4 reasons Europe will be a major force in “deep tech” innovation
For centuries, Europe has been home to many of the world’s greatest thinkers. During the Renaissance, this region launched numerous scientific advances ranging from the printing press to the astrolabe to the parachute. Fast forward about 500 years, and Europe’s technology industry hit a rough patch in the Telecom Bubble, where a lot of capital was lost funding optical networking and telecoms. Meanwhile, the highly successful Internet, Search, Social Media and Sharing Economy booms saw the lion’s share of investment returns flowing to the US (e.g. Yahoo!, Google, Facebook, Amazon, Airbnb, Uber) and China (e.g. Alibaba, Baidu, Tencent, DiDi Chuxing, Meituan Dianping).
Now Europe is making its comeback. At Atlantic Bridge, a firm that was founded in Europe nearly 15 years ago, we’ve seen the region enter the Great Recession, rebuild the economic engine, and resume expansion with growth surpassing the US in 2017. A recent survey by Invest Europe of global investor sentiment confirmed this bullish view, with the vast majority of investors from China and the US expecting to increase their investments in Europe over the next five years. Even the UK’s decision to leave the EU has been a boon to the technology industry, creating a net increase in funding across Europe as the EU redistributes their UK innovation allocations to other Eurozone countries and Britain’s domestic programs step up to fill the funding gap.
Deep tech encompasses the new ecosystem that supports growing markets such as artificial intelligence, advanced robotics, autonomous vehicles, blockchain and Industry 4.0, all of which play extremely well into Europe’s core strengths.
I’ve written previously about the major technology wave that is underway, driven heavily by a fundamental change in “deep tech” innovation and impacting a diverse set of industries. Intelligent devices are rapidly entering the consumer, enterprise and government markets that have the ability to see, hear, speak, sense and/or think, creating massive pools of data, new categories of hardware from power to processors to sensors, and artificial intelligence systems to understand and react in real-time to changing environments. Deep tech encompasses the new ecosystem that supports growing markets such as artificial intelligence, advanced robotics, autonomous vehicles, blockchain and Industry 4.0, all of which play extremely well into Europe’s core strengths.
Here are 4 key competitive advantages that are driving Europe’s technology leadership:
1. Local talent
Engineers and scientists are the lifeblood of innovation, and Europe has consistently turned out highly qualified technical talent. The region graduated over 2x the PhDs in STEM fields as the US (Times Higher Education) and 5 of the world’s top 10 Computer Science institutions are located in Europe (OECD). Europe is also home to 5.5 million professional software developers, 25% more than the US (Stack Overflow).
2. Local innovation
Over the past several years, Europe has accelerated funding of domestic technology innovation. Venture capital investments in Europe grew dramatically from €4.1B in 2012 to €19.1B in 2017, with deep tech funding rising even faster, by nearly 10x over the same period (Dealroom). These huge investments create companies, keep talent local, generate returns, and importantly, continue the virtuous cycle by spawning a new batch of start-ups.
3. Local markets
Simply put, European technology companies are finding success in their home markets. Europe is second only to China in market size for Industry 4.0, driven by its longstanding leadership in areas such as advanced manufacturing, robotics and industrial products. And according to Bitnode, Europe hosts by far the most reachable Bitcoin nodes in the world, due in large part to the region’s significant asset management and gaming industries.
4. Global center of innovation
The combination of home-grown talent, technology ecosystem and end markets are transforming Europe into an international innovation hub for deep tech. Unlike the past, Europe does not need to rely on the US for development funding or initial business traction, though the US with its homogeneous market and large number of acquirers – and increasingly China with its rising middle class and One Belt One Road globalization initiative – play a critical role for European companies to scale and exit.
By no means are the US and China out of the deep tech game; quite the contrary, both continue to play major roles in the ecosystem. The top 5 US technology companies are investing heavily in R&D and have quietly acquired over 60 European start-ups over the past several years – including 10 cross-border acquisitions last year alone – with no signs of letting up. Meanwhile, China has elevated artificial intelligence to a top governmental priority and formed a “national AI team” led by Baidu, Alibaba and Tencent.
Unlike the technology waves of the past 20 years, however, this time Europe will not be left out of the game. The region has the skills, funding and market to secure its fair share of value from the deep tech revolution, and is poised to join the US and China as a global powerhouse for innovation. Europe’s next renaissance has begun.