Deep tech now draws Europe's biggest growth rounds, and local capital falls short
European growth investing is being rebuilt around deep tech. Compute, industrial AI, robotics and defence now take the largest rounds, with bigger markets and shorter timelines than before. The limit is capital, since European growth funds are too small, so global syndicates and globally ambitious founders matter more.
Takeaways
- European funding is shifting toward deep tech. About 38% of European growth rounds above $100m go to next-generation compute, followed by physical industrial AI, robotics, defence, and healthcare and biotech. The money is moving to the supply chain beneath generative AI.
- Deep tech outcomes are larger and faster. Connell says the addressable market for deep tech is much bigger than before and timelines have compressed. Next-generation lithography once took about ten years to reach market. Generalist VCs are therefore moving into frontier technology.
- Europe's growth capital gap limits local share. Founders increasingly want global syndicates with European, US, Asia-Pacific and Middle East investors. Connell sees the size of European growth funds as the main limit on local share and estimates an 860bn euro gap over ten years.
- The Exploration Company shows the thesis in practice. Atomico backed Hélène Huby's team for its technical capacity, ambition and execution on heavy launch. It already holds over $2bn of contracts for its next cargo capsule, and experienced US investors in the round proved very valuable.
- AI's next phase belongs to infrastructure. Building at the application layer now costs almost nothing, so cost and latency are the bottlenecks to generative AI adoption, especially in regulated sectors like healthcare. Connell now urges European founders to build with global ambition.
- Growth investing is splitting into two models. Small specialist firms like Benchmark sit at one end, while platform VCs like Atomico approach growth tech-first, backed by a data asset. Early-stage growth companies also run buy-and-build roll-ups once owned by buyout, which demands financial skill.
What Atomico looks for in founders
- Audacity to go after very large markets.
- Technical talent density across the whole team, not only the founders.
- Urgency that justifies larger rounds to bolster balance sheets as markets change faster.
- Compelling and unique IP for frontier investments.