“If you look at it on a per capita basis, Europe needs to significantly increase its venture capital spend… it has to do it in deep tech.” So stated venture capital investor Michael Jackson at the PIC Summit Europe, which took place last year on November 7-8 in Eindhoven, Netherlands. (You can watch the entire exchange here: https://youtu.be/VSFovOXDYvg.)
That sentiment resonates more profoundly now that we’re a month into 2024. Budgets are tightening because of a possible economic downturn and complex geopolitics, and those developments are negatively impacting deep tech supply lines precisely when we need technology to step up. Everywhere you look, there’s an urgent need for an increase in quicker innovation in the technology sector.
The current state of European innovation
And while university and government transfer offices strive to help fuel developments, their approach most often doesn’t work fast enough to respond to today’s rising technology demands. As Jackson put it, “Instead of the governments in Europe trying to cosplay or role play as VCs, they would be much better off being customers of first resort. Having been an entrepreneur, the first thing I would NEVER want on my cap table, or my board is … a mid-tier bureaucrat.”
Europe is now 16% of the global photonics market, but to maintain that position, it needs to get to work. It’s not enough to set lofty goals that get pushed out indefinitely. For instance, Jackson stated that there’s no way that Europe will produce 20% of global semiconductors in just six years; he expects that the deadline will keep getting pushed, with Europe’s market dominance declining as other regions step up to meet the demand. Bill Gates recently noted that whereas the U.S. government played a leading role in kickstarting Silicon Valley, its role in the growth of AI has been taken over by industry.
Pinpointing a solution
So, what’s the solution for Europe? It boils down to removing roadblocks to commercialization.
First, experts believe we need to create a more unified European market to simplify the business dynamics for new enterprises. Now, if you’re a startup and get contracts with one EU country, they don’t help you with another country. Breaking down silos to simplify the engagement process would help deep tech companies more rapidly scale up and deliver returns. In addition, if funding agencies could abandon regionally focused strategies and VC agreements to allow innovation to arise and expand throughout Europe, the ROI would be immense.
In addition, widening the net for potential investors will go a long way toward supporting innovation. Financing is the bread and butter of all startups, and some European regulations overly restrict the kinds of funds that can be applied. For instance, some European countries prohibit pension funds from investing in venture capital. In the U.S., pension funds can invest up to 10% of their capital. So, how has that affected investments? According to Jackson, there’s more North American pension fund money in European tech than there is European pension fund money in European tech. And therein lies the problem.
There also are countless friction points that slow commercialization for new companies. While Europe releases some of the best photonics research in the field, companies tend to scale more slowly, noting that the go-to-market process is burdened with administration. From technology transfer offices requiring too large a piece of the pie and governments seeking to guide versus consume to overly complex exit strategies, a new company can get bogged down in the bureaucracy. If leaders can find ways to minimize friction, they have more of a chance of fueling a successful innovation economy.
The road to innovation
Europe needs a new investment strategy, but what does that mean for the photonics space? If you run an early-stage photonics company, what needs to be addressed in 2024? Optica will be unpacking these issues as they impact the communications and networking community at the Executive Forum at OFC 2024 on March 25. Global CEOs, entrepreneurs, and business leaders are convening to take a closer look at how to support new, innovative companies scaling to meet urgent industry needs. And in the meantime, we’ll keep the dialogue going. You can contact me at [email protected] with your thoughts on how European investments can better support a bustling photonics landscape.