Good morning,

Welcome to Sunday CET. This week we talk Klarna, preventative health, YC and, uhm, a bit of Draghi. And a whole lot more - oh, and don’t miss that table with size vintage funds of old VC schoolers.

Thanks for reading guys, get back to me with thoughts and comments, or just to say hi.

Dragos

Cheat sheets

• 2024 summer recap - names and deals capturing the European VC zeitgeist from over the summer.

• European startups at YC - this summer batch.

• fintech in Europe that raised this year - later stage, series A and early stage.

• defence startups that raised in Europe this year

• American deals in Europe this year

• Euro fund sizes ranking - seed investors and multi stage investors.

Market talk

💭 Klarna is pushing hard the AI as an IPO story.

• if you follow closely the Klarna PR bits, every week or so, the Swedish company announces about how its top floor discovers something-something about how AI pushes the company on the efficiency frontier.

• it is, of course, just a narrative led by CEO Sebastian Siemiatkowski as the company would like to IPO at least at a $20 billion valuation, after the VC put a price tag of 35 during ZIRP - it ensued a dramatic drop that left a significant scar on the company’s growth experience.

• the latest in this AI public push, which seems a bit desperate tbh, is that the company would develop tools allowing Klarna slash the spending on Salesforce and Workday - which are bold yet vague, begging more questions than the expected, good-for-you pats on the back.

• how is this done, what is the better way to manage the data, how about compliance etc - things that even Saleforces’ founder Marc Benioff wondered about publicly, as it’s kind of a head scratcher for anybody who has an idea how to design data architecture in enterprise business.

• it’s good to control your own stack, no doubt, but is rebuilding all of it in-house a good use of capital though? - it’s just a cost that’s not re-couped via sales, and some things are better bought off the shelves than developed in house. Or maybe is this just a trick to ask for a commercial vendor discount in public? 😀 

• jokes aside, sure, major cost savings can be accomplished by using AI and I understand where Klarna is going with this public discourse, but no matter how it slices it, it won’t become an AI darling because the core of its business is selling money on top of SAAS - using software efficiently is just a cost angle in the big picture, and a mean to an end that when push comes to shove (i.e. IPO), investors will price better a revenue growth story rather than a top down cost-focused business.

• and we’re yet to learn how Klarna is using AI to make more money rather than save - who knows, maybe it is scheduled in one of the following PR episodes. 😀 

• btw, in the US it looks like Klarna commissioned Shaq to be an endorser, that’s a good move.

🧑‍⚕️ Neko, the health startup done by Daniel and Hjalmar, announced closing down 10k signups (bookings and reservations) within a week for the newly opened London center.

• for noobs, Neko is a health clinic selling preventative health services - you’re having your body scanned and then get instant results of health indicators, which, I am guessing is backed by a companion app that should be able to provide some sort of real time assistance if fed constantly with updated data. (it’s just common sense and what I’d do, I never actually used their service).

• I am really bullish on this type of business, preventative is where it’s at and whatever tech solutions you may find available are solving isolated problems in a very fragmented way - as always the US is far ahead, there’s a whole class of startups in this space, and yet it’s still a blue ocean. If any of you got in contact with the medical system in Europe, or worked with health startups trying to scale for that matter, will be quick to understand the new paradigm shift this kind of business is bringing to the table.

• anyways, Neko got me curious about the economics of such a business - say the London clinic has 5 scanners which are on average used by 20 customers a day, five days a week, that means Neko has sold its capacity in advance for the next 5-6 months. At £299 a pop, 6 months in advance is a nice customer financing of 3.6 million.

• on the cost side, say a scanner is 100k a pop, nice commercial real estate location in Marleybone at 200k a year, plus 50-60% extra for overheads - that’s a 2, maybe 3 million budget for opening a clinic, money which is already financed by customers. Not too bad for a little startup looking to grow, right?

• that’s just basic beer talk, what’s actually super interesting with Neko is the potential for growth. The thing with this business is not doing the scanning per se (that’s just a data collection mean) but creating a recurring opportunity for people using a data-based service - and that’s a super app using consumer profile-based AI for providing actionable health insights, backed by periodic medical checkups, in-person concierge, medical scope expansion, B2B packages plays and so on. The sky is the limit - and that’s per a location basis, imagine the synergy effects you will get by multi geo locations, as the consumer profile allows for both segmentation and cross selling while going up the value chain for selling byproducts such as insurance, or down the value chain selling, for example, access to recuperation/treatment centers from all over the world.

• you get the idea, those guys have a very exciting execution ahead. In short, we’re looking at a multi billion dollar business in the making, much bigger than Spotify and which btw, it will change the whole medical system from within because all incumbents will adopt best practices and will become better etc

• my only question is why doesn’t have already a competitor in Europe? 20 mill for opening three locations just like Neko - that’s the ask, the pitch is above, who’s doing it? It ain’t easy to pull it off alas nothing in life is easy - if it were, everybody would do it, just gotta find that warm intro to sell it to your local conviction-based money man. 🫠

💪 Here’s an example of some conviction guys long on early stage startups at scale - YC’s moving to 4 batches a year.

• it’s basically doubling the number of cohorts of startups that it hosts, but each cohort will be approximately half the size of previous cohorts.

• that means investing in about the same number of startups (roughly 500 a year), but the higher frequency allows for a better market capture, while having the flexibility to handle inbound demand much better. Also, smaller class means quality prevails vs quantity advisory.

• those guys are top on their strategy, and index the top of the market like no one in the market - who is competing with them? 😋 

• tight-lipped about the size of their current fund, latest data after a quick search is that it raised 1 billion back in 2017, and folded the 700M continuity fund earlier this year, probably re-allocating $ to early stage - if they do 500 startups at 500k er year and have a 50% extra for follow ons, I’d imagine that north of 1 bill is about right.

• standard graduates are doing seed deals of 2 at 20 (or 3 at 30+), and looks like the summer batch is an already great sourcing flow for tier one investors, ahead of the demo day that’s in a week.

• reminder - I put together a complete list of European startups that were part of YC this summer.

🇪🇺 This week I had folks reaching out asking what I make of Mario Draghi’s report about the European competitiveness, or its lack thereof.

• in short, I think that’s just talk and nothing tangible will happen - I have been writing about the EU startup disconnect ad-nauseam in this newsletter and just ended up with EU folks hating on me for being outspoken.

• but listen, it only took a year for a retired 80 years old guy to put into 400 pages what it’s been obvious for all of us working in the system for many years or can become obvious if you just put a bunch of startups in a room and talk to them for half a day.

• it’s a long, complex document, using sophisticated words, eerily strange if not familiar with the lingo. If you’re in the startup world looking for clues, you will have to read it in the key of startups being referred to as innovation - for some strange reason, the startup word is mentioned exactly eight times, if we’re to be scrupulous. Actually it’s not that strange, as startups are an exotic thing for politicians while innovation is a buzzword that catches with the masses.

• NB: what’s this thing called innovation, anyways? Is it maybe sending people into space, something that the EU hasn’t done in years and the US has been doing twice a week since the start of this year? Or, maybe, this thing called AI, which will change the world in such a meaningful way that it scared the shit of the EU brass so that it basically it put a legal hard stop to anything good that could come out of it from European stakeholders?

• anyways, any serious discussion about startups as innovation drivers really starts and ends with the KPIs, and the EU is simply not a good place to build startups from this pov, the taxes are high, the talent is scarce, the legal is not ideal, growth liquidity quasi-nonexistent, and we have a massive brain drain to the States - have had all these for more than a decade now. On top of that, we simply do not have the brightest people to lead us out of this macro chasm, the change only comes from the inside.

• we’ve gotten thus far with this ecosystem (and progress has been made, don’t get me wrong!) in spite of the EU not getting it, while institutions are allocating visible resources with the only strategy that by throwing money, something should eventually stick.

• about 80% of the startups and VC funds altogether in Europe are subsidised by tax money - it’s the socialist way of doing capitalism, meaning that, in fair game, returns need to be benchmarked against any professional capital market or penalised/rewarded by the said market as such. There’s no market efficiencies at all, little incentive to compete unless some dude clones an American startup, all augmented by the rotten jealousy of selected lead politicians understanding to compete against American business by boycotting their ops as much as possible. Value destruction at its best.

• so yeah, putting aside its guidance nature as opposed to enforcement of what’s preaching, Draghi’s paper is just talk, and will stay the same - I bet that those guys not only don’t talk to startups but also have little idea about what it takes to build a competitive one. If you think that Ursula, Thierry and co will produce concrete KPI improvement in the local startup world, I have bad news for you guys, you’re being delusional.

• and here’s a quick bunny for the EU, the kind that exemplifies the ineptness of it all: this week there’s been a piece out about how the number of VC-backable startups had been considerably going down in China - from 50k in 2018 to 1k last year. It’s really staggering data, if right - btw, did you know that since Xi's crackdown, if you raise VC in China and your startup fails, the government seizes your house? Terrible, again if true.

• funny how that works, well that could be a major opportunity for Europe - why don’t us bring the smart Chinese entrepreneurs to do startups in Europe? They’re smart and savvy like everybody else, and could use a fair chance. It’s a fact that many successful startups were done by immigrants, either here or in the US and, moreover, we need qualified people to work in Europe as much as possible since we’re getting old and labor supply is shorter by day.

• alas, yeah, we’re not able to create a proper ecosystem for our own entrepreneurs - but immigration is the elephant in the room that could be a solid solution for many economic problems, legal immigration should easy and illegal immigration hard, how’s that for a policy? Yeah, oh wait, we need to reconcile it with Europe being a bedrock of immigrants hatred and that China and Russia are at war with the civilised world as we speak. Good luck to us all!

Quickies

✍️ Recommended newsletter

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  - Swedish SAAS asset bought at 5.5X revenues now sold at 7.6X, overall 3.3 return on investment.
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🧸 We all have to start from somewhere, right? Below a table with how (some of) the big guys in venture did it.

• food for thought - put it in perspective with the local European class, where they started from and the situation as is. As serendipity has it, I actually had an interesting discussion with a London investor this week about some of the stronger Euro VC teams and pondering who’s going to make it or not based on the public signals, which nowadays are plenty.

• fund size is also a strategy indicator - take the current Euro funds ranking by size at seed and at growth as a starting point.

💲 Big VCs are hedged - also big gap on Sequoia’s Euro portco, right?

✍️ Startup mortality rates - 1/3 are good investments, 1/3 turn into something but you wish you hadn't made the investment, 1/3 are zeros. So two thirds are written off.

🇳🇱 Adyen’s number of employees in EMEA has decreased in H1 2024.

🇮🇹 UniCredit said that a full takeover of the German bank Commerzbank is an option after announcing that it had acquired a 9% stake.

💲 Revolut is issuing business cards on demand via vending machines - all this while Germans’ aversion to advance in the 21st century and quit using cash is fuelled by weird failures of legacy tech.

🤸 The unicorn economy runs on ZIRP - the great liquidity drought.

🪧 Ad money is unpredictable - creators shift to subscription services.

🎵 Sony Music is in advanced talks to buy Pink Floyd's recording rights for around $500 million.

⚽ AC Milan owner says private equity investment has massively inflated sports team valuations.

🏀 Junior Bridgeman, former NBA player and owner of Ebony and Jet Magazines, is buying a 10% stake in the NBA's Milwaukee Bucks at a $4 billion valuation - however, he is getting a preferred limited partner discount of 15%, or a $3.4 billion valuation.

Sunday pointers

☕ The times we live in - everybody in Italy is quite nervous, afraid and panicking about the price of espresso going to €2 per shot, as a result of the global coffee supply impacted by climate change.

• Italians drink some of western Europe’s least expensive coffee, paying about €1.20 for an espresso or €1.50 for a cappuccino, in the country’s ubiquitous and convivial coffee bars.

🛬 United Airlines expects to provide a free Starlink internet connection on all United aircrafts by the end of next year.

🙈 Google’s AI note-taking app, NotebookLM, can now generate an AI podcast complete with two “hosts” that banter from the research and documents in it.

🇵🇱 Six ideas for Poland.

🎩 Here’s something that England is famous for:

• makes for a nice Xmas gift, doesn’t it? Made from fur of bears hunted in Canada, no less.

• you have any idea how much one of those go for? £2,000 a piece, and, like everything in the UK these days, the price tag went up 30% from last year, probably because hunting bears in Canada is more expensive nowadays.

🤯 The old Europe is the new Europe, the Austro-Hungarian edition - don’t take advice from a Habsburg.

• Eduard Habsburg, author of The Habsburg Way: Seven Rules for Turbulent Times, is Hungary's current ambassador to Vatican, and a member of the House of Habsburg-Lorraine, the former ruling family of Austria-Hungary.

• The Habsburg Way features a foreword by Eduard’s boss, Hungarian PM Viktor Orbán, whose ideological agenda says that Hungarians and Habsburgs are once again “going into battle together,” fighting now for the family and for Christianity, the best means to achieve human happiness and “preserve our identity.”

• Same Orban who is Putin’s inside man in Europe.

• As conservative natalism surges on both sides of the Atlantic (with Orbán leading the charge in Europe), Eduard invokes the fabulous fecundity of forebears like Maria Theresa as evidence that the Habsburgs had it right. He turns dynastic state makers into fertility-rate heroes.

💰 The richest man in Germany is worth $44 billion - his family fortune comes from the Nazis. Kinda the same story today with the up and coming class paid for by Russians.

🤔 Mark Cuban is Kamala Harris’ on-call billionaire. What’s he after?

🙈 Rage bait as a way to get attention on social media - so infuriating that people would be compelled to reply and tell me I was an idiot.

🐑 Don’t be a sheep - the financial industry edition.

😮‍💨 Reconciling "Life is Short" and "Our Work Sacrifices Are Sometimes Worth It".

🍕 New York City has again defeated Italy for the title of World's Best Pizza.

🇹🇷 Evergreen - drunk Turkish man spends hours with search party looking for himself

That’s all folks, have a wonderful week!

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