Deep tech is on the rise in Europe, driven in part by the match between artificial intelligence and the local flavor of excellence in mathematics. But it also benefits from a growing community, public support, and increasing amounts of funding.
Elaia's third deep-tech fund, DTS3, is a case in point: “It's twice the size of the previous two funds,” Anne-Sophie Carrese, managing partner at the French VC firm, told TechCrunch. With a first close of €60 million, it is set to reach €120 million by the time the fundraising is complete, which it said should happen by early 2025. It has already identified the first three companies that will join its portfolio.
While other deep tech funds have sprung up across Europe since Elaia's creation in 2002, the firm is putting the relationships it has built with research institutions over the years to good use.
Building these partnerships has proven to be a powerful source of deal flow for Elaia – and in some cases, it has gained priority or exclusive access to projects released by specific labs. For example, partnerships have led to investments in companies such as Aqemia, Alice&Bob, and Malink Bioscience. The latter, a biotech company working on new cancer drugs, has closed a deal to be acquired by Eli Lilly, a “pretty impressive exit,” according to Carisi.
How successful some of these companies have been is one of the reasons Elijah wanted a larger fund: It would have more deal flow, and it would make sense to be able to accompany the more successful bets it produces. Her goal with DTS3, Carys said, is to invest very small tickets in about 40 B2B deep-tech startups, and follow 25 to 30 of them as they near the seed stage.
The Deep Tech Fund will focus on computing, industry and life sciences. 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 truly a cross-sector fund, and on the Elaia team, we have investors covering each of those sectors,” Caris said. He added: “We have to conclude 80% of our deals in the European Union, strictly speaking, but the remaining 20% is open to the rest of the world.” But in practice, 80% of that 20% will likely go to companies in Spain and Germany, the two countries where Elaya is making 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 advocates is Kyle O'Brien, an Irish citizen and American resident in Paris who is behind two initiatives: the European Dynamics 50 report and the Technology Tour.
European dynamism “is more of a movement than a category or vertical industry.” O'Brien told TechCrunch. “I think now more than ever we need something like this to attract the attention of founders, as well as domestic and overseas capital. So the idea behind the round is to attract US investors to come here and explore what it means.
Elijah will be the French ambassador for the tour, which will take a group of general partners from US venture capital 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 included a boat cruise on the Seine River and a lot of AI.
The report, published on Wednesday, highlights 50 European deep tech companies, but is more of an editorial presentation 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 their deep tech ecosystem,” O'Brien said.
Regardless of the methodology, Elaya's portfolio of companies makes up a significant share of the French group on the list. One of the names on the list is Zama, a French crypto company that announced a $73 million funding round a few days ago.
Zama CEO Rand Hindi, an experienced entrepreneur, co-founded venture capital firm Unit Ventures alongside O'Brien. The pair have already made dozens of investments together, and are looking to make the first close of their fund “in the first half of this year,” O'Brien said.
While the companies may have overlapping investments, they don't entirely fit the term “deep tech.” While O'Brien has replaced it with “dynamism” in presentations about touring LPs, Carys sees no reason to retire it. “For us, deep technology is a natural, as we have always been very close to the research at Elaia,” she said.
French tailwind
Elaya's research partnerships also benefit from France's expertise in mathematics, which has been very beneficial to the country's technology ecosystem with the emergence of generative AI. Lazarus is a former pure mathematician, and he is not the only mathematical mind on the team, nor in France's tech ecosystem.
“We have natural relationships with all the math labs, and we see our former colleagues and their students now becoming little AI wizards and building the most iconic companies of the moment,” said Carys.
Besides France's ability to nurture this type of talent, there are other winds coming from public policy. Two names come to mind: Tibi and Bpifrance.
You may not know Philippe Tippie, but you may start to hear his last name more often. Like Carrez, he is a former student at the École Polytechnique, one of France's most prestigious higher education institutions. But it also inspired the initiative of the same name that incentivizes institutional investors, including major insurance companies, to back venture capital funds, which has not traditionally been the case in France.
Tibi was reported in 2019, but DTS3 may be one of the first tangible results of its second phase, Tibi 2. Carys says:
We were fortunate to be approved at the first committee meeting last July […] This has obviously given us access, in much greater quantities, to leading institutional investors. And that's great news, because these are the people we know we'll be performing for 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 also comes at the right time, as 2023 has not been a great time to raise money. But Elaya has found another major backer in French public sector investment bank BPI France. As a major investor in DTS3, according to Carisi, the foundation was also seen as the machine behind the rise of French technology.
All these factors make DTS3 Stadium the perfect stadium. “We will really keep two-thirds of our deal flow in France, because this creates a dynamism for creating startups that is extraordinary.”
