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In Madrid, Spain, on 12 May 2022, Editor-in-Chief Susan Schneegans presented the UNESCO Science Report to a gathering of 80 European science equity firms, along with several start-ups and representatives of the European Investment Bank and European Innovation Council. The aim was to impress upon private investors the value of funding science-based start-ups in general, and those developing ‘green’ ideas, in particular, even though science-based start-ups tend to need financial support over a longer period (about 15 years) than digital start-ups.

The meeting was organized by Spanish company BeAble Capital, which supports investment in science equity. Within the investment landscape, science equity specializes in technology transfer in deep science. BeAble Capital has produced a in which it explains that digital technologies tend to adapt existing technologies, whereas deep science produces industrial technologies that generate patents, making deep science a potentially more rewarding investment than digital tech (see below a video still).

The presentation of the UNESCO Science Report focused on trends and opportunities for investment in science-based industries. Case studies drawn from China, the European Union, Israel and USA demonstrated similarities and differences in these countries’ priority areas for investment in manufacturing, such as with regard to new materials, bio-engineering, robotics and clean-tech.

One rapidly growing field of research is materials science. About half of everything that exists (half of the 90 elements in the Periodic Table) could be in short supply within a century, according to the European Chemical Society. For instance, we shall have to find novel materials for batteries, if we are to power the growing arsenal of ‘green’ technologies such as solar panels, wind turbines and electric cars without exhausting the known reserves of lithium and other minerals used in current energy storage devices.

By 2019, China accounted for 38.6% of global publications on materials science, compared to a 19.3% share for the European Union, 9.0% for the Russian Federation, 7.8% for India and 7.5% for the USA. These shares take into account the rate of international collaboration, which is much higher in the European Union (46.5% co-authored with third countries in 2019) and the USA (40.9%) than in the Russian Federation (23.7%), China (23.0%) or India (18.9%).

Cross-cutting strategic technologies such as artificial intelligence & robotics, nanotech, energy research, biotech, bio-informatics and opto-electronics & phototonics accounted for 18% of scientific publications in 2019, up from 16% in 2015. Some of the fastest growth has been recorded in China.

Global scientific output on sustainability science is much more modest. Despite the market potential of research areas such as climate-ready crops and ecological alternatives to plastics, these two topics accounted for just 0.02% and 0.03%, respectively, of scientific output worldwide between 2012 and 2019, according to an original study in the UNESCO Science Report.

In Europe, the market potential of sustainable solutions is being enhanced by supportive policies for the green economy that have been adopted by the European Commission as part of the Horizon Europe research and innovation programme running from 2021 to 2027. These policies include the European Green Deal and the bloc’s revamped industrial policy.

Deep science offers an opportunity to develop innovative technologies that will take us on a more sustainable development path. For instance, with a growing number of European countries experiencing recurrent water shortages at certain times of the year as a consequence of climate change, desalination could become of greater relevance to Europe in the years to come. However, desalination causes problems of its own.

In Israel, for instance, 35% of freshwater comes from desalination but the share is as high as 70% for domestic and municipal water. A magnesium deficiency has been detected in the population that drinks desalinated water daily and the use of desalinated water in irrigation – 86% of wastewater is re-used in agriculture – is causing saltwater intrusion in soils.

Another example: each year, new constructions around the world use 40–50 billion tonnes of sand and gravel, making sand the second most traded resource after water, since three-quarters of concrete is sand. Sand mining causes pollution and flooding, depletes aquifers and destroys beaches and marine habitat. In 2015, cement accounted for 8% of humans’ carbon dioxide emissions, double the level of the airline industry. Cement demand could grow by as much as 25% by 2030 to meet urban demand. Despite this, research on ecological construction materials accounted for just 0.11% of scientific publications worldwide between 2012 and 2019.

‘Governments have committed to achieving carbon neutrality in the coming decades to limit climate change’, said Ms Schneegans, ‘but, to meet their targets, governments will need the private sector to partner more with the university sector to drive this transformation’. This is all the more urgent, in that many of tomorrow’s disruptive technologies will emerge from the basic science laboratories of universities.

In their quest for investment opportunities, science equity firms are used to approaching a university’s technology transfer office but participants in the meeting mentioned that some science equity firms were now also approaching researchers directly. Since these university researchers were often unaware of how to create a company, the venture capitalist might offer to hire and fund a business developer to serve as Chief Executive Officer, one participant commented, leaving the researcher to be Chief Technical Officer, if they so wished.

Marie Weiljer, Investment Manager at Cottonwood, mentioned that private investors now tended to equate sustainable technologies with innovative technologies. ‘If the new technology is not sustainable’, she said, ‘it won’t be considered innovative’. She went on to say that ‘we are interested in disruptive technology, not tweaking an existing technology. For example, one of the companies we supported developed the first flexible ceramics; as soft as a tissue, they can be folded around a battery to prevent it from overheating’.

Another participant remarked that some traditional companies were investing in ‘greener’ technologies, such as Dow Capital, part of Dow Chemicals, which was investing in plastic recycling companies and in drones to inspect chemicals that it might be dangerous for employees to approach.

Private investors in pre-seed, seed-stage deep science deals are a small community; there tend to be only one or two venture capital funds per country and none in some of the smaller members of the European Union.

About eight out of ten science equity managers do not have a background in scientific and technical fields, making it harder for them to assess the value of projects at the pre-seed and seed-stage. Atypical venture capital companies have sector managers who specialize in their sector, such as for water, mobility, materials science, food tech and clean tech (the trend now is to refer to “climate tech” rather than “clean tech”). Some sector managers hold both a PhD in a scientific field and a Master of Business Administration degree.

Science-based start-ups are a high-risk investment: the loss ratio on investment can reach 50–70%. Although it can take 15 years or more for a science-based company to become profitable, the investor can begin seeing a return on their investment after about five years.

Ms Shiva Dustdar, Director, Head and Dean of the European Investment Bank Institute, retraced the history of the European Innovation Council. She explained that the European Investment Bank had mapped the gaps in the innovation funding chain and that these findings had provided a justification for the creation of the European Innovation Council, which became fully functional in 2021.

For his part, Mr Stéphane Ouaki, Chair of the European Innovation Council (EIC), underscored the complexity of regulations in Europe compared to the USA. He mentioned the delays this caused in obtaining the necessary authorizations to market innovative products, which had led some European start-ups to apply for regulatory approval in the USA instead.

The European Innovation Council had identified the market gaps which needed filling through the Council’s funding instruments. The EIC accelerator, for instance, gave grants to pre-seed, early stage companies through the EIC Fund established in July 2020, which was managed by the European Investment Bank on EIC’s behalf.

Mr Ouaki mentioned that the EIC Fund had, so far, disbursed €700 million with a focus on deep tech. The reasoning behind this was that digital tech would be able to find finance on the markets but deep science companies took longer to mature and, thus, demanded a greater level of funding than venture capital funds could cover – meaning that deep science companies needed the European Innovation Council’s help. For the period 2021–2027, the European Innovation Council planned to channel €10 billion through partnerships, out of which €3.5 billion would take the form of science equity.

He concluded by saying that, although the European Innovation Council was a matchmaking plaform, it could not replace the market. ‘That is why it is important for science-based start-ups to attract some venture capital from the private sector’, he said.

For more information, please contact sciencereport@unesco.org