Summarize this content to 2000 words in 6 paragraphs in Arabic Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Revolut backer Balderton Capital has raised $1.3bn in Europe’s largest ever new venture funds focused on start-ups in the region, as capital returns to private technology companies. London-based Balderton, which has backed artificial intelligence start-up Wayve and Royal Match developer Dream Games, closed a $615mn early-stage fund and a $685mn fund for “growth” investing in more mature start-ups, reflecting “growing interest in European tech”, according to managing partner Bernard Liautaud. Liautaud pointed to data from Invest Europe and Cambridge Associates that showed European venture capital funds had outperformed their North American peers over 10- and 15-year periods. “There is a much bigger list of large global leaders coming out of Europe and we have many in our portfolio,” Liautaud said. The fundraise follows new capital for several of the region’s top VC firms this year, including Accel’s European arm, Index Ventures and Creandum. The European venture capital industry has been more active than at any time before the boom year of 2021, when Balderton and many of its peers last raised capital. VC investment in the region rose 12 per cent in the second quarter year on year, according to Dealroom, which tracks private tech financings.Balderton poured money into Revolut’s earliest funding rounds, becoming its largest investor. The fintech group this month launched an employee share sale at a $45bn valuation, making it Europe’s most valuable start-up. “You can imagine how much that propels the fund,” Liautaud said. “To have a great track record is one where you have consistent performance and sometimes you have an outsized return.” Unlike other large venture capital firms with roots in Europe, such as Index Ventures and Atomico, which also invest in US companies, Balderton exclusively backs European start-ups. However, that means the 24-year-old firm has largely missed out on the latest wave of “foundational” AI start-ups based in Silicon Valley, such as OpenAI and Anthropic, which are investing huge sums to create the large language models that underpin chatbots such as ChatGPT.Following large funding rounds for European AI start-ups Mistral, Wayve and Poolside AI, AI now accounts for 18 per cent of all European VC funding, more than doubling in the past decade, according to Dealroom. But its analysts found that the top five global investors in generative AI are US-based, including Silicon Valley-based Andreessen Horowitz, Sequoia Capital and Lightspeed Venture Partners, which have all opened offices in London in the past few years. Since 2019, US funding for generative AI companies had totalled $54bn, compared with $3bn for each of the next largest countries, China and the UK, Dealroom said. That data suggests European investors are being outgunned by their US peers in the biggest tech trend of the moment. “We haven’t been convinced that [the underlying AI infrastructure] is necessarily the best place to get the best returns, because of the amount of capital required to be a great company,” Liautaud said. Investing vast sums to support the fast-evolving technology has become the domain of tech giants such as Microsoft, Google and Amazon. That still left the “enormous” opportunity of AI applications built on top of that infrastructure, he added. “The risk is that the applications are actually not going as fast as predicted in commercial terms,” Liautaud said. While many companies are trialling AI, few of those are leading to large long-term contracts for AI software companies. “But the opportunity is that it actually goes very fast and it actually transforms every sector,” Liautaud said. “And that’s what we’re betting on.” While the capital available for European start-ups has increased several times over in the past 15 years, the pace at which VCs have been able to realise those investments through initial public offerings has slowed drastically in the three years since Balderton’s last fundraising. “The bar has gone up enormously because there have been disappointments in the past,” Liautaud said. “I think now, to go public, you basically have to be three times bigger than before.” Companies that would have been able to IPO with $100mn in annualised revenues were now being told to wait a few more years until they reached $300mn to 400mn in sales, he added. In the meantime, however, mergers and acquisitions were picking up, with a series of smaller purchases of under $1bn. “The IPO market will determine the fate of one of those huge hits,” said Suranga Chandratillake, a partner at Balderton who sits on Wayve’s board. “But a really important part of a consistent VC fund cycle is smaller exits.”
