By Bertrand Beauté

Recall January 2020: at the time, few people knew about BioNTech. Not surprisingly. This German company, founded in 2008, had never brought a product to market and for the most part skewed off the radar outside scientific circles. A year and a half later, the company is raking in billions of dollars. With its partner Pfizer, it is reaping the rewards of the phenomenal success of its messenger RNA vaccine against COVID-19. In business circles, BioNTech is the perfect example of a "deep tech" company.

Deep technology is an umbrella term for startups focused on scientific development. They draw on disruptive innovation requiring a prolonged R&D phase before reaching the market. But the technology they develop could eventually revolutionise the way we do things. For example, before the pandemic, messenger RNA technology had never received unanimous approval and remained only a concept. But now mRNA could turn the tables for many therapeutic applications (see Swissquote Magazine, March 2021).

Although deep tech firms are active in various industries (healthcare, energy, materials, etc.), it seems to hold the greatest promise in digital technology through artificial intelligence, quantum computers, drones and virtual reality. Experts speculate that, following the internet and cloud computing, these technologies could bring about a third tech revolution. "We are entering a new era of innovation," says Jack Neele, head of the Global Consumer Trends Equities Fund at Robeco. Enjoying a key position in these areas, Europe could re‑route this pivotal moment to its advantage and make up for its all-round lag in digital technology.

The Old Continent is home to a range of deep tech companies. Some are already listed on the stock exchange, such as Kalray in semiconductors, Darktrace in artificial intelligence, and UiPath and Blue Prism in robotic process automation.

These companies have prospered because deep tech, by definition a high-risk undertaking, no longer deters investors. "Ten years ago, a company like ours never would have found funding in Europe. The word semiconductor was taboo among investors," says Eric Baissus, CEO of Kalray. But attitudes have changed over the last two or three years."

Disruptive innovation is now attracting European investors. This is the main conclusion of "2021: the year of Deep Tech", a report published in January by Dealroom.co, a data platform on startup ecosystems, and specialised media website Sifted. The study shows that the amounts invested by venture capitalists in European deep tech companies has exploded in the past 10 years, reaching an estimated €9.4 billion in 2020. That sum is well below funding raised in the United States last year (€33 billion) but exceeds investment in China (€6.1 billion), barring government grants.

The "2021: the year of Deep Tech" report also theorises that Europe’s main strength lies in its world-class academic research. The fact is, deep tech often starts in laboratories. For example, BioNTech is an offshoot of the University of Mainz; Darktrace established at the University of Cambridge; and Kalray was spun off from France’s Atomic Energy Commission (Commissariat à l’Énergie Atomique). When it comes to technology, engineering and mathematics, Europe is at the forefront. The Times Higher Education 2021 (THE) World University Rankings placed seven European universities among the top 20 institutions worldwide in computer science. Dealroom.co points out that 35% of German students study science, with 28% in France and 26% in the United Kingdom. These rates by far outpace the United States (18%).

"Cities like Berlin, London and Amsterdam have managed to build complete ecosystems that are conducive to developing disruptive startups"

Jack Neele, head of Global Consumer Trends Equities Fund at Robeco

Twenty years ago, Silicon Valley was the place to be if you wanted to innovate, because the entire ecosystem was there – the technology, the money, the research," says Jack Neele from Robeco. "Today, that’s not so much the case. The internet has decentralised innovation and new digital services are cropping up all around the world, especially in Europe. Cities like Berlin, London and Amsterdam have managed to build complete ecosystems that are conducive to developing disruptive startups."

Now we have to protect them. "The top European companies are too often bought by foreign firms or decide on their own initiative to relocate to the United States," says Dimitri Kallianiotis of UBP. For example, world travel booking leader Booking.com, founded in the Netherlands in 1996, was acquired by the US group Priceline in 2005. Skype had a similar fate. The internet phone service created in Luxembourg in 2003 was swallowed by eBay in 2005 and then acquired by Microsoft in 2011. Romania-based deep tech firm UiPath opted to move its headquarters to the United States before going public on the New York Stock Exchange in April 2021.

The "State of European Tech 2020" report estimates that 14% of European unicorns – unlisted companies valued at more than $1 billion – are bought by US companies and 8% by Chinese firms. These takeovers weaken European leadership. To break the cycle, in March 35 European unicorns, including France’s Blablacar, Italy’s FacilityLive and Spain’s Cabify, pushed for the creation of a €100 billion European fund to support high-potential startups. This European Sovereign Tech Fund, currently under review at the European Commission (EC), would channel public and private cash into long-term equity investments.

For now, the EC has already deployed a first fund. The EIC Fund is a vehicle for investing directly in startups working on breakthrough technologies. An initial €178 million in equity investments went to 42 startups in January of this year.

But Cyrille Dalmont, associate researcher at Thomas Moore Institute, believes that is not enough. "Europe needs to protect its companies the way China and the United States do. When Washington is not happy with an acquisition, there is no hesitation to block the deal. For example, in 2018 Donald Trump issued a presidential decree to prevent the take-over of the US microprocessor giant Qualcomm by its then-Singaporean competitor Broadcom."

Europe seems to have taken note and is determined to defend itself. The Digital Market Act (DMA), introduced last December and set to enter into force in a year at best, will require foreign digital tech giants to inform the EC of any takeover of a European firm with a high value but low revenue. That will give the EU grounds to block acquisitions if it wants.