| | | | | | | Presented By Latham & Watkins | | | | Axios Pro Rata | | By Kia Kokalitcheva · Nov 05, 2022 | | Greetings from Lisbon! I spent the week in Portugal for the annual Web Summit technology conference, so here are some of the insights I've gathered. - 👋 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar.
- 🚨 Situational awareness: Tom Barrack, a longtime ally of former President Trump, has been found not guilty of illegal foreign lobbying charges.
Today's Smart Brevity™ count is 868 words, a 3-minute read. | | | | | | 1 big thing: The view from Europe is ... rosy |  | | | Illustration: Shoshana Gordon/Axios | | | | A public market crash, geopolitical turmoil, soaring global inflation and U.S. interest rates don't seem to have lessened optimism among European venture capitalists for investing in the near term. Why it matters: European VCs have historically been more conservative than their American counterparts — but that may be changing. The big picture: After a record €103.5 billion invested across more than 12,000 deals last year, 2022 appears to have the potential to reach the same level. It may even surpass 2021, according to new data from Pitchbook. - The proportion of late-stage investment dollars is similar to 2021 so far, reinforcing a European startup market that's matured in recent years.
- And like their American peers, European VCs have continued to raise new funds this year.
What they're saying: "Fundamentally, the job of a VC is to invest in trends that will outlive any financial down-or-up cycle," Seedcamp managing partner Carlos Eduardo Espinal tells Axios via email. - "Large problems, such as climate change, health management, automation, clean energy, democratization of financial services globally ... have large outcomes, not just because there are boom times that drive valuations, but also because they fundamentally shift the value-creation equation for societies permanently," Espinal says.
Between the lines: European VCs expect to see a similar reversion to the mean — that is, a return to the pre-pandemic trend line — like in the U.S. market. But they also believe the continent's growth is driven by secular trends that aren't going away. - "The driver of this growth has been the exceptional talent that we're seeing in the region, and like everything, it compounds," Accel partner Philippe Botteri tells Axios.
- Europe also now has more startup hubs across the continent, creating a robust market that can continuously pump out quality companies.
- Botteri, who focuses on business software and applications, also points out that the European cloud-based software market now moves in tandem with the American one, signaling that it's all one global ecosystem, not separate markets.
Yes, but: It won't be the free-for-all of 2021, even in Europe. - While they won't stop investing, "VCs can either become more cash-conservative to help defend companies that might need a bridge in the near term, or revisit the fundamentals of what they will be interested in investing in during this period," says Espinal.
- For example, they might avoid backing companies dependent on discretionary consumer spending, which won't recover quickly in the foreseeable future.
The bottom line: "I don't think we'll get back to where it was in 2021, but we'll get back to a more normalized funding environment," says Botteri. |     | | | | | | 2. Dispatch from Lisbon |  | | | Illustration: Aïda Amer/Axios | | | | As the annual tech startup conference, with its 71,000 attendees, drew to a close on Friday, I caught up with co-founder and CEO Paddy Cosgrave. The big picture: "I think the West is just going through an uncontrolled demolition of venture capital," says Cosgrave, adding that China was early in spotting the bubble and pivoting away from internet companies. - He also predicts that the largest VC funds will continue on their existing paths — even if it ends poorly for them — so that they can hold onto their fees.
- Yes but: "That doesn't mean, however, that the rate of new company formation in, let's say, the web space will start to slow down. That's because it's never been cheaper to start a company," he says.
- In fact, he's optimistic about his own conference business, adding that everyone from large companies to startups will still need to attend trade shows to find new, innovative tech and customers.
Crypto: Despite Cosgrave's skepticism about the industry, Web Summit had a crypto portion of the conference this year, and invited top execs, including Binance CEO Changpeng Zhao, onto its stages. - "I think we're in the 'Napster phase,'" he says, pointing to the early peer-to-peer music audio file-sharing application born more than 20 years ago.
- "Music on the interweb was always going to be a thing, but we went through a nasty illegal phase first…. I don't think as a technology [crypto is] going to disappear. I'm just very careful in naming the good guys and the bad guys," he adds.
Web Summit is still raising its two new funds to invest in startups. Cosgrave shared that, especially in the current market, he's sticking with a strategy of raising smaller funds and investing alongside other firms. - "We would never raise $50m or $100m for a fund — it's an enormous amount of pressure, especially at the early stage fund," he says.
- A couple of Y Combinator partners are among the limited partners, he said. A slew of tech executives have written checks for the funds, as TechCrunch recently reported.
| | | | | | | | 📚 Due Diligence | - Mozilla launches $35 million venture fund (Axios)
- Q3 2022 European Venture Report (Pitchbook)
- European venture funding drops 44% as early stage weakens (Crunchbase News)
| | | | | | | | A message from Latham & Watkins | | Capitalization tables 101 | | |  | | | | What's in a capitalization table? Everything. Voting rights, economic rights, and the value of your shares if you accept new VC funding. Learn what a cap table should include and see pre and post-financing examples at LathamDrive. Get started. | | | | | | 🧩 Trivia | | Europe's tech scene posted some massive exits last year. - Question: Which company was the largest software IPO of 2021? (Answer at the bottom.)
| | | | | | | | 🧮 Final Numbers |  Data: PitchBook; Note: Deal counts for 2021 and 2022 are estimated; Chart: Kavya Beheraj/Axios | | | | | | | | A message from Latham & Watkins | | Everyone is talking about ESG, but here's what they mean | | |  | | | | Latham & Watkins' The Book of Jargon® is an interactive glossary of environmental, social and governance (ESG) acronyms, slang and terminology. The glossary helps clear the air around more than 1,000 ESG-related terms, from "afforestation" to "zero waste". Download the mobile app for free. | | | | 🙏 Thanks for reading! And to Javier E. David and Amy Stern for editing. See you on Monday for Pro Rata's weekday programming, and please ask your friends, colleagues and European VCs to sign up. Trivia answer: Business automation company UiPath, with a $35 billion IPO valuation |  | | Why stop here? Let's go Pro. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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