Sifted - The "California of Europe"

Good morning there,

Where is the "California of Europe"? If places like the UK, France or the Nordics spring to mind, you'd be dead wrong, according to Markus Söder, the minister president of Bavaria. 

He, perhaps unsurprisingly, thinks it's his home region. But does his claim stack up? That's what we unpack below.

Elsewhere today, we look at a $15.4m raise for a climate change-resistant cocoa alternative, hear from Speedinvest's Oliver Holle and dig into the spacetech startups investors have their eyes on.

— Kai Nicol-Schwarz, reporter

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The Golden State of Europe

The German state of Bavaria is known for its pretzels, freakishly large glasses of beer and Lederhosen — but the local ministry is keen for the region to be known for something else too: tech.

At the DLD tech conference in Munich last month, Markus Söder, the minister president of Bavaria, branded his region the “California of Europe”. Both places boast beautiful people, technology and landscapes, he claimed.

Söder said that Bavaria was investing €5.5bn in areas like AI, quantum and space. The ministry, via its startup initiative Gründerland Bayern, is hoping to stimulate startup creation: it offers grants and coaching for new founders and acts as an information source for those starting a company and raising capital. 

This comparison of Bavaria to The Golden State isn’t new; the Bavarian Ministry has been harping on this theme for more than a decade now, say local VCs. But does the comparison stack up?

Bavaria’s capital Munich has certainly earned its place as one of Germany’s biggest tech hubs. The city and the region around it — known for its rich industrial heritage and engineering talent — houses industrial heavyweights such as BMW and MAN, but also hundreds of deeptech startups. Some of Germany’s most valuable unicorns call Bavaria home, including process mining company Celonis, buzzy defence tech startup Helsing and HR tech Personio.

Additionally, local universities such as the Technical University of Munich (TUM) and The Ludwig Maximilian University of Munich are supporting “young talent to be hired by startups or to become founders themselves”, says Robin Godenrath, founding partner and managing director at Picus Capital. In 2023, $2bn was raised by startups from TUM and its startup lab UnternehmerTUM.

All of this is boosting the region’s pulling power. More VCs have started moving back to Munich and opening up offices there to cash in on the city’s rising deeptech stars, says Olaf Jacobi, managing partner at Capnamic Ventures. “In 2005-2006, when the Samwer brothers and Lukasz Gadowski (cofounder of Delivery Hero) set up the Berlin ecosystem, the money was moving towards Berlin, but in the last four years, the momentum is swinging back to Munich a bit,” he says. Some prominent VCs, like Creandum GP Simon Schmincke, have moved from Berlin to spend most of their time in Bavaria, which locals say has a high quality of life, especially with its close proximity to forests, lakes and mountains.

However, some investors like Jan Miczaika, a partner at HV Capital — which has offices in both Munich and Berlin — argue that Munich may not quite be the startup hotspot its ministry would like it to be. One reason, he says, is that workers have other options for employment there — like working for international corporations or car manufacturers, he tells Sifted. Whereas that’s not the case in Berlin, which is better known for being a software hub than an industrial centre. 

“In Berlin, the startup industry just plays an outsized role in the economy, and [in] Munich [it] certainly doesn't,” Miczaika says. He adds that Berlin has the advantage of being able to attract international talent more easily — with its diversity, creative scene and buzz — compared to Munich.

Berlin also outpaces Munich in terms of the value of VC deals — raking in €33.6bn worth of VC money from 2013 through September 2023 compared to Munich’s €10.9bn, according to PitchBook data. In that time, there were also 3,414 deals in Berlin compared to Munich’s 1,329. 

Investors agree that Bavaria still has a long way to go to catch up with the entrepreneurial dynamism of California. The lack of growth capital in Germany and the onerous red tape needed to notarise deal documents are often cited as two of the biggest drawbacks.

Stefan Bader, cofounder of Munich-based B2B referrals startup Cello, says that the tag California of Europe “may be a bit of a stretch”, but Munich is “undoubtedly one of the fastest-emerging tech hubs in Europe”, spurred on by the growth in sectors such as enterprise software, climate and deeptech.

He thinks Munich’s tech scene is more like a “boutique” — “specialised, focused and rich in quality” — and perhaps more comparable to places like Austin, Texas than California. 

“Both Austin and Munich are the challengers, the fast-growing new kids on the block in comparison to the 800-pound gorilla Silicon Valley,” says Bader. “There seems to be a pattern of companies building frontier technologies like spacetech, vertical take-off aircrafts and fusion reactors in Munich or Austin, and mostly leaving consumer tech to the incumbents — for now.”

— Anne Sraders, senior reporter, Miriam Partington, reporter and John Thornhill, editorial director

🌎 Planet A raises $15.4m for a climate change-resistant cocoa alternative. The Munich-based startup ferments oats and sunflower seeds to make ChoViva, a patented cocoa alternative product that contains no cocoa beans. 

• Climate change is detrimental to the growth environment of cocoa beans — and the current production method isn’t very planet (or people) friendly. Planet A wants to circumvent those issues by offering chocolate makers an alternative to cocoa that is cleaner, greener and locally sourced. 
• Its Series A round was led by World Fund, and it’ll use the cash to ramp up production and expand into the US and UK.

☀️ Spanish solar energy startup Holaluz says it expects its EBITDA to reach €3m in 2023, despite the overall size of the solar market decreasing by up to 54% due to rising interest rates and government energy bill support to Spanish households, which has made people feel less inclined to install solar panels.

• The Barcelona-based company, which in November announced plans to cut 200 jobs at its solar installation service, also said its share of the Spanish solar energy market has almost doubled, growing from 1.6% in 2022 to 3% last year.

✈️ Spain’s travel booking group Amadeus buys Portugal’s Vision-Box in €320m deal. The Lisbon-based startup, which develops facial-recognition solutions for airports and is a spinout from the University of Lisbon, has been acquired at a time of fast growth, with expected revenues of €70m and an estimated EBITDA of almost €20m in 2023. 

• Amadeus, which says it will absorb Vision-Box’s 470 employees, expects the deal to be concluded in the first half of this year.

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👀 “We should’ve sold more,” Oliver Holle, head of Speedinvest, tells Sifted, as the early-stage VC closes its fourth seed fund at €350m and reflects on the “liquidity issue” the European VC scene faces at the moment.

• In the boom years of 2021 and 2022, VCs didn’t need to think too hard about getting exits. Startups were raising big rounds, often giving earlier investors plenty of opportunities to sell at least some of their shares to incoming investors at a tidy markup. Nowadays, many are probably wishing they’d thought harder about it.
• “The whole industry — including ourselves — has been a bit naive about this topic,” says Holle, whose portfolio includes unicorns like wefox, GoStudent and Bitpanda. 
• “We had these conversations two years ago when there were lots of up rounds [about how much to sell]. We’d settle on selling 20 or 30% of our shares, or say ‘Let’s make sure we at least have our money back’. In hindsight, that’s not good enough.”

💰 One of the world’s largest fund of funds, Adams Street Partners, plans to increase its investments in European VC, it tells Sifted. But just what kinds of VCs is it keen to back? 

🚀 15 spacetech startups set to lift off, according to investors.

🧬 The EU risks losing out on farming’s genomic reboot, says science commentator Anjana Ahuja (FT). Scientists in Kenya are using the relatively cheap and accessible gene-editing tool Crispr to create new varieties of crops that are resistant to pests.

• The UK has also made some inroads into regulation around the tech — but for something similar to be passed in the EU would require approval from all 27 member states. A tall order, says Ahuja, which could mean agriculture here misses out on a targeted genomic reboot.

Solothurn, Switzerland-based QUMEA, which offers a patient monitoring system to prevent things like falls, raised €9.6m in Series A funding, including a loan from UBS, from investors including Zürcher Kantonalbank and PB Invest.

Brussels-based VoxelSensors, which is developing 3D-scanning technology that uses a photon laser beam sensor to generate accurate perception data, raised €3m in extended seed funding. SFPIM Relaunch led the round and was joined by investors including Qbic Fund and finance&invest.brussels.

Lyon, France-based 8SEC, a mobile gaming studio, raised €1.5m in funding. Games publisher Kwalee led the round.

Stockholm-based Roro, a gaming studio, raised €1.5m in funding. Node.vc led the round and was joined by investors including FOV Ventures.

UK-based Evaro, a white-label platform for building digital health apps, raised $1.5m in seed funding. Cornerstone VC led the round and was joined by investors including Catalisi, SyndicateRoom and the University of East Anglia.

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