Deep tech is on the rise in Europe, fueled in part by the match between artificial intelligence and a local flavor of mathematical excellence. However, it also benefits from a growing community, public support and increasing amounts of funding.
OliveThe firm’s third tech seed fund, DTS3, is an example: “It’s twice the size of the previous two funds,” Anne-Sophie Carrese, managing director at the French VC firm, told TechCrunch. With an initial close of €60m, it is set to reach €120m by the time the fundraising is completed, which it said should be in early 2025. It has already identified the first three startups to join the her portfolio.
While other deep-tech funds have popped up across Europe since Elaia was founded in 2002, the company is leveraging the relationships it has built with research institutions over the years.
Building these partnerships has proven to be a steady source of deal flow for Elaia — in some cases, it even has priority or exclusive access to projects coming from certain labs. For example, partnerships have led to investments in companies such as AnemiaAlice&Bob and Mablink Bioscience. The latter, a biotech company working on new cancer drugs, made a deal to be acquired by Eli Lilly, “a very nice exit” according to Carrese.
How well some of those companies have done is one reason why Elaia wanted a bigger fund: It will have a bigger flow of deals and it would make sense to be able to accompany the more successful bets it lands on. Her goal with DTS3, Carrese said, is to invest very small tickets in about 40 initial B2B deep-tech startups and continue in 25 to 30 of those when they lean closer to the seed stage.
The deep technology fund will focus on computing, industrial and life science. Pure AI would fall under the first pillar, as would quantum and cyber security, but DTS3 capital could also be invested in AI-based chemistry and biology, for example. The “future of industry” is even broader, including energy, climate technology and new materials.
“It’s really a multi-sector fund, and in the Elaia team we have investors that cover each of those sectors,” Carrese said. “We have to do 80% of our deals in the EU, strictly speaking, but the other 20% is open to the rest of the world.” In practice, however, 80% of that 20% will likely go to companies in Spain and Germany, two countries where Elaia is making efforts.
European dynamism
DTS3 signals the momentum building around an emerging idea: European dynamism, a response to the moniker “American dynamism” invented by a16z.
One of its vocal supporters is Kyle O’Brien, an Irish-American based in Paris behind two initiatives: European Dynamism 50 exhibition and technology tour.
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 get the attention of founders, as well as capital at home and abroad. 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 for the tour, which will receive a group of general partners from US VC firms in 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 lots of AI.
The report, published this Wednesday, highlights 50 European deep-tech companies, but more as an editorial than a ranking. “The only quantitative aspect is that we gave each country a number of companies proportional to the amount of VC dollars going into their deep tech system,” O’Brien said.
Regardless of the methodology, Elaia’s portfolio companies make up a significant share of the French portion of 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 Rad Hindy, a seasoned entrepreneur, co-founded the VC firm Unit Ventures next to O’Brien. The duo has already made a dozen investments together and is looking to close its first fund “in the first half of this year,” O’Brien said.
While the companies may overlap in investment, they don’t see the term “deep tech” in its entirety. While O’Brien has replaced it with “dynamism” in pitch decks about touring LPs, Carrese sees no reason to retire it. “For us, deep technology is a natural fit, as we’ve always been very close to research at Elaia,” he said.
French tailwinds
Elaia’s research partnerships also leverage France’s expertise in mathematics — something that has greatly helped the country’s tech ecosystem with the rise of genetic artificial intelligence. Lazarus is a former researcher in pure mathematics and is not the only mathematical mastermind in the group, nor in France’s tech ecosystem.
“We have physical connections to all the math labs,” Carrese said, “and we see our former classmates and their students now becoming the little AI wizards and building the most iconic companies of the moment.”
In addition to France’s ability to cultivate this kind of talent, there are other tailwinds that come from public policy. Two names come to mind: Tibi and Bpifrance.
You might not know Philippe Tibi, but you might start hearing his last name more often. Like Carrese, he is a former student of Polytechnique, one of France’s most prestigious institutions of higher education. However, it also inspired the initiative of the same name that incentivizes institutional investors, including large insurance companies, to back venture capital, something that has not traditionally been the case in France.
Tibi’s report was issued in 2019, but the DTS3 may be one of the first tangible results of its second phase, Tibi 2. Carrese says:
We were fortunate enough to be accredited at the first committee meeting last July. . . and that clearly gave us access, in much larger amounts, to top institutional investors. And that’s great news, because these are people we know we’re going to deliver performance to next [so] we look forward to building 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 was not exactly the right time to raise funds. But Elaia has found another key backer in French public sector investment bank Bpifrance. A major investor in DTS3, according to Carrese, the foundation is also considered the engine powering the rise of French technology.
All these factors make the DTS3 turf ideal for playing. “We’re actually going to keep two-thirds of our deal flow in France, because that creates a momentum for startups that is amazing.”
