percent. Now add AI's transformative potential to these already superior returns, and you have a generational investment thesis.
 
 
DeepTech Delivers Superior Returns
 
The data continues to validate this thesis. Recent research shows that DeepTech start-ups exhibit a "unicorn ratio" of 0.62 percent, which outpaces the 0.54 percent ratio for standard tech start-ups. Even in market downturns, DeepTech has proven remarkable resilience - it was the second-best performing sector in Q3 and Q4 of 2022, with valuations dropping just 9% compared to a 45% collapse in the overall VC market at the time.
 
And with so much talk of a global AI bubble forming, can a marriage with DeepTech steady investor nerves once again? As Marc Rubinstein reports this week, Nvidia’s market value has now risen past $5 trillion. In aggregate, AI-related stocks account for about 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022. The five largest US technology companies are now worth more than the combined markets of the Euro Stoxx 50, the UK, India, Japan and Canada; the ten largest US stocks account for nearly a quarter of global equity. It’s understandable that people are asking whether this is sustainable.
 
In such a period of uncertainty, why do DeepTech/AI investments promise such resilience? Because when AI solves problems in the physical world, it creates defensible moats that software alone never could. Consider DeepMind's AlphaFold - it didn't just build another app, it solved protein folding, a 50-year-old scientific challenge. The result? A tool now used by 2.5 million biologists worldwide that saved about 1bn hours of PhD time. This is value creation at a different magnitude entirely.
 
Yet there's a telling paradox: whilst European DeepTech creates undisputed value, European corporations remain cautious investors. Around 60 percent of the region's top acquisitions have been made by non-European entities. DeepMind itself - perhaps Europe's greatest AI success story - was acquired by Google in 2014 for a reported $400-650 million. This creates an extraordinary opportunity for investors willing to back European DeepTech whilst domestic corporates hesitate.
 
 
Investors Are Betting Earlier and Bigger on European DeepTech
 
At the other end of the spectrum - in the early stages - the appetite for European DeepTech has been quietly shifting. According to First Momentum's research, which analysed over 100 funding rounds across more than 20 European VCs, investors are now backing companies at remarkably early stages. 80% of pre-seed companies now sit in the concept or lab demonstration stage, compared to just 60% last year.
 
This isn't recklessness - it's recognition of a fundamental truth about DeepTech investing. As Dr. Maximilian Ochs from First Momentum puts it: "The specific thing about Deep Tech investing is that you mainly take on technical risk, but it gets compensated by less market or commercialization risk." When you're building solutions for critical industrial problems, market demand is all but guaranteed - the question is whether the technology will work, not whether customers will buy it.
 
The funding dynamics reflect this new reality. Whilst early-stage DeepTech funding has pulled back from its 2021 peaks, it remains remarkably resilient. According to Dealroom's 2025 report, growth-stage investments had their second most active year in 2024, signalling continued momentum for DeepTech scale-ups. Even more telling: teams led by highly technical CEOs without business backgrounds are raising significantly more funding at Seed and Series A than those led by business-oriented CEOs. Investors are betting on technical brilliance first, business acumen second.

Perhaps most remarkably, First Momentum's analysis found that 30% of Series B deep tech companies had no revenue as of their 2024 study. In any other sector, this would signal failure. In DeepTech, it's the playbook - technical de-risking precedes commercial validation. DeepTech investors understand that the biggest breakthroughs can't be rushed, and they're willing to wait for transformative technology to mature.
 
 
The Counter-Intuitive Takeaway for Founders
 
Here's what the data reveals for European DeepTech founders: the opportunity is massive, and it is now, but you need to be strategic about how you capture it.
 
First, leverage your unfair advantage: proximity to Europe's industrial giants. They must transform through AI or face extinction. You understand their regulatory requirements, their engineering constraints, their company cultures, their people. This local knowledge is gold. A Silicon Valley startup might build better general AI, but they can't as easily build AI that understands the nuances of German manufacturing standards, Swiss pharmaceutical regulations, or UK aviation permissions.
 
Second, target the right investors. Too many European VCs call themselves "DeepTech investors" but still evaluate companies using the SaaS playbook – for example demanding multi-million revenues and rapid growth at Series A. That's not how DeepTech works. Real DeepTech investors understand this. There’s an increasingly active cohort across Europe at early stage, but you might need to look more to US or Asian investors for growth capital.
 
Third, move fast. The window is open now. Big Tech is investing billions in European infrastructure. The EU is mobilising €200 billion for AI. Industrial customers are desperate for solutions. But European corporates remain hesitant - 60% of acquisitions are still by foreign entities. This gap between need and action creates your opportunity, but it won't last forever.
 
The message is clear: Europe's industrial complex needs AI transformation, and European startups are perfectly positioned to deliver it. Those who can marry deep technical expertise with industrial domain knowledge, won't just build successful companies. They'll build the infrastructure for Europe's next industrial revolution.
 

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