British deep tech VC firm IQ Capital secured $200M in capital commitments toward its fourth fund. Additionally, the firm launched its second $200M Growth Fund to provide follow-on funding to promising startups within its portfolio. IQ Capital's fundraising comes as deep tech funding remains "at the forefront of investor's minds," per managing partner and co-founder Kerry Baldwin.
European deep tech startups secured $17.7B in VC funding in 2022, down 22% from record-setting highs of $22.8B in 2021, per Dealroom's latest European Deep Tech Report. Funding in 2022 was up 60% from 2020's total of $11.1B. Despite the dip in funding, VCs still see deep tech as the second most promising sector in Europe. With $5B invested into European startups so far this year, funding will likely remain slightly below last year's total as the sector feels the heat from the global VC funding pullback.
Nevertheless, funding for the sector is poised to see a lower decline than other sectors due to the recent advancements within the novel segments in the sector, especially generative AI. In the second half of last year, funding for the sector declined by 9%, while overall European VC funding slumped by 46%. The four emerging segments within the deep tech sector that raked in the maximum share of VC funding were novel AI, quantum computing, novel energy, and space tech. Collectively, the four segments raked in $4.4B in 2022. Investors' interest in the generative AI sector has increased this year, driven by the recent advancements in technology and the rising number of use cases for the technology. Despite increased investor interest and European government support, the growth of European deep-tech startups remains stifled due to a lack of late-stage capital and risk appetite. Investors have to outweigh the risk associated with deep tech investments as their risk profile differs from tech startups. Per Dealroom, they have high capital expenditures, technology risk, market risk, and development times as the technology is usually in its nascent stage and takes time to mature. However, they also have a low competition risk, as competitors find it difficult to replicate the technology, giving incumbents a lasting competitive advantage over rivals. IQ Capital's new fund pushed its assets under management (AUM) over the $1B mark. Fund IV is backed by one of the U.K.'s largest limited partners, British Patient Capital, and other global institutions, funds-of-funds, and family offices. IQ Capital has backed over 100 deep tech startups since its founding in 2007. Banking startup Thought Machine, ultra-fast battery charging startup Nyobolt, and speech recognition platform Speechmatics are a few of the most notable startups in its portfolio. Several portfolio companies were acquired by Oracle, Google, Apple, and Facebook, paving an exit for IQ Capital. Despite IQ Capital's vast experience in investing in the domain, it still found the fundraising environment challenging. Baldwin added, "Obviously, it's been quite hard to raise in this market environment, putting it bluntly. But we're doing something different." |
