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EUVC Newsletter | 30.06.23
Key considerations for widespread AI adoption, why all venture booms end in a return to governance and reflections on Japan's tech rise and it's relevance to European VCs
Welcome to the GP/LP newsletter of Europe 🗞
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Table of Contents
Expand Northstar - the ultimate startup and investor connector event
TechBBQ - where hygge and tech meets
Mountside Ventures’ Next LP Conference
Japan, the land of the rising sun .. and tech? by Chris Wade, Isomer Capital
7 Key Considerations for widespread AI Adoption by Carlos Espinal, Seedcamp
All Venture Booms End with a Return to Governance by Charles Hudson, Precursor Ventures
This Week’s Partner: Luca Faloni 💫
Rarely have I seen as many VCs donning suits as I did at SuperVenture this year. Seems a bit much for the summer fundraising tours, no? We’ve partnered with Luca Faloni to get you dressed for success with great quality and durable products you’ll love.
Don’t settle, go discover their timeless looks, made from luxurious materials, crafted by skilled artisans in Italy and delivered directly to you. As always, free shipping & returns.
Expand North Star in Dubai - the ultimate startup & investor connector event.
15 - 18 October, Dubai
Investors are turning to new relationships as we continue to face challenges in a downturn. Join Expand North Star to discover Dubai, the UAE and the rise of the Global South ecosystems.
Gain insights on market access opportunities, and the latest on ADGM, Mubadala, and Catalyst Partners, as well as how DFDF are transforming the global investment landscape with $1 billion target for assets under management by the end of 2024. You’ll connect with the people driving The UAE's digital economy to grow more than $140 billion in 2031and Dubai’s recently announced ambitious $8.7 trillion economic agenda for the next decade, known as D33.
TechBBQ - where hygge meets tech
September 13- 14, Copenhagen
7500+ attendees, 2600 startup reps, 340+ speakers, 620+ Scaleup reps , 880 investors and 150+ media reps. Clearly, TechBBQ has become the heartbeat of the startup and innovation ecosystem in Scandinavia. It began as a humble BBQ gathering for tech enthusiasts and entrepreneurs in 2013, but has since evolved into a large-scale summit that draws attendees from around the world for two days of inspiration, networking, and growth.
Mountside Ventures' next LP conference
Our friends over at Mountside have opened VC registrations for their next annual LP conference, Funding Venture, taking place this year on the 10th of October in London. It is aimed at bringing together FOs and LPs, and a select group of 20 of Europe's next-generation VCs.
If you are fundraising in the next 12 - 18 months, register here, and don't miss the opportunity to meet their LP network and your next potential investor!
They've got a fantastic line-up so far of speakers, including Yoram Wijngaarde, Harry Stebbings and Tom Hulme, followed by panels, roundtables, and, of course, plenty of networking.
Note: It is free to attend, but they limit the number of VCs participating to ensure there is a sensible LP/VC ratio.
Japan, the land of the rising sun .. and tech?
by Chris Wade, Founding Partner of Isomer Capital
It's a scorching 35 degrees out here. I'm suited up, tie tightly fastened, ready to kickstart my day at the ungodly hour of 08:00. My body clock, however, still insists it's midnight as it’s still running on British Standard Time, leaving me feeling like a bleary-eyed nocturnal creature.
To make matters more challenging, I'm armed with a stack of printed sheets, adorned with maps where X marks the spot for my first appointment. As I step into the foreign land of Tokyo, a translator warmly greets me, and thus begins the arduous task of trying to communicate with a potential customer and technology partner.
My initial visit to Tokyo 23 years ago left me with a muddled impression. There were plenty of smiles and nods, but the results remained unclear. However, when I inquired about our product - mobile phone location technology - the response I received after numerous pregnant pauses and discussions with my Japanese counterparts could be summarized in one word: "unclear."
As the Co-founder and CEO of CPS, my primary objective for this Japanese expedition was to meet with NTT DoCoMo. Back in 1999, they had unleashed imode, the world's first mobile internet, catering to the 14 million daily train commuters in Tokyo. Imode revolutionized mobile devices, opening them up to internet search, maps, and content. NTT DoCoMo's forward-thinking team, situated on the 37th floor of the Sanno Park Tower, envisioned a future where phones boasted large displays, powerful application processors, and top-notch maps. They foresaw a world where your device's location was as crucial as its battery life.
After several grueling trips to Tokyo, we finally managed to secure a proof of concept agreement with NTT DoCoMo, and likewise with Vodafone KK (the predecessor to Softbank Japan's mobile network). These trips not only forged business relationships but also transformed them into friendships, though we always maintained the formalities of surnames and honorifics like "san" (Mr. or Mrs.).
In 2015, we began pitching Isomer Capital to corporate Japan. To my astonishment, the combination of our 15-year-old relationships and Isomer's innovative concept of a single fund encompassing all digital technology startups in Europe struck a chord. In our Fund I, we managed to onboard three Tier 1 Corporates. They also started investing in some of our VC portfolio companies.
The 2019 Rugby World Cup, hosted by Japan, sparked a significant shift in the country's global outlook. Taxis equipped with GPS map systems became commonplace, and the magnificent Tokyo metro embraced English signage. What was once a daunting maze to navigate became a breeze. Metro stations, exit numbers, and meeting locations rarely required the assistance of translators. This newfound openness in Japan continued to flourish during the 2020 (actually 2021) Olympics, where the world fell head over heels for Japanese humility and their unwavering commitment to cleanliness.
Today, we have forged relationships with over 10 Tier 1 Japanese corporates, and the interest in European ventures continues to surge. Company investments are on the rise, and we are witnessing the dawn of M&A transactions.
Honestly, I can't say I fully comprehend the underlying reasons for this shift, but here are a few thoughts:
Japan boasts the world's third-largest economy, with a population of 125 million, yet it currently only harbors six unicorn startups.
Cash-rich Japanese corporations are eager to expand their product lines within Japan, realizing that internal innovation alone is no longer the ultimate solution.
As China turns its focus inward, Japanese corporations are reclaiming their spot on the global stage. They are investing in European startups, seeking to build new ventures outside the borders of Japan.
Some Japanese corporates have long been investing in US venture capital. However, there's anecdotal evidence that their access to the most successful American companies has been somewhat limited. As a result, they are now exploring the European market, which may prove more receptive to external investors.
Lastly, the business cultures of Europe and Japan share similarities. For instance, both regions rely on lawyers to confirm agreements and rarely employ them as predatory weapons, as is often the case in other parts of the world.
In conclusion, Japan has set its sights on Europe and is welcoming opportunities with open arms. From my personal experience, operating in Japan has become infinitely more accessible compared to when I first embarked on this journey. Just recently, Japan hosted the G7 conference in Hiroshima, and it became the stage for several key announcements that are undeniably relevant to our endeavors:
$95Bn to be invested in VC and startup innovation over the next ten years
Creation of Silicon Island ( investment in Semiconductor Manufacturing and Design
Liberal IP laws on AI and specfically AI data
Finally, there is some evidence that I am not alone in predicting the growth of the land of the rising sun as follows.
Stock Market Performance YTD in 2023
7 Key Considerations for widespread AI adoption
By Carlos E. Espinal, Founding Partner of Seedcamp
LP Hypeman’s note: AI is on my mind. I try to figure out which funds are best positioned to win, I try to convince my non-tech friends to embrace the technology and leapfrog their dinosaur peers by doing so, I try to find the balance between over-hyping it as creator and giving it the attention it deserves. So reading Carlos’ piece on AI this week and stumbling on his non-AI-enhanced-copy disclaimer was deeply intriguing but also a funny coincidence. While Carlos has opted to pursue the path of the devout, I’m on the other end of the spectrum. I don’t want to be doing anything without having first considered, even tried, if AI can make me better at it. Those who know me well will know that this mindset, where the end justifies the means, has permeated my life throughout. Nonetheless, Carlos’ final remark related to his disclaimer is equally relevant to my approach:
“The fact I have to disclose that, is just a sign of the times we are living in. I can’t tell if this is awesome, funny, or sad!”
Oh, and this one bit of the newsletter was written entirely without AI assistance.
As an investor, I can tell you that every single deal we are looking at right now has a component of artificial intelligence incorporated within it.
A while back, I wrote a blog post about how AI will not be a sector-as-such, but rather, an enabler for everything we use, similar to how mobile-tech, catalysed by the iPhone, transformed all the services we consume today.
One thing that’s critical though, is that we carefully reflect on what AI will do to our society, our values, and our use of technology going forward. In order to help guide conversation you may be having internally as a company, or externally with regulators, I’m sharing my thoughts below. They may, of course, overlap with thoughts of others, but hopefully they still serve to catalyse discussions.
I highly recommend reading Carlos’ full blog post, but here’s TL:DR for the lazy:
The ethics of data training, highlighting the risks of bias and the need for inclusive data.
The ownership and ethics of data use raise concerns about privacy and the implications of using public-facing AI systems.
Trust decay becomes a significant worry as AI blurs the lines between reality and AI-generated content, eroding trust in media and interactions.
Cognitive overload becomes a challenge as the abundance of AI-generated media overwhelms consumers and reviewers.
The calibration of ethical standards in AI systems becomes crucial, as the choices made by AI can have wide-ranging impacts.
Finding the right incentives for AI systems becomes a complex task to avoid unintended consequences.
Regulation, labor, and geopolitical implications emerge, requiring careful navigation and considerations for different geographies.
So what’s Carlos’ final conclusion? This, I dare not summarize:
In spite of how scary some of the above points may sound, I don’t think the right answer is to retract into a pre-AI position as some suggested earlier in the year.
If we treat the rise of AI globally as a quasi-arms-race, then the deterrence, either geopolitical (AI vs. AI) or existential (AI vs. Humanity) both require we ‘speed up’ the innovation cycles to achieve equilibrium. This includes a speed up not only of technology, but also the regulation around it and the education of its use in and out of the boardrooms, classroom, workshops, factory floors and offices.
We need to promote the further development of AI technologies with an equal balance of effort going into the reconciliation of ethical issues as well as towards the development of defensive technologies designed to establish mutual trust again (across all instances were AI can be used).
In the end, I do think this is yet another issue that humanity will rise to the challenge we’ve created, and on a positive note, many opportunities will arise for countries, cities, and groups that can take advantage of what the technology can enable.
This coming from a man whose unicorn portfolio counts more than an unlucky carpenter can count on his fingers. There’s ample reason to listen up 👂
All Venture Booms End with a Return to Governance
By Charles Hudson, Founding Managing Partner of Precursor Ventures & NVCA Executive Committee Chair.
LP Hypeman’s note: I’ve been enjoying Charles’ Venture Reflections lately and wanted to share this piece as I think we’re missing boldly concrete statements about what to expect going forward from today’s turmoil and the past’s missteps. Seeing Charles offering this here and it coming from the Executive Committee Chair of NVCA should make it warrant reflection for most.
Charles writes that it feels like we’re witnessing the tail end of the venture boom, where stories of deception and misrepresented data come to light. We will likely hear more such stories in the future, causing people to question their past decisions. As investors, we need to reflect on our choices and the things we overlooked during the boom. Looking ahead, due diligence and governance will become crucial for companies in their early stages.
Charles differentiates between due diligence, done before investing, and governance, the ongoing work to ensure companies operate with proper controls and checks in place. While due diligence regarding revenue, bookings, and user metrics will become more rigorous, the emphasis will shift towards "trust but verify."
I think we will pivot toward a world where “trust but verify” is the ongoing norm, with more emphasis on the verify piece relative to the trust piece […] I think that standards around verification will tighten and go back to what they looked like in earlier eras of the venture business.’
For companies pre-series B, here's what to expect:
Strong push for audited financials at Series A: Audited financials, though expensive and cumbersome for early-stage companies, will likely be required earlier in a company's life. The risk of misrepresentation will drive this change.
Increased focus on board seats and control provisions: Board seats will become a bigger topic in fundraising conversations, emphasizing the liability associated with being a board member. Investors will demand more from portfolio companies in terms of board governance.
Higher burden of proof for core KPIs: Non-financial KPIs and user metrics will face greater scrutiny as investors seek more assurance. The trusted system of record for documenting and reporting these numbers is yet to be determined.
During boom times, investors competed in various ways to win deals, compromising on terms, price, and governance. However, we are entering a phase where the balance will reset. Companies will have greater oversight, and trust in reported data and KPIs will increase.
Founders raising funds from venture funds with a history of dealing with misrepresented data or malfeasance should expect heightened scrutiny. Previous experiences may feel jarring in the new era of diligence and governance.
What’s the state of venture in Europe? If you haven’t yet checked out Affinity’s latest investment benchmarking report, here’s the chance to get caught up!
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