Deep tech is booming in Europe, driven in part by the combination of AI and a local flavor of mathematical excellence. But it is also benefiting from a growing community, public support and increasing amounts of funding.
ElaiaThe third deep tech seed fund, DTS3, is an example: “It is double the size of the previous two funds,” Anne-Sophie Carrese, managing partner at the French venture capital firm, told TechCrunch. With a first close of €60 million, it is expected to reach €120 million when its fundraising is complete, which it says should happen in early 2025. It has already identified the first three startups that will join to your wallet.
While other deep tech funds have emerged across Europe since Elaia’s creation in 2002, the firm is leveraging the relationships it has built with research institutions over the years.
The creation of these partnerships has proven to be a strong source of deal flow for Elaia; In some cases, it has even obtained priority or exclusive access to projects emerging from certain laboratories. For example, partnerships have led to investments in companies such as Aqemia, Alice and Bob and Mablink Bioscience. The latter, a biotechnology company working on new cancer drugs, reached an agreement be acquired by Eli Lilly, “a very good exit” according to Carrese.
How well some of these companies have done is one of the reasons why Elaia wanted a larger fund: it will have more transaction flow and it would make sense to be able to accompany the most successful bets that result. His goal with DTS3, Carrese said. , is to invest very small inflows into about 40 B2B deep tech startups, and follow up on 25 to 30 of them as they approach the seed stage.
The deep tech fund will focus on computing, industrials and life sciences. Pure AI will be included in the first pillar, as will quantum and cybersecurity, but DTS3 capital could also be invested in AI-driven chemistry and biology, for example. The “future of industry” is even broader and includes energy, climate technology and new materials.
“It is truly a multi-sector fund and in the Elaia team we have investors that cover each of these sectors,” Carrese said. “We have to close 80% of our deals in the EU, strictly speaking, but the remaining 20% is open to the rest of the world.” In practice, however, it is likely that 80% of that 20% will go to companies in Spain and Germany, two countries where Elaia has been deploying efforts.
European dynamism
DTS3 signals the momentum building around an emerging concept: European dynamism, a response to the moniker “American dynamism.” coined by a16z.
One of its strong defenders is Kyle O’Brien, an Irish and American citizen based in Paris who is behind two initiatives: European Dynamism Report 50 and technological journey.
European dynamism “is more of a movement than a vertical category or industry.” O’Brien told TechCrunch. “I think now more than ever we need something like this to capture the attention of founders, as well as domestic and foreign capital. So the idea behind the tour is to attract American investors to come here and explore what that means.”
Elaia will be the French ambassador of the tour, which will bring a group of general partners from American VC firms to four countries in less than a week next June, with visits to CERN, a rocket factory, ETH Zurich, ASML and more. To no one’s surprise, the Paris stop includes a boat cruise on the Seine and plenty of AI.
The report, published this Wednesday, highlights 50 European deep tech companies, but more as an editorial showcase than a ranking. “The only quantitative aspect is that we gave each country a number of companies proportional to the number of venture capital dollars going into their deep tech system,” O’Brien said.
Regardless of the methodology, Elaia’s portfolio companies represent a sizable portion of the French contingent on the list. One name on the list is Zama, a French crypto company that announced a $73 million funding round a few days ago.
Zama CEO Rand Hindi, a seasoned entrepreneur, co-founded a venture capital firm Unitary companies along with O’Brien. The duo have already made dozens of investments together and expect to hold the first close of their fund “in the first half of this year,” O’Brien said.
While the companies may overlap in investments, they disagree on the term “deep tech.” While O’Brien has replaced it with “dynamism” in presentations on the tour’s LPs, Carrese sees no reason to retire it. “For us, deep tech is a natural choice, as we have always been very close to research on Elaia,” he said.
French tailwinds
Elaia’s research partnerships also leverage France’s expertise in mathematics, something that has served the country’s tech ecosystem well with the rise of generative AI. Lazarus is a former pure mathematics researcher and is not the only mathematical brain on the team or in France’s technological ecosystem.
“We have natural connections with all the math labs,” Carrese said, “and we see our former colleagues and their students now becoming little AI wizards and building the most iconic companies of the moment.”
In addition to France’s ability to foster this type of talent, there are other tailwinds coming from public policies. Two names come to mind: Tibi and Bpifrance.
You may not know Philippe Tibi, but you may start to hear his last name more often. Like Carrese, he is a former student of the Polytechnique, one of the most prestigious higher education establishments in France. But he also inspired the homonymous initiative That incentivizes institutional investors, including major insurance companies, to back venture capital funds, which has not traditionally been the case in France.
The Tibi report was published in 2019, but DTS3 may be one of the first tangible results of its second phase, tibi 2. Carrese says:
We were fortunate to be accredited at the first committee meeting last July. […] and this has clearly given us access, in much larger numbers, to leading institutional investors. And that’s great news, because these are people who we know we’ll deliver performance to later. [so] We hope to build long-term relationships thanks to this initiative. It’s not just a windfall. We know we have partners we can trust for the long term.
This support is also timely, as 2023 wasn’t exactly a good time to raise funds. But Elaia found another key support in French public sector investment bank Bpifrance. According to Carrese, a major investor in DTS3, the institution has also been considered The machine driving the rise of French technology.
All of these factors make DTS3’s home field the ideal playing field. “We are really going to keep two-thirds of our deal flow in France, because this creates an extraordinary dynamic for the creation of new companies.”