early stage AI in Europe
#146
Good morning,
Welcome to Sunday CET. This week’s edition is packed, let’s go:
interesting startups doing AI stuff in Europe
doing early stage is more expensive
the French have a plan
Best,
Dragos
Observations
Early stage startups doing AI stuff in Europe
If I were to guess, Artificial Intelligence or AI has been the most used key word in the media in the first 8 weeks of the year. Media narratives covering the local VC business have changed over night from topics such as quick grocery deliveries to expertly explaining AI - boosted by the emergence and fast adoption of Open AI's own product ChatGPT, which has been used by more than 100 million people in less than 6 months.
There is a reason for that: AI has become an investment theme and now it seems like a great time to sell this kind of startup to investors. However, there’s been Euro founders building AI-based datasets embedded in commercial products even before OpenAI made it easy to understand for the masses. A quick look at our N9’s 2022 records shows more than 200 such startups that raised at early stages i.e. less than $5 million. That number is even higher for 2021 - almost 300 startups using machine learning in order to build AI-based products have raised early stage equity rounds.
As I have screened through about 1000 names, I put them in two buckets: Applied AI i.e. vertical products or focused on specific industries, and - and Deep AI i.e deeper focused on generic business cases at the low end of the value chain. The vertical ones are covering diverse business cases - energy (Entrix, Glint), architecture (Conxai), retail (Dema, Nethansa, Nibble), or healthcare (Cascador, OxDx). The deeper ones include tools used for Big Data contextual meaning, data queries without writing SQL or DCP used as a server-side tracking SaaS tool.
What’s also interesting - most of the investors backing them are not very well known, even though they quietly cover deep tech domains. On one hand, yes, you will find the usual early stage generalist backers with such deals in portfolio (i.e. Seedcamp or Speedinvest). On the other, names such as 7percent, AlbionVC, Crane Ventures, Deeptech Labs, Tiny VC or System.one pop out with interesting assets in their portfolio.
The whole list contains 50 early stage startups doing AI in Europe - you can access it for free for the next couple of days (you need to register), and then will remain available for our Nordic 9 customers only.
Doing early stage is more expensive
I updated with the January data my tables with the average numbers dealt with in Europe.
The trend seems to continue - the early stage deals are getting more expensive, the medians fluctuate marginally at the 5-10M levels, which used to be the series A sweet spot pre-2020, while later stages are seeing bigger drops, both in median value and in frequency.
The late stage is at the lowest since 2020, with an exception at the 20-50 million bracket, where the median went up almost $2 million. That is likely due to a number of overpriced deals (i.e. Peppy, The Exploration Company, Oxford Ionics, GSS, ClearSpace) and bridge rounds giving companies more breathing room (i.e. Mathem, Anyfin, Tado°, Edgard & Cooper). Also interesting to note, some of the high priced deals in the same 20-50M range are energy companies - Atawey, Meva, Hystar, HPS.
Overall there’s notably fewer deal closings on all levels, with the slowest January since 2019 while February’s pace is still lagging, 3 weeks in.
click here to see the numbers (for N9 customers)
Get the best Euro coverage in your inbox
What’s important at early stages in the Euro VC land. Zero noise, 100% signal - every Monday morning you catch up quick with what’s important.
Tomorrow’s intel includes:
Deals: AI-powered waste analytics, post-container automation SAAS, AI-powered badminton coach, carbon insurance, conversational chatbots (all seed) + 20 more
Powder: Vækstkapital (€322 million) + 6 more
Which Euro LP stopped the VC funding
People on the move at: new VC fund in the Nordics, Main Capital, Speedinvest
Euro investors active in Africa, USA
Why it matters: premium content makes the difference with smarter coverage and insights, complemented by a comprehensive Europe-focused database.
Cheat Sheets
Average and median investment deals by stage (quarterly for 2020-2022)
The reports are available for Nordic 9 customers. Become one from here.
Good to know basis
How to:
👉 The only things that matter for investors - the essential
👋 The best elevator pitch - how to create one
🤔 How equity in tech companies works - solid
✍️ 101 guide to building an investment portfolio - for wannabe VCs
Data
🕸️ Q4 and 2022 in review - global situation
📈 The 10x ARR Club - characteristics of public SAAS cos trading at 10x ARR
✨ The 2023 MAD Landscape - 1400+ ML, AI & Data startups
How many hedge funds is too many?
source
There’s more than 30,000 hedge funds globally, four times as many hedge funds as there are Taco Bells (7200), employees at the Pentagon (24,000), nearly as many as there McDonald’s franchises (ca 35,000) and listed stocks globally (about 43,000).
Also notable
🇫🇷 The French have updated their startup charts - the Next40 and French Tech 120. The former is basically a tracker of the companies that have raised VC funding the most, while the latter is expanding on that list with second tier venture raisers combined with some fast revenue growers (25%+ yoy in the last three years) and at least €10 million in annual turnover. It’s the French government’s PR move to promote VC-backed startups as an alternative in a traditional society that’s struggling with changes. And truth be told, compared to other European countries, the French treated the startup opportunity seriously and have produced results mainly because Macron is the only one with a plan.
👋 McKinsey plans to eliminate about 2,000 jobs, one of its biggest rounds of cuts ever, and joining the likes of KPMG, also said to axe about 1000 people. No more hyper growth means no need for consultants - they join the likes of the big tech companies trimming their organisational charts.
Anecdotal, there’s actually a term for it: the PML (professional management layer) aka employees whose value contribution is unclear in an organisation, and for which Elon Musk has created a precedent, proving that Twitter can run just fine after firing half of its people.
Also notable, speaking of consultants, it looks like the VC job is not as glam as it used to be for young people.
🇪🇺 European late stage startups meanwhile have increased the equity incentives for its people, with the average employee ownership at some 16% this year, up from 12% in 2017. The problem in Europe though is that most countries still consider stock options as unrealised gains and tax it accordingly.
🇪🇺 TikTok is said to shut their Warsaw R&D office, opened in 2021. No connection to this week’s decision of EU to ban the app on devices used for work amid concerns over data protection.
🇳🇱 Bill Gates has purchased a stake in the Dutch company that owns Heineken.
🇮🇪 Ryanair market share in Europe:
2004: ~4%
2008: ~8%
2023: ~16%
🇬🇧 Meredith Whittaker Signal CEO says she's 1000% prepared to exit the UK if the country requires providers of encrypted communications to alter their products to ensure user messages are free of material that's harmful to children.
🇺🇦 Matthew Prince, CEO at Cloudflare about the first war of the internet:
As Russia took control [in March 2022], they rerouted internet access back through Russia, where it was subject to Russian censorship. That has since switched back. We could almost track in real time who was in control of the core data center. We’ve never seen that before in open warfare.
Second, the internet has allowed the stories of what’s happening to get out in a way that's raw and unfiltered. If Russia had been able to turn the internet off, I’m not sure Zelenskyy or Ukraine would have survived. Instead he’s been beaming into conferences and posting on TikTok.
AI eats the world
☝️ Facebook joins the AI party with LLaMA and an “ai.facebook.com” subdomain name. They used 65B parameters trained for 21 days, and for doing so it is estimated to have footed a $4 million bill compared to Google’s $27 million. FB took it seriously, beyond a PR move, it’s interesting to note that their datasets are off the internet as most of Meta’s properties are a walled garden not available for Google’s spiders.
🇫🇷 Za French 9 out of 15 of the researchers who authored the LLaMA paper are graduates from École Polytechnique.
🎶 AI DJ Spotify also had a lil AI announcement this week: a new feature offering personalised music with AI-powered commentary. That’s basically voice over customized playlists.
🤖 Superintelligence Sam Altman on planning for AGI (artificial general intelligence)
⚡ Tangents:
big US companies started banning ChatGPT in their organisations (that’s like banning the internet access)
Vanderbilt University apologises for using ChatGPT to write mass-shooting email.
Closing notes
😲 The captable of a British quantum startup that’s raised the largest ever single investment in a quantum computing startup in the UK:
Investors: 79%
Universities: 16%
Founders: 5%
🇫🇮 Oh, Helsinki How Helsinki became the mobile gaming capital of the world.
🇬🇧 Oh, London It sounds like it’s become as un-livable as San Francisco: an unsafe place that’s awfully expensive.
🇪🇺 Oh, EU Europe is where ChatGPT gets regulated, not invented. Bonus read.
🇪🇺 GDPR 2.0 The EU wants to fix GDPR.
⚙️ The cloud has become expensive, so we’re back to owning the hardware.
💲 Stephen Schwarzman, the founder of Blackstone Group, received income of nearly $1.3 billion in 2022. Not a bad pay for a year of work.
🤔 How much is enough to be comfortable when you retire? At least $3 million.
🤑 Money can buy happiness Two VC celebrities had a metaverse wedding in Decentraland sponsored by Taco Bell. People are weird.
🗡️ A castle-turned-hotel in Japan comes with its own band of samurai for you to command. $8400 a night.
🇮🇹 Starbucks is launching a olive oil-infused coffee product in Italy, an idea inspired from a trip CEO Howard Schultz took to Italy last year, where he witnessed Sicilians drinking olive oil as a daily ritual.
👶 Today's 5-year-olds will likely live to 100. For children in wealthier nations, 80 will be the new 60.
Did you find this email useful?
Great, will forward • Good • Meh
Dedicated to my mother.
Thanks for reading! Please send me your thoughts or comments by hitting reply.
If you would like to sponsor this newsletter, please get in touch. I am bit biased, but Sunday CET is a great way to reach investors and founders from Europe.
If this email was forwarded to you, please subscribe, it’s free!
Created every Sunday by @drnovac of Nordic 9 with weekly notes and observations from the European startup ecosystem.
You have received this email as you signed up at Sunday CET or are a Nordic 9 registered user.