Amidst broad discussions of digital transformation, a more fundamental technological shift is advancing, largely beneath the headlines. The domain of "deep tech"—a term for science-intensive innovations built on substantial engineering challenges and new physical discoveries—is moving from research labs toward defining the next era. As the United States and Asia vie for leadership in these foundational fields, Europe faces its own question: can it establish a competitive position in this new global contest?
Deep tech is technology built from the ground up on pioneering scientific discovery. This is not incremental software; it is the engineering of new realities, from portable nuclear reactors and quantum computers to artificial intelligence that designs life-saving drugs, and now it is increasingly seen as the bedrock of economic sovereignty. Nations and regions that lead in deep tech develop solutions for urgent, often global, challenges—reducing dependencies, creating high-value jobs, and exporting transformative products. Its impact is measurable: 97% of deep tech startups directly advance at least one of the UN’s Sustainable Development Goals. Their work is also overwhelmingly tangible. Unlike purely digital ventures, 83% of deep tech companies are integrating advanced science into the physical world, producing useful hardware and solutions that operate beyond the screen.
Global competitors are not standing still
The global deep tech market spans more than 90,000 companies worldwide, and nearly a third of them are commanded by the United States. This lead stems from a mature and deeply resourced ecosystem. American innovators operate within a powerhouse environment defined by robust intellectual property laws, a cultural appetite for risk, and unparalleled access to capital—totalling $569 billion in funding. This potent combination of money, networks, and institutional support solidifies the U.S. position at the forefront of technological expertise and asset creation.
Meanwhile in Asia, China is also executing its own deliberate strategy. The government is channelling massive investment into science and technology, propelling the country to second place globally in deep tech funding. This push has fuelled a rapid industrial evolution: Chinese firms have moved decisively from low-cost assembly to producing sophisticated, proprietary technologies, climbing the value chain at a remarkable pace. Though analysts often characterize its current output as more imitative than pioneering, the trajectory is clear. With sustained backing from both state and private capital, China's deep tech sector is positioned not just to compete, but to become a source of original innovation.
In turn, Europe holds a strong, if complex, position in the global deep tech race. The continent is home to nearly 40,000 funded tech companies, with the sector’s total value estimated at $4 trillion—accounting for roughly 15% of Europe’s GDP. Despite this scale, however, significant potential remains untapped. According to a McKinsey analysis, a concentrated push into deep tech business building could unlock an additional $1 trillion in enterprise value and generate up to one million new jobs by 2030.
The European Union’s pursuit of deep tech, however, extends beyond economics. It is a question of sovereignty and strategic resilience sharpened by pressure from two global giants, each advancing its own agenda on European soil. From the West, Washington is leveraging its mature tech sector and capital. Proposals to invest hundreds of millions in European data centres are accompanied by calls for a more accommodating regulatory framework—a move seen as an unwelcomed effort to open the market further for American companies. From the East, Beijing is promoting its technological solutions to capture segments of European industry, a push that conflicts with Brussels’ strategic goals. As EU Trade Commissioner Maros Sefcovic emphasized, the bloc welcomes foreign investment only under strict conditions: "that they are real investment," which translates to jobs created in Europe, value added locally, and genuine technology transfer.
Therefore, Europe now views cultivating its own deep tech ecosystem as essential—not merely for economic gain, but as a critical defence of its industrial future and independence. Yet, political will alone is insufficient. While European governments face a long list of policy actions to foster the sector, analysts emphasize a more fundamental requirement: the uninterrupted flow of both public and private capital. This need is uniquely acute in deep tech. Unlike conventional startups that can thrive on private venture funding, or purely public-sector projects reliant on state budgets, deep tech ventures exist at a convergence. They develop cutting-edge technologies within fiercely competitive global markets, yet their foundational research and long development cycles often necessitate early public backing. Success, therefore, depends on a dual-engine model of support—fuelled by strategic government investment and disciplined market capital. And the question for Europe is: how does its current landscape measure up to this multifaceted challenge?
Overregulation and underfunding
When we consider the region’s attempts to solve its deep tech support puzzle, we cannot but mention last year’s Draghi Report. The paper highlighted that the continent's stringent rules are a major structural barrier, preventing homegrown companies from scaling to compete with U.S. and Chinese giants. This regulatory friction impacts companies well beyond the startup phase.
A case in point is the 2024 controversy surrounding French AI firm Mistral AI. While publicly advocating for looser EU regulations, the company was simultaneously negotiating a major investment from Microsoft—a contradiction that sparked a political backlash. The episode left all parties frustrated, exposing the tension between the goal of "European sovereignty" and the practical needs of scaling businesses. As Kai Zenner, a digital policy adviser in the European Parliament, stated : “We are extremely furious... the French government for months was making this argument of European leadership, meaning that those companies should be able to scale up without help from Chinese or U.S. companies.” The Mistral saga underscored a dilemma: without a regulatory framework that enables growth, even Europe's most promising tech firms may find their path to independence blocked and, if they cannot find enough funding, they will go look for it elsewhere.
More than a year later, the core issue remains: can European deep tech truly scale on its own terms? The continent's innovators continue to face a dual constraint: regulatory complexity and a critical shortage of scale-up capital. While European ecosystems excel at early-stage research and seed funding, a strong start is only the beginning. As a deep tech firm matures, its financial strategy must evolve from ensuring survival to securing long-term market leadership. This scaling phase requires significantly larger investments to transform validated prototypes into dominant commercial products, and this is where a persistent "scale-up gap" emerges for European companies needing investments exceeding €100 million to commercialize.
Consider the trajectory of SiPearl, the French designer of high-performance, energy-efficient microprocessors for critical sectors like AI, defence and climate modelling. In 2022, the company secured a landmark €15 million equity investment from the European Innovation Council Fund—one of its first direct equity deals—to complement a €2.5 million grant. This capital was pivotal, fuelling the development and scaling of its breakthrough architecture. The strategic investment has borne fruit: SiPearl recently unveiled its new Athena1 processor, engineered for a wide spectrum of civil and defence applications, demonstrating how targeted growth funding can translate European innovation into tangible, market-ready technology. Seemingly confident, the EIC appears to have increased its investment in June 2025.
Owning critical technologies like processor designs is essential for Europe's sovereignty, but maintaining a competitive edge requires continuous—and costly—innovation. This reality was underscored in July 2025, when SiPearl closed a €130 million Series A round. The financing blended support from existing backers like the EIC Fund and the French state with new capital from Cathay Venture, a major Taiwanese private equity firm. The company is now preparing for a Series B round, a stage that poses a uniquely formidable challenge for deep tech. Unlike traditional tech companies, where Series B investors look for metrics like user growth and revenue, deep tech ventures face a deeper "valley of death." This phase begins after the initial scientific promise is proven, requiring massive capital to bridge the long, risky journey from laboratory prototype to commercially viable product.
This financing gap presents a distinct dilemma in Europe. Domestic private capital is often hesitant to fund the high-risk, long-term bets characteristic of deep tech scale-ups. Conversely, heavy reliance on foreign investment introduces strategic vulnerabilities, contradicting the core goal of technological sovereignty. This is where non-dilutive capital—federal, state, and R&D grants—becomes a strategic tool. For technologies tied to vital national interests, such public funding is not just supportive; it is foundational. From this viewpoint, SiPearl’s current trajectory is a litmus test for European policymakers. They have successfully nurtured the seed, and now the question is whether they can cultivate it to full maturity and achieve a sustainable, sovereign outcome.
Can new reforms deliver on their promise?
Despite the well-documented scale-up gap and structural market challenges, recent developments in the Union instil some hope. Initiatives like the European Innovation Council (EIC) are increasingly focused on the missing middle stage—where companies like SiPearl must transition from validation to global leadership. And to tackle underlying capital market fragmentation, the European Commission is further advancing its broader Savings and Investment Union (SIU) strategy. A key component is the Scaleup Europe Fund, a public-private partnership anchored within the EIC Fund. This vehicle is designed to make direct equity investments in strategic sectors such as AI, quantum computing, and clean technology. Its explicit mandate is to address the massive, unmet financing needs that European private investors have been too cautious to cover alone, providing essential capital for continent-defining companies to scale.
These initiatives mark progress, yet the scale and integration of support still lag behind models in the United States and Asia. American agencies like DARPA provide massive, mission-aligned grants that not only fund technology but also validate it, creating a powerful signal that attracts waves of private capital for commercialization. Major Asian economies deploy state-backed industrial funds with similar strategic focus, injecting billions to achieve self-sufficiency in critical sectors. By comparison, the EU's efforts, while valuable, remain more fragmented and modest in financial heft.
However, a parallel shift in regulatory strategy offers a different path to competitiveness. European policy is increasingly moving away from bureaucratic fragmentation and toward creating a truly unified single market. This structural change could indirectly ease the financial pressure on scale-ups by lowering commercial barriers and accelerating growth. A cornerstone of this effort is the forthcoming EU Innovation Act, slated for presentation in early 2026. Its stated goal is to dismantle obstacles that slow commercialization across member states. As Henna Virkkunen, Executive Vice-President for Tech Sovereignty, Security and Democracy, stated : “We want Europe to be an attractive place for start-ups and scale-ups... We need to address obstacles that limit or slow down their growth in the Single Market and to incentivise them to continue operating within the EU.”
Indeed, the current reality is one of fragmentation. Scaling across Europe requires navigating 27 distinct sets of corporate tax and employment law—a maze of paperwork, timelines, and translation rules that stifles growth. This bureaucratic burden prevents companies from leveraging the full scale of the EU’s single market. As Tomas Okmanas, co-founder of Nord Security and Nexos AI, notes : “Europe doesn’t operate at the scale of Europe, and much of the talent is locked in national silos.” These barriers effectively stifle commercialization before it can begin. The regulatory initiatives now underway are a direct attempt to dismantle these silos, aiming to transform a collection of national markets into a unified, frictionless ecosystem where European innovators can truly thrive. Roberto Viola, Director-General of DG CONNECT, has underscored this vision through recent EU–India digital dialogues, demonstrating that Europe is committed not only to harmonising its internal framework for deep tech scale-ups but also to establishing strategic international partnerships in areas such as semiconductors, artificial intelligence, and quantum computing.
The proposed reforms are promising, but their real-world impact remains unproven. Beyond headline cases like SiPearl, several hundred other deep tech scale-ups across the EU—each with high growth, substantial funding, and strong intellectual property—are in a holding pattern, awaiting the concrete support needed to break through. This anticipation is matched by political ambition. As French President Emmanuel Macron stated at a recent summit on digital sovereignty: "Europe doesn't want to be the client of the big entrepreneurs or the big solutions being provided either from the US or from China, we clearly want to design our own solutions." The coming years will serve as the ultimate test. The question is no longer whether Europe can plant the seeds of a sovereign tech industry, but whether it can successfully assemble the complex puzzle of capital, regulation, and market access to cultivate them—and finally harvest the results.
Deep tech is technology built from the ground up on pioneering scientific discovery. This is not incremental software; it is the engineering of new realities, from portable nuclear reactors and quantum computers to artificial intelligence that designs life-saving drugs, and now it is increasingly seen as the bedrock of economic sovereignty. Nations and regions that lead in deep tech develop solutions for urgent, often global, challenges—reducing dependencies, creating high-value jobs, and exporting transformative products. Its impact is measurable: 97% of deep tech startups directly advance at least one of the UN’s Sustainable Development Goals. Their work is also overwhelmingly tangible. Unlike purely digital ventures, 83% of deep tech companies are integrating advanced science into the physical world, producing useful hardware and solutions that operate beyond the screen.
Global competitors are not standing still
The global deep tech market spans more than 90,000 companies worldwide, and nearly a third of them are commanded by the United States. This lead stems from a mature and deeply resourced ecosystem. American innovators operate within a powerhouse environment defined by robust intellectual property laws, a cultural appetite for risk, and unparalleled access to capital—totalling $569 billion in funding. This potent combination of money, networks, and institutional support solidifies the U.S. position at the forefront of technological expertise and asset creation.
Meanwhile in Asia, China is also executing its own deliberate strategy. The government is channelling massive investment into science and technology, propelling the country to second place globally in deep tech funding. This push has fuelled a rapid industrial evolution: Chinese firms have moved decisively from low-cost assembly to producing sophisticated, proprietary technologies, climbing the value chain at a remarkable pace. Though analysts often characterize its current output as more imitative than pioneering, the trajectory is clear. With sustained backing from both state and private capital, China's deep tech sector is positioned not just to compete, but to become a source of original innovation.
In turn, Europe holds a strong, if complex, position in the global deep tech race. The continent is home to nearly 40,000 funded tech companies, with the sector’s total value estimated at $4 trillion—accounting for roughly 15% of Europe’s GDP. Despite this scale, however, significant potential remains untapped. According to a McKinsey analysis, a concentrated push into deep tech business building could unlock an additional $1 trillion in enterprise value and generate up to one million new jobs by 2030.
The European Union’s pursuit of deep tech, however, extends beyond economics. It is a question of sovereignty and strategic resilience sharpened by pressure from two global giants, each advancing its own agenda on European soil. From the West, Washington is leveraging its mature tech sector and capital. Proposals to invest hundreds of millions in European data centres are accompanied by calls for a more accommodating regulatory framework—a move seen as an unwelcomed effort to open the market further for American companies. From the East, Beijing is promoting its technological solutions to capture segments of European industry, a push that conflicts with Brussels’ strategic goals. As EU Trade Commissioner Maros Sefcovic emphasized, the bloc welcomes foreign investment only under strict conditions: "that they are real investment," which translates to jobs created in Europe, value added locally, and genuine technology transfer.
Therefore, Europe now views cultivating its own deep tech ecosystem as essential—not merely for economic gain, but as a critical defence of its industrial future and independence. Yet, political will alone is insufficient. While European governments face a long list of policy actions to foster the sector, analysts emphasize a more fundamental requirement: the uninterrupted flow of both public and private capital. This need is uniquely acute in deep tech. Unlike conventional startups that can thrive on private venture funding, or purely public-sector projects reliant on state budgets, deep tech ventures exist at a convergence. They develop cutting-edge technologies within fiercely competitive global markets, yet their foundational research and long development cycles often necessitate early public backing. Success, therefore, depends on a dual-engine model of support—fuelled by strategic government investment and disciplined market capital. And the question for Europe is: how does its current landscape measure up to this multifaceted challenge?
Overregulation and underfunding
When we consider the region’s attempts to solve its deep tech support puzzle, we cannot but mention last year’s Draghi Report. The paper highlighted that the continent's stringent rules are a major structural barrier, preventing homegrown companies from scaling to compete with U.S. and Chinese giants. This regulatory friction impacts companies well beyond the startup phase.
A case in point is the 2024 controversy surrounding French AI firm Mistral AI. While publicly advocating for looser EU regulations, the company was simultaneously negotiating a major investment from Microsoft—a contradiction that sparked a political backlash. The episode left all parties frustrated, exposing the tension between the goal of "European sovereignty" and the practical needs of scaling businesses. As Kai Zenner, a digital policy adviser in the European Parliament, stated : “We are extremely furious... the French government for months was making this argument of European leadership, meaning that those companies should be able to scale up without help from Chinese or U.S. companies.” The Mistral saga underscored a dilemma: without a regulatory framework that enables growth, even Europe's most promising tech firms may find their path to independence blocked and, if they cannot find enough funding, they will go look for it elsewhere.
More than a year later, the core issue remains: can European deep tech truly scale on its own terms? The continent's innovators continue to face a dual constraint: regulatory complexity and a critical shortage of scale-up capital. While European ecosystems excel at early-stage research and seed funding, a strong start is only the beginning. As a deep tech firm matures, its financial strategy must evolve from ensuring survival to securing long-term market leadership. This scaling phase requires significantly larger investments to transform validated prototypes into dominant commercial products, and this is where a persistent "scale-up gap" emerges for European companies needing investments exceeding €100 million to commercialize.
Consider the trajectory of SiPearl, the French designer of high-performance, energy-efficient microprocessors for critical sectors like AI, defence and climate modelling. In 2022, the company secured a landmark €15 million equity investment from the European Innovation Council Fund—one of its first direct equity deals—to complement a €2.5 million grant. This capital was pivotal, fuelling the development and scaling of its breakthrough architecture. The strategic investment has borne fruit: SiPearl recently unveiled its new Athena1 processor, engineered for a wide spectrum of civil and defence applications, demonstrating how targeted growth funding can translate European innovation into tangible, market-ready technology. Seemingly confident, the EIC appears to have increased its investment in June 2025.
Owning critical technologies like processor designs is essential for Europe's sovereignty, but maintaining a competitive edge requires continuous—and costly—innovation. This reality was underscored in July 2025, when SiPearl closed a €130 million Series A round. The financing blended support from existing backers like the EIC Fund and the French state with new capital from Cathay Venture, a major Taiwanese private equity firm. The company is now preparing for a Series B round, a stage that poses a uniquely formidable challenge for deep tech. Unlike traditional tech companies, where Series B investors look for metrics like user growth and revenue, deep tech ventures face a deeper "valley of death." This phase begins after the initial scientific promise is proven, requiring massive capital to bridge the long, risky journey from laboratory prototype to commercially viable product.
This financing gap presents a distinct dilemma in Europe. Domestic private capital is often hesitant to fund the high-risk, long-term bets characteristic of deep tech scale-ups. Conversely, heavy reliance on foreign investment introduces strategic vulnerabilities, contradicting the core goal of technological sovereignty. This is where non-dilutive capital—federal, state, and R&D grants—becomes a strategic tool. For technologies tied to vital national interests, such public funding is not just supportive; it is foundational. From this viewpoint, SiPearl’s current trajectory is a litmus test for European policymakers. They have successfully nurtured the seed, and now the question is whether they can cultivate it to full maturity and achieve a sustainable, sovereign outcome.
Can new reforms deliver on their promise?
Despite the well-documented scale-up gap and structural market challenges, recent developments in the Union instil some hope. Initiatives like the European Innovation Council (EIC) are increasingly focused on the missing middle stage—where companies like SiPearl must transition from validation to global leadership. And to tackle underlying capital market fragmentation, the European Commission is further advancing its broader Savings and Investment Union (SIU) strategy. A key component is the Scaleup Europe Fund, a public-private partnership anchored within the EIC Fund. This vehicle is designed to make direct equity investments in strategic sectors such as AI, quantum computing, and clean technology. Its explicit mandate is to address the massive, unmet financing needs that European private investors have been too cautious to cover alone, providing essential capital for continent-defining companies to scale.
These initiatives mark progress, yet the scale and integration of support still lag behind models in the United States and Asia. American agencies like DARPA provide massive, mission-aligned grants that not only fund technology but also validate it, creating a powerful signal that attracts waves of private capital for commercialization. Major Asian economies deploy state-backed industrial funds with similar strategic focus, injecting billions to achieve self-sufficiency in critical sectors. By comparison, the EU's efforts, while valuable, remain more fragmented and modest in financial heft.
However, a parallel shift in regulatory strategy offers a different path to competitiveness. European policy is increasingly moving away from bureaucratic fragmentation and toward creating a truly unified single market. This structural change could indirectly ease the financial pressure on scale-ups by lowering commercial barriers and accelerating growth. A cornerstone of this effort is the forthcoming EU Innovation Act, slated for presentation in early 2026. Its stated goal is to dismantle obstacles that slow commercialization across member states. As Henna Virkkunen, Executive Vice-President for Tech Sovereignty, Security and Democracy, stated : “We want Europe to be an attractive place for start-ups and scale-ups... We need to address obstacles that limit or slow down their growth in the Single Market and to incentivise them to continue operating within the EU.”
Indeed, the current reality is one of fragmentation. Scaling across Europe requires navigating 27 distinct sets of corporate tax and employment law—a maze of paperwork, timelines, and translation rules that stifles growth. This bureaucratic burden prevents companies from leveraging the full scale of the EU’s single market. As Tomas Okmanas, co-founder of Nord Security and Nexos AI, notes : “Europe doesn’t operate at the scale of Europe, and much of the talent is locked in national silos.” These barriers effectively stifle commercialization before it can begin. The regulatory initiatives now underway are a direct attempt to dismantle these silos, aiming to transform a collection of national markets into a unified, frictionless ecosystem where European innovators can truly thrive. Roberto Viola, Director-General of DG CONNECT, has underscored this vision through recent EU–India digital dialogues, demonstrating that Europe is committed not only to harmonising its internal framework for deep tech scale-ups but also to establishing strategic international partnerships in areas such as semiconductors, artificial intelligence, and quantum computing.
The proposed reforms are promising, but their real-world impact remains unproven. Beyond headline cases like SiPearl, several hundred other deep tech scale-ups across the EU—each with high growth, substantial funding, and strong intellectual property—are in a holding pattern, awaiting the concrete support needed to break through. This anticipation is matched by political ambition. As French President Emmanuel Macron stated at a recent summit on digital sovereignty: "Europe doesn't want to be the client of the big entrepreneurs or the big solutions being provided either from the US or from China, we clearly want to design our own solutions." The coming years will serve as the ultimate test. The question is no longer whether Europe can plant the seeds of a sovereign tech industry, but whether it can successfully assemble the complex puzzle of capital, regulation, and market access to cultivate them—and finally harvest the results.