Back in 2016, I moved to Berlin because it was being hyped as Europe’s top tech ecosystem. What I found, though, was exactly what you described — a startup scene shaped by the Samwers’ model of success, where the focus was all wrong when it came to technical startups.
The gap was clear from the beginning. In Tel Aviv, where I grew up, founders were constantly frustrated that VCs only cared about patents, tech moats, and quick exits to the US — ignoring current revenues and overlooking opportunities to build local giants. In Berlin, every founder I met complained that VCs were obsessed with ARR and crunched rear-view-mirror numbers. They had little to no interest in the tech itself, focusing instead on ‘technology-enabled’ businesses with a quick return.
This disconnect was so frustrating that I partnered with a CTO and a computer scientist to start Lunar.vc — a firm that actually understands technology. Since then, we’ve brought into VC mostly the technical experts VCs often lack — software developers, PhDs in biology and chemistry, and entrepreneurs who’ve been in the trenches.
@luis do you think the long time horizons for exits in deeptech are problematic? Does this create challenges with LPs when it comes to raising fund II, III, etc.?
I don’t think the timelines are actually longer. The companies that go nowhere die, the ones that end up as part of someone else’s journey exit when they do, and the true winners in consumer internet, tech, bio, anything really often take 15 years to mature and ride the macro environment for their exit timing. The Rocket Internet era flips were really a ZIRP aberration.
That said, I always think “deeptech” is a misnomer, especially in Europe, and it’s diverting attention in the wrong directions. When people hear “deeptech,” they picture university spin-outs making flying cars or other high tech risk high market risk — more thought experiments or PhD theses than viable businesses. Meanwhile, we’ve rebranded the WeWorks, Ubers, and countless identical neobanks as “tech,” which misses the point of what the tech-VC cycle should be focused on: deploying new capabilities from the science into engineered tools that can be used to build application people need — preferable where higher tech risk compensates for lower market risk.
For us, about 80% of the focus is on exactly that — pushing new abilities in the computational stack that enable the next wave of application-layer startups to build on top. (rest are people building full stack in spaces where you should build the application yourself to capture the value).
Hey Max, this is a great piece. I'm not sure a big check from the US is what Europe really needs. More money, especially top down usually gets doled out by the exact types (MBB/bankers) that you've described, its a faff. True technologists are interested in building technology and thats what happened in Silicon Valley, its rarer and harder to breed in mass. From my experience moving over to this side of the pond with a large (20B+ AUM) American VC fund, there were pockets of innovation spread out throughout Europe, but what the ecosystem really needed was more concrete success stories that spawned new generations of real technologists (not startup bootcamps/VCs/incubators). For better or worse, era 1 of the European companies were consumer oriented companies that didn't lead to that (since when did Deliveroo or Just eat inspire anyone in tech?).
I think Revolut, UI Path, Adyen, Spotify, Unity, and others are now sufficiently large and actually successful (read public Market cap not private valuation) that the tech cycle is starting to spin faster here, but maybe not fast enough to your shocking point about productivity. I could definitely be wrong and there may be a sore need for huge amounts of money across the board, but I just didn't get the sense that money was thing lacking when it came to early stage innovation in Europe.
Edit: one interesting point was that I also worked with our Israel office which was leaps and bounds ahead of Europe on every point. I often think their Unit 8200 model for defense and intelligence would be an interesting way (albeit tied to defense) to kick start a truly tech oriented group of entrepreneurs. This may be all the more necessary with Russia knocking at the door.
Thanks Dhruv for the engagement and the interesting nugget about BVP Israel. I'm not surprised and reckon you're right that a lot could be gleaned from their approach to building technology for defense.
My point is not necessarily that we should throw money at the problem, although I largely agree with Draghi's prognosis.
Rather, I want to emphasize that an adjustment in our approach to financing innovation, especially in Germany where the status quo is disappointing, is essential if we have a fighting chance. It can't be incognito consultants running the show who don't care how they get rich; there should be a much sharper focus on utility across the society or even more narrowly the ecosystem.
Yes I agree, I'm just saying im not sure how much is up to financing (although I agree it plays a major part). Maybe what the continent needs is to feel behind, to feel 2nd class (for example if Apple or Google were to bow out of the EU market, or using inferior LLMs), or to feel unsafe, maybe then maybe the "right" people who actually care about building something useful will start to come out. Maybe its slowly already happening i hope
I think the realization needs to set in that the perpetual answer to "your economy is stagnating, just look at the US" of "quality of life tho" is actually not true anymore and is in no way guaranteed past (maybe) today. I'm afraid the fastest way of this happening is via a brave politician speaking up, which is unlikely
Europe has a much higher *density* of educated people and top 100 academic institutions than the US - I do often wonder if there is great innovation locked up in PhD theses that are languishing away in drawers somewhere.
If an organisation like Entrepreneur First started to show a few big winners I think it would help - they kind of fit the bill for the target deployer of capital you describe, no? Reid Hoffman now on their board I think, definitely have good SV connections
EF is great. I think they are on a strong trajectory.
What I want to see more of is an intermediate organization that focuses on three things:
1. Educating stakeholders, from future entrepreneurs through consumers to capital holders, about what opportunities should be addressed, operational guidance, and evangelization to encourage more deeptech/micro VC formation
2. Raise funds from wealthy pockets that are looking for yield and/or to co-invest alongside organizations with governmental mandates
3. Deploy the funds to investors who are not disguised consultants or bankers, but genuine technologists who have skin in the game when it comes to delivering results that don't just bring a ROIC but tangible benefits to the wider ecosystem and European society
This sounds like a Europe-based Fund-of-Fund (staffed with some Americans) with a focus on communication akin to a16z and likely a significant relationship to government in some form or another
This is exactly why we started Lunar.vc.
Back in 2016, I moved to Berlin because it was being hyped as Europe’s top tech ecosystem. What I found, though, was exactly what you described — a startup scene shaped by the Samwers’ model of success, where the focus was all wrong when it came to technical startups.
The gap was clear from the beginning. In Tel Aviv, where I grew up, founders were constantly frustrated that VCs only cared about patents, tech moats, and quick exits to the US — ignoring current revenues and overlooking opportunities to build local giants. In Berlin, every founder I met complained that VCs were obsessed with ARR and crunched rear-view-mirror numbers. They had little to no interest in the tech itself, focusing instead on ‘technology-enabled’ businesses with a quick return.
This disconnect was so frustrating that I partnered with a CTO and a computer scientist to start Lunar.vc — a firm that actually understands technology. Since then, we’ve brought into VC mostly the technical experts VCs often lack — software developers, PhDs in biology and chemistry, and entrepreneurs who’ve been in the trenches.
@luis do you think the long time horizons for exits in deeptech are problematic? Does this create challenges with LPs when it comes to raising fund II, III, etc.?
I don’t think the timelines are actually longer. The companies that go nowhere die, the ones that end up as part of someone else’s journey exit when they do, and the true winners in consumer internet, tech, bio, anything really often take 15 years to mature and ride the macro environment for their exit timing. The Rocket Internet era flips were really a ZIRP aberration.
That said, I always think “deeptech” is a misnomer, especially in Europe, and it’s diverting attention in the wrong directions. When people hear “deeptech,” they picture university spin-outs making flying cars or other high tech risk high market risk — more thought experiments or PhD theses than viable businesses. Meanwhile, we’ve rebranded the WeWorks, Ubers, and countless identical neobanks as “tech,” which misses the point of what the tech-VC cycle should be focused on: deploying new capabilities from the science into engineered tools that can be used to build application people need — preferable where higher tech risk compensates for lower market risk.
For us, about 80% of the focus is on exactly that — pushing new abilities in the computational stack that enable the next wave of application-layer startups to build on top. (rest are people building full stack in spaces where you should build the application yourself to capture the value).
Great comments, thank you!
I was thinking of you guys while writing :)
Appreciate it Max
<3
Hey Max, this is a great piece. I'm not sure a big check from the US is what Europe really needs. More money, especially top down usually gets doled out by the exact types (MBB/bankers) that you've described, its a faff. True technologists are interested in building technology and thats what happened in Silicon Valley, its rarer and harder to breed in mass. From my experience moving over to this side of the pond with a large (20B+ AUM) American VC fund, there were pockets of innovation spread out throughout Europe, but what the ecosystem really needed was more concrete success stories that spawned new generations of real technologists (not startup bootcamps/VCs/incubators). For better or worse, era 1 of the European companies were consumer oriented companies that didn't lead to that (since when did Deliveroo or Just eat inspire anyone in tech?).
I think Revolut, UI Path, Adyen, Spotify, Unity, and others are now sufficiently large and actually successful (read public Market cap not private valuation) that the tech cycle is starting to spin faster here, but maybe not fast enough to your shocking point about productivity. I could definitely be wrong and there may be a sore need for huge amounts of money across the board, but I just didn't get the sense that money was thing lacking when it came to early stage innovation in Europe.
Edit: one interesting point was that I also worked with our Israel office which was leaps and bounds ahead of Europe on every point. I often think their Unit 8200 model for defense and intelligence would be an interesting way (albeit tied to defense) to kick start a truly tech oriented group of entrepreneurs. This may be all the more necessary with Russia knocking at the door.
Thanks Dhruv for the engagement and the interesting nugget about BVP Israel. I'm not surprised and reckon you're right that a lot could be gleaned from their approach to building technology for defense.
My point is not necessarily that we should throw money at the problem, although I largely agree with Draghi's prognosis.
Rather, I want to emphasize that an adjustment in our approach to financing innovation, especially in Germany where the status quo is disappointing, is essential if we have a fighting chance. It can't be incognito consultants running the show who don't care how they get rich; there should be a much sharper focus on utility across the society or even more narrowly the ecosystem.
Yes I agree, I'm just saying im not sure how much is up to financing (although I agree it plays a major part). Maybe what the continent needs is to feel behind, to feel 2nd class (for example if Apple or Google were to bow out of the EU market, or using inferior LLMs), or to feel unsafe, maybe then maybe the "right" people who actually care about building something useful will start to come out. Maybe its slowly already happening i hope
I think the realization needs to set in that the perpetual answer to "your economy is stagnating, just look at the US" of "quality of life tho" is actually not true anymore and is in no way guaranteed past (maybe) today. I'm afraid the fastest way of this happening is via a brave politician speaking up, which is unlikely
Interesting idea.
Europe has a much higher *density* of educated people and top 100 academic institutions than the US - I do often wonder if there is great innovation locked up in PhD theses that are languishing away in drawers somewhere.
If an organisation like Entrepreneur First started to show a few big winners I think it would help - they kind of fit the bill for the target deployer of capital you describe, no? Reid Hoffman now on their board I think, definitely have good SV connections
EF is great. I think they are on a strong trajectory.
What I want to see more of is an intermediate organization that focuses on three things:
1. Educating stakeholders, from future entrepreneurs through consumers to capital holders, about what opportunities should be addressed, operational guidance, and evangelization to encourage more deeptech/micro VC formation
2. Raise funds from wealthy pockets that are looking for yield and/or to co-invest alongside organizations with governmental mandates
3. Deploy the funds to investors who are not disguised consultants or bankers, but genuine technologists who have skin in the game when it comes to delivering results that don't just bring a ROIC but tangible benefits to the wider ecosystem and European society
This sounds like a Europe-based Fund-of-Fund (staffed with some Americans) with a focus on communication akin to a16z and likely a significant relationship to government in some form or another
You should build it.