66. The Rise of Europe’s Deep Tech Spinouts

0:00Welcome to The Difference Engine, the show for tech founders, investors and innovators.

0:09Okay, what's coming up today? We'll be unpacking digital IDs. Are they an economic engine or a threat to freedom? And we'll also be exploring whether Salesforce is entering the twilight of its era of uncontested category dominance. But first, in the words of the great Pete Burns, you spin me right round, baby, right round. Are European spin-outs dead or very much alive?

0:42Now we try our best on the Difference Engine to break down the forces shaping the future of technology and innovation. Now today we're going to highlight something big, the European Spinouts Report 2025. And honestly, Paul, it's one of the clearest scans we've had of Europe's deep tech engine. Yeah, absolutely. Spinouts don't always get the spotlight. we've long suspected they're one of the most powerful innovation mechanisms we have here in Europe. I can't help thinking about Tim Berners-Lee's spin out from CERN, which gave us the World Wide Web. And this report put together by Dealroom with Atlantic, Mito Technology, Cambridge Innovation Capital, Oxford Science Enterprises, and Northern Gritstone, love that name, really quantifies the impact of those spin outs.

1:30The first thing that it underlines is that spin outs are actually the deep tech workhorse, something which I suspect a lot of people haven't really thought through. You just have to start with the headline number here, which is 40 % of all new deep tech and life science startups founded since 2019 are academic spin-outs. Essentially, the last five years, 40%. That's massive. It is massive. And the curve is steepening, which tells you universities aren't just research hubs, they're becoming little startup factories. They're not small factories either. The report counts over 7 ,300 European university spin-outs.

2:12That's creating just under 400 billion in enterprise value and generating over 150 ,000 jobs. That's a whole economy's worth of impact. All right, let's talk about the leaderboard. We all like winners. The UK is crushing it, I'm glad to say. Three of the top five universities for spin-outs are British. Hurrah! And take a guess. Take a guess at which nation in Europe would be right behind the UK. Well, guessing by their own self-promotion, can I guess? France. No. Oh. Can you take another guess? No. Let's put you out of your misery. It's Switzerland. It's sort of no surprise if you think about it.

2:56you know eth zurich and epfl are basically european deep tech royalty right for research institutes cnrs in france takes the stop spot have very dirigiste and when you adjust for population which is sort of important um switzerland is number one by value created per capita then it's denmark some great innovation coming out denmark um sweden we know about the uk finland belgium all close behind all very good any more good well funding overall actually you know the good news is that 2025 is is shaping up surprisingly strongly 7.9 billion raised so far um and on track for 9.1 billion by the year end a natural communicator may say 10 billion there big number there's also So some other good stuff, M &A activity for deep tech and life sciences spin outs reached its highest level in 2024, 2025.

3:59Now although that's great, that's might be partially driven by the fact that IPOs all but disappeared after 2021. Also 2025 is projected to be the second strongest year for exit value. And that is because it's been led by$6 billion plus exits. Now, again, we go back to who's leading this deep tech. Guess what? The gnomes are at it again. Switzerland, UK and German universities made up all six$1 billion plus exits in 2025. Amongst them, it was ETH, Oxford, EPFL and the University of Dubingen. But as we all love to talk about the superior value generated by category leaders, US corporates and funds acquired most of the spin-outs value, nearly$24 billion since 2019.

4:56Well, not to sound like a broken record, but could it be in any way connected to that old bugbear of ours, the lack of dominant category creators in Europe, and the way too premature exits? Looking at the data, it seems so. Late-stage capital is still Europe's Achilles heel. Nearly 50 % of growth funding is coming from outside Europe, mainly to date, and I think this might change soon, to date, you've guessed it, from the US. The reality here is that the science is most definitely European. The scaling is absolutely not. That is a profound structural risk. As I said, that particular issue we aren't going to solve overnight, but it's worthwhile thinking about in what segments is the action actually happening.

5:48Well, yeah. So the strongest segments are biotech and pharma or tech bio. and you can sort of think about that in selling fat injections to people from all over the world. AI and deep tech, I give you DeepMind et al. Quantum, we clearly have some amazing companies here in the UK around quantum and France, Alice and Bob. Climate and energy, that's a topical one. Semiconductors and robotics, that sort of deep tech really interests me. And what's really worth a read is that the report profiles the top 100 scientific founders behind Europe's most successful spin-outs. It's the who's who of frontier tech in Europe.

6:30Okay, so that's basically every field in deep tech and every bright mind that's going to define the next 30 years of industrial and scientific infrastructure. Hurrah! Yeah, the report though isn't just diagnostics, it's all very well looking back. It's actually prescriptive, so clearly not a government report then, like the atrocious one we've just had spent 200 million having in the UK about COVID. It actually lays out concrete recommendations. That's what we like in our reports. And here they are. So standardizing fairer, founder-friendly spin-out terms, like that. Stronger proof of concept funding.

7:08Would love to help with the category definition there. More late-stage capital to keep scale-ups in Europe. No shit, Sherlock. Yeah. Better incentives for researchers so that they see entrepreneurship as a viable career option alongside just being published in academic journals. In other words, if Europe wants to turn world-class science into world-class companies, these are the levers. So what do we learn from all of this? I think this report is the clearest sign yet that Europe's deep tech moment is real and it's accelerating but without fixing those late stage capital gaps we risk continuing to export our breakthroughs and probably the talent that goes with them exactly the innovation engine is clearly running now europe has to build the rest of the vehicle think there are too many look-alike tech companies chasing the same markets?

8:09We do. We think it's because so few tech startups are able to build and lead their own categories. What matters most is to be different. Stop following and start building your own unassailable leadership position today. Working with the category design gurus at Categorical brings decades of differentiation expertise to your team. Book a consultation from our website today and we will send you our one pager detailing how to start designing your own highly differentiated category so one of the things that has triggered me recently is um this debate we're having specifically in the uk about digital id what do you think depending on on who you believe digital ids are the silver bullet to managing immigration how to stop benefit fraud and a way to make sure the NHS is what it needs to be, which is a lot more efficient, or you believe it's a fork in the road for personal liberty and a door opener for the vice-like grip on our privacy, probably enabled by foreign firms.

9:20So I think we need to just have a mature, grown-up debate about this, because the claims on both sides are frankly ridiculous. So the upsides claimed by Mr. Starmer et al. in putting this out there was that it somehow, and I can't quite figure out how, given that everybody throws their passports away when they're midway across the channel, it's somehow going to help us to curb immigration, unwanted immigration. Don't see that. Second claim, which I think probably does hold a little bit more water is that the NHS will benefit and will waste less money because having to prove that you are eligible and you are who you say you are will reduce fraud.

10:06That I can buy. National security is another claim. And national security in terms of reduced criminality is, I guess, somewhere in the middle here. Most countries in Europe, you have to carry some sort of ID and produce it on demand. Bizarrely in the UK, you don't have to, but if you don't, you'll rapidly be taking a trip to a police station. What I find most interesting about this debate is the alliance of the people who have lined up against it. It is a motley crew at best. So, you know, you've got the mad right-wing anti-vaxxers. You've got libertarians. You've got the open-source community, you know, sort of, you know, utopian socialists, old people, you know, who are pretty digitally challenged.

11:03Those people who like to do everything in cash, I wonder why they're against it. And, of course, criminals. Yeah, I love the intersection here. It is crazy. So you've got people who want to be free as a bird to do whatever they want. And obviously, some of those people may be criminals. There's maybe an intersection there. People who love and prize cash, who just want the folding stuff when they're going down to the post office or to the pub or wherever they're going, holding lots of cash that's very easily stolen. And the intersection, maybe they are the intersection with older people. Who knows?

11:37And maybe they are also digitally challenged. But it is a hodgepodge. It's like the village pitchfork brigade. I sort of don't buy this argument about personal liberty and people knowing too much about you. Surely some of the same people who are arguing against this are the people that are spreading their entire lives all over Facebook and TikTok and a thousand other media channels. How many times a second do these things spill out your location? How many of the online services, as you say, that people put their selfies on also, quote-unquote, grasp them up for what they're spending, where they've been, who they've been close to, what age they are, what their family looks like, what they like, what their political preferences are.

12:21I mean, it's madness to think that stopping a digital ID card, and that's what people seem to be most egregiously offended by, a card, when they've actually got more information than they could ever tell a policeman coming out you know by the second from the phones it's rank hypocrisy it might be i'm sure some of these people are also um buying enormous amounts of stuff online you and your location are constantly tracked on that and frankly if you go to try and pick up a parcel at your local post office or your news agents you know they want your driving license or your passport now that strikes me as some form of extreme identification and what is the what is the threat that baddies always tell you and even corrupt security forces.

13:11We know where you live. Well, guess what? Where your phone rests at night is very, very likely to be where it is that you reside. Put either of our names into Google and you'll find out our home addresses within seconds. Not that I'm encouraging any of that, any doxing. But the trouble with this, I think, is the way that politicians down the years have tried to get won over on the public. I think of Tony Blair and his trying to introduce ID cards and the objection by a certain Nicholas Clegg that this was terrible. Well, what did Nick Clegg go on to do? He went to join Facebook, which is the number one doxer and collector of personal data in the world.

13:51And seems to be quite happily arguing against them now that he's free with all that massive amount of money he earned when he was working for. None of that's heading back. Also, politicians are famously inept with our privacy. We all know the widely rumored, let's just call it out for what it is, probably true, requests by the UK government recently to backdoor Apple messaging. And Apple had to withdraw a privacy function in their cloud just because the threat was they would be closed down. So, So, you know, I feel as though politicians are on the one hand having grown-up conversations with big tech and treating the rest of us like adults.

14:32And it's not really helping us to have a proper debate about digital IDs. Of course, it's in the interest of big tech to push this anyway, because it's a massive market. In the same way as there is a big tech agenda around AI. They are acting as they should as true capitalist companies. they're acting in their own and their shareholders' interests. But the issue is, is that in our interests as citizens? Well, it doesn't help that one can easily construct a conspiracy theory about this. So Tony Blair tried to introduce this. Tony Blair has the Tony Blair Foundation, which is going to bring world peace to Gaza, etc., we're led to believe.

15:13Who is a massive donator to Tony Blair's foundation, do we think? Oh, that would be Larry Ellison, wouldn't it? That would be Larry Ellison. who owns a lot of TikTok, has a lot of government contracts, is a multi-trillion player in big tech. That's not really making people very comfortable about that. And worse still, even though it's been denied, time will tell, that the rumor is that some of these contracts for the proposed digital ID that we think will be foisted on it will be going to a certain Ewan Blair, son of. Could he by any chance be related? He's related to Tony Blair. So you can see how conspiracy theory could be constructed.

15:55Although I'm here to tell you, I don't think neither you or I are against digital IDs per se, right? There's a lot to be said for it. The most serious critique I've heard, or the one that seems to be getting the most, I wouldn't call it serious, I wouldn't dignify it with serious, but is that some people will be excluded because they're not digitally aware, because they're not savvy. but then I flip this to what's potentially on the upside of everybody having a digital ID it's going to save costs you're not going to have to need multiple ways of identifying yourself to all the various departments the NHS the the transport department the police you've got one piece of evidence and that ultimately on the back end will save save us all costs.

16:41It's interesting because, I mean, look at the Baltic states and, you know, some of them are completely digital states now. So it makes me wonder, has anybody worried about their security issues? In fact, actually, they've got some bigger security issues than digital identity to worry about, given their borders. But they are delivering all their services, you know, based on digital ID. Yeah, I mean, once you've got a bunch of digital ID in place and one login, so to speak, for tons of services, you can get really creative and do some amazing things for your citizens. Not least of which is to keep the nation secure.

17:18Why would we not want to know exactly who is walking all streets, where they've been, whether they have a right to remain, whether they have a criminal record? And without one means of doing that, you have all of these siloed systems for criminal records, checking for dealing with children, etc. And so often they go wrong. And the answer is always the same. Two systems didn't speak to each other. They don't have a common reference point. Just to sum this up then, where do we land on digital ID and this debate, which sadly seems to be rumbling on? I think you're a little bit more decisive about this than I am.

17:56I'm frankly really agnostic. I think it's a bit of a non-issue. I think it will become a big issue. They've got more than half a million people signed up to make it a debate in the House of Commons. It won't possibly be the definitive issue for all times, but it's got a lot of people hot under the collar. But it's not the tech, is it? It's not the tech itself. It's the controls that you put on it and how you integrate it into the organization. It's the same thing in a nation as it would be with a company. Yeah, and I can't help feeling if the UK had somewhat of a better track record on technology projects.

18:34As you say, this would be an honest view. But we've got an atrocious track record, so may the games begin.

18:47You know what? This really grinds my gears.

18:54What do we want to rant about today, Jono? It's really about why Salesforce may be entering the end of its era of unchallenged category dominance. Now, let me put this into context. We've got a lot of time for Salesforce. Benioff is one of the five standout founders and enterprise software leaders of his generation. And for those of you who are regular listeners to the Difference Engine, we recently had the great Dr. Steve Garnett on the show, and he built Salesforce across Europe. And he gave us a masterclass in how to survive and prosper in EMEA sales industry. But, listeners, have you been watching what's happening at Salesforce?

19:38Everybody's talking about the 4 ,000 layoffs of support staff for AI, in inverted commas. But almost no one is talking about what we think is the real story, which is that Salesforce's revenue growth has collapsed at the same time and its stock has crashed 35 % between 2024 and 2025. Yeah, I think that's the giveaway given that equity prices are supposed to price in future valuations. There's something going awry. And clearly, Salesforce hasn't forgotten how to sell. It's a selling machine. And whatever else you think about them, they are a process machine, arguably the most process-driven go-to-market organization ever built.

20:27Although rather cruelly, we have previously referred to them as an events company with a software firm attached. The point is, when they post the slowest revenue growth in company history, right after a massive efficiency push, that's not an AI issue. that's leadership ticking the ai box for investors but optimizing for efficiency while ignoring effectiveness yeah and really are they trying to get away with a pivot here um you know it's classic late category problem when the category is changing under your feet um you know you've dominated for over a decade you start thinking the system underneath is is unbreakable and just when you think about it the tech industry's beautiful at this things move around there's a changing the tectonic plates markets move customers shift and that's clearly what's happened here and suddenly that amazing sales engine that used to run on rails starts to splutter yeah it's the same thing i see most days with my m a hat on in mid-stage sas companies you know the company hits five million dollars ar ar gross stalls everybody blames the sales team and probably marketing then the ceo steps back in and realizes that the underlying system as we would say from the north wouldn't we pull was all mouth and no trousers i think we'd call that um fur coat no knickers but okay we might i was trying to be clean so you know What you see, tools everywhere, lots of activity, but the consistency of approach that enables the constant adjustment to emerging trends is non-existent.

22:11Yeah, absolutely. And let's not, you know, we are talking about Salesforce, but let's not pick on them unnecessarily. They just happen to be the exemplar for amazing revenue growth, quarter-on-quarter, year-on-year to date. But what you have here is a problem at an enterprise scale. more AI means more automation. You might think that means more tools, but what it probably doesn't mean is a version of a Salesforce product that hasn't really looked like it's at the leading edge for decades, that has been somewhat frank encoded by lots and lots of acquisitions, and a core sales process that is not responding, it's just drifting to the speed at which AI is eating its lunch.

22:54And all you do in that case, if you keep doing the same thing, is accelerate the wobble. I think that that's a real and present danger. The temptation is for all companies right now to go full AI, AI for prospecting, AI for sequencing, AI for forecasting. They forget that sales process that got them so far. So what you increasingly see is no clearly defined stages, no qualification framework, pipeline reviews that are just status updates instead of the coaching opportunity that they really should be. Well, I think I'm a little bit more sympathetic than that. I mean, I think what's happened in economics is both here in Europe and in the States, people are pressing pause instead of just reordering what they had.

23:50And that's largely because of the uncertainty in economic markets, but also because AI is causing them to rethink their processes and at least understand that there is a way that they might want to move forward, which is more AI led and less, shall we say CRM led. But the point here is that ultimately, there's no point in automating a sales process, which is fundamentally changed because of the market, or because you've just topped it out and maxed out the efficiency of the sales process. Tools only amplify systems, they don't replace them. And that seems to be what's going on for Salesforce. So when a category leader starts leaning too hard on tooling, instead of looking at the fundamentals of the market, that's usually a signal that they're nearing the end of their domination.

24:37That's the part people are missing with Salesforce. The layoffs and the AI spin are a distraction. The slowing growth is the signal. Their problem isn't automation. It's erosion of the system that made them dominant. Right. And just like mammals, you know, we obviously took over from dinosaurs by being more adaptable or flexible to their environment. That's what you need to do, even if you are by far the category leader. And so efficiency works at certain stages in the category journey when it's effective to be first. And process matters a lot when things are very samey and you need repeatable processes.

25:21And structure matters more than automation if you're in a structured market. When things change, you need to flex. And I don't think that's what we're seeing. although you might argue blaming it on AI allows this company to pivot to where it needs to be. The point is, efficiency really only works when effectiveness comes first. It's process before tools, structure before automation, coaching before cutting. And this really isn't a lesson in how you fix a SaaS company. It's how you know when a category leader is losing the plot and why Salesforce may be entering the end of its era of unchallenged category dominance.

26:08Spending$16 million on Super Bowl ads that make no difference. Now that's really losing the plot.

26:21Thank you for listening. If you want to learn more about category design, head to becategorical.com. If you need help designing and dominating your category, then get in touch. Contact details are in the show notes.