As European dynamism gathers momentum, Elaia and companions double down with new deep tech fund

Deep tech is on the rise in Europe, fueled partially by the match between AI and a neighborhood taste of math excellence. But it surely’s additionally benefiting from a rising neighborhood, public assist and growing quantities of funding.

Elaia‘s third deep tech seed fund, DTS3, is an example: “It is double the size of the two previous funds,” Anne-Sophie Carrese, a managing partner at the French VC firm, told TechCrunch. With a first closing at €60 million, it is set to reach €120 million by the time its fundraising is complete, which she said should happen by early 2025. It’s already recognized the primary three startups to affix its portfolio.

Whereas different deep tech funds have emerged throughout Europe since Elaia’s creation in 2002, the agency places relationships it constructed with analysis establishments through the years to good use.

Constructing these partnerships has confirmed to be a strong supply of dealflow for Elaia — in some circumstances, it has even gotten precedence or unique entry to initiatives popping out of sure labs. As an illustration, partnerships have led to investments in corporations resembling Aqemia, Alice&Bob and Mablink Bioscience. The latter, a biotech firm engaged on novel most cancers medication, struck a deal to be acquired by Eli Lilly, “a very nice exit” based on Carrese.

How effectively a few of these corporations have been doing is one purpose why Elaia wished a bigger fund: It would have extra dealflow, and it could make sense to have the ability to accompany probably the most profitable bets it ends in. Its objective with DTS3, Carrese mentioned, is to speculate very small tickets in some 40 incipient B2B deep tech startups, and observe on in 25 to 30 of them when they are going to be leaning nearer to seed stage.

The deep tech fund will concentrate on computing, business and life science. Pure AI will fall underneath the primary pillar, as will quantum and cybersecurity, however DTS3’s capital is also invested in AI-driven chemistry and biology, for example. “Future of industry” is even broader, together with vitality, local weather tech and new supplies.

“It’s really a multi-sector fund, and in the Elaia team, we have investors who cover each of these sectors,” Carrese mentioned. “We have to make 80% of our deals in the EU, strictly speaking, but the remaining 20% is open to the rest of the world.” In apply although, 80% of that 20% will doubtless go to corporations in Spain and Germany, two nations by which Elaia has been deploying efforts.

European dynamism

DTS3 alerts the momentum that’s forming round an rising idea: 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 nationwide 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 informed TechCrunch. “I think, now more than ever, we need something like that to capture the attention of founders, as well as capital domestically and from abroad. So the idea behind the tour is to attract American investors to come over here and explore what that means.”

Elaia would be the French ambassador of the tour, which is able to take a bunch of common companions from U.S. VC corporations  to four countries in less than a week subsequent June, with visits to CERN, a rocket manufacturing unit, ETH Zurich, ASML and extra. To nobody’s shock, the Paris cease includes a ship cruise on the Seine and many AI.

The report, which was revealed this Wednesday, highlights 50 European deep tech corporations, however extra as an editorialized showcase than as a rating. “The only quantitative aspect is that we gave each country a number of companies proportional to the amount of VC dollars that go into their deep tech system,” O’Brien mentioned.

No matter methodology, Elaia’s portfolio corporations make up a large share of the French contingent of the record. One title on the record is Zama, a French encryption firm that introduced a $73 million spherical of funding just a few days in the past.

Zama CEO Rand Hindi, a seasoned entrepreneur, co-founded VC agency Unit Ventures alongside O’Brien. The duo has already performed dozen investments collectively, and is seeking to do the primary shut of its fund “in the first half of this year,” O’Brien mentioned.

Whereas the corporations could overlap in investments, they don’t absolutely see eye to eye  on the “deep tech” time period. Whereas O’Brien has changed it with “dynamism” in pitch decks in regards to the tourto LPs, Carrese sees no purpose to retire it. “For us, deep tech is a natural fit, as we’ve always been very close to research at Elaia,” she mentioned.

French tailwinds

Elaia’s analysis partnerships additionally leverage France’s experience in arithmetic – one thing that’s been very useful to the nation’s tech ecosystem with the rise of generative AI. Lazarus is a former researcher in pure arithmetic, and he’s not the one math mind on the staff, nor in France’s tech ecosystem.

“We have natural connections with all the math laboratories,” Carrese mentioned, “and we see our former classmates and their students now becoming AI’s little wizards and building the most emblematic companies of the moment.”

Apart from France’s skill to nurture the sort of expertise, there are different tailwinds coming from public coverage. Two names come to thoughts: Tibi and Bpifrance.

You might not know Philippe Tibi, however chances are you’ll begin listening to his final title extra usually. Like Carrese, he’s a former pupil of Polytechnique, one in every of France’s most prestigious increased schooling institutions. However he additionally impressed the namesake initiative that incentivizes institutional buyers, together with main insurance coverage corporations, to again enterprise capital funds, which hasn’t historically been the case in France.

Tibi’s report was issued in 2019, however DTS3 could also be one of many first tangible outcomes of its second part, Tibi 2. Says Carrese:

We had been fortunate sufficient to be accredited on the very first committee assembly final July […] and this has clearly given us entry, in a lot bigger quantities, to main institutional buyers. And that’s nice information, as a result of these are individuals to whom we all know we’ll ship efficiency afterwards [so] we’re trying ahead to constructing long-term relationships because of this initiative.It’s not only a windfall. We all know now we have companions we are able to belief for the long run.

This assist can also be well timed, as 2023 wasn’t precisely a good time to lift funds. However Elaia discovered one other key supporter in French public sector funding financial institution Bpifrance. A significant investor in DTS3, based on Carrese, the establishment has additionally been deemed the machine powering French tech’s rise.

All of those components make DTS3’s dwelling turf its preferrred enjoying floor. “We’re really going to keep two thirds of our deal flow in France, because this creates a dynamic for the creation of startups which is extraordinary.”