The Rise of Deep Tech in Europe: Elaia's DTS3 Fund and the Emergence of a Dynamic Ecosystem
Deep tech is gaining momentum in Europe, driven by the synergy of artificial intelligence (AI) and a strong mathematical foundation. This trend is further supported by an expanding community, increasing public support, and a surge in funding.
Elaia’s latest initiative, the DTS3 deep tech seed fund, exemplifies this growth. “The fund is twice the size of our previous offerings,” said Anne-Sophie Carrese, managing partner at the French venture capital firm, Elaia. With a first closing of €60 million, the fund aims to reach €120 million by early 2025. Elaia has already pinpointed three startups for its portfolio.
Since Elaia's establishment in 2002, a number of deep tech funds have emerged throughout Europe. However, Elaia leverages its long-standing relationships with research institutions, which have become crucial for generating deal flow. These partnerships often provide priority access to innovative projects from renowned labs, resulting in successful investments in companies like Aqemia, Alice&Bob, and Mablink Bioscience. Mablink, a biotech firm developing groundbreaking cancer therapies, recently secured a deal to be acquired by Eli Lilly, which Carrese described as “a very nice exit.”
Alice&Bob, a pioneering quantum computing startup, has recently raised $30 million to launch its first fault-tolerant 'cat qubit' computers in 2023. The success of such companies is a driving factor behind Elaia's decision to expand its fund size. Carrese noted that DTS3 aims to make smaller investments in around 40 emerging B2B deep tech startups, and then follow up with further investments in approximately 25 to 30 firms as they transition closer to seed stage.
The DTS3 fund will prioritize sectors including computing, industry, and life sciences. While pure AI projects will fall under the computing category, potential investments could also include AI-driven innovations in chemistry and biology. The fund's broader focus on the “future of industry” encompasses areas like energy, climate tech, and new materials. “It’s truly a multi-sector fund,” Carrese explained. “While we need to invest 80% of our capital in the EU, the remaining 20% can target global opportunities, with a significant portion likely going to Spain and Germany due to our ongoing efforts there.”
This ambition reflects a burgeoning concept known as European dynamism, which serves as a counterpoint to the term "American dynamism" popularized by venture capital firm a16z.
Kyle O’Brien, a Paris-based Irish-American entrepreneur, champions this concept through initiatives like the European Dynamism 50 report and a tech tour aimed at attracting U.S. investors. “European dynamism is more a movement than an industry category,” O’Brien shared. “There’s a necessity to capture the interest of founders and investors—both domestic and international.”
As the French ambassador for the tour, Elaia will host general partners from U.S. venture capital firms, facilitating visits to key sites across four countries next June, including CERN and ETH Zurich. The Paris leg promises a boat cruise on the Seine, infused with discussions on AI developments.
The recent European Dynamism 50 report highlights 50 notable deep tech companies, presenting them as an editorial showcase rather than a ranked list. O’Brien noted that the quantitative aspect only allocates a number of companies to each country based on the relative VC investment they attract. Notably, Elaia's portfolio features several prominent names from the French deep tech landscape, including encryption firm Zama, which recently secured $73 million in funding.
Zama’s innovative homomorphic encryption technology has propelled its valuation close to $400 million. CEO Rand Hindi, a seasoned entrepreneur, co-founded the VC firm Unit Ventures with O’Brien, and together they’re looking to close their fund in the first half of this year.
That said, the definition of "deep tech" remains a topic of debate. While O’Brien opts for the term "dynamism" in conversations with limited partners, Carrese sees deep tech as integral to Elaia's identity. “Our proximity to research makes deep tech a perfect fit for us,” she remarked.
The French tech ecosystem is further bolstered by its expertise in mathematics, which has proven essential for nurturing talent in areas like generative AI. Elaia team members, including Lazarus, a former pure mathematics researcher, maintain strong ties to academic institutions. “We naturally connect with math labs, allowing us to collaborate with former classmates and their students who are now creating groundbreaking AI companies,” Carrese explained.
Moreover, supportive public policies, exemplified by the initiatives of Philippe Tibi and Bpifrance, provide critical boosts to the ecosystem. Tibi's initiative encourages institutional investors, including insurance companies, to support venture capital funds, a trend historically lacking in France.
Carrese noted, “We were fortunate to be accredited at the first committee meeting last July, enabling us to access larger sums from top institutional investors. This empowers us to cultivate long-term partnerships built on trust.”
This momentum is particularly timely, as 2023 posed challenges for fundraising. Elaia also counts Bpifrance as a key supporter of DTS3, with the institution being recognized as a driving force behind the rise of French tech.
Given these favorable conditions, Elaia plans to maintain a strong focus on France for its deal flow. “We expect to direct two-thirds of our investments towards French startups, fueling a vibrant startup creation dynamic,” Carrese concluded.
Keywords: Deep Tech, AI, Elaia Partners, European Dynamism, Venture Capital, Generative AI, France, Investment
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