The world of corporate innovation has undergone a sea change in recent years. Most notably, the collaboration between established corporations and start-ups has more than tripled since 2013, while global investment in deep-tech start-ups has risen from $15 billion in 2016 to $60 billion in 2020.
Deep tech, often described as technology based on scientific discoveries or meaningful engineering innovation, is now attracting greater attention from investors. The shift to digital prompted by the global pandemic has increased demand for applications of innovative technologies such as blockchain, robotics and artificial intelligence. As a result, large corporations have come to see the advantages of working with start-ups, not just for the purposes of monitoring new trends, but as a way to attract new talent and introduce greater agility to company culture.
The deep-tech ecosystem
Deep tech and its applications undeniably have huge potential not only to disrupt entire industries, but also to improve people’s lives – as we have seen in the example of BioNTech, the German start-up which created the first COVID-19 vaccine. And in the industrial sector, companies such as Volvo have set up incubators and incorporated open innovation into their R&D strategies. Scientific entrepreneurship is a global trend, with 21% of the top research centres located in Europe.
Deep-tech start-ups have several distinctive features: they are problem-oriented, focusing on solving big issues such as sustainability; they use more than one advanced technology; they mostly develop physical products, rather than software; and they bring together a diverse group of specialists to solve a problem. This approach has led to deep tech being dubbed ‘the fourth wave of innovation’. Start-ups are now increasingly being viewed as the link between the worlds of research and business, with universities encouraging scientists to see entrepreneurship as a priority.
Europe’s tech transfer challenge
Many large companies, particularly in Asia, are already collaborating with deep-tech start-ups in areas including quantum computing, robotics and cybersecurity. And in the luxury and cosmetics sector, several companies, including L’Oréal, have integrated their collaborations with start-ups into their core product offer. However, despite the obvious appeal for investors, there are significant challenges involved in commercialising scientific research – a phenomenon known as the ‘Valley of Death’.
In Europe, the technology transfer problem is largely an issue of underfunding. A recent report found that, of 3 million patents at the European Patent Office, 95% are dormant, inactive or underused. While there is considerable engineering talent and expertise in the European start-up landscape, funding is lower than in the US and Asia. “In Europe we’re really good on moving from money to research,” says Josemaria Siota, executive director of IESE Business School’s Entrepreneurship and Innovation Center, “but there’s room for improvement on moving research to money.”
Deep tech start-ups are viewed by many investors as risky, and evaluating proof of concept for innovative technology can be difficult for those without a scientific background. Additionally, deep-tech products often have a longer time-to-market and longer-term return on investment than many corporate investors are comfortable with, leading investors to prefer safer, more easily understood business models.
Bridging the innovation gap
A 2020 report by the Joint Research Centre of the European Commission explores these issues and offers three strategies to support innovation by bridging the ‘Valley of Death’: promoting co-investment mechanisms for early stage ventures; tailoring existing investment mechanisms for technology transfer, and further supporting the European technology transfer field. The authors note that corporate venturing – the collaboration between established corporations and innovative start-ups – is becoming a dominant trend.
Corporate venturing does not always require a high initial investment and can be financially sustainable and applicable to either early- or late-stage start-ups. However, there is a need to find common ground to overcome the cultural and communications divide between academia and industry, which can be addressed by focusing on the proof of concept (PoC) stage. This reassures potential investors that a need for the product exists, thereby minimising risk.
Johanna Michelin, director of innovation at French research lab CNRS, emphasises the importance of investment, pointing out that creating deep-tech start-ups is not enough: there has to be an incentive for this talent to stay in Europe. Although the EU and regional governments are allocating money for innovation and technology, the venture capital market in Europe doesn’t yet match the opportunities in the US and China. More structured processes, a broader culture change and greater financial support for scientists are needed to bring deep-tech to the next level.
What next for scientific entrepreneurship?
Europe may have temporarily fallen behind in the race for technology transfer, but there are encouraging signs of collaboration in corporate innovation. Jan Goetz, CEO and co-founder of Finnish deep-tech start-up IQM, is optimistic that the region can become a leader on the global stage in markets such as quantum computing. “The global race isn’t over yet, at least not in our sector” he says.
Indeed, there are indications that venture capital is coming to the rescue of Europe’s deep-tech ecosystem. 2021 saw the closure of two new venture funds targeting enterprise and deep-tech start-ups in Europe, marking a major increase in funding in an area where lack of investment has long been a barrier to scaling. A substantial increase in the use of incubator and accelerator programmes is also an encouraging trend, as is the emergence of firms offering corporate venture capital as a service. The future of tech transfer in Europe is looking brighter than ever.
The Collider: tech transfer is our business
Here at The Collider, we bring together scientists, corporates and entrepreneurs to create disruptive technology-based start-ups. The Collider is powered by Mobile World Capital Barcelona, a tech-focused initiative that aims to drive the digital transformation of society to create a positive impact on our world.