Deeptech investment challenges and opportunities in 2024

Posted 5 Feb 2024

In 2023, Digital Catapult unveiled its European Investor Attitude Tracker, a comprehensive analysis reflecting the landscape of deeptech investment in Europe. While the UK remains the epicentre of deeptech innovation in the eyes of European investors, this report prompted us to delve into a deeper understanding of the investment challenges and opportunities embedded within the ecosystem.

Since then, we have interviewed Miriam Irungu, Startup Investment Manager and Priya Guha, Non-Executive Director at Digital Catapult as well as Joe Jordan, Seed Investor at Supernode Global to understand the discussion surrounding investment intentions and inclusive investment initiatives within the UK.

Investment Intention Across Europe

The UK has long been seen as the ‘epicentre’ of deeptech development and investment in Europe (25%). However, according to our report, Germany is hot on its heels (24%). Moreover, the UK’s leading position as European investors’ future investment priority (23%) also appears to be under threat as France stands close behind (20%).

Q1. With the UK government aiming to make the nation an “international technology superpower” by 2030, what actions can be taken to ensure the UK tech ecosystem continues to lead Europe as an innovation and startup powerhouse?

Miriam Irungu: We saw a drop in fundraising in the past year which was a challenge for founders. Yet, AI maintained its top position in tech sectors, attracting investor interest. It is clear that despite a decline in financial support, AI’s potential for enhancing efficiency and productivity remains strong for businesses. Last year, we launched the Innovate UK Bridge AI programme, a £100m programme in collaboration with Innovate UK and The Alan Turing Institute to drive the adoption of AI in four untapped industries in the UK: Construction, Transport, Agriculture and Creative industries. The funding targets AI developers, early-stage companies, and mid / late-stage companies in these sectors who want to develop or adopt AI into their businesses. This presents a valuable opportunity for business and the UK tech ecosystem at large.

Where is the current European deeptech epicentre?

The most sought-after founder skill varies across different countries. In the UK, passion and drive for their idea (26%) stood out amongst respondents instead of leadership skills or industry knowledge.

Q2. What qualities comprise a strong founding team for deeptech startups?

Priya Guha: A successful deeptech startup team thrives on a mix of skills and experiences. Through my work as a Venture Partner at Merian Ventures, investing in women-led innovation, and on the Investment Governance Board at Future Planet Capital, I see a wide range of founders. The smartest ones understand the power of bringing together a co-founding or senior leadership team with complementary expertise. For example, having team members who get product market fit, sales, and marketing from early on is a game-changer. It’s not just about having brilliant research; it’s about turning that research into a business that works. So, think beyond tech skills – build a team that’s a powerhouse in every way!

Joe Jordan: What we like to see are diverse skill sets split between technical and commercial abilities amongst the founding team. Typically, some founding team members might have deep expertise in relevant scientific and technological areas and then other team members will have the business knowledge that understand how to commercialise the technology or the innovation that they’ve built.

Second to that is their vision and adaptability. When you’re commercialising or building a deeptech business, you need to see the long-term vision and goal, what this technology can transform whilst also executing in a rapidly evolving landscape. For example, pivoting to commercialise certain aspects of the business that you might not have thought of. As a strong deeptech founding team, every decision is thought about and strategically done for where you ultimately see the technology and business going. Being able to see that A to Z, and then executing and being adaptable for the A to B is key.

For investors, limited access to talent (33%) and regulatory complexity (33%) are deemed potentially limiting factors in backing technology startups in the UK.

Tech investment challenges around tech start-up investment

Q3. Can you think of any strategies to overcome challenges like limited access to talent and regulatory complexity in the UK?

Joe Jordan: An interesting way to source fresh talent with the latest tech skills is to partner with universities, online communities and boot camps. Since it might be harder and more expensive to get someone more experienced on your team you can try and get in touch with someone hungry who is learning these skills instead. By bringing them on for internships, to allow them to learn in a startup, it will also work for you to get fresh thinking into your business.

As for navigating regulatory complexity, it is crucial to be able to consult with experts continuously. I think the government, or perhaps startup initiatives should focus on offering these supports, especially with AI, since it is changing all the time. For example, if you’re building a product on OpenAI’s API, and then they get sued. What does that mean for your business? Besides, time is the scarcest resource for founders. Being able to have a helpline and speak with someone who knows how to navigate would be really helpful.

Inclusive Investment Initiatives

The survey results reveal that the vast majority (99%) of European investors think some form of bias is present in the process. A third (33%) of respondents believe it is up to the investment community to create opportunities for underrepresented founders, more so than corporations (30%) and governments (29%).

Q4. In your perspective, are corporations, governments and the investment community collectively moving in the correct direction when it comes to supporting underrepresented founders?

Joe Jordan: We are recognising the need to support underrepresented founders but more could be done collectively. One of the goals at Supernode is to invest in an equal split of female founders and male founders within the teams. Whilst there are positive steps in the UK deeptech ecosystem, such as Digital Catapult’s FutureScope Black Founders Programme helping to increase investment readiness and connect founders to investors, there is a need for a more equitable distribution of opportunities.

In the survey, 46% of UK investors cited a lack of investment knowledge as a reason for underrepresented founders’ reduced opportunities. That’s especially why offering people from underrepresented backgrounds access to education and business experiences that ultimately can lead to them starting their own businesses is crucial. Once founders get to that stage, that is when the investment community needs to step in and back these founders.

The same could be said for opening up the investment community. People must have business experience and industry knowledge first which can empower them to enter these spaces. That’s how the government can support education to bring more structural changes to the economy.

80% of respondents claim to have plans in place to support underrepresented founders. Major initiatives range from running networking events (43%), scout programmes to find these founders (43%) and using data analysis for outreach to them (41%).

Q5. Do you feel positive about the majority of inclusive investment initiatives available now, like networking, scout programmes, and using data analysis for outreach? Do you see them more at risk of “diversity washing”?

Miriam Irungu: The fact that most respondents have plans to support underrepresented founders is a sign of a growing dedication to diversity and inclusion in the deeptech investment landscape. It’s been proven that diverse teams make better decisions overall and increasing the diversity of key decision-makers should be a priority.

Q6. After running the first FutureScope Black Founders Programme this year, do you see organisations like Digital Catapult playing a bigger role in supporting underrepresented founders?

Joe Jordan: 100% yes. I see Digital Catapult building a cycle with the first FutureScope Black Founders Programme and attracting founders who are looking for backing or support to fulfil their potential. Initiatives like these are a great way to increase the diversity of venture capital and startups.

Q7. Lastly, are there any other actions that you think the wider UK tech ecosystem should take in 2024?

Miriam Irungu: Discover more about sustainable technologies. The need for innovation to tackle our current climate crisis is vital. Considering that European investment in the Carbon and Energy sector has more than doubled since 2021, I think 2024 presents an opportune moment to accelerate this trend and turn planet-saving innovations into reality.

Priya Guha: As an ecosystem, we all need to focus on the full journey of a startup from research and inception to scale. It’s crucial to put a renewed focus on how we can help our most innovative tech businesses scale, including routes to exit and liquidity in the UK market. By giving startups support at every step, we can fuel innovation and ensure the long-term success of our most promising ventures for 2024 and beyond.

Joe Jordan: Continue the work on the AI Safety Summit last year. It was a good step in positioning the UK as the head in this field alongside the complex regulatory issues underway. In 2024, more could be done at the grassroots level when it comes to AI and other technical education for people who might not have known about it or explored it as a career option. Although in the long run, new technological advancements can bring more fulfilling jobs for people, the government needs to prepare for this wave and help people transition to better jobs.

As we step into 2024, Digital Catapult looks forward to continuing our mission – accelerating digital technology adoption to benefit the UK. Building upon the success of the first FutureScope Black Founders Programme, we are committed to playing a pivotal role in championing underrepresented founders and fostering inclusivity in the deeptech ecosystem. Stay up-to-date with upcoming FutureScope programmes by subscribing to our newsletter. Here’s to a year filled with innovation, collaboration, and meaningful advancements!