Venture capital firm Accel announced Tuesday it has raised $650 million for its eighth fund aimed at investing in early-stage startups in Europe and Israel, showing signs of recovery in the venture capital market. showed that it is possible.
The company made big early bets on things like social media apps. Facebook and music streaming services spotifysaid in a press release that it raised the funds to “support ambitious founders building global category-defining companies” in Europe and Israel.
Harry Nellis, general partner at Accel, said the technology ecosystem in Europe in particular has evolved dramatically in the nearly 25 years since it opened its London office as a separate fund in 2001.
“The environment has changed dramatically since then,” Nellis told CNBC. “People will ask us, can Europe produce a billion dollar result?”
“Currently, there are over 360 venture-backed unicorns in Europe and Israel, and the entire ecosystem has evolved from approximately $1 billion in capital raised to $66 billion in 2023. There is.”
Talent “Flywheel”
Nellis said Europe is now creating a more promising talent pool, thanks to a “flywheel” in which experienced employees from other companies that achieve unicorn status become founders of new companies themselves. .
Employees at 248 venture-funded unicorns in the region supported 1,451 new tech startups across Europe and Israel, according to a report published last year by the company citing data from Dealroom. It became clear what had happened.
Mr. Nellis noted that there are emerging regions in Europe that have received little attention from investors, but show great potential for innovation.
He cited Lithuania and Romania as examples of countries that have achieved great success in technology. For example, in Lithuania, his second-hand goods market Vinted is now a $4.5 billion “unicorn” company, while in Romania, UiPath has attracted a valuation of $10.9 billion on the public market.
Accel plans to invest in 25 to 30 companies from its latest early-stage fund.
The launch of Accel’s eighth European fund comes amid a sharp decline in funding for high-growth technology startups over the past two years.
This is because macroeconomic uncertainty caused by Russia’s full-scale invasion of Ukraine and central bank interest rate hikes are causing some kind of reset in technology valuations.
Against this backdrop, Accel’s ability to raise so much money for European and Israeli ventures suggests the tough technology environment may be easing.
The firm managed to close its eighth fund for the region in just a few months, said a person familiar with the matter, who asked not to be identified as the details have not been made public.
It comes after Plural, a venture capital firm founded by the founders of Wise, Skype, and Songkick. raised its own 400 million euros ($431 million) fund in January to support European technology startups.
Climate change-focused VC firm Worldfund closed its €300 million fund in March.
Magnus Grimeland, CEO of seed investment firm Antler, told CNBC earlier this year that early-stage venture activity and private company valuations have been creeping up since the beginning of the year. He said he expected Europe to follow that trend.
“It’s coming back,” Grimeland said in an interview at Antler’s London office in March. “We’re seeing a lot more movement in the portfolio. New York made eight investments in January, seven of which have already made follow-on investments. The US always tends to move more quickly.”
European AI opportunities
But even as startup funding declines, excitement about artificial intelligence has led to a flood of funding into AI-focused startups.
For example, OpenAI, Anthropic, and Cohere have raised billions of dollars.
Nellis suggested that Accel doesn’t want to get distracted with its latest fund and focus solely on hyped areas like AI.
Instead, the company will focus on leveraging its “prepared mind” philosophy, which encourages a deeply focused, disciplined and informed investment approach, to tackle its next startup bet, he said. said.
“We are lucky to be working with DeepMind here in London and with Fair. [Facebook AI Research] There are at least two large centers in Paris with great AI expertise,” Nellis told CNBC.
“We believe that Europe is very well placed to generate some significant AI companies, in the same way that we have generated significant enterprise businesses, along with smaller centers across Europe. ”
Nelis said the way Accel thinks about AI can be broken down into three layers. One layer is the “foundation model” layer, which refers to the algorithms that support advanced AI systems, and the “tool layer” supports the execution of applications on top of these algorithms. And then there’s the “application layer.”
He added that he believes Europe is better when it comes to AI application companies, as opposed to the foundational model where US tech giants have a big advantage.
“We expect to see some very interesting AI application companies emerge in Europe,” Nellis told CNBC. “The foundational layer is where the US incumbents have a real advantage, at least for now. They have the advantage of computational power, large data sets, and significant capital.”
Victor Riparbelli, CEO and co-founder of Synthesia, told CNBC that the company’s team knows “how to strike the right balance between visionary and useful technology,” and the company has He said he has partnered with Accel.
“There were a lot of cool demos in the AI industry last year, and perhaps too much frothing,” Ripalbelli told CNBC via email. “It was very important to us to partner with a fund that is as focused as we are on delivering real, tangible business value.”