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Hey there,

Welcome to Sunday CET. This week - a look at how many is too many VCs in Europe and the dynamics of DoorDash’s move on Deliveroo. Ping me with your thoughts.

Have a good one, Dragos

Market talk

Are there too many VC funds in Europe?

This came up in a larger conversation with some respectable veterans this week - are there too many or too few people in Europe trained to recognize fast growth and manage assets up to their potential? The ad-hoc consensus was that there’s way too many who think are good VCs and way too few justifying their pay checks - take it with a grain of salt though, as always, this kind of posits are never black and white, but rather grey and assorted with all sorts of bad anecdotes.

So where are we at, then? The VC business has undoubtedly gone a long way in Europe, from a handful of companies chasing a couple of hundred deals a year in the early 2000s, we’re now at a couple of thousands of funds doing some 15k-20k transactions. Fwiw, over at Nordic 9, we track consistently the investment activity of more than 2000 VC outfits every year. The local industry is at an inflection point today - on one hand, the region has built real muscle in deeptech, fintech, and impact sectors, supported by record VC funds and maturing policy frameworks. On the other, fragmentation of all sorts continues to be a major problem - in regulation, capital distribution, talent and culture. The next years evolution is highly dependent on this fragmentation play, at least on three pillars:

• policy - the EU legislation is adverse most of the time, and neutral at best, for building a big company out of Europe.

• mega-fund deployments as a bridge to exits - we have a few, but hardly enough.

• exit events - given the circumstances, at least some decent M&As will do in a market starved for liquidity today. But need a proper return market nonetheless.

If these align, they would give European startups a minimum fighting chance, and make for a sustainable trajectory of the tech growth funded by VC money. The supply side dynamics i.e. startups and incentives are equally important - but I digress, let’s get back to the ‘too many VCs’ question.

I don’t think there’s a right number of VC firms, the market tends to take care of it via supply and demand. Europe’s main challenges from above translate into scale, specialization, and geographic coverage, not just headcount.

First, let me throw in some rough numbers:

Number of VC firms:

• Large (500M+): 50 funds

• Mid-size (100-500M): 300 funds

• Micro-funds (<100M): 1650 funds

Stage breakdown:

• pre-seed/seed: 60% of funds

• series A/B: 30%

• growth/late: 10%

Hubs:

• UK + DACH + France + Nordics: attract roughly 80 % of VC capital

• rest of Europe: share 20% of money.

Quick observations:

• most of the funds are small micro-funds, namely handling less than 50 million. That’s too many chasing too few quality deals, making for seed overcrowding, noise, mediocrity, intense competition for small checks, and admin overheads for startups.

• and while finance availability can be a good thing, it comes at a cost as the above translates into a bigger barrier for a founder to get funded - there’s a high correlation between founders’ high friction to capital access and the micro-funds underperformance btw, and most of the funds won’t return the money or raise again.

• another way to look at it - over-concentration at seed means plenty of early bets, which is good, but insufficient follow-on capital for winners and/or would-be un-attractive captables for scaling purposes (a frequent case), all these causing promising startups to search for capital elsewhere, namely in the US.

• that is actually founders’ current mindset at early stage → build MVP, either bootstrapped or raise little money locally, then shop the startup into the US, where capital is more abundant and market more mature. Go for the smart money, that is.

• which brings me to the next point - the follow-on stages see a funding gap in Europe. Many smaller markets lack local funds with capacity to lead rounds, forcing startups to relocate or dilute heavily, all this while there’s a big shortage of 200M+ funds willing to lead Series B/C rounds - the very reason for which Europe needs more mega-funds to support scaling.

• not least, there’s a big imbalance by region and sector. Europe’s core lies in a couple of markets divided by strong cultures and language barriers, none of them aspirational for unicorns, while all the emerging EU markets are underserved - over here, founders sometimes go to London to build/test MVP, and then to the US. Sector wise, the fintech allocation from last years transferred into AI and deeptech, and probably a bit of defence nowadays, but what happens with the rest? Flee to the US, of course - you go where the market is.

• what next? I think the ‘everybody can be a VC’ era is behind us and we’re in the middle of a consolidation of the early stage funding: a lot of the micro-funds will die out, but will take a bit of time while ghosting the market. The smarter ones will either merge or highly specialize in order to reduce duplication.

• there will be more mega funds: I think the EU has finally realised the urgency of a fitting legislation and capital-markets union (Draghi report + US friction with the world make for good kicks in the ass) and will encourage large institutional allocations (pensions, insurance) to take more risks with the later-stage European VC.

• and also more funds of funds - I am seeing one-two popping a month, public or semi-public, those are particularly important for filling the gaps in the under-served regions.

• hard to anticipate legislation but safe to say that overall the current macro forces the local ecosystem to adapt at a faster pace than in the past decade, and the real question is whether we have enough adults in the room to make for a decent market. Like it or not, the reality check is startups in Europe are still an after-thought in the grand scheme of things, both for the US tech and for our own Europeans looking to launch a fast growing tech project. And the buy side is at par, I guess.

• What do you guys think?

A good time to buy

DoorDash has made a £2.7B acquisition offer for Deliveroo this week. Five things to note:

1. Last June, the two had held merger talks which broke down over valuation - Deliveroo’s stock has risen 47% over the past year and as of this morning it had a £2.19B market cap.

2. Deliveroo listed in London with a £7.6B valuation in 2021 - the worst European IPO tech in history. In that year it produced £1.82B in sales, while for 2024 it reported revenue of £2.017B, a 2% increase yoy. Q1 this year is up 8% yoy, so it’s gotten a bit of momentum. Still, an under-valued asset imo - and likely one of the reasons for which DoorDash is being insistent.

3. DoorDash follows the suit of Lyft as we’ve discussed last week i.e. speculate momentum of a bad market and get assets on the cheap. As a reminder, the Americans put the foot in the European door in 2021, when it paid $8.1B for Wolt - a price that put a premium in a fragmented market looking to provide returns for VCs at the time. Wolt was estimated to do $500M in 2021, while today turns over some $1.8B a year.

   If the deal goes through, DoorDash would produce today an aggregate of £3.4B out of Europe, which it would make it a market leader. Fwiw, Glovo’s owner, Delivery Hero made €1.9B (£1.4B) last year in Europe.

4. Not least, worth mentioning that the Dutch from Just Eat Takeaway was de-listed and acquired by PE earlier this year, after they f-ed their American expansion - they were valued at €4.1B (£3.5B) while producing revenue of €2.67B (£2.29B) for 2024. Fwiw, the PE looks for 3-5X returns within 3-5 years of holding an asset.

5. So, comparatively, there may be a bit more upside for Deliveroo to negotiate, right? In their own words though, and in a very British manner of speaking: it would be minded to recommend such an offer to Deliveroo shareholders.

Signals

Interesting deals

🇳🇱 Tella (screen recording SAAS) - 2.1M
🇬🇧 ​Isembard (new gen SAAS for manufacturing) - 9M
🇦🇹 Emmi AI (simulation tech for industrial engineering) - 16M

Trends

• Revolut bringing the juice - £3.1 billion revenue in 2024, 70% yoy. One of Europe’s more promising asset, reportedly dealing at 60B.

• Make Europe great - Euronext introduced a streamlined IPO prospectus to attract more IPOs across its European exchanges. The new format reduces required sections and adopts English as the preferred language to facilitate cross-border investment. Necesarry.

• Defence is where is at - the Brits would like the venture capital firms to invest in the defense sector positioning such investments as ethical and essential for national security - the plan is to increase defense spending to 2.5% of GDP by 2027. Hype is as high as even McKinsey pushes content about Europe’s defense tech start-ups.

• Euro self driving - Volkswagen will deploy self driving cars in the US, while Wayve stregthens its Japan footing. Btw, the US is relaxing regulations for the self-driving cars.

• American capital flight to Europe - a lot of it in the past 5-6 months for obvious reasons, albeit less of it in risky assets such as startups. Latest has TowerBrook Capital raising $4 billion and planning to open new offices in Milan and Dublin, and possibly in the Nordic region.

👇 You may also be interested in:

• strategic spinoff moves and key VC hirings this week

• when will preventative health explode in Europe

• cool Euro kids raise in the US

That’s from our European market coverage from tomorrow - sign up to get it in the inbox, it’s a must-read.

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Other notes

👀 The best way to get the pulse of what’s going on with VCs is to talk to them, and my Malmö friends are doing Mashup exactly for this reason. Invite-only, highly-curated and designed for quality interactions - 500 VCs, founders, angels and LPs. Ask for an invite here, spots are limited. Btw, Sweden is lovely in spring.

💪 Inside Europe's most ambitious construction startup - Monumental that is.

🤡 Here’s a fun one <- I put a bit of AI magic on top of Molten’s and Kinnevik’s Q1 interim reports for getting the gist of what’s important.

🤖 Interpol has an innovation center in Singapore, second largest office behind its headquarters in Lyon, France. They’re doing pretty cool stuff too.

🙉 Problem or opportunity? - 38% of young adults said they've ignored their doctor’s guidance in favor of advice from social media. Idly wondering whether ChatGPT is considered a ‘social media’ thing.

🙈 Here’s a conspiracy theory for you - there’s an idea floating around that the Trump administration will revalue gold stores at Fort Knox, which at current market prices it would be worth about $850 billion. That money could be used to pay for an extension of Trump’s tax cuts, seed the sovereign wealth fund he wants, or buy bitcoin.

☀️ California is world’s fourth-largest economy and grew faster than the top three - 6%, compared to 5.3% for the US, 2.6% for China, and 2.9% for Germany.

💪 Finland’s president Alexander Stubb published a fitness program for conscripts - dude is 57 and super fit. Considering that the Finns know a thing or two about Russia abusing other countries, an extended war seems kinda imminent.

⚜️ Why is everyone getting their tattoos removed?

• About a third of American adults have tattoos - that’s at least 80 million people. And a quarter of those 80 million are thought to regret their body art - totaling some 20-odd-million prospective tattoo-removal clients. All of those millennials who started getting inked in their 20s, just as tattoos were evolving from something transgressive into something more commonplace? They’re now inching toward or into their 40s and feeling disconnected from their misspent youths. They’re having babies, paying mortgages, sobering up, getting colonoscopies, and eating clean. They want their bodies to reflect those dramatic existential shifts.

👉 You can too bet on the next Pope.

🤗 How to have friends past age 30.

🐶 Corgi Derby is a tribute to Queen Elizabeth held at the Musselburgh Racecourse in Scotland - photos!

That’s all folks, have a wonderful week!

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