Howdy folks - welcome to Sunday CET. Let’s get right at it.

Dragos

Market talk

It was a slow summer for the VC business in Europe, with deal flow numbers as low as what we’ve gotten in 2018-2019 - and no, it’s not the French taking August off to blame, as some would have you believe.

• the overall picture is just meh - folks are wary nowadays, as they're dealing with an AI-is-the-shit-but-how-do-we-make-money hangover in a bad macro context, some still trying to figure out sustainable business models in a sea of me-too incremental startups that won't make the cut in hyper-competitive environments.

• more and more VC companies are struggling to stay in business - there’s no place in the middle, the big gets bigger, the small needs to be super differentiated, working on an edge, all this while the market is contracting and inflation is still looming.

• also all this while the demand side is not really growing either, smarter founders are going straight to the US for funding (two thirds of the Euro startups at YC this summer called themselves American) while the local pipeline is not particularly strong to begin with. Many reasons for it and lack of money ain’t one of them - compared to a handful in 2018, today we have more than 30 early stage funds that sit on 200 million or more dedicated to backing the early stage startups from Europe. It’s tricky to be in the VC market nowadays.

• this week I had a quick look at the deals announced by 50 or so big funds investors in Europe in June-August. The early stage side is rather weak, with the usual suspects involved in more extensions or followup rounds than ever - some expensive transactions here and there i.e. Black Forest, Cusp, LuaBio, Light, XBOW.

• multi stage investors did a bit of early stage as well - Accel, Balderton, Northzone or Lakestar had a few deals made public. Alas, folks that announced new funds this year were naturally more visible in the market.

• growth investors were also timid, there were less than 50 transactions closed at $50 million or higher in June-August, with Hedosophia, Felix, DST or Bessemer on the list - but these months’ highlight was actually Revolut doing a secondary transaction at 45 billion.

• next few weeks will hopefully have public some more evidence of work done over the summer, but that should be marginal to an anemic European market.

• detailed names and deals in this cheat sheet capturing the European VC zeitgeist from over the summer.

Other cheat sheets

• Euro at YC - kept my years long tradition of reviewing the Euro startups at YC, about 30 names in this summer batch.

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

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

Also notable

🇩🇪 A few days ago, Aleph Alpha, the German startup that raised half a billion to develop AI technology, made public what everybody had known already for a while - namely pivoting its business from actually building advanced LLM to selling AI chatbots and tools, becoming an agnostic software distributor.

• yet again proof that the GTM and business building is more important than cloning American products, something that the Germans have specialised in ever since they made Rocket Internet seem to be a success story.

• the mantra of “AI made in Europe” has suddenly disappeared because, frankly, building a multibillion tech business is hard, the benchmarks keep getting higher and Europeans just don’t have this tradition - it’s also a significant move contributing to the narrative that Europe is rather a market for consumers than a value creation one, in spite of the local inflated egos.

• “This concept of ‘fail fast’ goes against the traditional German mindset” + more background story here.

💲 The successful British startup no one talks about:

• OnlyFans did $1.31 billion in net revenue (20% yoy) out of $6.6 billion user spend on the platform for the fiscal year ending November 2023.

• likely paid more in taxes than established tech companies in the UK too.

• long on platforms enabling people not only be on-demand workers, but also build their own gig around local communities.

🇫🇷 French billionaire Xavier Niel will join the board of directors of TikTok’s parent, ByteDance, replacing Philippe Laffont, who leads Coatue, one of ByteDance's shareholders.

🚙 The EV car revolution didn’t work out as planned in Europe:

• Volvo gives up plan to sell only EVs by 2030 and will be selling some hybrid vehicles by that date.

• Volkswagen is considering shutting two German factories to save €10 billion by 2026 - its closures in Germany for the first time in its 87-year history.

• alas, oversupply and future growth uncertainties aside, here’s a back on the envelope calculation:

  VW stake in Porsche = €45 billion.

  VW stake in Traton = €14 billion
  -

  Total: €59 billion

  VW market cap: €46 billion

🛴 The city of Madrid will ban shared electric scooters as it joins Paris to address complaints of crowding the sidewalks:

• Lime, Dott and Tier Mobility had been awarded a contract to provide up to 6,000 scooters, but now have to remove them.

🛬 European low-cost carriers Ryanair and Wizz Air hit record passenger volumes in August - a likely reason for which their prices match or are sometimes higher than the ones of regular carriers.

🇬🇧 A UK regulator has cleared Microsoft’s deal with the AI startup Inflection to hire most of its staff and pay for its intellectual property, closing its investigation into the deal.

🇳🇱 The Dutch Data Protection Authority fined facial recognition company Clearview AI $33.7 million, alleging that it created an illegal database with unique biometric data.

🛍️ Guardian moves into e-commerce amid revenue shortfall for 2023/2024.

• meanwhile, the FT had it highest-ever revenue of £500 million last year, and expects it to be more this year - proper time for Nikkei to look for a buyer.

👤 Meta AI now has more than 185 million weekly active users.

💲 Uber sold $4 billion worth of bonds while ByteDance is reportedly seeking a $9.5 billion loan, which would be the biggest dollar-denominated one in Asia excluding Japan.

🎥 Netflix is likely to finish this year with around $500 million in ad revenue.

• a bold transition towards a fully-fledged media company as people paid Netflix for content not for ads.

• scaling the business meant content quality has turned into shit, meaning further that selling “engaged” eye balls is the way to make money.

• optimising for low-value clickbait engagement is the model of any media business that looks to produce out-sized returns, particularly the ones funded by VCs.

Macro

💲 Leverage on leverage:

• UK financial regulators are scrutinizing how banks are helping PE firms layer on debt, namely the practice of giving new loans on top of investment portfolios, sometimes to juice profits and sometimes to generate cash until the M&A and IPO markets come back.

• NAV loans are a type of debt that allows fund managers to borrow against a pool of companies they own, making them a controversial form of financing because they let private equity managers layer more leverage onto their funds. That’s because the borrowing comes on top of loans taken out by many managers when they first acquire a company.

🇨🇳 World War III, the economic edition:

• China’s Xi announced that they'll give all Least Developed Countries (LDCs) having diplomatic relations with China, including 33 countries in Africa, zero-tariff treatment for 100 percent tariff lines.

• this means zero-tariff on all products or goods exported to China

• encore: Russia built covert trade channel with India, to no one’s surprise.

🇩🇪 Three former Wirecard executives from Germany were found personally liable for €140 million and ordered to pay up.

• Eastern European corruption seems petty when you go deeper into the Wirecard story.

• alas, Americans spying for China for getting duck bribes is also a head scratcher.

🇩🇪 Deutsche Bank chief tells Germans they need to work longer and harder.

🇫🇷 In France, 50% of the population lives on less than €1,930 a month after taxes.

🇦🇹 Austria’s ‘Beer Party’ started as a joke - now it could determine an election.

🇬🇧 The UK government struggles to appoint new investment minister - the nominee turned down the job for financial reasons.

🇬🇧 Brits have it so hard that they ran out of prison space - in the European spirit of help, Estonia offered to to take some of the strain by using its spare capacity.

Sunday pointers

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✍️ A look at how AI could help discover new drugs in healthcare, especially in identifying new antibiotics to combat antibiotic resistance.

🚙 Inside the robot taxi business.

💲 If your 2022 VC fund is >1x, it’s in top quartile.

🤯 What do people really ask chatbots? Sex and homework.

🙈 Note to Europeans: how air conditioning took over the American office - the promise of boosted productivity created a different kind of workplace.

• before AC, US office workers relied on building design features to adapt to high temperatures.

• while department stores and banks were often mechanically cooled by the 1920s, relatively few prewar employers saw the value of what was then called comfort cooling, which was seen as a luxury amenity unfit for the office; 1930s New York City office towers like the Chrysler Building and the Empire State Building opened without central air.

• as of 2020, about 90% of US homes have access to some kind of AC, too, but that still varies considerably by geography, and the share has shot up dramatically since the 1970s.

• meanwhile in France: in office buildings, it is illegal to switch on the air conditioning if the interior temperature is less than 26°C.

🦹 A new TikTok trend has people posting their attempts to exploit a “glitch” in Chase Bank ATMs that offers infinite free money.

🇪🇸 The old is new again, dating edition:

• young single Spaniards to go to the supermarket chain Mercadona between 7pm and 8pm for their flirting time and place a pineapple upside down in their shopping basket as a signal to others.

• meanwhile boomers in America get hooked up at running clubs.

🧸 Nearly five million Lego pieces plunged into the sea in 1997 - the pieces are still showing up on England’s coast, in Ireland, Belgium, France.

🍥 When we were young:

• a Japanese 10-year-old has become the youngest person authorised to prepare fugu pufferfish -- a delicacy that can kill if its poisonous parts are not properly removed.

• a 9-year-old London schoolboy defeated three grandmasters in successive games in Budapest.

That’s all folks, have a wonderful week!

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