𝐖𝐡𝐞𝐧 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐢𝐬 𝐭𝐨𝐨 𝐦𝐮𝐜𝐡 𝐦𝐨𝐧𝐞𝐲 𝐭𝐨𝐨 𝐪𝐮𝐢𝐜𝐤𝐥𝐲

Historically, European entrepreneurs were too concerned with keeping majority control; too shy to go beyond their local market; or generally, thinking too small. These days, the culprit is often the lack of home-grown growth capital, i.e. the ability to find a lead investor or a group of investors prepared to invest, say, €50 million to 100 million in a European company.

Admittedly, when it comes to deeptech, what we mean by “growth capital” is rather confusing. As Andrea Traversone pointed out in a recent conversation, Europe has plenty of venture-stage companies which are asking for larger rounds; when it comes to later stage companies asking for proper growth capital, there are fewer investment opportunities. Smart investors focus on these (revenue generating, not too far from breakeven), e.g. Jolt Capital. Or investors stick to their knitting outside deeptech, i.e. companies which are financially legible from the early years, of which SaaS companies are a prime example (fintech or marketplaces starting to scale are also good bets).

When it comes to venture stage companies (i.e. cash burning) asking for large rounds, the answer has usually been to move to the Valley, where there are investors prepared to bet on visionary ideas. But we now have European investors prepared to give it a go, and that is new.

Europe has had successes, for instance in software (Outsystems, UIPath), internet apps (Spotifiy) or fintech (Revolut). Unfortunately, in deeptech, results have been uneven with notable recent crashes in batteries (Northvolt - $13.8bn), EV (Arrival - $1bn) or eVTOL (Lilium - $1.4bn raised; Volocopter – $0.5bn).

Are there lessons that can be drawn from these blows-ups? A recent comparison between Northvolt and Verkor from The Big Search (an executive search company), points to some of the answers. Deeptech investment in Europe has to be disciplined – i.e. large investment cannot simply be on the back of a great idea. As part of the mix, you will need to:

⏩ Balance support from the local ecosystem and the need to address international markets (that will influence your culture and recruitment)
⏩ Grow your own executives – which takes time and effort – because the deeptech sector talent pool available to startups is relatively small in Europe (that will slow you down)
⏩ Pace yourselves – so you can show progress towards market fit, especially is you are years away from revenues
⏩ Attract corporate investors support (to demonstrate market relevance) and public money (to drive larger rounds) – even if it is somewhat a convoluted process

Of course, you can still go to the Valley. But that is so 1980s when US flips were all the rage 😉!
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📎 Sources:

https://www.thebigsearch.com

https://thebigbyte.substack.com/p/talent-at-scale-what-northvolts-collapse

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