00:00:54 · Laura Connell
[00:00:54] S1: Yeah, I mean, beyond recognition and positive for the better, I should say. One, of course, and this is well documented now in terms of the overall volume of companies that are coming out of the European ecosystem. It's just been a Cambrian explosion in the last couple of years. And so for the first time, actually last year, the number of companies created in European technology, so top of funnel startups, was actually the same as The US. And so if you think about what that means in terms of the potential size and value of the companies going forward and reaching the growth stage and meaningfully contributing to European GDP, it's incredibly material. So that's the first thing about it. I think the second theme that's been really interesting to observe, and this is not just true of the European ecosystem, this is true on a global basis, is the nature of the technologies that are being funded, of course. Now, it's been well, I think everyone's familiar with the platform shift that has been kind of generative AI, but then underpinning that shift, of course, there's been enormous discussion around where and how we build the supporting value chain from energy to next gen compute to really enable the promise of this platform shift, basically. So in particularly in Europe, in the context of a broader kind of geopolitical balkanization and fragmentation of supply chains, there have been some major categories of investment that really look a lot more like, least historically where the purview of deep tech only investors are now really coming into the mainstream. So, if you look at the share of the European pipeline that is going at the growth stage toward funding next gen compute, it's about 38% of all the rounds that are happening over a $100,000,000 of revenue, sorry, of total funding. So a $100,000,000 of total funding. And then the next most invested categories, kind of backed categories coming to the growth stage are physical industrial AI, of course, to European industrial base, including robotics, and then defense naturally in healthcare and biotech. So you can really see the need from a supply chain build out being reflected in where founders want to build, which has been incredible to TERF.
00:03:06 · Sebastian Johnson, Laura Connell
[00:03:06] S0: Has it made your job a lot harder in the sense that now there are so many more companies in Europe at that growth stage than I imagine there were five, six, seven years ago? [00:03:15] S1: Yeah, I think in some ways there's always a challenge in making sure that you've got the top of funnel visibility. So absolutely, making sure that we've got the connectivity, network such that we're getting in front of founders at the right time is a growing problem. Of course, are a variety of tools now that have fundamentally changed the way VC firms operate. And I think to the extent to which every organization is reasoning about how to really go AI native, the same is true for the VC industry as a whole, right? And so for a long time, Atomico has been building a kind of data assets around kind of data driven VC of which the state of European tech is clearly one of the outputs, But more generally, we really infuse all of our processes now with that data asset in a much more authentic and automated way. [00:04:02] S0: Do you have different outcome expectations for growth companies today? I imagine valuations are probably higher than when you were investing at the growth stage maybe five or six years ago. Are you now seeing that actually you were expecting the growth companies to be three or four times bigger outcomes in terms of valuation exit than you were expecting five years ago?
00:04:24 · Laura Connell
[00:04:24] S1: Yeah, it's interesting. If you think about the markets now that are being disrupted by the nature of the technologies that I referred to earlier, that are really being addressed by this generation of founders, we're talking about people going after enormous industries and actually much less pro cyclical kind of consumer based industries in many ways. So just by nature of the technologies being built, total addressable market overall market addressable market generally is much larger. I think what's also really interesting is, one of the reasons these investments used to be really the preserve of deep tech funds is because they were so long duration that you needed kind of specialist capital. One of the things that's been most compelling about investing now increasingly in deep tech, and I think why you've got a lot more generalist VCs coming into frontier technology investing, is because actually that duration timing to realize the value of the technology is also compressing. So, if you think about developing next gen lithography or kind of some part of the semi value chain, it used to be that it would take you kind of ten years to get something to market. And now even kind of top of funnel engineering simulation, you can massively compress marrying say classical machine learning with generative AI in such a way as to really bring things into market, into reality much faster than was historically the case for many of these types of technologies. So you are seeing kind of compression in life cycle addressing kind of ever bigger outcomes, potentially ever bigger markets. So yes, I think the kinds of outcomes that we're going to see in this generation are going to be potentially much, much larger than have historically been the case.
00:06:05 · Sebastian Johnson
[00:06:05] S0: I think traditionally growth investing was often associated with a lot of analytical or like financial analysis, Looking at the financial, I don't know, makeup of a company and assessing that and pulling that forward. Now that to your point we're seeing this fundamental change in technology and often you can have growth investing that is still theoretically pre revenue, right? Especially when we're talking about some of these like frontier technology companies. Has that changed your role a lot? Now are you having to be a lot more in the business of the technology and going really deep on the industry itself?
00:06:37 · Laura Connell
[00:06:37] S1: Yeah, I think maybe just to take a step back about what do we mean when we say growth investing, because it's a great point you're making, but there are different types of growth investors as you've alluded to, you know, what we're seeing increasingly first in kind of traditional VC is almost a kind of replicating a little bit of what we saw in the buyout world where you've got the kind of two ends of the market now. You've got one end, which are the kind of specialist, perhaps smaller boutique VCs that are focused maybe on a given industry or kind of type of technology or type of stage. So they're to focus on pre seed seed. So they keep their funds small, often the investor role overlaps with the operating role. So benchmark would be a prime example of that. And what was at least because they're also now scaling into the later stage. At the other end of the VC market, you've got kind of platform VCs. And so what we saw over the last five to eight years now is that actually a lot of those funds that had started earlier stage were bolting on funds to address the life cycle. And those types of platform VCs of which Atomico is one, really reasons about growth as still thinking about it from an always thinking about it from a tech first perspective. Now, what is true of course, is when you're writing much larger checks in theory, do need to, and there is more meat on the bone potentially in terms of commercial traction, then there's some kind of de minimis type work that you need to do to really get your arms around the financials, but VC growth and that end of the VC market is still focused on companies that have tech as the kind of key driver of potential value, increasingly IP and R and D, as we just talked about the shape of the pipeline in Europe and globally. But then there are other types of things, the dynamics that are impacting the market, even for this end, that really requires some level of financial understanding as well. So specifically, I'm referring to some of the changes in business models. So meaning we're seeing more and more early stage growth companies look at models that used to be really kind of buyout. So buy and build roll up strategies.
00:08:42 · Laura Connell, Sebastian Johnson
And one of the reasons for that is let's say, you're building a company addressing physical AI and maybe you're looking at some part of the value chain and you're selling a fundamental transformation in the end market that creates enormous efficiencies. You're talking about billions of dollars, say for some of the biggest industrials in the world. How do you price that? And how do you really tackle distribution there? And actually maybe the best way is to own the outcome, right? Which is why you're often seeing take Prometheus from Amazon as an example, you're seeing people raise JVs deploy codes alongside kind of a top code that is itself, really just tech first, but in order to drive and kind of accelerate adoption within that base. So that, you do also need some expertise that really touches on some other part of co traditional growth investing and buyout, frankly. So it's interesting because these things are kind of, this fungibility between VC and private equity and buyout is really playing out as we speak. But if you're in venture kind of growth investing, you've really got to be tech first. [00:09:46] S0: Me through The Exploration Company then. I guess this is your latest investment, an amazing company. There's got a lot of excitement around Europe. What got you excited about that company?