Success factor in deep tech: developing the right funding strategy for startups right from the start.

Why a holistic funding strategy is crucial

Deep tech startups are in a special position: They develop technologies that can bring about profound changes in science and industry over many years. But the revolutionary approaches of these startups bring with them high demands - both financially and structurally. Deep tech is characterized by complex basic research, long development cycles and capital-intensive research and development (R&D) costs. Unlike typical high-tech companies, deep tech startups require extensive financial resources to survive many stages of development and bring their products to market maturity. We have published a very comprehensive article on this topic that should help you better understand the special challenges.

The problem: Many founders, especially those with an academic or scientific background, are often unaware of the financing options available for deep tech startups. They also often do not know that different sources of financing can be strategically combined to close the financing gaps that cannot be covered by a single source. This often leads to projects remaining underfinanced in the crucial development phase and not being able to develop the potential that they theoretically have.

The aim of this article is therefore to demonstrate the importance of a comprehensive financing strategy that is specifically tailored to the needs of deep tech startups. We explain why it is important to develop a multi-stage strategy before the company is founded that focuses on funding but also includes other sources of capital. With a well-thought-out, combined financing strategy, startups can successfully meet the challenges in the deep tech sector and ensure that their innovations reach market maturity and are successful in the long term.

The importance of an early and holistic financing strategy

A holistic financing strategy is the key to success for deep tech startups. Since such companies usually have high R&D costs, long development times and complex barriers to market entry, a one-time capital raise is often not enough. Instead, the entire development process requires a continuous financing pipeline that remains viable in all phases and responds flexibly to the respective requirements. Such a strategy should be planned as early as possible, ideally before the company is founded, to ensure that financial resources flow seamlessly throughout the entire development process.

Need for a strategy: step-by-step financing through the development phases

Ideally, a deep tech startup goes through several development phases - from the idea and early research to prototype development, scaling and market launch. Each phase has different requirements for financing. A clear, step-by-step financing strategy acts as a "pipeline" that makes it possible to ensure the transitions between the phases. If such a strategy is missing, projects can stall or fail at crucial stages because funds are unexpectedly used up. A pipeline with predictable cash flows not only helps to cover development costs, but also gives the company stability and predictability.

To effectively build such a pipeline, founders should ask themselves the following questions:

1. What sources of funding are available at each stage? Grants can provide valuable support in basic research and early R&D, while private investment can help accelerate growth in the market launch phase.
2. What are the prerequisites to successfully secure financing? Each phase brings new requirements, such as proof of feasibility or a clear product vision that convinces potential investors.
3. What are the risks if the transition between phases is not seamless? Without continuous financing, a project can lose a lot of momentum and miss out on market opportunities.

Combination options: Funding as a basis, supplemented by co-financing

Grants often form the backbone of deep tech financing, as they are non-dilutive and specifically geared towards innovation and R&D. European funding programs such as the EIC Accelerator or national programs such as the German KMU-innovativ aim to support companies with high growth potential and technological risk. However, grants usually only cover part of the project costs (often between 50-80%), which means that additional sources of financing are required. This combination of grants with other sources of capital not only maximizes the financing scope, but also supports the startup in phases with particularly high capital requirements.

Other useful financing options may be:

• Venture capital and business angels: Private investors are an important addition, especially in the prototype and growth phase, as they bring capital on a larger scale and often also strategic expertise.
• Equity and reinvestment of profits: Especially when it comes to government funding, the startup is often expected to contribute its own share.
• Tax incentives and innovation vouchers: Many European countries offer tax incentives and innovation grants that support, for example, consultancy services or technological developments and reduce the financing burden.

Choosing the right combination depends on various factors, such as the company stage, capital requirements and specific project requirements. A well-planned financing model should take these factors into account and ensure that no phase of the project remains underfunded.

The early start of strategy development

Since developing and implementing a comprehensive financing strategy takes time, this planning should ideally begin before the company is founded. An early start helps founders to identify the options for each phase in advance and to create the necessary conditions to secure grants and other financing in good time. In addition, a clearly defined strategy also has a positive effect on investors and funding institutions, as it shows that the company is structured and thinks long-term.

The most important steps in strategy development before founding a company include:

1. Identification of relevant funding opportunities and financing programs: Which programs are suitable for the planned development phases and which requirements must be met? European funding programs and national initiatives often offer different funding options tailored to specific needs.
2. Cost estimation and needs analysis: Clear funding needs should be established for each phase to ensure there are no gaps. A detailed analysis of potential project costs is crucial for this.
3. Building relationships and networks: Many grantmakers and investors place a lot of value on early relationships. Networking can open up access to new sources of funding and build trust when it comes to large projects and long-term investments.

Through early planning and a comprehensive financing strategy, deep tech startups secure access to the resources needed for sustainable success. A holistic approach that incorporates funding as a central component and simultaneously integrates co-financing options forms the basis for consistently and successfully implementing the company's vision.

Overview of the European funding landscape

The European funding landscape offers a variety of programs that are specifically tailored to the needs of deep tech startups. These funding opportunities range from large-scale EU-wide initiatives to national programs provided by the individual countries of the European Union and Switzerland. This overview presents the most important funding programs at EU level and in the respective countries and shows how these programs help startups to develop innovative technologies and bring them to market.

EU level: EIC Accelerator and Horizon Europe

1. EIC Accelerator: The European Innovation Council (EIC) Accelerator is one of the EU's most important funding programs for deep tech and breakthrough technologies with high market potential. It is aimed at small and medium-sized enterprises (SMEs) and startups working on disruptive projects in areas such as AI, energy, environmental technology and life sciences. The EIC Accelerator offers funding of up to EUR 2.5 million as non-dilutive funding for R&D costs, as well as the possibility of receiving an additional investment of up to EUR 15 million. The aim is to support companies whose technologies are still before market entry and whose high level of innovation promises considerable growth potential.
2. Horizon Europe: The Horizon Europe funding programme is the EU's most important research and innovation programme and supports projects across all technology readiness levels (TRL), from basic research to market launch. Horizon Europe aims to strengthen Europe's global competitiveness by supporting projects in areas such as climate, health, digitalisation and sustainable innovations. There are funding programmes specifically aimed at deep tech in the second pillar, "Global challenges and industrial competitiveness", which enable start-ups to finance their projects from early development phases to commercialisation.

National programs in the EU and Switzerland

EU member states and Switzerland offer national funding programs that are also specifically targeted at deep tech. These programs complement the EU-wide initiatives and offer specific support to companies that want to develop new technologies and bring them to market.

Germany:

• KMU-innovativ: This funding program of the Federal Ministry of Education and Research is aimed specifically at small and medium-sized enterprises (SMEs) and supports high-risk research and development projects with up to 80% of the costs. It covers various areas, including biotechnology, information technology and nanotechnology. KMU-innovativ offers tailor-made support for deep tech startups in the R&D phase.
• ZIM (Central Innovation Program for SMEs): ZIM supports both individual projects and collaborations in the field of research and development that lead to marketable products, services or processes. The funding can cover up to 55% of the project costs and also supports companies in scaling and market launch. ZIM is particularly valuable for startups that have already developed a prototype and are aiming for the next stage of product development.These programs at European and national level offer deep tech startups a broad base of financing options. By strategically combining these grants, all development phases can be covered - from early concept development to scaling and market launch. A targeted mix of grants and co-financing enables startups to create the financial basis for long-term growth and sustainable innovation.

France:

• Bpifrance: The state development bank Bpifrance offers a variety of funding programs and financing options that specifically support innovative companies. With programs such as Aide pour le Développement de l'Innovation (ADI), Bpifrance promotes the development of deep tech innovations through non-dilutive grants and loans that support both the R&D phase and market entry.
• i-Lab Innovation Contest: This annual competition is aimed specifically at deep tech startups and offers grants for particularly innovative early-stage projects. The funding focuses on groundbreaking technologies that are still in the development stage and supports founders in developing their ideas further and bringing them to market maturity.

Switzerland:

• Innosuisse: Innosuisse, the Swiss Innovation Agency, supports deep tech startups through projects carried out in collaboration with scientific institutions. These collaborations enable startups to gain access to highly specialized expertise while gaining financial support for their innovation projects.
• BRIDGE program: In cooperation with the Swiss National Science Foundation (SNSF), the BRIDGE program offers an interface between basic research and innovation. The program is aimed at projects that are in their early phase based on research results and aim for practical application. This makes BRIDGE ideal for startups that have new technologies in development and want to test initial applications.

Other countries:

• Netherlands: The WBSO (Wet davordering speur- en ontwikkelingswerk) is a tax incentive program that allows companies to reclaim part of their wage costs for R&D activities. In addition, the MIT grant (MKB Innovatiestimulering Topsectoren) offers grants for feasibility studies and innovation projects, especially in strategic sectors.
• Poland: The Smart Growth Operational Programme and funding from the National Centre for Research and Development (NCBR) aim to strengthen the competitiveness of Polish companies by financing R&D projects and implementing innovative technologies.
• Belgium: Belgium has regional support programs such as VLAIO in Flanders and SPW in Wallonia that target R&D projects and promote the competitiveness of local companies. Belgium also offers tax incentives on income from patents and innovations that directly support R&D investments.
• United Kingdom: Innovate UK offers a variety of funding competitions for innovative companies developing new technologies. In addition, the UK R&D Tax Credits programme supports companies by providing tax relief, which offsets part of their R&D costs.

Phase-oriented financing for deep-tech startups: From idea to market readiness

Successful financing for deep tech startups requires a clear orientation towards the development phases of the project. The so-called Technology Readiness Level (TRL) scale is an internationally recognized model that maps the progress of a technological project in nine stages. These stages range from basic research (TRL 1) to full market readiness (TRL 9). The TRL scale offers practical guidance for selecting suitable funding opportunities and financing partners in the respective phases.

These programs at European and national level offer deep tech startups a broad base of financing options. By strategically combining these grants, all development phases can be covered - from early concept development to scaling and market launch. A targeted mix of grants and co-financing enables startups to create the financial basis for long-term growth and sustainable innovation.

Introduction to Technology Readiness Levels (TRL)

The TRL scale helps deep tech startups assess the maturity of their technology and use the right financing instruments in a targeted manner. Funding programs and investors often set specific TRL levels to assess the stage of development of the project and allocate suitable financing opportunities. A deeper understanding of the TRL levels enables startups to apply for funding in a targeted manner and plan the financial requirements of each phase in a targeted manner.

Phase-oriented presentation of financing options

The financing requirements vary considerably in the different development phases of a deep tech project. Here is an overview of suitable financing approaches and funding options in the individual phases:

Idea and concept (TRL 1-3):

• Objectives of the phase : This phase covers the fundamental research and the first conceptual steps of a technology. Here the feasibility of a new concept is investigated and the scientific basis for the project is created.
• Typical funding sources: Funding at TRL 1-3 is often supported by academic funds and special early-stage funding programs. Programs such as Horizon Europe offer funding for basic research, while national funding sources such as eXIST in Germany and the BRIDGE program in Switzerland specifically support start-up projects from an academic context.
• Challenges: In this phase, startups often still have no capital of their own or investor support. Funding is therefore particularly important in order to carry out initial experiments and concept studies and to lay the foundations for later development.

Product development and prototyping (TRL 4-6):

• Objectives of the phase: The technology is tested in realistic conditions and a prototype is developed. In this phase, the concept is tested for its technical and commercial feasibility. This stage of development requires significant resources, as both research and application development take place in parallel.
• Typical funding and financing sources: Funding at this stage is usually supported by programs that finance application-oriented research, such as the EIC Accelerator at EU level or KMU-innovativ in Germany. Co-financing is often required, so venture capitalists and strategic partners come into play at this stage, who can support the project with equity or debt capital.
• Challenges and solutions: This phase is capital-intensive and requires a combination of funding and private investment. A strong business case and the prospect of a marketable solution are crucial to convince funding providers and investors alike. Funding programs such as the EIC Accelerator also offer the option of mixed financing, where a combination of non-dilutive grants and equity funding is possible.

Market entry and scaling (TRL 7-9):

• Goals of the phase: In the final TRL stages, the technology is brought to market maturity and made scalable. This is about commercialization and expanding production in order to establish a marketable product.
• Typical funding and financing sources: This phase is often supported by special market entry grants and tax incentives. Programs such as ZIM in Germany offer grants for market entry, while innovation vouchers and tax breaks (e.g. R&D Tax Credits in the UK) can encourage market expansion. Private investors and strategic partners are also increasingly used to help the company enter national and international markets.
• Challenges and solutions: The transition from prototype to market maturity is cost-intensive, as production processes must be set up and sales structures developed. Many funding programs therefore place particular emphasis on the feasibility and marketability of the technology. Tax incentives also help to cushion the financial burden of market entry and enable resources to be used specifically for growth and expansion.

Through strategically planned, phase-oriented financing along the TRL stages, deep tech startups can ensure that their projects receive the necessary funds at every stage. The combination of grants, private investments and tax incentives forms the basis for long-term successful scaling and market launch.

The art of combination: How funding and co-financing work together optimally

A successful financing strategy for deep tech startups is based on the targeted combination of different sources of financing. Grants often form the foundation of financing, but they are rarely sufficient on their own to fully cover all development phases of a project. The trick is to combine grants with private capital, tax incentives and other financing instruments in such a way that the entire project cycle is supported - from the idea to market readiness.

Strategic combination of subsidies, private capital and tax incentives

Funding programs often have specific areas of application and requirements, and their scope varies depending on the project phase. A clever combination enables startups to make optimal use of various sources of financing and to use the funding strategically as a basis for additional sources of capital. The question is: when and how do you combine funding sensibly?

1. Early-stage financing with grants and start-up capital: In the ideation and concept phase (TRL 1-3), grants such as EXIST or the Swiss BRIDGE program can lay the foundation for project development. In most cases, little equity or start-up capital is required to meet the conditions for funding.
2. R&D and prototyping (TRL 4-6): During the application-oriented R&D phase, the requirements for capital and resources increase. Funding programs such as the EIC Accelerator and the German KMU-innovativ often require co-financing in this phase, in which private capital, for example through venture capital or business angels, can be used. This combination increases the chances of comprehensive financing and signals to funding bodies that the startup is financeable in the long term.
3. Market entry and scaling (TRL 7-9): Tax incentives such as R&D tax credits (for example in the UK or the Netherlands) and market entry programs such as ZIM or innovation vouchers provide valuable support to promote market penetration and finance growth. Private capital sources, often through strategic partners or larger investors, help to set up production and sales structures.

Practical examples and tips for optimal use of funding programs

Managing different funding programs and capital sources can be challenging. Here are some tips to make the most of funding at different project stages and manage financing structures efficiently:

• Think stage by stage: approach funding in phases, using specific programs tailored to each TRL stage and development needs. A step-by-step approach allows for flexible funding that adapts to project progress.
• Cooperation projects as a door opener: Many funding programs prefer projects that are carried out in cooperation with research institutions or industrial partners. Especially in the R&D phase (TRL 4-6), cooperation can increase the potential of the project and improve the chances of funding.
• Parallel planning and resource allocation: Develop a financing structure that uses funding in parallel and complementary ways. Make sure that funding is available for important milestones and that equity and funding are used optimally in terms of timing to avoid gaps.
• Funding as leverage for investors: Use approved funding to strengthen investor confidence. The promise of public funds serves as a quality feature that signals that the project has potential and official support.

Long-term management and compliance for sustainable financing

Funding and complex financing structures require strategic management in order to continuously meet funding criteria and compliance requirements. Long-term management not only ensures compliance with all requirements, but also increases the chances of follow-up funding and sustainable financing of the project.

• Ongoing documentation and reporting obligations: An essential part of funding management is continuous documentation and reporting. Startups should regularly document the development steps and use of funds in order to demonstrate compliance with the funding conditions.
• Strategic adaptation and scaling: The financing needs of a deep tech project can change during development. Dynamic management allows the strategy to be adapted and new financing opportunities to be identified as market requirements change.
• Establish long-term partnerships: Relationships with funding institutions and investors should be actively maintained and expanded. Good partnerships can facilitate follow-up financing and open up access to new funding and networks.

The art of combination lies not only in selecting the right funding, but also in long-term planning and adapting the financing strategy. Through a well-thought-out, flexibly adaptable combination of funding and co-financing, deep tech startups ensure that their projects are stably financed in every development phase and remain on the road to success.

Conclusion

Financing a deep tech startup requires a comprehensive strategy, which is ideally developed in the early concept phase. A strategic approach that is specifically tailored to the specific challenges and phases in the deep tech sector can make the difference between success and failure. The path from basic research to market readiness is long and capital-intensive; therefore, a flexible and multi-stage financing strategy is crucial in order to have sufficient resources available in every development phase.

An important basis for this strategy is the wide range of funding opportunities available at EU level and in European countries. Funding programs such as the EIC Accelerator, Horizon Europe, national initiatives such as ZIM and KMU-innovativ in Germany or Innosuisse in Switzerland offer targeted support for deep tech innovations. However, these funding resources alone are usually not enough - they must be supplemented by co-financing, such as private capital, tax incentives and strategic investments. The clever combination of public and private funding sources maximizes financial flexibility and offers stability throughout the entire development process.

The European funding landscape offers deep tech startups an extraordinary opportunity to realize their projects and grow successfully in the long term. Those who develop a well-thought-out financing strategy early on and combine the appropriate funding with other sources of capital create the ideal conditions to not only survive in the deep tech sector, but to be sustainably successful.

Thank you for coming this far. I hope you enjoyed it!🎉 If you need guidance, advice or have any questions, feel free to reach out anytime 😊

Yours, eM.