faster horses

Good morning and welcome to Sunday CET.

Week 20 is here - we’ve already passed one third of the year and we have the best NBA playoffs in a long time, it’s finally spring in Stockholm and boats are out, the economy is shitty and the macro forecast looks grim, there’s still war in Ukraine and VCs stopped spending money in Europe but talk incessantly about the new AI revolution. And so will I in today’s edition.

Cheers,
Dragos

Observations

I’ve mostly stayed quiet about the AI thingie as I am a bit overwhelmed by the number of the overnight specialists literally flooding all the media channels with ‘expert’ opinions on the topic. So.Much.Noise.

In a different life, I have actually built a commercial product incorporating primary data sets we collected automatically for powering AI models we have built from scratch, so I have an idea about how those things work - but now I simply find it funny seeing how the 2017 blockchain and the 2020-2022 metaverse & web3 have turned into the 2023 AI saves the world revolution meme. A different name for the same tune, same actors, with all sorts of playing parts, including groups and committees analysing the danger of it to the society. So much energy and resources wasted for marginal gains or plain empty talks, people have lost their cool, ffs, it’s not about imagining threats and damages AI can pose, but about progress and what we can pragmatically achieve with it. And it’s not about people losing jobs it’s about higher productivity - faster horses ftw.

That’s not to minimise the tech impact - au contraire, it can be a game changer and a 10-100x amplifier in the right hands, like any emerging piece of disruptive technology. But the investors world, which I’ve been fairly familiar with for more than a decade now, seems to have reached new paroxysm levels. They intuitively feel like there’s something big happening they don’t want to miss out yet cannot actually pinpoint exactly what that is. More often than not, that’s because they’re confused - there’s a lot of paradigm changing info to assimilate in a short time and in a very noisy environment. And the pace of it is super fast adding to their uncertainty of navigating uncharted territories.

On one hand, this attention is understandable, like with any cycle - investors jobs is to find growth pockets based on the next big thing and AI is a big thing. On the other, folks tend to forget basic things - with or without AI or [insert any fancy trendy name], business fundamentals are the more important benchmarks - things like value propositions, go to market, distribution, and business models. Tech is nothing without those and no matter what a startup does, it still needs to find customers and convince them to pay for whatever shiny toys they’re building. Sadly, with a few exceptions, AI has brought too little economic value on the table in the startups world yet, and investors are in for an awakening as I see many put money without a business plan, just like they bought into last year’s web3 revolution that culminated with fraud scandals. Jury’s still out in the current AI wave but fundamentals are fundamentals.

And so I am more interested in (European) founders building business models that are using AI in an organic way, instead of cloning Americans ad nauseam or just recreating ecommerce, ride-hailing, or whatever over-priced startup is desperately trying to spin AI in order to squeeze some PR juice. I can see the money in product design, marketing and distribution, this is where most of the innovation and growth sources will happen - if you don’t do your data and models from scratch that is, that can be very expensive and rewarding at the same time (high risks, high rewards, right?) and require actually founders with business vision. The market terribly lacks those guys, that’s a fact.

Beyond that, building a startup on top of an API access however is a commodity rather than a growth engine - if we’re all using the same data and algos in the same industry, we’re all developing products that are roughly functionally equivalent, ending up into a cost/price competition that’s likely just a zero sum game. No differentiations whatsoever - on top of that, keep in mind that users are mostly not seeking out AI as a destination but as a specific case serving specific needs, incorporated into useful products and services, ideally that they’re already using. And unlike other tech waves and with a few extremely well-funded exceptions (hello OpenAI), big companies like Microsoft have a better seat at the table (see the story below) for extracting economic value from this paradigm shift compared to startups and implicitly venture capitalists making returns on those. For now, at least.

Stories

🇬🇧 Microsoft did a strategic investment in Builder AI, an AI-powered platform designed to help build and operate software projects. The Brits have been in the AI business since 2016, when it wasn’t as cool of a technology as it is today but valuable enough for American VCs that funded it with 200 million already. Fine, there’s a European investor (only one) in the captable too - Lakestar.

Microsoft is doing an incredible work taking AI tech to the enterprise software market (btw, that’s a great value add for an investor - Msft is a strategic investor in OpenAI, in case you live under a rock) as it already sold it to a bunch of its key big enterprises customers. Not only direct, but also via distribution channels - see the 1 billion arrangement with PWC. Besides OpenAI and Microsoft, consultants seem to be big $ winners riding the AI wave.

If we’re to add laggards like Google also soon-to-be-entering the enterprise market, famously very late at using new technology, we have instant market adoption for an emerging tech. In normal cases, that is super difficult for a startup to do by itself - instead of having an adoption cycle of at least 7-10 years, the ChatGPT-like product and related are already tweaked and shaped by enterprise droids which can put it easily into consumers hands and behaviours. Instant mainstream adoption.

🇬🇧 Uber launched flight bookings international and within the UK, as it aims to turn into a travel super app - in the UK it already added trains, on top of the taxi rides. It’s an interesting expansion strategy - each business vertical is a distribution channel acting as a re-enforcing funnel for the others, with the revenue side getting synergies from selling integrated products i.e. rides + flight/train bookings (airlines already do that).

Related: 

• Here’s an interesting stat - Google Flights, launched in 2011, now stands at the top of travel market share desktop distributors, with 40%.

• Uber has a subsidiary that does online grocery delivering in South America with a $3 billion annual bookings run rate. Name is Cornershop, was founded by a Swedish guy and was acquired for $1.4 billion in 2021.

🇬🇧 Digital bank Revolut Group CFO Mikko Salovaara will be departing the company after two years and a Revolut spokesperson said Salovaara’s decision was unrelated to concerns flagged by auditor BDO about the company’s 2021 financial accounts. Right - so that’s exactly the reason for jumping ship.

For context, BDO is said to have been unable to independently verify three quarters of the £636 million 2021 revenue. That’s half a billion worth of lack of balance sheet material evidence at a pretax profit of £59 million, no wonder the UK banking licence is not coming. And you thought only American traditional banks have problems and the ones from the old continent are insulated? Blaming the others is just more evidence of dire times for Revolut:

CEO founder Nik Storonsky and co-founder Vlad Yatsenko said that complex and unclear regulatory requirements had prevented them from competing globally and the U.K. had become a less attractive place for talented people since Brexit and the Covid pandemic.

🤔 Another one with Microsoft - it did something smart and turned company's training videos into TV drama. Have you noticed the great PR that Microsoft’s gotten lately - and that’s even before OpenAI announced ChatGPT. Part of it is a result of executing exceptionally on the business side, I know many inside stories with employees simply adoring Satya, he has delivered, and makes Ballmer’s era seem to be like a funny story. Which Ballmer, btw, bought an NBA team in Los Angeles for $2 billion in 2014 and turned an old school business into a money machine.

🇪🇺 An aggressive coalition of European regulators are mounting challenges to generative AI’s data privacy and copyright concerns - it sounds like that old grumpy man that breaks off parties of nerds playing video games late at night.

Here’s one effect: Google Bard (Google’s version of ChatGPT) will be made available in 180 countries but in none of the European Union ones.

🇪🇺 This should be interesting - the EU is expected to green-light Microsoft’s Activision Blizzard deal on May 15th, putting the commission at odds with UK regulators. Reminder, the British equivalent CMA denied the merger just last week.

Ecosystem pointers

Early stage Nordic startups are bought at 50% discount vs last year Last quarter, the early stage Nordic dealflow (i.e. round raised <$10M) had about the same number of deals for almost half of the money, compared to last year’s first quarter:

- 340 deals in Q1 2023 vs 391 in Q1 2022
- $1.7 billion spent in Q1 2023 vs $3.1 billion in Q1 2022
- 556 active investors in Q1 2023 vs 650 in Q1 2022

^{source: nordic9 (data as of April 2023)}

Digging through the actual transactions, the situation looks even worse - they're mostly followons, with a handful of new interesting portco startups that can barely make for a media listicle. Notable assets include 🇸🇪 Scrintal, 🇪🇪Value Space, 🇩🇰 Wayfare, 🇳🇴 AppearXR, 🇪🇪 Ovoro - here’s a cheat sheet reviewing the deal activity of 25 more active investors in the Nordics in Q1 2023.

The current situation (bonus to the above AI notes) While the market is relatively inert and investors are contemplating yet another portfolio markdown, an AI startup founder shared a link to an online form and asked investors to state “the highest amount you’re comfortable”. He got 170 offers and $350 million valuation.

McKinsey: bottom 25% of VC funds generate 12% IRR 👇 link

The most expensive series A in Europe last quarter - along with the most interesting ones in the UK, Germany, France, Nordics and the rest of Europe. link

European learnings exploring the GPT/ LLM space - two weeks in San Francisco

Cheat sheets
- early stage Euro startup lists - AI, climate-tech, marketplaces, fashion, heat pumps
- super founders in Europe - a list of 100 of them.
- 50 SAAS deals made in Europe by the angel investors in Q1
- 200+ early stage deals in Europe in Q1 2023 - AI, deep tech, web3, climate et al selected from 1500 startups that got funded in the first three months of the year.

VCs toolbox:
- a simple term sheet guide
- data-driven VC landscape
- go sailing 

Founders toolbox: 
- perfecting your pitch
- how to calculate the value of your startup
- find investors' sweet spot

Euro intel This week’s intel include:
→ pre-seed rounds for photonic quantum, climate, stealth AI and opportunistic AI
→ Euro AI startups curation
→ VC hires, exits and strategic moves
→ … and a whole lot more. High signal, zero noise - get it too.

Briefs

🇪🇺 Working hours in the EU link

Speaking of which, I heard one argument saying that working from home means more working hours in aggregate vs working in the office. You trade wasting commuting time and working in your PJs with being more efficient and the social aspect of an office. Alas, I think a hybrid form of home/office work is pretty much standard, what are you guys doing?

🛎️ Elon Musk got himself a new Twitter CEO, an advertising executive supposed to mend the Twitter industry feelings after he has taken over. Also onboarded Tucker Carlson to do shows on the platform - smart move too. TC is an American right wing media guy who just got fired by Fox and is also one of the media actors that made Fox a popular outlet by airing extremist takes, polarising Trump supporters and so on. This is a good movie for getting what Fox means for Americans btw.

🤖 Google's vision of 3D conversational chats is going from booth to flat screen - tres cool.

📺 If you’re not paying for it, you are the product - YouTube is testing a new pop-up warning asking users to either disable their ad blocker or pay for a YouTube Premium subscription before watching videos.

👀 Google AMP: how Google tried to fix the web by taking it over.

🍟 Wendy’s is incorporating AI-powered chatbot that will talk to customers and take drive-thru orders.

🫖 Patrick Collison in conversation with Sam Altman.

Silicon Valley Bank bidders unveiled

data source 

Closing notes

🇳🇱 The most expensive city in Europe, according to a new price survey, is Amsterdam.

🇮🇹 Italy has a pasta crisis as prices jumped 17.5% year over year in March even as wheat prices fell.

🇬🇧 More evidence that Britain is adrift.

🇱🇮 Liechtenstein’s Government plans to accept Bitcoin for payments.

🇸🇪 The secret nap room in Swedish workplaces you didn't know about.

🍺 The Belgians were humiliated at the World Beer Cup.

🤖 Investor Peter Thiel says he's freezing his body when he dies as he thinks it's the sort of thing we're supposed to try to do.

🥷 Mark Zuckerberg has finally gotten the recognition he deserves - he’s a jiu-jitsu champion.

🛩️ People do crazy stuff for getting online views.

🧬 Scientists published a more inclusive map of the human genome.

🔭 This simulation lets you explore Mars.

👁️‍🗨️ Scientist claims to have solved the mystery of the Bermuda Triangle.

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