How French VCs bucked the fundraising chill

Good morning there,

I've written a lot about the gloomy fundraising environment for startups and VCs alike — and in fairness, it is tough out there. But one country managed to buck the trend last year and saw more new funds raised than in 2022. Can you wager a guess at which one? Scroll on to find out. 

Elsewhere today, the UK's former defence secretary thinks Europe needs an additional £1bn defence fund, European scooter startups TIER Mobility and Dott agree to merge and the data on a record year for Japanese investor participation in European tech deals.

— Anne Sraders, senior reporter

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How did French VCs beat the fundraising odds in 2023? 

VCs struggled to convince their backers to part with their cash last year, as distributed capital dwindled and LPs tightened their belts. But firms in one country managed to beat the odds.

As Chris O’Brien reports today, after a slow start to the year French VCs ended up closing more funds in 2023 than they did in 2022, with 23 new funds raising a total of $3.3bn, according to Dealroom data — making France one of only two countries out of the top 10 largest tech markets in Europe to raise more funds in 2023 than the year before. For comparison, the UK, which still reigns supreme as the top startup market in Europe for funding into startups, saw its number of funds raised last year fall to 38, from 58 in 2022.

So how did France do it? 

One big factor is the government. Last summer it launched the second edition of a programme called Tibi, aimed at getting more capital flowing into late-stage funds. Tibi 2 launched with 28 institutional investors, mostly insurance companies, pledging €7bn. The government does due diligence on funds and declares them eligible to receive cash committed to the Tibi programme — it has approved 60 French funds so far to potentially receive the cash.

But another key reason some French VCs have bucked the trend is state-backed French bank Bpifrance, one of Europe’s most prolific LPs.

“Over the last 10 years, the government and Bpi have invested massive amounts of cash,” Bertrand Diard, a partner at Paris-based venture firm Serena Capital, tells Sifted. “It’s just been a massive deployment that has changed everything.” 

Bpifrance invests in both first-time funds and growth-stage VCs, and in areas spanning healthcare and climate — where it wants to focus more of its attention in 2024.

“There's certainly not enough money being invested in deeptech for climate,” Anne Germain, senior investment director of the bank’s funds of funds division, tells Sifted. “There’s probably too much being invested in software solutions. Don’t get me wrong. I think you need some of that. But at the end of the day, it’s not software that’s going to save us.”

The bank’s funds of funds division holds €17bn of its €51bn assets under management. Bpifrance committed roughly €1.6bn to funds in 2022, 60% more than five years ago, with an average amount of €22m. Germain says those figures are expected to hold steady for 2023. 

Despite French VCs ending the year on a high note, not everything is rosy across French tech. Overall funding for French startups saw a drop of more than 40% in 2023, per Dealroom data, and Germain thinks there are tough times ahead.

“I don't think we've seen all the downrounds, let's put it that way,” she says. “People are going to get to the end of the runway and not see how they're going to be able to manage. And liquidity, again, is going to be kind of an issue. I don't think we're quite out of the woods yet.”

— Anne Sraders, senior reporter

🇬🇧 Ben Wallace, the UK’s former defence secretary, tells Sifted that Europe needs an additional £1bn defence tech fund, warning innovation in this area could “disappear across the Atlantic” without more financial support. 

• “I’ve identified a need to set up a European security defence fund,” he says, adding that if he were to lead such an initiative, he would need to partner with a financial institution. He stressed that no contracts have been signed yet. 
• Defence companies of all sizes, from startups to large enterprises such as Airbus or Thales, are struggling to raise capital due to ESG (environmental, social and governance) rules, says Wallace, who last year ran to become NATO’s next secretary-general. Even the banking sector is refusing to back defence tech companies, he adds, because of “the classic high moral ground, not wanting to get their hands dirty”.

🛴 European scooter startups TIER Mobility and Dott agree to merge, after a tough year for micromobility. Existing shareholders, led by Tier’s largest backer Mubadala Capital and Dott’s main investor Sofina, are investing €60m in equity into the new joint venture.

• Tier has been in acquisition talks for months, including advanced discussions with rival Bolt last May. According to sources close to the company, it has also been in talks with Voi and Lime. 
• All three companies turned down Tier because it failed to share enough financial information about its operations, sources tell Sifted.
• The proposed merger is expected to go through in two months, subject to several conditions being fulfilled.

💰 Barcelona-based VC firm Encomenda announced a first close of €15m for its new Encomenda II fund. The firm’s manager Carlos Blanco, who runs it alongside Mercè Tell, tells Sifted it aims to invest €40m-50m in early-stage startups, with a focus on companies based in southern Europe and Latin America.

• Its plan is to write initial smaller tickets of €100k-500k into companies and follow on with additional amounts for those showing strong performance — there’s the possibility of backing standout performers up to Series B, Blanco says. 
• Among its first seven investments are logistic robotics firm Illumo Robotics; We are Evolbe, a matchmaking app to help startups find a team; fintech Ezpays; and the SaaS for the digitalisation of small-and-medium-sized businesses, Zinkee.

🤝 Intel agreed to acquire French startup Silicon Mobility, which develops software and chips for electric vehicle energy management. 

• The terms of the deal weren’t disclosed. 
• Silicon Mobility has raised about $33m in total from investors, per PitchBook data, including Cipio Partners and Capital-E.

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🔋 2024: the year of grid tech. The grid, a system of pylons, cables and transformers, has delivered power to our homes and offices for over a century. But as renewable power generation amps up, it’s facing an enormous shake-up — and there are growing concerns that it’ll struggle to cope. 

• But across Europe, startups are working on solutions to help the grid adjust to the influx of renewables. They include batteries, but also software solutions and tech that sits within the distribution network itself.
• “There’s a mindset that the grid is just wires: that we plug things in, and they work. That used to be the case,” says Paul Domjan, cofounder of Enoda, a London-based company working on grid solutions, “but it’s not anymore.”

🇯🇵 Stripping out our old friend SoftBank, it was a record year for Japanese investor participation in European tech deals, Dealroom data shows. 

• The trend reflects the fact that Japanese investors — mostly corporates — are interested in areas in which Europe is strong: climate tech, industry and deeptech. Japanese corporates have also continued to back European VC as LPs. 
• But some hurdles still remain. Many Japanese companies don’t have information about what’s happening on the ground, and local teams can be hampered by slow decision making at HQ.

London-based Vortexa, which provides real-time data and analytics about freight and energy markets, raised $34m in Series C funding. Morgan Stanley Expansion Capital led the round and was joined by investors including Notion Capital, Monashees, Metaplanet, FJ Labs and Communitas Capital. 

Hamburg-based airfocus, which develops product management software for companies, raised $7.5m in funding. Newion led the round and was joined by investors including XAnge, Nauta, Riverside Acceleration Capital and Picea Capital. 

Zurich-based Rivero, which helps payments companies digitise and automate their processes, raised €6.4m in Series A funding. 6 Degrees Capital and Inference Partners led the round and were joined by investors including Kraken Ventures, Seed X Liechtenstein and PostFinance Ventures. 

Eindhoven, Netherlands-based tibo energy, which is developing software to monitor and manage energy assets like heat pumps and solar panels, raised €3m in seed funding. SET Ventures led the round and was joined by Speedinvest.

Amsterdam-based Firsty, which offers simplified mobile data plans for travellers, raised €1.1m in pre-seed funding. Former KPN executives Marcel Smits and Godert Vinkesteijn led the round. 

London-based shaka, which enables brands to offer mobile plans to customers, raised $1m in seed funding. Haatch, Purple Ventures and Antler led the round. 

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