As European dynamism gathers momentum, Elaia and partners double down with new deep tech fund
Deep tech is on the rise in Europe, fueled in part by the match between AI and a local flavor of math excellence. But it's also benefiting from a growing community, public support and increasing amounts 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 identified the first three startups to join its portfolio.
While other deep tech funds have emerged across Europe since Elaia's creation in 2002, the firm puts relationships it built with research institutions over the years to good use.
Building these partnerships has proven to be a solid source of deal flow for Elaia — in some cases, it has even gotten priority or exclusive access to projects coming out of certain labs. For instance, partnerships have led to investments in companies such as Aqemia, Alice&Bob and Mablink Bioscience. The latter, a biotech company working on novel cancer drugs, struck a deal to be acquired by Eli Lilly, "a very nice exit" according to Carrese.
How well some of these companies have been doing is one reason why Elaia wanted a larger fund: It will have more deal flow, and it would make sense to be able to accompany the most successful bets it results in. Its goal with DTS3, Carrese said, is to invest very small tickets in some 40 incipient B2B deep tech startups, and follow on in 25 to 30 of them when they will be leaning closer to seed stage.
The deep tech fund will focus on computing, industry and life science. Pure AI will fall under the first pillar, as will quantum and cybersecurity, but DTS3's capital could also be invested in AI-driven chemistry and biology, for instance. "Future of industry" is even broader, including energy, climate tech and new materials.
"It's really a multi-sector fund, and in the Elaia team, we have investors who cover each of these sectors," Carrese said. "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 practice, though, 80% of that 20% will likely go to companies in Spain and Germany, two countries in which Elaia has been deploying efforts.
European dynamism
DTS3 signals the momentum that is forming around an emerging concept: European dynamism, a response to the "American dynamism" nickname coined by a16z.
One of its vocal advocates is Kyle O'Brien, a Paris-based Irish and American national 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 told 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 will be the French ambassador of the tour, which will take a group of general partners from U.S. 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 involves a boat cruise on the Seine and lots of AI.
The report, which was published this Wednesday, highlights 50 European deep tech companies, but more as an editorialized showcase than as a ranking. "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 said.
Regardless of methodology, Elaia's portfolio companies make up a sizable share of the French contingent of the list. One name on the list is Zama, a French encryption company that announced a $73 million round of funding a few days ago.
Zama CEO Rand Hindi, a seasoned entrepreneur, co-founded VC firm Unit Ventures alongside O'Brien. The duo has already done a dozen investments together and is looking to do the first close of its fund "in the first half of this year," O'Brien said.
While the firms may overlap in investments, they don't fully see eye to eye on the "deep tech" term. While O'Brien has replaced it with "dynamism" in pitch decks about the tour to LPs, Carrese sees no reason to retire it. "For us, deep tech is a natural fit, as we've always been very close to research at Elaia," she said.
French tailwinds
Elaia's research partnerships also leverage France's expertise in mathematics — something that's been very helpful to the country's tech ecosystem with the rise of generative AI. Lazarus is a former researcher in pure mathematics, and he is not the only math brain on the team, nor in France's tech ecosystem.
"We have natural connections with all the math laboratories," Carrese said, "and we see our former classmates and their students now becoming AI's little wizards and building the most emblematic companies of the moment."
Besides France's ability to nurture this type of talent, there are other tailwinds coming from public policy. Two names come to mind: Tibi and Bpifrance.
You may not know Philippe Tibi, but you may start hearing his last name more often. Like Carrese, he is a former student of Polytechnique, one of France's most prestigious higher education establishments. But he also inspired the namesake initiative that incentivizes institutional investors, including major insurance companies, to back venture capital funds, which hasn't traditionally been the case in France.
Tibi's report was issued in 2019, but DTS3 may be one of the first tangible results of its second phase, Tibi 2. Says Carrese:
We were lucky enough to be accredited at the very first committee meeting last July . . . and this has clearly given us access, in much larger amounts, to leading institutional investors. And that's great news, because these are people to whom we know we'll deliver performance afterwards [so] we're looking 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 wasn't exactly a great time to raise funds. But Elaia found another key supporter in French public sector investment bank Bpifrance. A major investor in DTS3, according to Carrese, the institution has also been deemed the machine powering French tech's rise.
All of these factors make DTS3's home turf its ideal playing ground. "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."
