On March 5, 2025, Cottonwood Technology Fund announced the first close of its fourth fund. With the new €80M fund, the deep tech VC focusing on the Southwest United States and Northwest Europe is further strengthening its support for early-stage IP-driven deep tech startups. The first close is at €25M and the VC already has soft commitments for another €25M from LPs and plans to reach the goal before the final close in March 2026.
The announcement of Cottonwood’s Fund IV comes on the heels of the State of Dutch Tech report which highlighted the decline in startups, stalling growth in the Dutch tech sector and how early-stage investment remains the most difficult challenge for Dutch startups. As a specialist in backing foundational technology and IP-driven early-stage startups, Cottonwood’s new fund will further support disruptive hard-tech innovation.
“There is an equally disruptive innovation in northwest Europe with an even greater need for seed stage capital than the US,” says Alain le Loux, a General Partner at Cottonwood Technology Fund.
€80M to back hard tech startups
The size of the fund, capped at €80M, may seem puzzling, but Le Loux says that number is intentional. He says their first two funds were smaller in size and also pledge funds, and Fund III was €80M, and they found out that €80M is the perfect fit for an early-stage deep tech fund with a mix of initial investments and a very active follow-on approach. “Our Fund IV is our second closed-end fund and the strategy and fund size of €80M remains the same,” he tells me.
For Fund IV, Cottonwood is committing €25M while another €25M is expected to come and in the next 12 months, they aim to raise another €30M to reach the goal. While AI and deep tech have become a buzzword today, Le Loux is clear about where they want to invest the new fund. He says they intend to invest in hard tech startups in the B2B business and back science-based companies from research institutes or spinoffs from technical universities.
“Before we invest, it is super important that they are IP-based and have a strong patent portfolio,” explains Le Loux.
Cottonwood’s portfolio is not a list of startups but interesting case studies of off-the-curve innovations. He cites the example of Flexiramics, a deep tech Dutch startup producing a flexible pure ceramic fibre mat that is light and flexible like paper, but capable of retaining the main physiochemical properties of traditional ceramics.
“The IP is how they produce it,” he says, before adding, “We have invested in a company, which developed a cutting-edge laser to print super precise PCB boards. It’s much more precise than anyone else can do in the world. And that kind of IP is what we are looking for.”
Platform technology
Le Loux is not another general partner at a VC firm, but a double master’s in computer science and industrial engineering from the University of Twente and an Executive MBA from Business School Netherlands. After a long corporate career, he became a serial entrepreneur and invested in and (co-)founded 17 startups. His expertise is reflected in Cottonwood’s ideology to back platform technologies that start as a single innovation but quickly become multiple product lines or horizontal technology that can be used everywhere.
He says they are in the business of supporting global trends, including quantum computing, big data centres, and healthcare through startups like Skorpios and Sencure. He argues the biggest problem for these data centres is power consumption, but they cannot reduce consumption without affecting the increase in the use of AI. Photonic chips like the one designed by Skorpios, he explains, are the solution to this challenge since they are superfast, have a lower price, and also consume less power.
Another trend, according to Le Loux, is reducing global healthcare costs and with the help of Sencure’s IC technology and next-generation healthcare wearable devices, he says there is a possibility to deliver improved remote monitoring and reduce healthcare costs in the process.
“We support these trends indirectly by investing in key enabling technologies which make all those kinds of trends possible,” he quips.
While these investments may not get classified as impact investments, Le Loux feels their impact cannot be dismissed. He says by supporting horizontal technologies, they are not causing a direct impact, but the indirect impact will be so important that they will shift the whole technology trend.
Infrastructure challenge
“There is a lot of money available in the US and Europe,” says Le Loux, and adds that most of that money flows into private equity, software deals, platform deals, life science, real estate, but not into deep tech. There is not enough infrastructure backing science-backed IP-based startups at the centre of deep tech innovations.
“Most deals we invest in, there is no one willing to invest,” he says, expressing the trouble in the investment landscape. “Almost every time we are the only one willing to sign a term sheet.”
He adds that this challenge is exacerbated by the government’s willingness to do something but lack of real action or support. Like many startup founders, Le Loux also sees the lack of tax benefits for investing in startups as a hurdle for private investors willing to become risk-takers and support deep tech startups.
In the Netherlands, he says there are a lot of tax issues with the option pool for the employees, which stops startups from giving their employees free options. With over two decades of experience in the technology sector, Le Loux has seen it all and finds it troubling that many early-stage funds have moved away. “In the Netherlands, they say no farmers, no food, but probably we should add now no early-stage VCs, no economy.”
Hands-on VC
What do early-stage deep tech startups get from Cottonwood? Le Loux doesn’t think once and says, “A hands-on VC.” He says they are not in this to make an investment and move away, but instead want to be a hands-on VC supporting startups through several activities. As a VC firm active in two continents, he says they will be able to give their European companies entrance support to the US and vice versa.
He adds that they have learned from their Fund I and Fund II that the most difficult challenge is to raise the second round. As a result, when Cottonwood invests €1M to €2M first, it reserves at least €3M to €4M for follow-up funding and with four experienced VC partners, he says Cottonwood is well-positioned to not just back deep tech startups but bring never seen before innovation to market by supporting them by providing a global network.
With startups like Infinitum Electric, which has raised over €400M in five rounds and produced a motor that advances power electronics by lowering electricity consumption, Cottonwood is showing that it can back deep tech startups that move the needle. To meet the energy demands around the world, they are also backing nuclear fusion startups, including a founder, who envisions every city with a small reactor outside the city to support the grid.
From DNA sequencing, advanced photonics, and sustainable energy to electric nose technology, nuclear fusion, and medical chip technology, Cottonwood has backed the industries that innovating at the edge. For deep tech and hard tech startup founders, it is not just a fund with money but a fund with inaccessible knowledge and expertise.
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