🍔 Forestay, Europe’s newest $220M growth-stage VC fund, will focus on AI
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👍 Forestay, an emerging VC based out of Geneva, Switzerland, has been busy. This week it closed its second fund, Forestay Capital II, at a hard cap of $220 million. The VC wasn’t well known in Europe until it started to lead rounds in enterprise startups a couple of years ago, notably scanning software startup Scandit — which has raised $273 million to date — out of Zurich.

The Forestay II fund will invest across Europe and Israel, with a “sweet spot” of leading growth rounds of $10 million to $15 million, at the inflection point of a company, it said.

As Chief Digital Officer in large corporations, mainly the biopharma clinical space, I had the chance to look at the entire value chain, from early research down to distribution, in fairly sizable enterprises,” he told TechCrunch over a call. “So by knowing the enterprise inside out, that’s why we decided to focus on enterprise and enterprise AI.

👍 To date, the VC has backed 13 companies, including K2view, Nexthink, Scandit and Wasabi; three of these have reached unicorn status and two were acquired. Most recently, the firm backed Neural Concept, a company spun out from EPFL, the Swiss Federal Institute of Technology in Lausanne, which raised $27 million in a Series B round to tackle fast manufacturing design with AI.

👍 Forestay also led the Series A round for Portugal’s “predictive maintenance” startup Stratio with a $12 million Series A back in 2021.

The Forestay fund was founded as a fund of B-Flexion, the private investment vehicle created by the Bertarelli family that is best known for building Serono into the third-largest biotech business globally, before its merger with Merck KGaA.

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📎 J2 Ventures, focused on military healthcare, grabs $150M for its second fund
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📱 J2 Ventures, a firm led mostly by U.S. military veterans, announced on Thursday that it has raised a $150 million second fund. The Boston-based firm invests in startups whose products are purchased by civilians and the U.S. Department of Defense.

While many emerging VCs are struggling to raise second funds, J2’s latest vehicle is more than double its $67.5 million debut fund from 2021.

📱 At first blush, the firm may seem to be benefiting from VCs’ growing interest in defense tech. But J2 has no interest in positioning itself as a defense tech investor.

“Our portfolio is national-security adjacent, but not defense-focused,” said Alexander Harstrick, J2’s managing partner. The firm does not invest in technologies that protect critical national infrastructure or help deter attacks, such as drones, robotics, or surveillance tech.

📱 Instead, J2 backs companies whose products help maintain the well-being and healthcare of nearly 3 million people employed by the U.S. military. Harstrick said that the Department of Defense (DoD) has historically adopted new technologies before they became popular with civilians. And it’s not just the internet, which was partially developed by the military.

📱 The firm also backs cybersecurity, infrastructure, and advanced computing startups like Femtosense, a developer of energy-efficient AI chips for smart devices.

J2 backs companies at the pre-seed stage to Series A and writes checks that range from $1 million to $5 million. The firm’s limited partners include JPMorgan and New Mexico State Investment Council.

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💎 Why deep tech VC Driving Forces is shutting down
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💻 Sidney Scott decided to take himself out of the venture capital rat race and is now jokingly auctioning off his vests — starting at $500,000.

The Driving Forces solo general partner announced on LinkedIn this week that he was shutting down his $5 million fintech and deep tech VC fund that he started in 2020, calling the past four years “a wild ride.”

A healthy performance of his first, small fund wasn’t enough. He told TechCrunch that with increasing competition for what is, essentially, still a small number of hard tech and deep tech deals, he realized it would be a challenge for smaller funds like his.

“This wasn’t easy, but it’s the right choice for the current market,” he said.

💻 Scott also thanked people, like entrepreneur Julian Shapiro, neuroscientist Milad Alucozai, Intel Capital’s Aravind Bharadwaj, 500 Global’s Iris Sun and UpdateAI CEO Josh Schachter, who stood by him.

During that time, he was also involved in building the first AI and deep tech investor network with Handwave, collaborating with investors at companies such as Nvidia, M12, Microsoft’s Venture Fund, Intel Capital and First Round Capital.

💻 That ride included about two dozen investments into companies like SpaceX, Rain AI, xAI and Atomic Semi. The total portfolio yielded over 30% net internal rate of return, a metric measuring the annual rate of growth an investment or fund will generate, Scott told TechCrunch.

💻 Thirty percent for a seed fund like this is considered solid IRR performance and it outpaces total average deep tech IRR, which is about 26%, according to Boston Consulting Group.

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⭐️ The UK’s most active early-stage investors
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💡 2023 wasn’t a good year for early-stage deal count in UK tech. There were 2.7k pre-seed, seed and Series A deals, according to Dealroom; the lowest figure since 2016 and a long drop from the 4.1k deals done in the heady days of 2021.

The figures for 2024 aren’t looking much stronger — Dealroom counts 1.1k so far this year — although a reporting lag typically means early stage rounds are under-reported.

💡 Using data from Dealroom, alongside investor deal count figures reported to Sifted by the firms themselves, Sifted has selected the investors that did the most pre-seed, seed and Series A deals, both new and follow-on, in the UK in the past 12 months (the start of June 2023 to the end of May 2024). Accelerators were not included:

1. SFC Capital

2. Maven

3. Mercia Ventures

4. Fuel Ventures

5. Future Planet Capital

6. SyndicateRoom

7. Haatch

8. Octopus Ventures

9. Seedcamp

10. Development Bank of Wales

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ℹ️ European VCs outperform US VCs over 10 and 15 year horizons
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© Venture capital might have been born in the US — but Europeans aren’t too bad at it nowadays.

European VC returns are better than North American VC returns over 10 and 15 year horizons, finds a new report from industry body Invest Europe, based on data from investment firm Cambridge Associates.

European VC yielded 20.77% net IRR (internal rate of return) over 10 years, compared to North American VC’s 18.18%. Over a 15 year period too, European VC has better returns: 16.57% IRR to North American VC’s 16.09% IRR.

© However, over a 20-year period, North American VC’s IRR edges past European VC’s: 13.03% compared to 12.87% for Europe. North American funds are also faster to pay back their investors — with LPs getting their money back in 4.5 years, on average, compared to 6.7 years in Europe.

IRR is an (imperfect) measure used in private equity to compare fund performance. It shows the expected annualised return a fund should generate; the higher the IRR, the better the performance. Most early-stage VC funds will be aiming to get an IRR above 30%.

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🔔 Europe's profitable startups
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💻 Two years ago, the US stock market tanked, growth-at-all-costs went out the window and get-to-profitability-ASAP came in.

Startups scrambled to follow the new VC mantra. More than 140k tech workers were laid off around the world in 2022; expansion plans were put on ice and markets were shut; and getting into the black became priority number one for founders.

Now, after an undeniably tough few years for our industry, more and more scaleups are announcing profitability.

Sifted hopes to track Europe’s biggest profitable private tech companies in this new database. We’ve included companies that have raised £100m+ and made an annual profit of £10m+. Data comes from news articles and data platform Dealroom.

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ℹ️ Corporate venture firms are a steadily growing presence in Europe's startup scene
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© Most CVCs don’t have a long shelf-life: their median life span is a mere four years, according to business school LBS. The reasons for that are well-trodden. If the parent company has a tough year, or has a change of leadership or strategic direction, the CVC can be one of the first things to get the chop.

© Recent victims include British telecoms giant BT’s venture arm, which has stopped making new investments, and UK software and IT services provider Capita’s venture arm Scaling Partner, which has dropped from 16 to 4 employees over the course of this year, according to LinkedIn, and also stopped new investments. The parent company’s share price has also plummeted since January.

This year German software giant SAP also shut its CVC arm SAP.io — which has invested in five unicorns and seen 70 exits — although it still invests in startups via VC firm Sapphire Ventures.

Danish shipping giant Maersk is another which has shaken up the focus (and team) of its CVC, Maersk Growth, in the past year. The move came as a new CEO took the helm of the parent company, and thousands of job cuts were announced.

© In 2022 and 2023, CVCs were involved in more than one in five deals — and so far in 2024, the share is only going up, according to PitchBook data.

Corporates and corporate venture arms have invested in 771 deals so far this year, worth a combined €12.31bn. In 2023, CVCs invested in 2,133 deals, worth a combined €26.16bn.

© Last year, pharmaceutical giant Novo Holdings was the most active CVC in Europe — doing 32 deals. In a sign of the times, two more of the most active CVCs were connected to pharmaceutical companies, while three were connected to oil and gas behemoths.

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ℹ️ Iceland is dodging the VC doldrums as Frumtak Ventures lands $87 million for its fourth fund
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© Iceland’s startup scene is punching above its weight. That’s perhaps in part because it kept the 2021 hype in check, but mostly because its tech ecosystem is coming of age. Iceland attracted the most venture capital per capita of all Nordic countries in 2023, but that stat is somewhat skewed by its relatively small population of fewer than 400,000 inhabitants.

More tellingly, foreign co-investments in Icelandic startups reached a record in 2023. In this context, it makes sense to see VC firms raise more funding.

© Frumtak Ventures is a perfect example. The firm just closed an $87 million fourth fund that was oversubscribed — and significantly larger than its third $57 million fund.

Most of Frumtak’s limited partners are Icelandic pension funds. “We were in a very good position that all our existing LPs were happy to back us again,” Kristinsson said. As for geographic scope, he added, Frumtak will back Icelandic founders, but “focus on local innovation with global potential.”

© Iceland’s tech scene skews toward early-stage startups, as does Frumtak, whose name roughly translates to “early catch.” But Kristinsson is confident that as the scene matures, more exits will follow. “Looking 10 or 20 years forward, my vision is that we will have fueled some of the biggest listed companies in Iceland in the next decades,” he said.

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⭐️AI startup Hebbia raised $130M at a $700M valuation on $13 million of profitable revenue
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💡 Hebbia, a startup that uses generative AI to search large documents and respond to large questions, has raised a $130 million Series B at a roughly $700 million valuation led by Andreessen Horowitz, with participation from Index Ventures, Google Ventures and Peter Thiel.

⭐️And its funding demonstrates that 50x annual recurring revenue (ARR) is becoming the norm for AI startups, especially ones that have booked millions of profitable revenue early in their journey.

The formal funding announcement confirmed most of the details previously reported by TechCrunch, although Hebbia continued to raise more funds, another $30 million, after our report. But Hebbia has not yet filed an updated disclosure on this funding round to the SEC, and the latest one at this time still says it was raising around $100 million of new equity.

Hebbia, which was founded by George Sivulka while he was working on his PhD in electrical engineering at Stanford, had ARR of $13 million and the company was profitable when it was pitching investors on the deal, according to a person with knowledge of the matter.

⭐️ The $700 million valuation implies that investors valued Hebbia at about 54 times ARR. Such heady valuations were common at the height of the pandemic-infused boom and are now routinely assigned to buzzy AI startups. Hebbia’s closest analogues, Glean and Harvey, had valuations of slightly over 60x ARR, according to the Information’s reporting.

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💎 Index Ventures raises $2.3bn across two new funds to double down on AI
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💻 Global VC investor Index Ventures, a backer of German AI unicorn DeepL and UK neobank leader Revolut, has raised $2.3bn across two new funds to double down on AI investments.

Along with its new $800m venture fund and $1.5bn growth fund, Index is also still investing out of a separate $300m seed fund.

💻 The firm says that the new funds will have a strong focus on AI, at a time when the technology is developing at pace and the availability of talent globally is increasing.

“AI alone will revolutionise virtually every sector of the economy and open up whole industries to venture that have remained virtually untouched,” said Shardul Shah, partner at Index Ventures. “Meanwhile, hundreds of thousands of people have worked in hypergrowth startups globally and can transfer those lessons to the next generation of companies.

💻Index has historically focused on enterprise software, SaaS, fintech, marketplaces and consumer; but has done several AI deals recently. It was an early investor in French AI darling Mistral — which is now Europe’s most valuable startup in the field, at €5.8bn.

At a combined $2.3bn, these two funds are smaller than the equivalent funds raised at the top of the market in 2021; a $900m venture fund and a $2bn growth fund, totalling $2.9bn.

💻 Index has also slowed down its pace of deployment; the two new funds have arrived three years after the previous ones. In 2021, Index raised its venture and growth funds just one year after its predecessors.

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📎 Central eastern Europe’s most active early-stage VCs
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📱 In central eastern Europe’s young startup ecosystem, early-stage investments make up the vast majority of VC transactions. In 2023, 92% of the 818 deals closed in the region were at pre-seed (611) or seed (144), according to data platform Dealroom.

Europe’s economic downturn has hit the region hard — and 2023 saw startups raise less early-stage funding than 2022. In 2022, CEE startups raised €140m in pre-seed funding and €324m in seed funding; in 2023, that dropped to €99.8m at pre-seed and €278m at seed, according to Dealroom.

📱 Local investors have been involved in most of those deals, with two Bulgarian VCs — Vitosha Venture Partners and Innovation Capital — doing more deals than any other investors in the region in the past 12 months.

Using data from Dealroom, Sifted has selected the CEE investors that did the most new (not follow-on) pre-seed and seed deals in the last 12 months:

1/ Vitosha Venture Partners

2/ Innovation Capital

3/ Baltic Sandbox Ventures

4/ Metaplanet

5/ SMOK Ventures

6/ Specialist VC

7/ Sofia Angels Ventures

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🍔 AI received 30% of global investments in Q2 2024
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👍 In the second quarter of 2024, the venture capital market revived slightly. The volume of global startup financing amounted to $79 billion, which is one of the largest figures since 2023. AI has become the leading sector — for the first time since the launch of ChatGPT.

The results of the last quarter can be found in the Crunchbase analysis.

👍 In the second quarter of 2024, global startup financing increased to $79 billion, which is 16% more than in the previous quarter and 12% more than in the second quarter of 2023, when $71 billion was invested. Most of the growth in this quarter is accounted for by mega-rounds — investments in excess of $100 million.

According to Crunchbase, the volume of financing has been at a low level for the eighth or ninth consecutive quarter. Although the past quarter was one of the highest investment volumes since the first quarter of 2023, this does not necessarily indicate a revival of the venture capital market.

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ℹ️ The growth of investments in AI
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© As the Crunchbase data analysis showed, And became the leading sector for the first time since the launch of ChatGPT from OpenAI. Despite investor concerns about revenue and high valuations, total funding in the second quarter was $24 billion, the largest amount raised in the AI sector in recent years.

© AI companies have received five of the six rounds of funding in the amount of $1 billion or more.

💎 Elon Musk's xAI raised $6 billion, and AI infrastructure provider CoreWeave raised $1.1 billion.

💎 The developer of Wave driverless driving technologies, the Scale AI data preparation campaign and the BioTech company Xaira Therapeutics have each raised $1 billion.

💎 Beyond And the $1 billion round was closed by the cybersecurity company Wiz.

© Healthcare and biotechnology became the second largest sector, which attracted $17 billion. Hardware manufacturers have raised $11 billion, largely due to investments in AI infrastructure and semiconductors. Fintech companies (at the peak of the market in 2021, they were usually one of the two leading sectors) received $9.8 billion.

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⭐️Investments in the late-stages have increased
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💡 Financing for late-stage startups reached $36 billion, compared with $33 billion in the second quarter of 2023. Large sums were received by companies that work in the field of developing basic AI models and infrastructure, autonomous driving, electric vehicles, cybersecurity, drug development and quantum computing.

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ℹ️ From Ethan Choi to Spencer Peterson, venture capitalists continue to play musical chairs
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© When Keith Rabois announced he was leaving Founders Fund to return to Khosla Ventures in January, it came as a shock to many in the venture capital ecosystem — and not just because Rabois is a big name in the industry.

© It was surprising because unlike in many other fields, venture capitalists don’t traditionally move around very much — especially those who reach the partner or general partner level as Rabois had.

VC funds have 10-year life cycles and partners have good reason to stay that course. In some instances, they may be a “key man” on a firm’s fund, meaning that if they leave, the fund’s LPs have the right to pull their capital out if they choose. Many partners and GPs also have some of their own money invested in their firms’ funds, which gives them further reason to stick around.

© So, while big-name investor moves in venture capital aren’t common, they seem to have become so in recent months. So far this year, there have been notable instances of investors returning to old firms, striking out on their own or taking a pause from investing entirely.

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🍔 AI-powered Regard nabs $61M to find missed illness, boost hospital revenue
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👍 People in tech often say that data is the new oil. That phrase, coined by British mathematician Clive Humby, of course implies that data is valuable.
The results of the last quarter can be found in the Crunchbase analysis.

👍 Data about a person’s health can also provide meaningful insights and improve outcomes, but only 3% of patient data is currently used by physicians, according to the World Economic Forum. Although doctors know they can glean useful information from patient data, they don’t have the time to review every detail in the medical record.

Regard, a digital health startup founded in 2017, wants to help physicians save time and increase the accuracy of diagnosis by analyzing patients’ health data using AI. Regard announced on Thursday that it raised a $61 million Series B round led by Oak HC/FT, with participation from Cedars-Sinai Health Ventures and existing investors TenOneTen, Calibrate Ventures and Techstars. The company is now valued at $350 million, according to a person familiar with the matter.

The company grew its revenue by 4.5 times in 2023 and is on a path to do a “similar amount of growth this year,” Ben-Joseph said. The company expects to reach profitability within the next two years.

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