Why do so many European deep tech startups perish in the Valley of Death, caught up between early promise and full industrial deployment? From the regulatory labyrinth to the yawning chasm between Series A funding and industrial scale, how can the European deep tech ecosystem ensure its startups don’t simply survive, but scale to become global champions, and without getting acquired, dissolved, or leapfrogged?
At the 2025 Hello Tomorrow Summit in Paris, this question echoed through the buzzing corridors. And we got to hear about this from leaders from across public policy, investment, and industry, including the President of the European Innovation Council Michiel Scheffer, Constantijn van Oranje, Special Envoy at Techleap, Fabien Deswarte, Head of Strategic Partnerships at L’Oréal, and Maria Wasastjerna, CEO & Founding Partner at Kvanted Ventures.
The message was clear: if Europe wants to preserve its sovereignty, the whole ecosystem, from policymakers to corporations and investors, needs to change its approach to scaling deep tech.
The Mission: Getting Europe’s early-stage deep tech startups out of the valley
It often starts with a breakthrough in a European lab: a scientific discovery with the potential to revolutionise an industry. A deep tech founder takes the leap and builds a product. The science is groundbreaking. The vision is fearless. And the market? Ripe for revolution.
And yet, to get from prototype to production, founders need tens, sometimes hundreds of millions. They need to build factories, navigate complex regulations, and secure their first major customers, and Europe’s capital markets aren’t built for that kind of leap.
How can Europe leverage its strong research base and help startups cross the valley of death? What tools and initiatives should the ecosystem put in place to help founders overcome the three killer obstacles in their way: the funding, the regulation, and the initial traction?
Quest #1: Get the Funding (beyond Series A)
Despite strong momentum in early-stage funding, raising capital beyond Series A remains one of the most persistent challenges for European deep tech startups. In 2024, the sector raised an impressive €9 billion across 454 deals in total, but Series B rounds told a different story. The average round size is still significantly smaller than in the U.S., where larger late-stage cheques are more common and essential for industrial-scale growth.
As shown in Figure 1: Average ticket size by stage and region, Europe holds the race at the seed and early stages, with ticket sizes fairly close to those in the U.S. But at the late stage, the gap really opens up. American startups are raising much larger rounds, giving them the firepower to scale faster.
Figure 1: Average investment ticket size by stage and region. This chart, based on data from Deep Tech Decoded: A Strategic Investor’s Guide, compares the average ticket size (in millions of USD) across funding stages, Seed, Early, and Late, for Europe and America.
Even some of Europe’s most promising startups such as Alice & Bob, Pasqal, and FibreCoat, all past Deep Tech Pioneers from Hello Tomorrow, have capped their Series B rounds at around €100 million or less. That may sound substantial, but it’s often not enough to build manufacturing capacity, secure regulatory approvals, or expand into new markets.
Alice & Bob – €100 million
Pasqal – €100 million
Osivax – €10 million
FibreCoat – €20 million
For Michiel Scheffer, the issue is structural. “Our challenge in Europe is not innovation,” he said, “it’s scale. We must build mechanisms for 100 million-euro tickets. Today, our funds are simply too small, and our investors too cautious.”
Constantijn van Oranje echoed the sentiment at the Hello Tomorrow Summit, stressing the absence of European funds large enough to support deep tech through this critical phase. “We’re not just lacking capital. We’re lacking confidence, ambition, and frankly, strategy,” he said.
Financing the future of the European deep tech ecosystem will require an approach of mixed models and bold thinking
Scaling deep tech in Europe requires a new financing architecture, one that blends public and private capital. So, what is actually up with the European capital markets?
1) Europe suffers from limited exit pathways, with relatively few IPOs or mergers and acquisitions, making it harder for startups to scale and secure follow-on investment.
2) Lower valuations of the European tech companies (with the average Price-to-Earning ratio for European tech being around 32.7, while U.S. tech firms command higher multiples) attracts foreign investors coming to Europe to acquire promising companies at more reasonable prices, with the potential for significant upside as these firms mature – resulting in a loss of strategic innovation and technological leadership.
3)Lack of Domestic Acquisition Activity: European companies are rarely active in acquiring other companies, often missing an important growth lever through buy-and-build strategies. Moreover, there’s a need for both entrepreneurs and investors in Europe to embrace acquisitions not just as exit strategies, but as growth tools. Building scale through M&A should complement, not replace, organic growth.
Quest #2: Taming the regulatory hydra of the European deep tech ecosystem
Engineering the future, not just regulating it, can be a new way forward for European deep tech. As deep tech startups move into highly regulated sectors (including energy, healthcare, biotech, and others), they find themselves faced with a many-headed bureaucracy hydra – with regulations that often vary across EU member states.
“The same regulation is enforced differently from one country to the next,” observed Maria Wasastjerna from Kvanted Ventures, drawing from her legal background. “That’s a nightmare for a startup trying to expand across Europe.”
On the common misconception that deep tech is inherently high-risk, Wasastjerna shared that unlike other sectors, the risk in deep tech often decreases over time, particularly as technologies mature. The real risk tends to lie more in the development phase including research, science, and engineering rather than in market competition, which is often less intense due to the novelty and uniqueness of these innovations. That’s an important distinction to keep in mind when considering regulation and support structures.
Michiel Scheffer pointed to three regulatory hurdles that are especially damaging:
Regulation for Setting Up and Scaling Companies
Setting up a business can take days in Estonia, but months elsewhere. Some countries even require a tax number before incorporation. A proposed EU-wide corporate status, such the “28th regime” could streamline the process by providing a single harmonised set of rules for innovative companies throughout the EU.
The Counter-Productive Side of the Single Market
While the single market should support new entrants, outdated rules still stifle progress. The Novel Food Directive, for instance, slows approvals for innovative food products, not due to the rules themselves, but regulators’ lack of understanding or capacity.
Permitting and Infrastructure
Many startups are developing first-of-a-kind facilities, yet permits can take up to five years. “A startup can go bankrupt waiting,” Scheffer warned. Faster permitting is essential if Europe wants to retain its deep tech talent and potential.
Regulatory shift needs to focus on long-term European sovereignty and more flexible merger frameworks
To tame the Regulation Hydra, the speakers focused on several key initiatives around more flexible merger frameworks, including:
– Reforming EU Competition Policy: Current regulations often prevent mergers that could produce globally competitive European champions, prioritising short-term consumer protection over long-term strategic growth.
– Learning from Missed Strategic Opportunities: Past decisions, such as blocking the Siemens-Alstom merger, highlight how Europe lags behind regions like the U.S., where antitrust laws are applied more flexibly.
– Encouraging corporate venturing with a more dynamic M&A culture could prove essential to building the next generation of European tech leaders, capable of standing shoulder to shoulder with their U.S. and Chinese counterparts.
Recommendations from the Draghi Report
In addition to this, Scheffer insisted on implementing the recommendations of the Draghi Report: “We have no time to waste. Every recommendation from the Draghi report must be acted on. Not some, all”, advised Scheffer. This includes:
-Enhancing Competition and Open Access promoting interoperability and adherence to EU standards across various sectors, not just digital markets.
-Simplifying and Streamlining Regulation to reduce fragmentation across member states, enhance legal certainty, and make regulations more effective.
-Strengthening the European Securities and Markets Authority (ESMA) by transforming it into a more independent and efficient body, similar to the U.S. SEC. This would involve adding independent board members and expanding ESMA’s regulatory powers.
-Introducing a more innovation-friendly regulatory environment, using flexible instruments like experimentation and sunset clauses, as well as national sandboxes and innovation hubs to foster experimentation with new technologies, supported by EU-wide standards and coordination.
-Streamlining Policy Coordination with a new Competitiveness Coordination Framework that focuses on EU-wide strategic priorities and fosters a competitive single market.
Quest #3: Calling the Corporate Allies
Corporates can act as early customers or “venture clients,” giving startups real-world use cases and the credibility they need to secure follow-on investment. A purchase order or pilot with a major player often opens doors that a prototype alone cannot.
For example, corporations like L’Oréal should step in, not just as customers, but as critical partners in helping deep tech startups scale. “We’re not just buyers,” said Fabien Deswarte. “We’re enablers. We bring expertise, compliance support, and industrial capacity to help startups scale responsibly.”
One model Deswarte highlighted was a tri-partite alliance between L’Oréal, German industrial giant Evonik, and biotech startup Debut. In this arrangement, Debut focuses on R&D, Evonik scales the process, and L’Oréal acts as a guaranteed client. The result? Lower risk, faster scaling, and mutual benefit.
For more, read Crossing the valley of death (Part 2): The guide to scaling your deep tech start-up in Europe.
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