Building Resilience in Europe

‍‍Our new world order is defined by the return of great power competition and by increasingly impactful and frequent global crises. These changes are already having profound implications across every sector of the economy. As we’ve outlined in our thesis, the General Catalyst Global Resilience team focuses on technologies to modernize critical infrastructure, namely in energy, industrials and defense & intelligence. 

While our thesis is global, we understand the need for regional investment and ecosystem development. Earlier this year, we joined forces with La Famiglia, a seed-stage firm co-founded by Jeannette zu Fürstenberg with the vision to create a stronger, more prosperous Europe. Here, we explore our Global Resilience thesis as it relates to the European market. We delve into what we believe to be Europe’s existing strengths, most pressing challenges, and the greatest areas of opportunity to build more dynamic, resilient systems driven by technology.  

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We believe Europe faces a once-in-a-generation opportunity to supercharge its economy and modernize its critical infrastructure. The need is clear: we’re living in an era of accelerated change and increasingly complex geopolitical, economic, and ecological challenges. Fortunately, Europe is well positioned to meet these challenges:

• A strong industrial and entrepreneurial foundation: After the second World War, the urgency of restoring a battered Europe led to investments such as the infrastructure rebuild. Europe became home to leading industrial companies—both multinationals and family businesses like those that make up the German Mittelstand. 
• A healthy population with a good quality of life: Life expectancy in Europe is 81, compared to 77 in the US, and the EU spends about half as much on healthcare, relative to GDP. Europe is also a leader in financial inclusion, with rates of income inequality among the world’s lowest. 
• Leadership in sustainability: Europe is a leader in environmental protection and ESG policies, renewable energy investments, and emissions reductions. 
• An untapped talent base: The European workforce is highly educated and skilled; for example, Europe is home to more developers than the US. The continent also has a high concentration of research institutions and startup clusters, including more than half of the world’s top science hubs.
• A robust trade environment: Europe’s openness—with 30% fewer trade restrictions than the US and 70% fewer than China—creates a healthy market for European companies to thrive.

In spite of these strengths, Europe is performing below its potential. Economic progress has stagnated in recent decades and financial prosperity is lagging; in 2022, per capita income was 27% lower in the EU than in the US. Market share in key sectors, like manufacturing, has fallen behind global competitors. A mounting workforce crisis threatens to further decelerate growth. Due to aging and low birth rates, the EU’s working-age population is expected to decrease from 64 to 58% of the total population by 2040.

Europe is simultaneously feeling the impact of geopolitical shifts, ecological shocks, and increased power competition. War is on our doorstep with Russia’s invasion of Ukraine. The climate crisis is rapidly advancing, and Europe is already experiencing deadly heat waves and floods that will intensify unless meaningful interventions are made. As we see it, China is gaining market share in AI, electrification, and modern manufacturing. The US and China are driving stronger industrial policies, including subsidies and tariffs to support local economies and self-sufficiency. As these pressures compound, it’s clear that Europe must build more dynamic and resilient systems—and must also build a position of technological leverage to survive and thrive in this new era. 

As part of our Global Resilience thesis, we’ve identified three sectors that we think pose the greatest need for systemic change worldwide: climate and energy, industrials, and defense and intelligence. We believe these are the areas where tech-enabled transformation—combined with radical collaboration and long-term investments—can have a significant and lasting impact. Below, we explore Europe’s specific challenges and areas of opportunity within our broader Global Resilience thesis.

Climate & Energy

Europe leads the world in many measures of sustainability and ESG, including the reduction of emissions and reliance on fossil fuels. The EU has set ambitious targets and aims to achieve climate neutrality by 2040. Realizing these ambitions will require significant work and innovation, especially in the realm of clean energy.

Energy is a particular area of concern in Europe because of two pressing challenges: cost and dependence. In 2023, European electricity prices for energy-intensive industries were almost double those of the US and China. The expense associated with energy in the EU limits the continent’s attractiveness as a place to do business, restricting profitability and competitiveness of major industries such as manufacturing and computing. The EU’s future energy will also need to account for an increase in energy consumption created by AI workloads.

Energy dependence is another challenge to overcome. Europe has been overly reliant on other regions for energy for years—in 2021, the EU imported 55% of its energy (in comparison, China imported 25% and the US exported energy, on net). The war in Ukraine has exposed the danger of this dependency and the urgent need to own “systems of power,” as recently articulated in our climate and energy thesis. 

The opportunity: Technologies to enable the energy transition.

Climate technologies can help to reduce emissions by up to 90% by 2050. Many of these technologies—including wind generation, biofuels, carbon capture technologies, alternative proteins, and electric vehicles—already exist; however, a huge infusion of capital and patience is required to commercialize and scale these solutions for mass adoption. We are interested in technologies that bridge the transition period of climate-related innovations to achieve self-sustaining unit economics, enabling them to thrive in the free market without reliance on subsidies, for example.

GC invests across a broad range of climate technologies, in Europe and globally. Energy is an especially urgent problem in the EU and one that our team is passionate about solving. We’ve identified three European-specific areas of interest in the energy space: 

• New storage solutions: Novel battery chemistries and storage solutions are needed to support renewable energy deployments. The current standard for energy storage, lithium-ion batteries, are costly and pose safety risks due to their highly flammable chemical composition. There are also supply chain stability issues: just four countries produce lithium, and China owns most lithium refining and battery manufacturing. Alsym Energy, a GC portfolio company, is developing non-lithium batteries that combine high performance and low cost without the safety and supply chain risks associated with lithium-ion. Alsym is based in Boston and focused on global accessibility, emphasizing international partnerships. We invested alongside Tata Industries to strengthen the US-Indian trade corridor and bring Alsym’s technology to other regions, including Europe.
• Infrastructure installation: The energy transition will require infrastructure upgrades and new installations performed by a skilled workforce. Today, Europe faces a shortage of trained technicians to meet these needs. Smalt, a company in GC’s European portfolio, is upskilling workers across Europe to bridge the climate tech talent gap. Smalt trains and certifies technicians, then deploys these workers through partnerships with companies that install solar panels, heat pumps, and other green energy assets. 
• Energy orchestration: We’re bullish on the opportunity to make Europe’s energy grid more resilient and efficient through software innovations. Our portfolio company Fever is a leader in this space: Its platform aggregates, orchestrates, and optimizes distributed energy resources (DERs) including batteries and electric vehicles. As more DERs come online, there is a tremendous need to balance power production and consumption. 

Industrials

Industrial companies have always faced pressure to do more with less; today, that pressure is even stronger amid rising energy costs, supply chain disruptions, workforce shortages, and economic turbulence. There is a need for new technologies to counteract these pressures, making industrial technology a major area of focus for our Global Resilience team.

The EU is home to hundreds of market leaders across automotive, industrial manufacturing, process manufacturing, and logistics. European companies are also knowledge leaders in critical areas such as production engineering. These companies, alongside leading education institutions, have driven significant economic value—however, in recent decades, European industrial growth has fallen behind the US and China. For example, in 2004 China and Germany produced similar levels of net manufacturing output. From 2004-2022 China’s value-add grew by 696%, compared to Germany’s 33%.

The EU risks missing the train on new industrial categories, as the continent’s market share in key growth categories, such as electric vehicles, is remarkably low. Europe’s largest EV manufacturer, Volkswagen Group, is far from competitive compared to the global leaders Tesla and BYD. In 2023 Volkswagen Group’s all-electric car sales were only 43% of Tesla’s and 49% of BYD’s. Tesla has become the best-selling EV brand in Europe as of 2024.

We see an opportunity to drive prosperity in Europe by increasing the share of the EU economy driven by manufacturing. In 1991 manufacturing drove 20% of the EU economy; by 2022 that share had dropped to 15%. In comparison, China’s manufacturing sector drove 28% of its economy in 2022. 

The opportunity: Modernization through automation and electrification. 

We believe there is incredible potential to drive new value in industrial categories. GC has the privilege of backing visionary European companies as well as global startups that are bringing their technologies to Europe. From our perspective, there are three primary ways in which innovators are poised to help industrial incumbents in Europe modernize, boost efficiency, and become more competitive in the upcoming years.

• AI: AI and machine learning can enable breakthrough engineering capabilities, helping industrial companies bring new and higher-quality products to market with greater efficiency. Two of our portfolio companies in Europe, PhysicsX and EthonAI, are delivering on the promise of AI in industrials. PhysicsX is enabling virtual simulation in industries such as automotive, aerospace, and  materials science; EthonAI partners with leading manufacturers, including Siemens and Roche, to improve quality management using advanced applications of AI.  
• Robotics: The industrial workforce shortage and productivity pressures are driving demand for more automation. At the same time, advances in AI and hardware are enabling new kinds of robotics companies, including those that offer more useful human-robot interactions. We believe this progress will help industrial companies improve productivity, reduce costs, and alleviate labor shortages. We recently announced our investment in Collaborative Robotics (Cobot), a company that is pairing humans with flexible, reliable machines that interact through natural language. Cobot is in production with Maersk helping move thousands of pounds of goods per week in a transload facility.  
• Transforming the electric stack: We see great potential to help industrial players along the path toward electric and sustainable energy transformation. This is an area we are actively looking to invest behind in the upcoming years.

Defense & Intelligence

Europe has underinvested in defense and security for decades. McKinsey estimates that from 1992-2022 European NATO member states reduced defense spending by $8.6 trillion cumulatively, compared to 1960-1992. Russia’s invasion of Ukraine has been a wake-up call. McKinsey’s projections estimate that European NATO countries will need to increase defense spending by 53-65% through 2026, representing €453-488 billion in additional spending. 

Existing prime contractors are unable to meet this dramatic rise in demand. After years of decreased investment by European NATO members, primes have scaled down production and halted investment in R&D. Those companies are now trying to handle a multiyear backlog of orders. 

Meanwhile, warfare is changing, as we see in Ukraine. There is a shift away from traditional, large-scale platforms, like tanks and carriers, toward smaller, more modular systems, such as drones. The next generation of modular defense systems have lower CapEx requirements, creating an inflection point for innovation and adoption.

Together, these dynamics create space for the formation of software-first defense and intelligence companies. A new class of primes will be essential to modernizing Europe’s defense assets, deterring aggression, and ensuring that Europe can defend its democracies. 

The opportunity: AI for defense.

In Europe, as in the US, a new generation of companies are emerging with a focus on modern deterrence, and we’ve had the privilege of investing in some of the emergent leaders in the space, in line with our broader defense and intelligence thesis. 

We anticipate that defense spending on software will grow from single-digit budget percentages to double-digits over the next decade. We’re also confident that advances in AI will lead this growth. AI is supercharging software innovation across sectors, and after years of stalled innovation, the defense industry has become one of the primary adopters of AI. 

We believe it’s vital to bring defense applications of AI to Europe. Our portfolio company Helsing is a leader in defense tech; its platform boosts defense and national security for liberal democracies using live data. Helsing is a software-first company in a traditionally hardware-led industry. By rapidly bringing its software capabilities to market, Helsing has secured program-of-record partnerships with multiple European governments, including Germany, France and Ukraine. Helsing’s strategy and footprint is pan-European, which is critical in this sector. Many existing primes are national players with near-monopolies that have struggled to scale abroad. We believe that AI innovation, scaled through strategic partnerships, can transform Europe’s defense industry. 

Building a Resilient Ecosystem in Europe

The challenges and opportunities Europe faces today are complex, sprawling, and interconnected. We need the ingenuity of startups, the scale and reach of existing industry, and the backing of policymakers. We also need new models of venture capital. Putting resources behind these challenges requires a different approach to venture—one characterized by longer time horizons, larger investments, and deeper collaboration. 

• Patience: Resilience investments don’t fall into traditional software buckets, nor can investors expect the same outcomes and timelines. Technology can solve big and complex problems, but we need to think longer-term in order to solve these challenges. Our experience underscores that Europe is well positioned for this type of company-building; when entrepreneurs start companies here, they do so for decades and generations to come. 
• Capital: Building in resilience categories requires more capital than typical tech investments. While funding has increased in recent years, there is still a dramatic gap between current investment levels and what is required to advance categories like climate tech. Dealroom and Creandum estimate that climate funding in Europe will need to increase from today’s $1.1 trillion to over $5 trillion by 2030. 
• Radical Collaboration: Venture’s role, beyond providing capital, is to maintain a bird’s eye view of technologies and build bridges—for example, by connecting founders with established industry players to understand existing companies’ challenges and requirements, get validation and feedback on emerging products, and modernize legacy processes in ways that integrate with broader systems. We believe VC can foster trusted relationships in which both startups and incumbents can embrace change.
• Creativity of Approach:  In global resilience, oftentimes there are not existing companies going after critical problems and we may need to create new companies or perhaps roll-up existing companies (what we call a Venture Buyout) to accelerate scale and capability.  Creativity is required in these more difficult markets to accelerate time-to-impact

Talent is another crucial piece of the resilience puzzle. It’s why we back companies like Smalt that are advancing talent solutions in Europe. The entire European ecosystem will need to work together to bridge the talent gap with a focus on the sectors with the greatest need. At GC, we’re optimistic on this front and inspired to see renewed enthusiasm for building in resilience categories. A strong group of founders are already working to build a more dynamic, independent, and sustainable Europe. 

GC’s mission is to help build enduring companies that have a positive societal impact. To achieve that mission we’re dedicated to finding the most promising talent, financing the most-needed R&D, and making connections that we believe will lead to long-term value. Get in touch with us if you’re a founder building in resilience categories, or if you’re an established company looking to modernize and innovate. We would love to hear from you.