Welcome to Sunday CET, folks.

Feels like summer already, even in rainy London, right? 27 days till mid-summer, meaning 4-5 more weeks until Europeans will officially will set up OOOs as the traditional summer break will kick in.

In the meantime, we’ve got a long weekend ahead (bank holiday in UK and memorial day in US), the Brits will need to vote in July, the French are doing big AI talks over at VivaTech, interesting deals are being closed and/or announced and plans are being made - all in all, I got good positive startup vibes in spite of the bad macro. Hope you’re feeling the same. 😃 

Thanks for reading and please get back to me with the good, the bad and the ugly - always happy to ping pong ideas and opinions with all of you.

Dragos

Next dinner

Next month we’ll organise a new dinner meeting in London. Here’s what we want to do:

• an invite-only event with the objective of matching ambitious founders with open-minded investors, and having them build future business relationships.

• it is not a pitching event but rather an informal setting over a dinner table (think salon), on the premise that people do business by getting to know each other in a relaxed manner as opposed to going to ‘fast food’ pitching gigs.

• as such, the gathering is highly curated and limited to 15-20 founders and investors.

• I already have a long list of folks interested - please let me know if would like to be considered. Priority will have our customers, either N9 ones or the founders I work with over at PA.

Market talk

Where’s the AI money at?

This week it was finally made official what’s been in the works for quite some time now: H, fka Holistic AI, closed a seed round at a neither confirmed, nor denied 80m number, topped with uncapped convertibles making for an extra 120m so far - not confirmed likely as discussions are still ongoing.

• the H name seems like a quick compromise from the initial Holistic AI, taken by a legit AI startup in business since 2020, Brits who also raised recently, as a coincidence. The domain is hcompany dot ai - h dot ai is taken by another French AI crew seeded by Index long ago.

• the deal marks the coming out of the second most interesting AI startup from France, after Mistral, which these days is going back and forth in a similar fashion with media leaks before finally settling for its series A.

• it also marks the entry of the most promising European AI asset in Accel’s portfolio - the Americans kinda had to make a move on that front since they missed on Mistral. Actually, while Accel is an American VC, afaik the H deal was led by Candice and Philippe, both French, and Rich, who’s American.

• H not only does its own foundational models but also has a clear path to market already, which is rare for a startup so early in the game - that is because, part of the deal, UiPath will integrate H’s models and open the doors to customers. That’s a great GTM kickoff - you can call that Accel’s value add - it’s likely Accel brought in UiPath as both Philippe and Rich have been in the board there for 7 years now, and have excellent relations with Daniel et co.

• turns out that, unlike the usual strategic corporate investor doing in-kind commercial contributions, UiPath also put 35m in cash as a co-lead investor, an amount only a multistage tier 1 investor would’ve been able to do - that’s the seed, the rest of the money was probably chipped in into the convertibles pile.

• it’s a sizeable round for European tech, in the same range Mistral did for their seed deal exactly a year ago. A lot of things have changed in a year too - but the recurring question remains about where the money is in AI and which investor is insane or not for betting big time in this space.

  • is it in selling infra a la AWS? Maybe, if you own the models, which are expensive to build to begin with - there will be just a small number of providers able to do foundational models, and the table is seemingly set. Selling infra is a zero sum game though, as it is an either/or customer proposition.

  • is it in a freemium play with search as an UX, whereas the free (and/or a $20 sub tier) is funded by ads? Again, maybe, AI money is not really in a consumer play but rather in B2B using AI in all sorts of ways - disrupting Google also involves an expensive ad serving tech investment, for example, which is a side B2B play.

  • is it in distribution? Yes, as of now - fwiw, Accenture is the company making most of the money from selling AI in the world, turning $2B+ a year. Not Open AI (which racked 1.6B last year), not Microsoft, not Google aka the value creators. Accenture, aka value distributors.

  • is it in vertical layers, with DIY on-demand models customised for specific industries? Likely, as they sell SAAS replacing what Accenture does by selling man-hours. (think Adaptive or Cogna in Europe)

  • the right answer is ‘all of the above’.

  • in spite of the noise (just google any chatgpt expression and check how many paid ads you are served) it’s still early as the un-served market is still too big of a blue ocean, and new opportunities will surely arise as the ecosystem grows. When the market matures, we’ll see more collusion leading to the need of differentiation and increased innovation. That’s when it gets really interesting.

  • now it’s who takes it to the market first and establishes sustainable positions. The mainstream players are still in a calibrating mode, with both incumbents shaping business models and customers sobering up after being bombed on social media about how revolutionary AI is. The interesting pockets of value are likely at the edge, where emerging startups are doing stuff by using AI applied to a specific domain or vertical while locking customers in a sustainable business model.

Is there money in defence tech?

TL;DR: Hell, yes! The context - this week, the media also surfaced the story of Helsing having in the works a 400m series C at $4B, which makes it another valuable AI startup emerging from Europe.

• for those living under a rock, Helsing is a German startup doing AI SAAS for electronic warfare capabilities - a solid bet made by Daniel Ek via Prima Materia in 2021, doubled down by American investors last year. The Germans have had a head start ever since before the war was evident, and now they’re actively involved in Ukraine.

• is this the emergence of a solid investment theme though?

• if we’re to judge by screening European portcos of tier 1 investors, not that much, really, except for GC’s Helsing involvement from above.

• but judging from the pent-up demand, yes, there is a solid case to be made, as we’re in a war - last week, China and Russia made official their ganging up to war against the Western world. That means the need of spending for defending against them, and history shows that even being neutral in a war actually is an opportunity to make money out of it.

• otoh, the Europeans are lagging big time in terms of anything military-related, because, well, the past 50 years were rather peaceful, with nobody imagining that idiots you only read in the history books about will re-emerge and put the humanity on the brink of disaster.

• so, yes, the demand is there, however, a good investor should also consider the hard GTM specific to this industry, which involves doing sales deals with governments and politicians, which in turn requires a lot of red tape and lobby money. And besides the need of founders able to play this game of bridging to the national budgets, the capex requirement of a solid defence tech business is huge, meaning the high entry tickets for investors - that’d be two big barriers, compared to B2B SAAS, for example.

• in terms of incumbents, I know a few Swedes working on interesting stuff and there’s Brit tech also at the front in Europe in spite of their politico-social malaise. The French are all in as well, now that Macron made it a top priority agenda to digitise the country in the name of the “AI is the future”. Germans have good engineering capabilities too and also look at the edges - Baltics, Poles etc since the Russians sit at their border. Europe has good R&D capabilities but, as I said, the market adoption is where it’s at.

• as a side note, there’s many related infrastructure plays that could be interesting - Nato is building its largest European military base in Eastern Romania, there’s a highway in the works connecting it to Alexandroupolis in Greece (another Nato base), Constanta and Varna are to become big shipping hubs at the Black Sea etc. Those are regional plays with multiple spillover effects and sizeable investment opportunities - you could probably do 100m for a 5x kickout in 5 years, but likely outside the scope of your regular VC investor in love with whatever trend they’re fed on Linkedin.

• not least, a good data point is Nato VC finally assembling an investment team - a lot of talk and little action in the classic European style, it only took them a year, not sure why they call themselves VCs other than ego tbh. But, just like in the EU funding’s case, they’re rather dumb money hedging a solid premise for an emerging ecosystem, while their deal involvement can open a lot of doors regular dudes can’t get access to.

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Also notable

🇫🇷 Macron said at Vivatech that he wants to train 100,000 AI experts per year in France.

• I like what Macron is doing and think it’s the way to go - change comes straight from the top, with considerable money and support in a push to modernise a country that is suffocated by bureaucracy.

• the French at least are doing something about changing their future, compared to other countries just complaining that times are tough, life is unfair and immigrants are to blame for everything goes wrong in their yard. And it’s not only the resources, or the additional effects from incentivising American tech companies to set up local hubs, but also the startup energy feels different compared to other countries - it’s something, right? Irrational exuberance. Right?

• and it comes to no surprise that Mistral and H, as mentioned above, are the most interesting and promising VC assets coming out of Europe, ever. So, like it or not, agree with it or not, what Macron has been doing by investing in tech for the past years - it’s working.

👓 Speaking of Vivatech, the American boomer that tech people love to hate also known as Elon Musk made a video contribution - worth an hour.

🇫🇷 Mistral’s GM for US operations is a sales lady coming from a two year gig with Foursquare.

🇬🇧 Now that they’ve opened an office in San Francisco, EF added an extra $125k investment option to their startups, should they decide to move to US.

🇬🇧 Tom: the US has a positive-sum mindset that business growth will create more wealth and prosperity and that most people overall will benefit as a result. The approach to business in the UK and Europe feels zero-sum. Our instinct is to regulate and tax the technologies that are being pioneered in California, in the misguided belief that it will give us some kind of competitive advantage.

• related read: what is holding back cities like London, Paris, Zurich, Berlin to be a prime location for entrepreneurship?

💲 Madrid, Athens and Vienna are top European cities in terms of yoy price increase for residential housing. Paris prices are seemingly going down.

🇪🇺 Mondelez, the maker of Oreo and Cadbury Dairy Milk chocolate, has been fined €337.5 million for rigging the European chocolate market. The EU started looking into the case in 2019.

💲 Google wrote the US government a check over an antitrust trial, in an effort to get its case heard by a judge, rather than a jury that can award damages - the weirdest attempted payoff ever.

🔖 OpenAl is the primary LLM utilized by companies implementing GenAI - 69% use it - but they are experimenting with multiple models based on cost, performance and security. More on this report.

💲 Is selling content for LLM models training a good business model for the media companies? Nope - just like it wasn’t with the likes of Facebook and Google, who f-ed them in the name of free content distribution.

Mo’ Sundaying 

🇫🇷 The baguette is the bread of our daily lives, the symbol of our gastronomy, the jewel of our culture <- the French describing a newly issued stamp featuring a cartoon image of a baguette wrapped in a tricolor ribbon.

• Related: are we living through a bagel renaissance?

💲 The highest paid CEOs of 2023:

• Hock Tan, CEO of Broadcom - $161.83 million;

• Nikesh Arora, CEO of Palo Alto Networks - $151.43 million;

• Stephen Schwarzman, CEO of Blackstone - $119.78 million

🖖🏻 PE company Oaktree seized control of Inter Milan after Chinese owner fails to repay loan.

🇩🇪 Germany has installed more solar capacity than consumer demand requires - the electricity prices are going negative.

⚡ The “energy transition” won’t happen: foundational innovation in cloud technology and artificial intelligence will require more energy than ever before -shattering any illusion that we will restrict supplies.

🚶 Louis Vuitton’s latest ad campaign has legendary rivals Federer & Nadal become BFFs and go hiking together.

🌿 Marijuana use more common than alcohol in America.

That’s all folks, have a wonderful week!

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