Sifted - VC M&A

Good morning there,

I am always amazed that Slush convinces people from all over the world to fly to Helsinki in November, where it is currently a balmy -4°C. 

Many of them are coming from across the pond. This year, nearly half of the main stage speakers are US-based. 

European founders obviously want to hear from successful US founders and investors. But the heavy indexing on Silicon Valley seems interesting in a year when US investors have pulled back from Europe. 

According to the State of European Tech report released this week, US investor participation in early and late-stage rounds has fallen this year. At the peak in 2021, US investors chipped in 66 cents for every dollar invested by European VCs. That’s 33 cents in 2023. 

Sure, more US capital will come again when megarounds return. But perhaps European founders should also remind themselves that there is ample evidence they can stand on their own two feet. What stories should European founders be flying to the US to tell? 

— Eleanor Warnock, deputy editor

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Why VC M&A may be on the rise

In recent weeks we’ve seen a couple of rare announcements in the venture world: VC firms merging with or acquiring each other. Last month, big-time US investor General Catalyst and Germany-based early-stage fund La Famiglia announced a tie up; and earlier this week, UK-based Molten Ventures announced it plans to acquire fellow London venture firm Forward Partners in a £41m deal, subject to regulatory approval (both firms are publicly traded). 

Though the moves seem to have different motivations — General Catalyst is effectively acquiring a foothold on the continent, while Molten Ventures is angling to snap up a smaller rival — we may see more of this VC M&A in the current rocky market. 

“There's been a lack of exits, a lack of liquidity returning back to LPs and any way to potentially accelerate that or improve that” is something VCs will explore “for sure”, Nalin Patel, lead EMEA private capital analyst at PitchBook, tells me. In light of those challenges, he notes it makes sense for VC firms to join forces: “Larger, combined entities will be able to pool capital resources and share LP networks to assist with fundraising and portfolio management processes.”

But it’s not just M&A. We’ve also seen VC firms close up shop — opting not to raise another fund, as was the case with London-based Stride recently. And, as I’ve noted before, I suspect more funds will look to do the same in the coming months. 

The calculus — sell to another VC firm or wind down — would have a lot of factors at play considering VC is a “quite personal asset class”, as Patel notes. But he points out that VCs will be taking stock of the best way to generate returns going forward (to cut losses or to merge). 

Although the recent VC M&A deals came as a surprise to Jan Miczaika, partner at Berlin-based HV Capital, he expects that emerging managers in particular — who jumped into the market during a period of frenzied valuations — may be eyeing the exit door in the next year. He anticipates a shake-up among firms, with “managers exiting the market being unable to raise follow-on funds, and there could be a potential for more established platforms to either hire or acquire emerging managers,” Miczaika tells me. 

Even if VC firms aren’t in a tough spot (La Famiglia raised fresh capital months before its deal was announced), “coming under one roof could unlock diversity among portfolios, saving time spent sourcing and risking capital on new investments, which could drive inorganic growth of returns,” Patel points out. In Molten Ventures’ case, the firm would acquire all 43 of Forward Partners’ portfolio companies. 

If acquisitions like Molten and Forward’s are ultimately “deemed a success,” it could be a strategy that’s explored further by VCs who have capital to spend on those that don’t, Patel speculates. HV’s Miczaika, meanwhile, says that his firm would also be “very open” to exploring acquisition opportunities. 

I’m interested to see if we do see a meaningful trend in the coming quarters. It also brings up second-order questions, like: How will founders feel if their VC investor gets bought out? And what do the economics look like for partners? If you’re hearing anything interesting on that front, or have any insights to add, send me a line.

— Anne Sraders, senior reporter

🇫🇷 This morning, European startup and investor lobby France Digitale is in Brussels to present its manifesto ahead of elections for the EU Parliament next June. The organisation’s message to deputies, who will be taking on a five-year mandate, is clear: Europe must move on from regulating to innovating if it is to compete against the US.

• In practice, this means it must become easier for startups to navigate legislation across the EU’s 27 member states — for example with “prove it once” protocols that would enable companies to comply with relevant laws only once in their home market.
• Stock options should be harmonised and visa measures improved to attract foreign talent.
• Institutional investors — such as pension and insurance funds — should be mobilised to increase capital at all stages of company development. A minimum percentage of those funds should be allocated to VCs.
• And startups should get their own dedicated definition — they are not SMEs! — to enable policymakers to adapt legislation to their particular characteristics, such as rapid growth and high R&D spend.

✂️ German mobility company Tier announced it is slashing 22% of its workforce in a bid to become profitable amid tough market conditions. 

• "Everyone has worked incredibly hard to get us much closer to profitability, but the external factors have just limited what we could achieve,” cofounder and CEO Lawrence Leuschner said in a LinkedIn post yesterday.
• VC funding has been hard to come by in the embattled mobility space, and Tier's talks with potential acquirers reportedly fell through earlier this year. 

🎓 UK unicorn edtech Multiverse to lay off up to a third of US employees after missing revenue targets.

💰 Bethnal Green Ventures raises £33m first close of a new fund to back tech for good. It's the London-based VC's biggest fund to date, with a target of £50m by May 2024.

• It’ll be used to back up to 100 startups over the next four years through its flagship six-week Tech For Good Programme. 
• The firm says it will also be able to make follow-on investments of up to £1m at pre-seed and seed into the most promising companies.

🧠 AI-powered edtech startup Nolej has raised €3m to develop its product that it says will let people learn anything in the world. The raise comes along with a heartwarming beta test story, of how one of the cofounders tried out the concept by designing a brain-controlled exoskeleton for his paralysed daughter.

🩺 Healthtech Cera almost in the black but delays international expansion. The UK-based at-home care platform will hit profitability in 2024 after pushing back plans to expand into the US. Founder and CEO Ben Maruthappu has his eyes on growing Cera's team by 50% in the next 12 months — and the company could invest directly into other healthtech startups, too.

Calling all founders!

Have you taken part in a European accelerator and wish you hadn't? What were the red flags, how can you protect your startup from unfavourable deals and what are the lessons other founders need to know about? Sifted wants to know for a story. Get in touch here.

🇪🇺 European Tech Champions? Ten months ago, the European Investment Fund (EIF) launched a €3.75bn fund of funds to back VCs raising funds of €1bn or more that would be able to back European "tech champions" in Series B rounds and above. But some VCs and ecosystem stakeholders worry that the €1bn bar is too high, especially during the economic slowdown, and as a result the money will go to the wrong kind of funds.

• Sources tell Sifted that at least three firms are candidates for the money – French investors Eurazeo and Keensight Capital, and London-based Atomico. That’s one non-VC firm and one non-EU VC. So does the EIF need to re-think its strategy?

🤖 Mistral, Aleph Alpha and Big Tech’s lobbying on AI safety will hurt startups. 

🌴 The fintech operators pivoting to climate tech.

💊 Shooting for the stars: The healthtech using cosmology and AI to try to cure cancer. (Sponsored by Debiopharm Innovation Fund)

🇫🇮 Eleanor Warnock and Amy O'Brien are Slushing this week.

🇪🇸 Cristina Gallardo is at the Barcelona Deep Tech Summit today.

🔮 Eleanor's hosting a free, online Sifted Talks with Multiple Capital, Dawn Capital and Puzzle Ventures on December 6. They'll be using their crystal balls to predict what's in store for VC in 2024 — sign up here.

🎤 Miriam Partington also has a seat at the moderator's table on December 13. She's joined by We Are Human, Balderton and Slack, who'll unpack how founders can reset their routine and (actually) get shit done — sign up here. 

Helsinki-based One Click LCA, a software platform that helps construction and manufacturing companies assess and reduce the environmental impacts of their projects, raised €40m from PSG Equity and InfraVia Capital Partners.

Stockholm-based Lassie, a pet insurance and preventative healthcare startup, raised €23m in Series B funding. Balderton Capital led the round and was joined by investors including Felix Capital, Inventure and Passion Capital.

Helsinki-based Carbo Culture, which is building technology for carbon capture involving photosynthesis, raised $18 million in Series A funding. GenZero and True Ventures led the round and were joined by investors including Tesi. 

Milan-based Soplaya, a platform that connects Italian restaurants with producers and suppliers, raised €12.5m in financing, including €11.5m in equity. Sinergia Venture Fund (Alkemia Capital) led the round and was joined by investors including P101, Azimut and CDP Venture Capital.

Innsbruck, Austria-based Hololight, a virtual and extended reality platform for industrial enterprises, raised $12m in funding. Flatz Hoffman led the round and was joined by investors including EnBW New Ventures, Bayern Kapital and Future Energy Ventures. 

Belfast-based Cloudsmith, a platform that helps companies manage their software supply chain, raised $11m in extended Series A funding. MMC Ventures led the round.

If you’d like to submit a deal, get in touch.

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