Deep tech is on the rise in Europe, fueled partially by the match between AI and an area flavor of math excellence. However it’s also benefiting from a growing community, public support and increasing amounts of funding.
Elaia‘s third deep tech seed fund, DTS3, is an example: “It’s double the scale of the 2 previous funds,” Anne-Sophie Carrese, a managing partner on the French VC firm, told TechCrunch. With a primary closing at €60 million, it is ready to succeed in €120 million by the point its fundraising is complete, which she said should occur by early 2025. It’s already identified the primary three startups to hitch its portfolio.
While other deep tech funds have emerged across Europe since Elaia’s creation in 2002, the firm puts relationships it built with research institutions through the years to good use.
Constructing these partnerships has proven to be a solid source of deal flow for Elaia — in some cases, it has even gotten priority or exclusive access to projects coming out of certain labs. As an illustration, partnerships have led to investments in corporations comparable to Aqemia, Alice&Bob and Mablink Bioscience. The latter, a biotech company working on novel cancer drugs, struck a deal to be acquired by Eli Lilly, “a really nice exit” based on Carrese.
How well a few of these corporations have been doing is one reason why Elaia wanted a bigger fund: It should have more deal flow, and it could make sense to give you the option to accompany probably the most successful bets it ends in. Its goal with DTS3, Carrese said, is to speculate very small tickets in some 40 incipient B2B deep tech startups, and follow on in 25 to 30 of them once they might be leaning closer to seed stage.
The deep tech fund will deal with computing, industry and life science. Pure AI will fall under the primary pillar, as will quantum and cybersecurity, but DTS3’s capital is also invested in AI-driven chemistry and biology, for example. “Way forward for industry” is even broader, including energy, climate tech and latest materials.
“It’s really a multi-sector fund, and within the Elaia team, we’ve got investors who cover each of those sectors,” Carrese said. “We have now to make 80% of our deals within the EU, strictly speaking, however the remaining 20% is open to the remainder of the world.” In practice, though, 80% of that 20% will likely go to corporations in Spain and Germany, two countries during which Elaia has been deploying efforts.
European dynamism
DTS3 signals the momentum that’s forming around an emerging concept: European dynamism, a response to the “American dynamism” nickname coined by a16z.
One in every of its vocal advocates is Kyle O’Brien, a Paris-based Irish and American national behind two initiatives: The European Dynamism 50 report and tech tour.
European Dynamism “is more of a movement than a category or industry vertical,” O’Brien told TechCrunch. “I feel, now greater than ever, we’d like something like that to capture the eye of founders, in addition to capital domestically and from abroad. So the thought behind the tour is to draw American investors to come back over here and explore what meaning.”
Elaia might be the French ambassador of the tour, which can take a bunch of general partners from U.S. VC firms to 4 countries in lower than every week next June, with visits to CERN, a rocket factory, ETH Zurich, ASML and more. To nobody’s surprise, the Paris stop involves a ship cruise on the Seine and numerous AI.
The report, which was published this Wednesday, highlights 50 European deep tech corporations, but more as an editorialized showcase than as a rating. “The one quantitative aspect is that we gave each country plenty of corporations proportional to the quantity of VC dollars that go into their deep tech system,” O’Brien said.
No matter methodology, Elaia’s portfolio corporations make up a large share of the French contingent of the list. One name on the list is Zama, a French encryption company that announced a $73 million round of funding a number of days ago.
Zama CEO Rand Hindi, a seasoned entrepreneur, co-founded VC firm Unit Ventures alongside O’Brien. The duo has already done a dozen investments together and is trying to do the primary close of its fund “in the primary half of this yr,” O’Brien said.
While the firms may overlap in investments, they don’t fully see eye to eye on the “deep tech” term. While O’Brien has replaced it with “dynamism” in pitch decks in regards to the tour to LPs, Carrese sees no reason to retire it. “For us, deep tech is a natural fit, as we’ve all the time been very near research at Elaia,” she said.
French tailwinds
Elaia’s research partnerships also leverage France’s expertise in mathematics — something that’s been very helpful to the country’s tech ecosystem with the rise of generative AI. Lazarus is a former researcher in pure mathematics, and he just isn’t the one math brain on the team, nor in France’s tech ecosystem.
“We have now natural connections with all the maths laboratories,” Carrese said, “and we see our former classmates and their students now becoming AI’s little wizards and constructing probably the most emblematic corporations of the moment.”
Besides France’s ability to nurture one of these talent, there are other tailwinds coming from public policy. Two names come to mind: Tibi and Bpifrance.
It’s possible you’ll not know Philippe Tibi, but you could start hearing his last name more often. Like Carrese, he’s a former student of Polytechnique, one in every of France’s most prestigious higher education establishments. But he also inspired the namesake initiative that incentivizes institutional investors, including major insurance firms, to back enterprise capital funds, which hasn’t traditionally been the case in France.
Tibi’s report was issued in 2019, but DTS3 could also be one in every of the primary tangible results of its second phase, Tibi 2. Says Carrese:
We were lucky enough to be accredited on the very first committee meeting last July . . . and this has clearly given us access, in much larger amounts, to leading institutional investors. And that’s great news, because these are people to whom we all know we’ll deliver performance afterwards [so] we’re looking forward to constructing long-term relationships due to this initiative. It’s not only a windfall. We all know we’ve got partners we will trust for the long run.
This support can also be timely, as 2023 wasn’t exactly a fantastic time to lift funds. But Elaia found one other key supporter in French public sector investment bank Bpifrance. A serious investor in DTS3, based on Carrese, the institution has also been deemed the machine powering French tech’s rise.
All of those aspects make DTS3’s home turf its ideal playing ground. “We’re really going to maintain two thirds of our deal flow in France, because this creates a dynamic for the creation of startups which is extraordinary.”
