Europe’s Deep-Tech Challenge: Funding Innovation Beyond Unicorns

Europe possesses ample capital, yet struggles to direct it effectively towards SciTech – science and technology – startups crucial for long-term competitiveness. This paradox, where success in prompt-scaling ventures masks a weakness in research-intensive fields, demands a re-evaluation of investment incentives and analytical capabilities.

The Paradox of European Innovation

While Europe, and particularly Sweden, is celebrated for producing a growing number of unicorns (startups valued at over $1 billion), much of this success lies in business-to-consumer (B2C) ventures. According to The Next Web, SciTech startups – those focused on advanced materials, semiconductors, life sciences, and energy systems – face significant hurdles in securing early-stage funding. This imbalance threatens Europe’s long-term comparative advantage in critical technological areas.

Not a Lack of Capital, But a Lack of Competence

The issue isn’t a shortage of funds. Europe is not “starved of capital,” as highlighted in TNW. Instead, the core problem is a deficiency in the “legal courage and analytical competence” needed to invest in ventures with longer timelines and higher technological uncertainty. Deep-tech funds, in fact, have demonstrated strong returns, generating an average net internal rate of return of 17% compared to 10% for traditional tech funds.

The Risk vs. Uncertainty Conundrum

Investors often conflate commercial risk with technological uncertainty. While market competition and customer adoption are familiar evaluation criteria, assessing whether a scientific hypothesis can be scaled into a viable solution requires specialized expertise. This often leads to investors deferring investment, waiting for validation from others, creating a “wait-and-spot” ecosystem that hinders progress and potentially leads to promising ventures being acquired by foreign entities.

Sweden’s Position and the Require for Patient Capital

Sweden exemplifies this paradox. Swedish startups raised €2.4 billion in 2024 and lead Europe in unicorns per capita, as reported in The State of the Swedish Tech Ecosystem 2025. However, the country’s success is largely concentrated in B2C ventures. Addressing this requires “patient capital” – long-term investment – but patience alone isn’t enough without aligned incentives.

Lessons from Silicon Valley

The formative decades of Silicon Valley offer a valuable lesson. Investors like Tom Perkins didn’t shy away from technological uncertainty; they financed the analytical processes needed to reduce it, engaging external specialists to assess feasibility before investing. This approach was supported by legal and fiscal structures that rewarded long-term commitment, such as capital gains frameworks that differentiated between short-term trading and long-term technological investment.

Reforming European Frameworks

Europe needs to modernize its frameworks to encourage early, technically competent engagement. Key reforms include:

• Differentiating capital gains taxation by holding periods to reward long-term investment.
• Introducing flexible corporate forms to accommodate the unique financing structures of SciTech companies.
• Implementing milestone-based stock option schemes to incentivize both employees and external specialists.
• Building durable financing chains that support SciTech ventures from laboratory breakthrough to initial public offering (IPO).

The Importance of European Cooperation

Sweden is actively aiming to increase its participation in EU research and innovation framework programmes, recognizing that European cooperation in research and innovation is crucial. Internationalisation is a key component of the Swedish government’s recent research and innovation bill.

Looking Ahead

Europe’s geopolitical challenges, climate ambitions, and digital competitiveness depend on SciTech innovation. While entrepreneurial talent and ambition are abundant, they must be coupled with aligned incentives and modernized frameworks. As Forbes notes, investment in areas like AI signals a commitment to innovation, but sustained progress requires addressing the underlying structural issues hindering deep-tech ventures.