Whichever conference I attend (from Sushi Tech, Tokyo to ChangeNOW, Paris), if it is about innovation and impact, it will talk about venture capital and only shed light on innovations that become unicorn businesses. But my question is, unicorns are not even real, why do we want unicorns anyway? I also wonder why we are not inspiring our next generation to think critically, disrupt the business models, solve problems and if needed or required build smaller businesses, we need more mittelstand that are deep-tech, science-based innovations and backed by research, that are built to last and not to feed the ponzinomics of silicon valley style VC model - get rich quick scheme. We need disruptive innovations to improve our well-being, and we don’t need disruptive ponzinomic models like cryptocurrency or Silicon Valley fads to destroy societal and environmental harmony.
These unicorn-oriented startups frequently expand through relentless venture injection without building sustainable business fundamentals. In contrast, I would prefer a quieter revolution of deep-tech SMEs—I call them Hidden Champions. We need more family-owned small businesses that solve critical problems without breaking societal or environmental harmony.
Often unsung and operating under the radar, these companies can provide robust, sustainable value and are the backbone of complex economies in countries like Finland, Japan, Germany, Sweden, and beyond. Finland, in particular, is more fit for these deep-tech small businesses, which don’t necessarily need to scale at the unit level. The sad reality is that most talented people are not pursuing the dream of freedom, building small businesses that solve problems with defensibility & moat, but are fixated on the idea of moonshots and unicorns. We need the next generation of innovative hidden champions that leverage a disruptive technology stack and have a strong moat.
Herman Simon’s research into Hidden Champions reveals that small, deep-tech companies can yield substantial competitive advantages through niche expertise, cutting-edge technology, and relentless customer focus. Countries like Germany, Finland, Sweden, and Japan exemplify environments where deep-tech talent abounds. With high PhD per capita and a long-standing tradition of technological innovation, these nations have the ideal ingredients for nurturing hidden champions. Rather than directing funding towards lofty unicorn dreams, policymakers and investors could focus on fostering robust, profitable SMEs.
While venture-backed startups may achieve rapid top-line growth, the numbers tell a different story. Deep tech SMEs tend to create more enduring employment opportunities and stable cash flows. According to industry studies, SMEs in many European and Asian economies account for a significant share—upwards of 70%—of job creation compared to the relatively modest contribution of hyper-growth startups. This difference is not merely academic; it underscores a strategic divergence in allocating resources for long-term economic benefits.
Serial Acquirers, Berkshire-like holding companies: Potential Exit for Deep Tech SMEs
Traditional holding companies like Berkshire Hathaway have long been revered for their disciplined financial strategies. There is a growing trend among serial acquirers in the technology (like Constellation Software) and industrial engineering space (like Bergman & Beving, Lifco), actively seeking out these hidden champions. Unlike companies that rely on external equity injections or mounting debt, these acquirers are laser-focused on generating free cash flow from their acquisitions.
When a high-tech SME reaches a growth plateau, its free cash flow can be optimally reinvested within a serial acquirer’s structure. This creates a virtuous cycle: free cash flows from hidden champions fuel new acquisitions, bolstering the overall portfolio’s performance.
Consider some numbers. A company operating as a serial acquirer typically targets an annual free cash flow growth of around 15–20% over five years. In a hypothetical scenario, if a deep-tech SME starts at SEK 100 million in free cash flow and grows at 20% per year, it would generate roughly SEK 248 million five years later. This reinvested cash flow boosts shareholder returns and supports organic growth and strategic acquisitions, maintaining a compounding effect over time.
Deep-tech companies secure a “permanent home” to continue their legacy without the disruptive influence of leadership transitions.
An essential point in this narrative is the perspective famously shared by Warren Buffett:
“Some businesses just shouldn't grow, and that is fine.”
Buffett’s insight underscores that not all companies must scale infinitely to succeed. Small, focused, and technically advanced businesses with a moat have intrinsic value. Instead of pursuing unsustainable growth metrics simply for the sake of valuation multiples, innovative technical entrepreneurs can prioritize profitability and stability. They build companies that deliver steady cash flows, becoming attractive targets for serial acquirers looking for sustainable, long-term investments.
By shifting attention from the fleeting unicorn phenomenon to sustainable, profit-driven growth, investors can promote an economic narrative where technological prowess and strategic capital allocation go hand in hand.
I urge scientists, researchers, and deep-tech founders to not only pursue the dream of moonshots and unicorns, but instead choose a challenging problem to solve that improves the well-being of humanity and the planet, and build a deep-tech SME that lasts for centuries to come, and find freedom in being small and sustainable.
Additional resources to ignite your curiosity.
If you are building something in the Nordics or Japan, I would love to learn more from you. Please reach out to me at nobody@firstfollowers.co.
Stay weird!