Scientific equity is the new asset class VCs need to pay attention to

More and more VCs are investing in companies using cutting edge digital technologies like AI, blockchain or cybersecurity. These companies are generally classified as deeptech.

But deeptech is much more than that. VCs need a new term to describe an industry that is similar, but not quite the same: scientific equity. Unlike deep technology, scientific equity is not digital. It is rooted in industrial technologies, also known as deep sciences, and involves fields such as nanotechnology, materials science, photonics, industrial biotechnology, and quantum computing.

Another important difference is that investments in science stocks focus on the pre-seed, seed and start-up phases. So earlier than venture capital.

The lack of a digital element can be off-putting for VCs (no apps, shock!), But these are the companies investors should be supporting. Why? Because these are the companies that have the potential to generate the most disruptive innovation and solve some of the enormous challenges facing humanity.

The state of scientific fairness

These startups will be vital to renewing Europe’s industrial base – IP-intensive industries represent 45% of EU GDP and 93% of exports. Scientific equity will also be key to achieving the UN’s 2030 sustainability goals because of the fundamental technological innovation required for the transition to a post-carbon society. For example, waste recovery or CO2 capture technologies, or new, more efficient methods of energy production or storage.

The European Commission understands their importance, and the EU and public investors from various countries are generally good at supporting science startups. There are also a few private investors active in Europe, including my fund, BeAble Capital, as well as Innovation Industries, Cottonwood, Venture Factory, Mito and Eureka.

And there are already examples of successful science-based private equity firms with their roots in Europe. Cellink (now BiCo Group), the Swedish-based bioprinting company whose technology prints tissues such as skin, liver and cartilage, is the first scientific fairness unicorn funded by the European Investment Commission .

Other good examples in Europe are the Spanish Fractus, pioneer of internal antennas for smartphones. There is also Skeleton Technologies, the Estonian ultracapacitor startup which is ttrying to solve some of the challenges of energy storage in the transport, grid and renewable energy sectors.

Where are the bottlenecks

To truly grow, however, the industry needs more Limited Partners (LPs) that support science-based venture capital firms. These include private institutional investors such as sovereign wealth funds, funds of funds and pension funds with deep pockets and long investment horizons to support the hundreds of millions of dollars and many years needed to to develop these companies.

But these investors are often quite conservative and do not understand the specifics of scientific fairness. Let’s not forget that we are talking about deep science and early stages, an interesting combination!

A lot of times when I start talking to investors about issues like technology transfer, I lose them. Coincing the term “scientific fairness” would be helpful in giving people a shortcut for talking about these types of businesses and a framework for understanding them.

Investors (such as general partners) themselves should be prepared to support these companies differently from traditional or digital venture capital holding companies. They are usually born in a research lab, and the support and guidance of investors in building a business around this “science core” is crucial. This can include developing human resources, creating the minimum viable product, working with early customers, and gaining market traction.

This means that we need specialized scientific action funds (and specialized general practitioners). While science equity funds come in even before generalist venture capital funds, they can help generalist funds understand the peculiarities of the sector.

We also need more science action funds. Most funds targeting this asset class are around € 50m. These are still too small for the kind of money the industry needs to invest.

A sign of what’s possible

A few global companies are already showing the potential of this new category. For example, Cottonwood Technology Fund, which operates out of the United States and the Netherlands, scored a big win when the American robotics company Sarcos was listed on Nasdaq via a Spac. This investment was made by the US team at Cottonwood – investment in European science stocks has not yet grown to this point. But it is a sign of what is possible.

Almudena Trigo is the founding partner and President of BeAble Capital, a Madrid-based venture capital firm that invests in scientific capital.

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