Hi Vanagon Community,

We hope you all had a great summer! In case you missed our August briefing looking back at the first half of 2024, you can access it here.

In today’s briefing, we will take you on a deep dive into a very hot topic: European Deep Tech 🔥.

The latest insights from McKinsey’s report “European Deep Tech – Opportunities and Discoveries” reveal how groundbreaking technologies are not only gaining momentum but also reshaping the investment landscape. And Europe’s role in the space is growing.

What is Deep Tech?

Apart from novel scientific or engineering breakthroughs, deep tech also includes advanced technology used to address novel customer needs. These innovations offer solutions to profound societal challenges.

Besides hardware-heavy fields such as nuclear fusion, there is also the field of digital deep tech, which we at Vanagon focus on.

Digital Deep Tech

• Artificial Intelligence (Al): Machine learning, neural networks, and natural language processing.

• Blockchain & Distributed Ledger Technology (DLT): For secure, decentralized data management & transactions.

• Quantum Computing: For solving computationally intensive problems that traditional computers cannot handle.

• Advanced Robotics: Using Al for automation in manufacturing or healthcare.

• Advanced Internet of Things (loT): Devices connected and intelligently communicating through the internet.

• Nanotechnology: Materials or processes engineered at a molecular or atomic level for groundbreaking applications.

Digital Deep Tech innovations are closely connected to breakthroughs in hardware-heavy Deep Tech fields. For instance, advancements in Space Tech provide new data that can be supercharged with AI models: Our portfolio company The Landbanking Group, for example, uses satellite data from Earth Observation and instantly derives with their AI models a natural capital account around dimensions such as carbon and water storage capacity and biodiversity.

On the other hand, Digital Deep Tech enables breakthroughs in hardware innovation. Our next investment will be at the crossroads of AI and Nanotechnology, enabling breakthroughs in materials R&D. Stay tuned.

Overall, the McKinsey report highlighted eight investment fields in the area of Deep Tech, which are already receiving notable investments from VCs.

4 misconceptions about Deep Tech

Here are four common misconceptions about Deep Tech highlighted by the McKinsey report.

Myth #1: Deep Tech start-ups have higher risks than traditional tech start-up

While Deep Tech ventures do face unique scientific and engineering risks, these are often mitigated over time, resulting in similar success rates compared to traditional tech start-ups. Early-stage challenges are balanced by a strong focus on innovation that addresses critical global issues, making their risk profiles more comparable than initially perceived.

Myth #2: Deep Tech life cycles are slower and have longer exit timelines

Contrary to popular belief, Deep Tech start-ups are achieving milestones like reaching unicorn status and exiting at timelines similar to other tech sectors. The misconception of slower life cycles overlooks the rapid scaling potential when these companies solve pressing technical problems that resonate widely with market needs.

Myth #3: Deep Tech start-ups cannot scale to the same degree as other tech start-ups

Deep Tech ventures are proving their scalability, with a growing number of start-ups reaching unicorn status at rates comparable to traditional tech. Their ability to address large-scale challenges and leverage cutting-edge technologies positions them well for rapid growth and market penetration.

Myth #4: Deep Tech start-ups have lower capital efficiency than other tech start-ups

Deep Tech companies often exhibit greater capital efficiency, especially in later funding stages, due to their focus on disruptive innovations that attract targeted investments. This efficiency reflects their strategic use of capital to drive substantial technological breakthroughs and market impact.

What about returns in Deep Tech?

First numbers suggest that European Deep Tech will likely generate outsized returns:

The potential is huge:

Closing Note: Aligning with Vanagon's Mission for a Better Tomorrow

As we wrap up this exploration of the latest insights on European Deep Tech, it's clear that the innovations at the frontier of technology are not just about breakthroughs; they’re about reshaping our future for the better, building an economy within planetary boundaries. At Vanagon, we believe in backing founders who are not afraid to challenge the status quo and tackle the world's most pressing problems with the most powerful tools. Our mission is to support these visionary entrepreneurs as they build the next generation of planet-positive frontier tech.

Want to become part of our Investor Community?

If you want to learn more about how we find, invest and support the best teams building in digital deep tech don’t hesitate to reach out.

Thank you for joining us!
Axel, Sandro & Susanne