European tech is feeling the heat
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AI optimism meets VC anxiety
It’s June, which means it’s tech conference season. And I attended my fair share of events to catch up with old friends, meet new people and get a sense of the overall vibe in the European tech ecosystem.
So what’s the vibe like? Everyone is both super excited and super worried at the same time.
Singular, the Paris-based VC firm, held a side event during VivaTech week on a sunny rooftop overlooking Paris. During that event, an early-stage investor told me that European entrepreneurs are tired. They feel the pressure to over-perform and become the next Lovable, which claims to be the fastest software company ever to go from $1 million to $100 million in annual recurring revenue (ARR).
They also feel like they need to execute at a rapid pace to build a barrier to entry so that potential competitors can’t catch up with them so quickly. So they hire a hundred people in a single year, spend a good chunk of their week on planes between Europe and the US, and constantly second-guess themselves.
Will Anthropic release a product and capture their market? Will they be able to prove they are an AI-native company to raise another round? Are we in a bubble?
The founder of a 200-person startup told me he’s had enough. He’s missed too many weddings and birthday parties. So he no longer wants to travel for work. Just a few years ago, he was really into “founder mode”, a term coined by Paul Graham after he listened to Airbnb CEO Brian Chesky saying founders should be more detail-oriented about their team’s work without micromanaging (if it is even possible).
The paradox is that many entrepreneurs are also optimistic about the opportunities AI will unlock. At the public recording of the A La French podcast, even though the room was mostly filled with (usually shy) engineers, you could feel the energy both on stage and off stage.
As Kyber’s Jean-Baptiste Kempf put it: we’re witnessing the revenge of the CTOs. As traditional software becomes easier to build and harder to defend, entrepreneurs working on chipsets (like SiPearl, VSORA and Kalray), low-level code (like ZML and Kyber), robotics or industrial automation are back in the spotlight. These entrepreneurs used to be CTOs, they are now CEOs.
At the same time, they’ll need to raise large amounts of money to succeed and the VC market doesn’t feel super hot right now. There has been an inflation of VC funds during the so-called “zero-interest-rate policy” era (amplified by the Tibi initiative in France).
As Alex Dewez from 20VC described in his latest State of the French Tech Ecosystem report, we’re entering the reckoning period. Top-performing funds will still thrive. That’s why Seedcamp announced $320 million across two new funds just this week. But the “messy middle” of venture capital in France and across Europe? Not so much.
During this event season, I’ve heard about startups with perfectly fine metrics that can’t raise a Series B round because they’re not the next Lovable. Some VC firms from the “messy middle” are looking for out-of-this-world metrics to save the day and raise new funds down the road. Hence the low morale.
The most exciting conversations were once again about the frontier of AI. I went to Brussels for Off the Radar, an invitation-only event with 450 guests and speakers from OpenAI, Anthropic, ElevenLabs, Gradium, Fundamental, Linkup, etc. I had a blast interviewing Lélio Renard Lavaud, the VP of Engineering at Mistral who has seen it all over the past three years.
It was a surprisingly refreshing event with real on-stage demos and technical conversations in the hallways. We talked about pre-training, harnesses, benchmarks and so much more. And it’s true that when you stop thinking about funding rounds, exits and the startup market in general, it’s incredible to see the current pace of innovation.
That may be the clearest summary of European tech right now: people are tired of the startup game and excited about technology again. The problem is that the companies generating the most excitement also need the patient, abundant capital that Europe’s shrinking VC middle is least equipped to provide.
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Examining Alan’s €480 million round
French healthtech company Alan raised another mega round. Given that I’ve covered Alan extensively over the years, let me share my notes. This time, it’s €480 million from four investors:
- Prosus, the Amsterdam-based growth fund with a big stake in Tencent and that is now better known for its investments in food delivery companies (Just Eat Takeaway, Delivery Hero, Swiggy…).
- Dara Holdings, the family office of Saudi businesswoman Lubna Olayan with a minimalistic website.
- Teachers’ Venture Growth (TVG), the growth fund backed by Ontario teachers’ pension plans.
- Index Ventures.
TVG and Index are both existing investors. Prosus is providing most of the money (around €400 million). This is partly a funding round and partly a liquidity event. From what I hear, several early investors are selling shares. That isn’t surprising: Alan is now 10 years old. For instance, Partech, which participated in its 2016 seed round, sold its stake last year.
The company’s valuation is now €5.5 billion. But at this stage, several valuations can coexist. Existing shareholders often sell their shares at a discount to the latest public valuation (liquidity has a price).
The headline figure therefore makes the transaction sound simpler than it is. Alan gets additional capital, early shareholders get liquidity and Prosus becomes an investor.
Have a good day ☀️
Romain