Europe’s deep tech sector has substantial technical talent and research leadership and is uniquely positioned for global impact.
The region leads in high-impact research publications with 28.1 per cent, ahead of the US (19.3 per cent) and China (17.7 per cent), and has a higher percentage of STEM graduates than the US. Europe is also home to prestigious universities, including six of the top 20 in computer science and five in engineering.
Despite these strengths, Europe has historically struggled to commercialise its significant scientific and technological breakthroughs.
As Europe faces a growing challenge in regaining its position as a global leader in innovation, one driver is to encourage more scientists to enter the venture capital space. By leveraging their expertise in science and technology, scientists play a crucial role in identifying and supporting innovative startups, driving economic growth, and fostering collaboration between the scientific and entrepreneurial communities.
Analyses have been published on the benefits of hiring CEOs with a STEM background, and similar arguments can be applied to the venture capital industry.
Bridging innovation and investments in Europe with scientist VCs
As multiple governments pledge big in deep tech — with France budgeting €2.5 billion, Germany committing €1 billion and the UK eager to support the future of tech and science with up to £3.5 billion — Europe is poised for success. But without the right people in venture speaking the language of the scientific entrepreneurs behind these new breakthroughs, VCs in Europe will struggle and miss out on big opportunities.
At the core, venture capital is a scientific discipline. It involves developing hypotheses, gathering data and testing them against the facts. This is particularly true in deep tech, where the technological risk typically outweighs the market risk. The trending notion of “data-driven VC” should be self-evident, as there is no other way of conducting proper VC than by using all data available to verify the initial hypotheses.
As in science, we often deal with incomplete data, and understanding the limitations of that is crucial to making good investment decisions. This is where STEM graduates have an unfair advantage in the investment industry.
More VCs need a scientific background to identify, evaluate, and fund more deep tech startups. This, in turn, will spur technological innovation and drive economic growth. Europe is particularly well-positioned to reap the benefits of its excellent university landscape and academic graduates.
For example, the number of STEM graduates per capita in Germany is 1.8x higher than in the US, and the number of resident patent applications relative to GDP in 2022 in Switzerland was 1.4x higher than in the US.
“Let’s imagine a reality in which scientific founders are backed by scientific investors who share sets of methodologies, values and a common understanding with the person on the other side of the table.”
To attract the next generation of deep tech investors, policymakers should support universities that offer venture capital as a career path. In addition, today’s scientist VCs should be role models and actively promote deep tech investing by being outspoken and encouraging their younger colleagues to join the industry.
Common challenges for scientists in venture capital
Getting scientists to break into venture capital can present several challenges. Still, all of them can be mitigated through certain techniques so that the potential benefits of such an approach can be fully realised.
One typical challenge for scientists is understanding how business works. Scientists often struggle with economic factors, such as creating a business plan, marketing, and negotiating commercials with customers. Sometimes, this is simply rooted in a lack of interest in these topics. A well-rounded education, which starts at university, can do wonders in creating awareness and desire for business matters, and with this comes further self-education of the scientists.
Another challenge represents accessing the right networks and resources. Scientists are typically not part of the same networks and have access to the same resources as investors coming from business schools, making it harder to find potential investments and co-investors. Here, the various federal and state startup programs should actively make an effort to prioritise welcoming and including scientist VCs in the local investment community.
The third challenge is cultural barriers. Scientists can have different communication styles, work habits, and values, which can create challenges and lead to misunderstandings when working with venture capitalists. This is a situation when non-scientific colleagues within a VC firm can help the scientist investor navigate the social fabric of the investment society.
Finally, scientists may not immediately gain other venture capitalists’ trust. This can slow down the collaboration process significantly. The solution here is for established scientist VCs to bring in and validate newcomers and help them build a trusted brand of their own.
All in all, these challenges can be overcome with a bit of effort, but would lead to exceptional benefits. Let’s imagine a reality in which scientific founders are backed by scientific investors who share sets of methodologies, values and a common understanding with the person on the other side of the table. We need more of this type of collaboration in a world where, too often, the best marketing idea wins and not the objective facts derived from data.