Europe’s largest economy is in a strong position to develop the next generation of critical technologies, writes Michael Lewis, head of ESG research at DWS, supported by government initiatives.
Europe is on a mission to strengthen national and energy security, achieve climate neutrality, boost industrial competitiveness and reduce strategic dependencies. These goals are being underscored by a powerful regulatory and fiscal reset. These include Readiness Europe 2030 to bolster defence capabilities and the Green Deal Industrial Plan to improve industrial competitiveness and accelerate the transition to climate neutrality. To achieve many of these goals is the urgent need to develop and scale critical technologies.
Critical technologies are defined as those with transformative capabilities which, by promoting a strong and competitive economy, help to protect a country’s national interests, maintain global influence and drive strategic policy objectives.1 We identify defence tech, clean tech, advanced manufacturing, semiconductors and cybersecurity as among the most critical technologies to achieving progress against Europe’s ambitions.
Germany will be at the forefront of Europe’s transformation and the deployment of critical technologies. Europe’s largest economy consistently ranks in the global top tier for science and research capacity, industrial innovation and patents, advanced manufacturing, as well as deep tech including cleantech, robotics and AI. This is revealed across several key innovation metrics, including being the largest EU recipient of ERC grants and Horizon Europe funding,2 accounting for 12.6% of patent applications globally3 and holding the highest share of robot density outside Asia.
However, compared to the US, European startups and scaleups have limited access to capital markets such that Europe’s VC ecosystem is small, representing no more than 0.2% of GDP. Many European scaleups seeking to scale their production capacity to industrial levels must turn to foreign sources of capital, which ultimately harms Europe’s competitiveness as European scaleups become M&A targets for non-European corporations and critical technologies developed in Europe are extracted to support foreign interests.
Germany will be at the forefront of Europe’s transformation and the deployment of critical technologies.
Michael Lewis, DWS
Government support
To support these industries and drive innovation, the German government is spearheading an effort to provide targeted support to Germany’s startups and scaleups and VC ecosystem. The ambition is to secure Berlin, Munich and the other major tech hubs as global tech leaders rather than feeder ecosystems for US and Asian tech giants. This has become an urgent issue since over the last decade because around 6% of startups4 and almost 30% of unicorns5 have relocated from Europe, mostly heading to the US.6
To address this issue, new financing platforms and vehicles are being launched. This includes the Growth and Innovation Capital for Germany (Wachstums- und Innovationkapital für Deutschland, or WIN) initiative that was launched7 by the Germany Finance Ministry in late 2024 to bring together a broad coalition of corporates, banks, asset managers and industry associations alongside KfW to improve the framework for growth and innovation capital.
The WIN initiative is designed to facilitate growth and innovation in key areas of Germany’s economy and help tackle the country’s historical structural growth-capital gap by mobilising around €12 billion in additional venture and growth funding by 2030. Through a ten-point package covering topics ranging from startup factories, cleantech scaleup finance and expanded fund-of-funds structures to regulatory and tax changes for insurers, pension funds and public capital pools, WIN aims to expand and deepen Germany’s VC market and anchor more late-stage funding at home. In doing so, WIN seeks to ensure that German startups and scaleups can grow into the Mittelstand8 of tomorrow.
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1 The information herein reflects our current views only, are subject to change, and are not intended to be promissory or relied upon by the reader. There can be no certainty that events will turn out as we have opined herein.
2 The European Research Council (ERC) awards grants to fund frontier science research; Horizon Europe is the EU’s flagship research and innovation funding programme, running from 2021 to 2027 with a budget of around €95.5 billion, it is one of the largest R&D funding programmes in the world
3 European Patents Office (March 2025). EPO index 2024
4 Ifo Schnelldienst (May 2025). Der Start-up-Exodus. Warum Europas innovativste Start-ups nach Amerika fliehen
5 EU JRC technical report (February 2025). In search of EU unicorns – What do we know about them?
6 Deutsche Bank Research (January2024). Strong risk capital markets. Vital for unlocking green & digital innovations
7 German Ministry of Finance (September 2024). WIN Initiative Growth and Innovation Capital for Germany
8 Mittelstand historically refers to small and medium-sized, often family-owned, German companies known for long-term strategic focus, strong balance sheets, deep specialisation in niche markets and high export orientation