Weekly update #35
Welcome to this edition of the weekly newsletter. The idea behind this activity is to gather all the information in the startup ecosystem in one place, with a special focus on the fintech market.
Before jumping to the main piece of content I’ve read this week, a quick note from my side. On Tuesday 2nd I will be the guest of Agicap to talk about banking connectivity and how PSD2 ties in with the ERP industry. You can register for the live broadcast here.
Coming back to us, I’ve been reading a very interesting report this week, about what seems to be one of the most discussed topics recently: European VC and Deep Tech investments.
The report is “Deep tech - The opportunity and the strategies: A perspective for European VCs” written by the well known strategy consulting company 麦肯锡 . In the report, the consulting company made a very interesting study on the last 5 years of investments made by VCs, comparing traditional tech and deep tech, with a specific focus on European VCs. Here are my main takeaways.
Let’s start from the basics. There is a clear trend showing that Deep Tech-focused funds have outperformed traditional tech funds since 2003, with a weighted net IRR of 16% compared to 10%. Although Europe has had fewer Deep Tech-focused funds closing and reporting IRR, their expected performance should align with historical US benchmarks. This is due to (A) similarly favorable regional characteristics for Deep Tech, and (B) comparable net IRR performance for broader tech funds.
The second take away is a common misconception in the industry. Many operators think that Deep Tech is niche and lacks the scalability of traditional SaaS or marketplace models. However, data reveals that Deep Tech ventures have a higher proportion of scaling to unicorn status compared to traditional tech ventures, with a 0.8 percentage point higher ratio of unicorns per startup. This is because Deep Tech involves novel scientific and engineering breakthroughs, typically targeting large, untapped total addressable markets (TAMs) with significant growth potential.
Another very common misconception is that Deep Tech has lower capital efficiency. In reality, while Deep Tech ventures typically require up to 40% more funding to generate revenue compared to regular tech ventures (reaching EUR 5 million), this gap is narrowing over time. Despite the higher initial funding requirements, Deep Tech ventures show higher capital efficiency, likely due to a significant share of non-dilutive funding sources, such as government grants and hybrid debt.
European Deep Tech is increasingly gaining significance both regionally and globally. On the global stage, Europe's share of Deep Tech funding has risen from approximately 10% to 19%, with expectations for further growth. Regionally, Deep Tech funding has become a more substantial portion of overall European venture capital tech funding, growing from around 10% of regular tech funding in 2010 to 44% in 2023.
But still, European Deep Tech ventures are receiving an increasing share of funding from US-based venture capitalists throughout their funding stages, starting at 8% in Pre-Seed rounds and rising to 27% in Series C+ rounds. Many VC funds in the EU have less than EUR 300 million in assets under management, which creates challenges in providing adequate funding and scaling up Deep Tech companies. Therefore, there is a clear need for larger VC funds in Europe.
Before jumping to the latest news, a quick request from my side. I will start a small series of podcasts to interview fintech founders and VC managers active in the ecosystem. If you want to be part of it, feel free to drop me a line on Linkedin!
Anyway we saw some very interesting news in the market this week. While a new bank drama is going on in the US about Evolve Bank & Trust and the potential data leak, Klarna announced the divestment of Klarna Checkout, Chime acquired Salt Labs, a Chime Company for $173 million aiming for next year for its long awaited IPO. At the same time Nubank acquired Hyperplane (acquired by nubank) to enhance data intelligence capabilities, while in the meanwhile partnering with Lightspark to introduce payments through the Bitcoin Lightning network. In the VC ecosystem, Luxembourg-based fintech VC MiddleGame Ventures raises $52 million, achieving the first milestone of its $150 million target. Ironspring Ventures raises $100 million to invest in industrial verticals, while Kevin Hartz closed its second oversubscribed fund in three years for A* capital. In the italian ecosystem, the fintech startup Muffin raised a $2.3 million pre-seed, and we saw two different acquisition: TXT GROUP acquiring I MILLE for $8 million and TeamSystem acquiring 61% of Change Capital . Finally, some very interesting funding rounds from fintech startups like Ximple , Cadana , Kanastra , LoopFX , Retorna , Bling.de , Rainforest , CheQ , Gynger and many others.
But let's take a closer look at the main news of the last seven days:
Closed deals
领英推荐
Insights on the VC industry
News on the market
A special look in the Italian market
And here some useful resources for everyone involved in the ecosystem:
Events you don’t want to miss
You have a cool event you want to mention or to sponsor? Feel free to send me a DM.
Startups raising funds
You want to be present in this list? Feel free to shoot me a DM on Linkedin.
Take also a look at the last edition of the newsletter, Weekly update #34
Finally I am exploring partnerships with the newsletter. So this edition is sponsored by Notion , which is offering a 6-months free plan of its plus product to all founders submitting an application for their startups program.
In order to redeem the free trial, submit an application using this link https://ntn.so/michelemattei, select Michele Mattei as partner and include the following partner key: STARTUP4110P62416. I really hope it will be helpful for many founders out there!