European Scaling Gap
"Europe funds moonshots but abandons industrialization - celebrating pilots while abandoning factories"
Origin: Professor Joe Haslam (IE Business School) describing the pattern of European deeptech failures including Ÿnsect, Northvolt, Volocopter, and Lilium
The Key Insight
The European Scaling Gap is a metabolic mismatch: industrial deeptech has different energy requirements than software, but European funding structures are optimized for software-like capital efficiency curves. The solution isn't just 'more money' - it's restructuring how capital flows through the prototype-to-production phase, including patient industrial policy, production-linked funding tranches, and realistic timelines for hardware-intensive businesses. As Antoine Hubert (Ÿnsect co-founder) recognized by founding Start Industrie: Europe needs more than funding to build deeptech companies - it needs funding structures matched to industrial metabolism.
What People Think
European startups fail to scale because of less venture capital, more regulation, or cultural risk-aversion. The solution is more funding and a more American-style ecosystem.
The Deeper Truth
The European Scaling Gap isn't primarily about total capital - Northvolt raised $15 billion, Ÿnsect raised $600 million. It's about the mismatch between how capital flows and what industrial deeptech requires. Europe excels at funding R&D pilots but systematically underinvests in the painful, capital-intensive industrialization phase. The gap isn't early-stage to growth-stage; it's prototype to production. Biologically, this is like investing heavily in seed development but abandoning the plant during the energy-intensive germination and root establishment phase - exactly when metabolic demands are highest and the organism is most vulnerable.
Biological Parallel
Germination is the most metabolically demanding phase of plant life. A seed must power root establishment, stem emergence, and leaf development entirely from stored reserves (cotyledons) before it can photosynthesize. Seeds that germinate in hostile conditions, or with insufficient reserves, die in the 'valley of death' between stored energy and self-sufficiency. European industrial startups face an identical pattern: years of R&D investment, then a critical transition period requiring massive capital to build production facilities, achieve certification, and reach scale - all before generating meaningful revenue. This germination phase is precisely where funding structures fail. Chinese and American competitors often maintain continuous metabolic support through this phase via state backing (China) or deeper growth capital markets (US). European startups attempt to germinate in harsher funding environments.
Business Application
The European Scaling Gap manifests across hardware-intensive sectors: **Batteries (Northvolt)**: $15 billion raised but couldn't achieve competitive unit economics against Chinese manufacturers with established supply chains. Scale was necessary for cost-competitiveness, but scale required time the capital markets wouldn't provide. **Flying Taxis (Lilium, Volocopter)**: Both German eVTOL companies filed for insolvency in late 2024. Years of development consumed capital before certification; government loan guarantees were denied; neither reached revenue before funds exhausted. **Alternative Protein (Ÿnsect)**: €600 million raised for insect farming, but the company built a 'giga-factory' before proving unit economics in the commodity animal feed market. The pattern: massive early investment, followed by inadequate bridge financing through the industrialization valley of death, followed by bankruptcy or foreign acquisition. Diagnostic questions: - Is there continuous capital available through the prototype-to-production transition? - Are investors prepared for the J-curve of industrial scaling (costs rise before revenue)? - Is the company building production capacity before or after proving unit economics? - What happens if certification or production ramp takes 2x longer than planned?
When It Breaks Down
The European Scaling Gap hypothesis doesn't explain all European startup failures - software companies face different dynamics. It also doesn't mean American/Chinese approaches are superior overall; they have their own pathologies (overcapitalization creating zombies, state backing distorting markets). The analysis breaks down when: 1. The startup failed for non-capital reasons (Ÿnsect's market indecision, Theranos-style fraud) 2. The technology itself was unviable regardless of funding 3. Competitors from other regions also failed (validating market issues, not regional ones) 4. European companies in the same sector succeeded through different strategies (Innovafeed's incremental scaling vs. Ÿnsect's giga-factory approach)