Hey there - welcome to Sunday CET!
This week we have an awesome interview with Philipp of Tiny VC, one of the more active early stage check writers in Europe. Highlights:
highest quality of new European companies in two decades
no Euro playbook, just startup dudes getting shit done
SO MANY talking heads who aren’t writing any checks.
ridiculous behaviour from local European investors still a thing
All this and more, below.
Also - the back on the envelope case for defense, OpenAI’s conversion numbers, and Swiss sued for queaky shoes.
Hit reply with thoughts and comments!
Enjoy,
Dragos
Market talk
We are doing an interview series for taking the pulse of the startup market through the eyes of the investors. This week - Philipp Moehring, co-founder at Tiny VC, one of the more active super early stage funds across Europe.
What’s new with Tiny? What are the highlights of this year?
Everything and nothing is new - we’ve got a well oiled machine by now, but there’s always so much exciting stuff happening…
We see a quality and quantity of new companies that I haven’t witnessed in 18 years in venture (just dating myself…). There was obviously a huge wave during Zirp, but the current crop is much more educated on getting sh*t made and done, and deeper in their understanding of the sectors they tackle. I think both the ’21 experience and AI tools are blowing the doors off what feels possible to founders, and that energy is incredible.
Internally, we’re building a lot of tools and have brought the whole team along on the AI journey… for example, it’s fun to see the things our GC is whipping up with agents, and how our ops processes get continually better and more automated.
Seeing the portfolio come back to second maturity after the post-zirp-slump is also exciting. Entrepreneurs that held steady and just put their head down are emerging successfully, and the joy they experience when things start to properly work is great.
Tiny deliberately doesn’t lead rounds or take board seats, and rather plays an index sort of role for European pre-seed/seed stage - what’s the philosophy behind that? What do you lose or gain by staying tiny?
When we’ve started Tiny in 2017, it was with a lot of ground level insights into how some of the best US investors operated as angels or AngelList syndicates, and were highly sought after by both leads and founders when building the cap table.
This goes back to my time at Seedcamp, where filling up rounds beyond the lead was quite difficult - especially if you wanted to have reliably present and insightful folks. We just didn’t see high quality co investors in Europe, even when there were a lot of great leads.
So, with TSIC*, we aim to be a super additive investor, and do things others can’t do. If you remove the need to have a grand thesis or follow the 50 year old playbook, a lot more interesting opportunities open up!
We lose deeper relationships and of course a lot of insight we could gain at the board level, but we feel that the volume is more than making up for it. We’re also trying to be very realistic with entrepreneurs - we are seed investors, not growth people, so it’s probably better to not sit around the table when the companies grow. What we gain is a lot of time and the ability to build a fundamentally different firm, and that is what we’re here for.
What data are you tracking internally - conversion to Series A, survival rate, time to failure - and what surprises you most about that data?
I used to be of the mind that amazing founders will pivot into great ideas, but a lot of our top companies today are simply straight lines from founders’ visions at the start. I suppose you can still find major strategic shifts in most successful companies, but the general direction of travel remained pretty straight for our biggest winners so far (Wayve, Tide, Payhawk, n8n, Synthesia - and a lot more below the $1B mark).
Compared to our original expectations, both survival rates and follow on success are way higher than we expected. However, we are seeing a lot of re-risking of companies with the massive founding rounds and required impact, so those rates will probably not bring as much safety as they once did.
As we are able to look at a pretty large sample of startups from inside, there’s an uncomfortable truth: the most amazing companies look nothing like a playbook. That is a humbling experience, and makes us acutely aware of the one thing we need to get right: backing the right founders who will build the company that fits them and their style.
Which categories are converting fastest from pre-seed to Series A right now?
Robotics and applied AI are the quickest - which makes sense in the grand scheme of things: Robotics are the hot sector that gains steam from general excitement for manufacturing, and AI is the wholesale new volley going for SaaS revenue in enterprise and SME.
Within those, you can see another level of fractal waves - this is always happening as the market discovers new problems collectively. While some trends are technology enabled, a lot of others are answering problems that emerge through new behaviours, or scale in unexpected corners of the tech world. The job is not to predict these, but to be ready when you see a great team focusing on one of these new problems.
Did AI reshape your pipeline - and what kinds of AI businesses still look fundable vs already over-crowded?
I hold that everything that’s overcrowded is too late for us to invest in - we needed to place our bets before this looked obvious. Otherwise, we’d just pay sky high prices in extremely competitive spaces, and could not make money. In terms of fundability, we need to basically take a 2-year forward looking approach and look pretty dumb for a while - that’s the reality of pre seed investing and it’s fun.
Our pipeline is constantly reshaping and quite unpredictable. When we raised this current fund, ChatGPT wasn’t launched yet, and it was not clear at all that transformers and LLMs would be what would underpin the next wave. Not even speaking of the second order effects of data center buildout and the required technologies - that’s a two year old problem at the very best.
We’ve been backing AI and robotics in all their forms since we started investing, so those feel like a good catch up. What’s really interesting at the moment is the reshaping of software and the resulting new realities - if the software suddenly does the job for you, instead of giving you a process, you can also replace any solution without much fuss. It feels like that tsunami of churn is going to be quite interesting…
Where do you see Europe still under-capitalized - what verticals or geographies are you surprised don’t yet have more dedicated funding?
Defense really could do with more money… just kidding - I think we’re doing pretty well across the board. The thing I miss is deep thinking coupled with action - we have SO MANY talking heads who aren’t writing any checks.
In many secondary and tertiary hubs, there’s still a lot of ridiculous behaviour by local seed funds and angels who seem to believe there’s a familiarity discount. Stop it already - if you want to build London, Berlin, and Paris outcomes, you better equip these teams with the right money and let them keep their cap table intact. I can’t believe this is still a topic.
Lastly, and this is of course extremely self serving: We need more LP capital for funds of all sizes and strategies. Great funds from pre seed to growth are struggling with their raises right now (fair: not everyone is good at bringing money back), but I wish we could have more mature conversations that don’t just end up with capital going to bluechip US funds.
Thankfully we’re seeing a development that reminds me of c. 2015 VC land: back then, founders slowly gained an upper hand, and funds started being more founder friendly. That will happen on the funds side, too, as more winners emerge, and LPs start acting more like their more sophisticated US counterparts.
Among your portfolio, which ecosystems in Europe are punching above their weight right now?
I love how every city can take some crown at all times.
Stockholm felt eerily quiet for a while, now it’s got a couple of bangers that make it look like the place for AI.
Munich took the crown from Berlin for now - but let’s see what that is like in a few years when all those high valuations need to be turned into revenue and returns.
Paris is always well capitalised but the exits are not as concentrated - and London is always the biggest and most developed.
I think the new wave of manufacturing and hardware companies open up an understanding of venture scale technology in new geographies, and that’s really cool. So: what’s hot today, ain’t tomorrow.
Overall, I really couldn’t care less: We invest in all of Europe, wherever we meet the most interesting people. Let’s not make our disadvantage of a distributed ecosystem be our downfall - local pride is cool for Linkedin and clicks, but does not help anyone build a better business.
What are three startups in your portfolio that you think best represent where European tech is going - and why.
Wayve - an incredible company with deep engineering talent from the great UK educational ecosystem in machine learning - long term investment in education pays off.
n8n - an idiosyncratic founder with a global outlook to build the best product in the world - so Berlin.
AQL Robotics in Finland: An immigrant founder from Syria with backing from all over the continent just doing it without any inhibitions on ambition - a European immigration story at its best.
If you were to build an index of European tech themes 2025-2030, what would be the top five tickers - the things you’d allocate 20%+ of a fund to if you had to bet today?
Thanks for the layup: I would buy secondary positions in all of our current and future funds - there’s no way to predict the future that accurately, and a broader portfolio in an outlier driven market will deliver the best and only reasonably predictable outcomes.
Other than that, we better be successful in defense (otherwise we’ll be gone), manufacturing (otherwise our economy will be gone), travel (people come here, and that’s great), and applied technologies in everything (even if we don’t build the models, we can use them to our advantage), and medicine (we have amazing research, big companies, and precedent).
*NB: TSIC stands for Tiny Supercomputer Investment Company, which is Tiny’s official name.
Who else would you like us to interview here? Hit reply with your favorits!
Signals
Interesting deals
🇮🇹 Gevi (AI for wind turbines manufacturing) - seed
🇫🇷 Isentroniq (quantum hardware manufacturer) - seed
🇪🇸 Omnia (SAAS platform used for monitor AI engine citations) - seed
🇸🇪 Strawberry (AI-agentic browser) - seed
🇬🇧 Zenithon AI (foundational models for physics) - pre-seed
we add more of those on Linkedin.
What would you invest in?
I have picked three early stage, seed level startups from Europe with intriguing odds for growing. You're the VC - who gets your term sheet?
Last week’s results:
🟨🟨🟨🟨⬜️⬜️ 🇬🇧 Enzai - governance platform used to manage AI risks (33%)
🟩🟩🟩🟩🟩🟩 🇪🇸 Lessthan3 - AI-powered observability platform (42%)
🟨🟨🟨⬜️⬜️⬜️ 🇬🇧 Firenze - embedded finance platform for loans (25%)
Let’s see your say this week - click on the link of your choice below - we’ll add the result next week.
What startup would you invest in?
Observations
Bessemer Ventures put out some PR feelers in the media as a top down willingness signal to do investment business in the European defence sector.
their London lead, Alex Ferrara, even wrote an open letter about it - “single largest growth opportunity in Europe today - on track to become Europe’s largest sector”
for those who didn’t know already, the Americans are one of the stronger multistage investors, with an office in London and an active summer in Europe. Notably they led the B round for Auterion, the Swiss powering Ukraine’s autonomous drone operations funded indirectly through Pentagon-backed programs.
it’s also a signal of treating the defence business seriously - while the space is drawing attention from VC tourists, it remains an early-stage and underdeveloped sector and Europe needs a strong private defence market, which will further spill over into all the layers of the economy.
the back on the envelope stating the obvious case - in 2024, total military spending in Europe reached around €343 billion, up 19% yoy. Yet, venture capital investment in defense startups amounted to only €5 billion. The gap is enormous.
startups is where’s at - the current warfare requires high iteration velocity, high tech and innovation, which come from startups rather than established corporations, particularly in areas where speed, flexibility, and risk tolerance are key.
and broadly speaking, the Russian war against the civilized world is not only a wake up call for Europe about the next door neighbors, but also a Silicon Valley-like emergence point for the local tech community. On point, it’s made Ukraine a tech hotbed, with drone tech a leverage point for politicians since it’s the most advanced in the world.
when it comes to specific companies to watch for upcoming growth rounds, keep an eye on Cambridge Aerospace (closed 100m A over the summer), Harmattan (raised a lot of money, mostly undisclosed), Stark (raised 60m+ A) or Delian (raised 14m A), while post-seed, Arondite, Lateration or Tytan are also likely to raise soon.
as a side, also interesting to follow whether Daniel Ek’s mini defense portfolio, done directly or by partnering with the Wallenberg family (Cparta, T-Unit, Skansen etc), will be opened up to traditional VC financing path, like Helsing did. It’s all strategic, with a risk sharing side of it - given Wallenberg’s strong financial backing, capital availability isn’t the constraint; strategic positioning is.
Deel closed a sizeable deal for Europe this week - $300 million at a $17.3 billion valuation, led by Ribbit Capital.
$100 million in annualized revenue in September.
earlier this year, Deel made headlines for collusion allegations with Rippling over corporate espionage in the former's Dublin office - saga went as far as CEO Alex Bouaziz reportedly had to move to Dubai.
this doesn’t seem to have affected investors appetite <- we’ve tracked quite a few Euro monster deals this week, will put them in the Monday’s intel piece.
The Dutch government took control of the Chinese chip company Nexperia, citing European regulations (and the risk associated with European supply) - Nexperia supplies ‘basic but essential’ semiconductor components used across electronics and the automotive industry.
The why:
i) European supply chain protection, especially for semiconductors and automotive industry, from losing strategic assets or seeing technology relocated to China.
ii) geopolitical / regulatory alignment pressures, especially from the US, to prevent critical tech from being subject to Chinese control or export restrictions.
iii) growing doctrine of tech sovereignty, where states are less willing to leave strategic assets fully in foreign hands when risk of control or expropriation exists.related: the EU considers new rules requiring Chinese companies to transfer technology or form joint ventures with European partners to operate in the region.
Vercel leaves Spain driven by friction between modern tech companies and older, rigid administrative structures.
Spanish social media was quick to have a counter.
Vercel is not singular in facing bureaucracy adversity - earlier this summer, Cloudflare’s CEO called out on Portugal for the same reasons.
fact is - dealing with state institutions, EU ones included, has become so cumbersome and ultimately a high opportunity cost that sometimes is a deal breaker.
this also turned into a lucrative market - small or big scale, best practice for dealing with bureaucracy in Europe is outsourcing it to locals mastering the game of engaging an admin machine designed for last century.
Apple punishes all European consumers…
… as a way of showing the finger to the EU - Apple doesn't include a charger in the box with the new M5 MacBook Pro in European countries, making users pay extra.
the company cites local regulations - the decision to not include a charger was made in anticipation of a European regulation that will require Apple to provide customers with the option to purchase certain devices without a charger in the box.
yep, not the law requiring Apple do it, but the Americans voluntarily flexing their muscles and f-ing up its European customers base as a result.
Extra bites
The future is finally coming to Europe - Wayve will provide driverless rides in London starting next spring, while the Chinese will start testing for gradual rollout across Europe.
UK regulators delayed the approval of Revolut’s full banking license.
EU regulators fined Gucci and other luxury brands €157 million for fixing retail prices to protect their own brick-and-mortar stores.
Italy to raise flat tax for rich foreigners by 50% - from 200k to 300k a year.
The single European market is more important to the continent’s economic trajectory than competing in the AI race.
Other notes
More signals
OpenAI at a glance:
- $13 billion in ARR, 70% of revenue from subscriptions, rest is API
- 800m users, 5% paying (40m)
- has a five-year plan to turn the $13B into $1 trillion.
That’s minimum 2X for each of the next five years. Or, differently put, an additional $987B in revenue - let that number sink in for a second. That’s $197.4 billion on average per year, or half the $400B Apple is producing today, and a third of Amazon.
How’s that 13B revenue structure going to change once they launch the ad business? Google makes $270B per year from selling ads, btw. What about the devices - you think Jony Ive joined coz of the ad business upside? Nah, Altman gave him the keys and told him: build me an Apple 2.0 and let’s kill those mofos who charge the poor Europeans extra for a charger.
So, ladies and gents, stop rolling your eyes calling it a bubble and plan the equity valuation to grow accordingly for the next five years - and of the ecosystem with it. Same ecosystem that FT calculated to have gained close to $1 trillion in valuation over the past 12 months, namely from ten loss-making AI startups - Perplexity, Anysphere, Scale AI, Safe Superintelligence, Thinking Machines Lab, Figure AI, Databricks, OpenAI, Anthropic and xAI. Some Europeans should be in there too - ElevenLabs, Synthesia, Lovable.
Some dude figured those valuation numbers don’t add up - the current mental framework doesn’t account for variables that don’t exist yet, of course they don’t. Unless OpenAI does reach the above 1T within five years. Which side of the bet will you take, and who do you think will stay standing in the the next five years?Cursor’s trading at $27 billion pre now, 3X from earlier this year.
JPMorgan Chase will invest $10 billion in mostly US-based tech companies working in areas aligned with strategic government interests.
Strava efforts to explain cutting off APIs and going against Garmin with a lawsuit on Reddit didn’t go well.
Apple outbidded ESPN on a five-year deal to stream every Formula 1 race on Apple TV starting in 2026.
Erebor, the neo-bank backed by Palmer Luckey and Peter Thiel with the aim of becoming a SV Bank alt, got approval from regulators - it’s also been called a classic example of crony capitalism.
Outside in
On, the Swiss shoe company of Roger Federer’s fame (he’s significant shareholder), was sued for a noisy and embarrassing squeak issue - in the USA, that is.
Delta Airlines predicts sales of premium seats - long seen as a luxury - will overtake those of its traditional main cabin offerings in 2026.
Amazon streaming the NBA games means it will use AI to track some crazy stats.
The AI bubble is in energy stocks
VC is not an asset class, basic math shows vs. if you don’t get from zero to $2 million ARR in ten days, you’re just not interesting for VCs.
Cursor’s problem: are users attached to the product or the subsidy?
Americans diversify their passports in Latin America and Asia now, as European safe havens are losing appeal.
Pets on flights can be classified as baggage - per an EU court ruling.
Real talk - kids without phones behave like drug addicts as they’re just fed a constant stream of dopamine.
That’s all folks, have a wonderful week!
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