Deep tech is on the rise in Europe, in part because of the congruence between AI and the local distinction of excellence in mathematics. But it also benefits from a growing community, public support and increased funding.
DTS3, Elaia's third deep tech seed fund, is one example. “This is twice the size of our previous two funds,” Anne-Sophie Carrese, managing partner at the French VC firm, told TechCrunch. The first close was 60 million euros and is expected to reach 120 million euros by the time the financing is complete, which should be achieved by early 2025, she said. The company has already identified the first three startups to join its portfolio.
Since Elaia was founded in 2002, other deep tech funds have sprung up across Europe, but the firm is leveraging its long-standing relationships with research institutions.
Building these partnerships has proven to be a reliable source of deal flow for Elia, and in some cases even gaining preferential or exclusive access to projects coming out of a particular institute. . For example, partnerships have led to investments in companies such as Aqemia, Alice&Bob, and Mablink Bioscience. The latter, a biotechnology company researching new anti-cancer drugs, had signed a deal to be acquired by Eli Lilly, which Mr. Carese said was “a very good exit.”
How well some of these companies are doing is one reason Eliah wanted a larger fund. It would make sense that there could be more deal flow and result in the most successful bets. The company's goal with DTS3, according to Carese, is to invest a very small amount of money in around 40 early B2B deep tech startups and follow 25 to 30 of them that are nearing seed stage.
The Deep Tech Fund will focus on computing, industrial and life sciences. Pure AI falls under the first pillar, as does quantum and cybersecurity, but DTS3 capital could also be invested in AI-enabled chemistry and biology, for example. The “future of industry'' is broader and includes energy, climate technology, new materials, and more.
“This is really a multi-sector fund, and the Elia team has investors that cover each of these sectors,” Mr. Carese said. “Strictly speaking, we have to conclude 80% of the agreement within the EU, but the remaining 20% is open to the rest of the world.” But in reality, of that 20%, 80% of the total will likely go to companies in Spain and Germany, where Elia is deploying its efforts.
european dynamism
DTS3 shows the momentum that is forming around the new concept of European dynamism, a response to the nickname “American dynamism” coined by a16z.
One of its vocal proponents is Paris-based Irish-American Kyle O'Brien, who is behind two initiatives: the European Dynamism 50 Report and the Technology Tour.
European dynamism is “more of a movement than a category or an industry,” O'Brien told TechCrunch. “I think we need something like that now more than ever to get founders noticed and attract capital from here and abroad. So the idea behind this tour was to bring American investors here. Let them come and explore what that means.”
Eliah will be the French ambassador for the tour, which will take a group of general partners of US venture capital firms to four countries in a week next June, visiting CERN, a rocket factory, ETH Zurich, ASML and more. It's planned. To no one's surprise, stops in Paris include his boat cruises on the Seine and a lot of AI.
The report, published this Wednesday, focuses on 50 European deep tech companies, but serves more as an edited showcase than a ranking. “The only quantitative aspect is that we gave each country a number of companies proportional to the amount of venture capital money going into deep tech systems,” O'Brien said.
Regardless of methodology, Elia's portfolio companies represent a significant share of the French companies on the list. Named on the list is French cryptocurrency company Zama, which announced a $73 million funding a few days ago.
Zama CEO Rand Hindi is a seasoned entrepreneur who co-founded the VC firm Unit Ventures with O'Brien. The two have already made dozens of investments together and are aiming to close their first fund in “the first half of this year,” O'Brien said.
While the two companies may overlap in investments, they don't exactly agree on the term “deep tech.” O'Brien replaced it with “dynamism” in his pitch deck for the Tourto LP, but Carese sees no reason to scrap it. “We've always been very close to Eliah's research, so deep technology is a natural fit for us,” she said.
french tailwind
Elaia's research partnership also leverages French mathematics expertise, which is of great benefit to the country's technology ecosystem with the rise of generative AI. Lazarus is a former researcher in pure mathematics, and he is not the only mathematical brain within the team or in his eco-system of French technology.
“We have a natural connection with all math labs, and our former classmates and their students are now little wizards of AI, building some of the most iconic companies of our time. I see them there,” Calese said.
In addition to France's ability to develop this type of talent, there are also tailwinds from public policy. Two names come to mind for him: Tibi and her Bpifrance.
You may not know who Philip Tibi is, but you may have heard his last name often. Like Calise, he is also a former student of the Polytechnique, one of France's most prestigious higher education institutions. But he also inspired an initiative of the same name to encourage institutional investors, including large insurance companies, to back venture capital funds, something that has not traditionally been the case in France.
The Tibi report was published in 2019, and DTS3 could be one of the first tangible results of its second phase, Tibi 2. Carrese said:
We were fortunate to receive accreditation at our first committee meeting last July. […] And this obviously gave us much more access to major institutional investors. This is great news. Because these are the people that we know will then deliver the performance. [so] We look forward to building long-term relationships as a result of this initiative. This is not just a windfall. We know we have a reliable partner for the long term.
This support is also timely, as 2023 was not the best time to raise funds. But Mr Eliah has found another key supporter in French public sector investment bank BpiFrance. The institution, which is a major investor in DTS3, is also seen as a driver of the rise of France's high-tech industry, according to Calais.
All of these factors make DTS3's home turf an ideal playing field. “We actually intend to keep two-thirds of our deal flow in France, because this creates an extraordinary dynamic for the creation of startups.”