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Dispatches’ startup update: Investment capital is starting to flow in Europe … finally

(Editor’s note: Dispatches Europe tracks the tech scene and capital trends in Europe because so many of our highly skilled internationals are engineers, physicists and developers hoping to be part of the new new thing.)

When we founded Dispatches Europe back in 2016, Europe had a handful of consumer-facing tech success – Skype, Supercell, TransferWise, Adyen and Zalando. But none really approached the scale of Apple, Amazon, Airbnb or Facebook or looked like they ever would.

Why? Because there’s no Sandhill Road in Europe.

While early stage investors are still few and far between in Europe, that’s changing gradually (some would say “glacially”) and the capital is starting to flow.

Forbes has a great post, “Why I Moved from San Francisco to Europe to Invest in Tech,” by early stage investor Maren Thomas Bannon.

From that post:

Venture capital deals in the top four hubs of Europe — London, Berlin, Paris and Stockholm — have increased by 22% per year for the past five years. Over 50 venture-backed unicorns have been created in Europe in the past decade, compared with just 3 between 2000 and 2010. 

Read in isolation, those are pretty sad figures. But Bannon is on to something … Europe has the tech talent, great universities and research centers and is on the verge of becoming a player. All it needs is capital.

The bottom line? Venture capitalists invested about $23 billion in the EU for 2018 up from $5 billion in 2013, according to Atomico. Great, right? Until you realize that in 2018, VCs invested $130 billion in the U.S. That figure would have been higher except they literally ran out of deal flow. Which is why Europe is suddenly on their radar.

THE EU’s 100 BILLION EURO BET

In the United States, venture capital became a force after engineer/entrepreneurs such as Eugene Kleiner cashed out of Shockley Semiconductor, then Fairchild, then Intel to form Kleiner Perkins. In Europe, there are no venture firms with sufficient capital to deploy. So, the EU has become by default a public-sector VC.

Now, Brussels is considering funding a 100 billion (with a “b”) euro sovereign wealth fund to invest in worthy tech companies. The fund would include the EU’s existing venture-capital and R&D subsidy budgets.

The goal is catching American and Chinese digital giants, specifically Google, Apple, Facebook, Amazon, Baidu, Alibaba and Tencent, according to an internal document quoted by Financial Times.

The draft states the fund would focus on “buying equity” in EU-based startups/scale-ups in strategically important sectors. (The investment language is even outdated.)

Do we support this kind of central planning? No.

Sure, the U.S. government has venture schemes. For example, DARPA, which is part of the U.S. Department of Defense, funds technology deemed essential to national security. And Dynaxion in Eindhoven just received a $100,000 investment from the U.S. government’s anti-opiate campaign to develop its package-scanning technology.

Otherwise, America dominates the world through the free market.

We can’t think of a single EU tech initiative that has accomplished anything other than giving politicians an excuse to stand on stage and get their photos taken shaking hands with entrepreneurs.

That said, if the EU chose a third–party firm to vet investments and kept politics out of it, who knows? It could prove to be a better model.

Do we think the EU fund will help Europe pull even with the U.S.? Oh, God no. A 100 billion euro sovereign fund would be way too small … equivalent to what Norway’s sovereign fund gained in value in the most recent quarter. And anyway, sovereign funds are supposed to be investment vehicles designed to perpetuate a nation’s wealth, not chase ephemeral fantasies of funding the European Apple. Let’s leave that to capitalists.

But as Eugene Kleinert so famously advised, “If the money is there, take it.”

• Speaking of funds, Guernsey-based Creandum, which made its bones investing in Spotify and iZettle, just closed Creandum V, a $300 million early stage fund. The fund just expanded its Berlin offices, with other offices in Stockholm and San Francisco.

In addition to being a bigger player in Europe with mostly 60 million euro funds, Creandum has a very serious track record of seeing its startups go to IPOs or acquisition, with $35 billion in the aggregate value of its portfolio exits.

• G, you know shit’s gettin’ reaal when Snoop invests. Snoop Dee-Oh-Double Gee, aka Calvin Broadus, Jr., is not merely an investor in Stockholm-based banking startup Klarna, he even stars in its ads. Which are, by the way, the weirdest things ever.

Klarna just reached a $5.5 billion valuation, making it Europe’s most valuable private fintech startup. Since it gobbled up a bunch of competitors including BillPay, it’s one of Europe’s largest banks, with more than 60 million customers and 70,000 merchants using its online payment system.

• Largely ignored outside Eindhoven, Technical University of Eindhoven recently announced plans to raise 100 million euros to create an AI institute.

Plans call for the Eindhoven Artificial Intelligence Systems Institute to hire 50 professors. Actually finding 50 professors with doctorates in artificial intelligence might prove to be more of a challenge than raising the 100 million.

This comes one year after TU/e announced plans for a House of Robotics.

• Speaking of AI, European tech leaders are pushing the creation of the European Lab for Learning and Intelligent Systems, or Ellis. Ellis would sort of be the AI version of CERN, with research centers in a handful of countries (most likely Germany, France, Netherlands and Belgium) staffed by hundreds of computer engineers, mathematicians and miscellaneous scientists, all focused on making Europe No. 1 in artificial intelligence.

Again, this is an effort to keep top European talent from heading to The Valley.

• Irony of ironies, a team of young Slovenian kids just graduated from the legendary Y Combinator accelerator with new market-intelligence technology that predicts potential Unicorns, startups with valuations of more than $1 billion … a particularly elusive breed in Europe.

PredictLeads helps its VC clients evaluate and track startups and their progress, or lack of, as big investors increasingly turn to third-party analytics/intelligence firms.

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