Investment portfolios are still all about AI. But there is also an unprecedented amount of funding and excitement from European and global VCs, enterprises and governments about what other types of deeptech — from quantum to defence tech — can achieve.
Here, we examine the current state of play for deeptech in the UK and beyond, what budding startups need to do to secure funding and where the sector stands on talent.
Our experts:
- Atif Syed, founder of Whatsino, a UK-based robotics startup focused on handling fresh produce.
- Rebecca Gorman, founder of Aligned AI, which improves core AI components.
- Simon Thomas, CEO of Paragraf, a deeptech graphene electronics startup.
- Estelle Godard, vice president of VC firm Promise Ventures, which invests in deeptech firms.
1/ AI has shrunk the investment landscape
According to the Royal Academy of Engineering’s report, UK deeptech has consistently attracted over £5bn in annual VC funding since 2020 and closed £3.6bn in the first half of 2024. But Rebecca Gorman said the interest in AI has shifted investment away from other deeptech subsectors.
But, she said, with the emergence of innovations like Deepseek, there will be more interest in deeptech approaches to AI.
Simon Thomas conversely acknowledged that the deeptech investment world collapsed about two and a half years ago, first in public markets and then in private markets, which means that capital has been difficult to raise across the board.
“I don’t think we should see AI as taking investment away from other deeptech sectors — it’s just the latest trend. Before AI, it was quantum, before that blockchain, fintech and VR. Investors always follow market opportunity, and that’s not going to change.” — Simon Thomas, Paragraf
2/ The UK may have a funding problem
Atif Syed believes the UK has a funding problem. He said most deeptech investment comes from the US, where investors often expect deeptech firms to be based in North America, so without stronger government support the UK risks losing deeptech and robotics firms to countries with better funding environments.
Estelle Godard noted that the US has specialist deeptech investors. She also warned that geopolitical shifts will impact European deeptech in the coming years.
“I wonder if European and UK founders adopting a more expansive strategy and narrative might encourage local investors to surprise themselves with what they are willing to back.” — Rebecca Gorman, Aligned AI
3/ Think beyond your backyard when seeking investment
The European Commission’s IC Accelerator and initiatives like the European Tech Champions aim to address the investment gap. But are they viable solutions?
Syed credited Innovate UK with helping his firm reach its current position, but he remains sceptical of their role in the next three years. He also noted increasing interest from family offices worldwide — which could offer a short-term fix.
“Globally, there’s rising interest from Asia. Previously, it was Chinese and Singaporean funds, but now we see Malaysian, Taiwanese and Vietnamese investors entering the space. There are more options today than three or four years ago.” — Thomas, Paragraf
4/ Attracting funding is about building a moat
Thomas said investors have become more risk-averse, meaning early-stage funding now requires developing a strong product, as well as a clear path to market. That proves viability, but when it takes five years to develop an MVP, focusing on sales too soon can be risky.
While Thomas believes AI will see some consolidation, for those developing entirely new technologies, securing a strong moat is key to competing with large incumbents.
Meanwhile, Godard argued that the team’s cash flow management is most important.
“More important than the moat is how the team is going to execute, show its long-term vision and raise the money they need to bring that vision to life.” — Estelle Godard, Promise Ventures
5/ Address customer hesitation with partnerships
In addition to challenges with funding, there can be a reluctance from customers to integrate new technologies like robotics and AI. Startups are tackling this challenge.
Gorman said that because her company takes a unique approach to AI development, education is key. The next step is ensuring that AI and robotics systems perform reliably and as expected, regardless of the situation.
Godard also stressed the importance of ease of use. She pointed to Capri Robotics, a business in her portfolio that integrates easily with existing logistics and maintenance systems, making adoption smoother for customers.
“Many of our companies use strategic partnerships. By working with distributors and integrators, they build trust and provide localised support in their target markets.” — Godard
6/ Talent is facing big gaps
Thomas discussed the evolving definition of talent and said one’s needs typically change depending on the age of the business. While the UK is an innovative country with “lots of talent”, it struggles to compete in both quality and volume.
The only viable solution, Thomas argued, is to import talent. It’s important to start early by supporting schools, he said, but in the short term, the country must invite top global talent to act as exemplars and drive innovation. Visa policies are a good place to start, he said.
“There’s a brain drain in the UK, with top talent moving to the US for better pay and opportunities. We should be keeping more of our homegrown talent and channelling it into great businesses. I hope to see more entrepreneurship in the UK, leveraging the brilliant minds we have here.” — Godard
Read the orginal article: https://sifted.eu/articles/deeptech-investment-landscape-sifted-talks/
