E415 | Tom Wehmeier, Atomico: The State of European Tech, regulations, and more

0:00Welcome back everyone to the European VC podcast. Today I have Tom Weymire with me from Atomico. we are talking everything about the state of European tech. So if you've read the report, heard about the report, seen small parts of the documentary or the full one, this is the behind the scenes conversation where we talk everything about how Tom reflects on the back of the data, where he sees our ecosystem moving. We talk a lot about policy and what's needed to move us forward. And I really just have been looking so much forward to this conversation and dive deep with Tom because he is, of course, as head of intelligence at Atomico, the head architect behind the report and just an incredibly knowledgeable person to talk to when you want to talk about policy and the future of Europe.

0:46So I hope you enjoyed this episode as much as I did making it. Here's a few words from our beloved sponsor. Discover where operational expertise meets innovation. With end-to-end coverage across fund admin, tax, accounting, compliance, ESG, and more, We take care of the complexities so you can focus on what matters most. Whether it's supporting visionaries or maximizing returns for your LPs, our tech-driven and comprehensive solutions empower you to achieve your goals with confidence. Partner with Ace Alternatives to streamline your operations and elevate your fund's success.

1:22Tear down this wall. It's more than just an alliance.

1:36This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Tom, welcome to the European VC Podcast. Thank you for having me. This has been a long time coming. It has. We spoke about this last year. We spoke about it this year. And now, finally, we're getting it done after a couple of free schedulings. Yeah, excited to have this conversation. Yeah, I've been looking forward to it as well. Everyone knows that we're all about Europe and there's no firm that more avidly and more actively pushed that message than Atomico, I think. So I'm very happy to be talking to you now.

2:12Tom, let me just do your intro here and then you can maybe add a bit of meat to it and correct me where I'm wrong. You're Tom Weymar. You're the head of intelligence at Atomico and your latest fund was$1.24 billion. You have more than$5 billion in AUM. You're multi-stage starting at seed, ending at pre-IPO. You're targeting anything in Europe, so you're vertically agnostic, and you've made incredible investments like Klarna, Bird, DeepL, Ivan, and many more, of course. Did I get that somewhat correct? You pretty much nailed it. Thank you. So what can I add? Okay, let's talk a little bit about, okay, what does it mean to be head of intelligence and how do I spend my time?

2:53And I guess first and foremost, you know, actually the one thing that I do is I lead all our data-driven activities. So I'm sure you've talked a lot about DDVC on this podcast and all things data, tech and research as it's applied to this beautiful asset class. That's what I lead. We've built out a team around that and that's been pretty exciting. I sit on our investment committee. So obviously that takes a big chunk of my time. And then in the context of this conversation, one of the other big pieces that I spend a lot of my time on and kind of alluded to it in your intro there is market education and engaging with this ecosystem, with our LPs, with the media, with policymakers around what's happening in technology here in Europe.

3:39And obviously, 10 years ago, one thing that I started was the State of European Tech. I've been with Atomico for 12 years now. So obviously it's been really fortunate to be part of supporting our own scale-up journey as a firm. And personally have been in and around European technology for about 20 years or so now. Absolutely beautiful. Tom, I want to ask you because one of my pet peeves lately has been trying to get the European ecosystem a bit more involved in policy and public discourse and so on. So obviously this morning I did a post on LinkedIn saying, when I say this, please note that I am very aware that there's a difference between zone of influence and zone of excellence.

4:22It's not necessarily overlapping always. And when I say that I want European VCs and tech founders to be more involved publicly, so to say, it's definitely within their zone of excellence that they should also have a zone of influence. I think that's very important to stress because I think that that's where some have gone awry. But I'd love to ask you, as a firm, as Atomico, first of all, could you talk a bit about how you think about this? What motivated you? Why is it important? So on. Maybe I roll the clock back 10 years ago to when we started the state of European tech. What we saw then was that Europe was really struggling to tell its story around technology.

5:09And the consequence of not being able to shape a narrative about what's happening here means that you let the opinions of those from outside shape the reality that we experienced, you know, when we're working day in and day out. And what we saw was that even back then, there was this huge gap between the reality of what you can see that was happening day in and day out on the ground and what was being built. The narrative that had then taken hold amongst those that perhaps weren't so close to the actual activity, be that investors from outside the region, be it policymakers, the media, of course.

5:48We've always felt like there's been this big knowledge gap to bridge. And I think that, of course, part of the motivation here too is we believe that there's a real responsibility if you're a participant in this ecosystem to be part of driving positive change. And if you really want to create real change in, you know, how people think, what people do, how they act, the thing that you need to do is to inspire them. You have to kind of connect them to something bigger, to a bigger purpose, have a vision and have a narrative. And so, you know, for us, the state of European tech, it was started to be part of trying to shape that narrative.

6:30And of course, there's many others who are really active in other ways in contributing to helping Europe to tell its story. But it's been, yeah, it's obviously been pretty cool to see how, you know, how the report has kind of helped to take on, you know, championing what's happening here in Europe. But at the same time, too, taking a realistic view and trying to be objective and say, hey, here's the barriers that we have to hurdle as an ecosystem in the pursuit of trying to achieve something bigger and achieve the potential that we have. 10 years ago, like I can only imagine it's been more difficult.

7:0810 years ago, I was just like dipping my water, my toe in the water, I'll venture. But seeing where we are today, so I would actually have said four or five years ago, we definitely still were lacking a lot of information in Europe. That's why we created the UBC podcast as well, saying we needed a place where we could platform everyone in Europe that are doing something cool and great and do it in a long form format and really showcase what good is in Europe and talk about the differences across ecosystems and so on. But then over the last couple of years, I think that there's been an increase of people dunking on Europe in the US especially.

7:52And it's so weird because it's not – I said that incorrectly actually because I don't think there's been an increase in people in the US dunking on European venture. I think there's been a small group that have risen to prominence that have decided to dunk on Europe consistently. And that is why we're then creating the sum mechanism, saying I'm trying to reset the narrative, trying to do something that will try and counter this. And very much the same motivation as you have with the report. But what's your view on this latest development? So when we, obviously we published the 10th anniversary report, I guess it's a few weeks ago now at the end of last year.

8:35And we spent so much time in the lead up to hitting publish. And as we were kind of doing our research, thinking about exactly this, right? That we were going to be launching into, you know, a narrative that had taken grip that was, that had kind of developed a lot of doom and gloom. You know, there was a very low mood, you know, and rightly so, right? You'd had Draghi come out a few months before that with his report. I think everything that you've just shared in terms of, you know, a small number of influencers kind of, you know, being vocal around their perceptions of what was happening. Obviously, things like the EUAI Act, you know, didn't help.

9:17There's a bunch of things. You had, you know, some questions about, you know, Europe's ability to support. it's genuinely breakthrough companies. And so we kind of felt like there's going to be this big paradox, because on the one hand, there's all this doom mongering. But on the other hand, you know, when you actually take a long term view, and because it was at the 10th anniversary edition, we decided not to just look back on the year that had been, but actually take a look back on how things had progressed over the last decade. On the other hand, pretty much when you look at every key metric, the last 10 years have been transformational for the progress of the startup ecosystem, specifically in Europe.

10:02If you look at any key indicator, so the rate at which startups are being created, investment volumes, talent, working in technology in Europe and just the ecosystem value, they all point to a super clear picture of the progress that we've had. I can walk you through some numbers. Yeah, please do that. Yeah. So let's say ecosystem value. So, okay, like the total value of all technology companies from Europe, public and private. 10 years ago, we measured that in a few hundred billion. Today we measure it in trillions, two and a half trillion of value created in 10 years, 20 % CAGR more or less throughout that whole period.

10:45If you look at investment volume, we 10x that in the last decade. So in the last 10 years, something approaching half a trillion of investment into European technology. In the decade before that, so before we did the first report, that number was 43 billion. So you put that 43 billion in context, that's over a 10-year period you had less investment than we saw in the whole of last year because that was like 45 billion or so yeah then uh talent i'm sure we can dive into this in a in a lot more detail but when we started the report 10 years ago we had a few hundred thousand people that worked in technology in europe now it's three and a half million so that's grown at 24 kager over that period you know where else do you see job creation growth at that scale in europe you know you don't right and obviously the universe of tech startups itself has just you know exploded through those 10 years so as a whole across all stages it's up something like 5x at the growth stage it's up 8x actually at the early stage we have now 35 000 or so venture-backed early stage tech companies it's actually more than any other region in the world which i think surprises a lot of people obviously we've you know we've gone on to have more than 350 billion dollar companies in that time and maybe one last data point which i think surprises a lot of people particularly when you think that the last three years have been so slow when it comes to exits.

12:29But in those 10 years, we've had basically a trillion dollars of realized value from M &A and IPOs. And in the last 10 years, we've had$165 billion plus IPOs or M &A out of European technology. So pretty much averaging 17 a year for a decade you know it's it's not bad right you know and this is when we talk about progress just huge steps have been taken forward in 10 years but obviously no one wants to stop here no one is satisfied with where we are today there's a lot of building to be done the opportunity that lies ahead is is so much greater so you know of course there's a lot of challenges that you know stand in the way of realizing the full scale of the opportunity but yeah we can we can come on to that what's interesting is every time i talk to people about this or see discussions like we fall a bit in a trap always when we go on linkedin and post about europe versus the u.s because we fall in the uh comparison trap i saw such a great uh comment by by fred destin the other day where he said the US are leaps and bounds in front of us in so many ways, but that's not the point.

13:51The point is that Europe is growing incredibly. We have so many people working so hard every day to build incredible tech. And it's just about getting our heads down and working hard alongside them. That's our job as VCs. And let's focus on that. Let's then talk about the success investors and so on. I'm adding the last bit here. Rather than keep doing this comparison of, well, the US are here and we're here. Well, that's not the point, right? So maybe you could talk a bit to this whole discussion on whether a US comparison is relevant. I think Fred's exactly right. It's not the point and it's not useful.

14:33But I get it, right? It's It's an obvious and a very tempting comparison to make. It's hard not to kind of be constantly anchored to what we see happening in the US because it's all around us, right? You know, if you look at the global tech narrative, it ends up being shaped by the US and it's what we end up seeing on our screens and reading and hearing, you know, and I do think that to a certain extent, it's served a purpose that's useful in that it promotes competition and it helped set and raise the bar for us. You know, one thing I said coming out of Slack, I think what's been interesting is, of course, now the question that we all get asked is, okay, when does Europe produce a trillion dollar tech company because the US has got eight?

15:25What makes me laugh is that, you know, 10 years ago we were still being asked, can we build a billion dollar tech company? And then of course, you know, Europe goes and does that, does it repeatedly. So then you get asked, okay, well, 10x that, can you build a 10 billion tech company? And then we do that. And then you get to 100 billion, and then the bar gets raised again. And so it's, you know, it's the very definition of bar raising that I think helped drive progress. I think though that, you know, the reason that we all find it frustrating is because what becomes unproductive is when you have a grass is always greener mindset.

16:04And And that can lead to negativity, skepticism. And at the end of the day, that's a mindset that's counter to what has driven the progress that we've had up until now. And this entrepreneurial ecosystem that we all live and breathe, negativity and skepticism is pretty much fundamentally incompatible to entrepreneurship, to technological progress and to innovation. But it's interesting, right, Tom? Because one thing I've observed always is in Denmark, when I talk to Danish people, founders or investors, many that then has a Danish-oriented perspective, national-oriented perspective, they say Danish people are, insert whatever you want, that's lazy or not hardworking or not innovative or whatever, right?

17:01Then if you meet someone from another country, they'll say that about their own country. If you meet someone who then has a pan-European perspective, they tend to say that about Europeans. Europeans are lazy. Europeans are blah, blah. If you talk to U.S. people and you don't talk about themselves and the tech group that they are in, but they talk about the broader swath of Americans, they would also say they're not innovative. They're back-minded. They are like, so it's like we all apply our anger and our bad labels to the people that we kind of think about all day long and see ourselves as part of.

17:47Because we tend to then make ourselves bigger and better by talking bad about that group, that peer group, or the ones that you want to distance yourself from. And when I came back to LinkedIn after a good holiday here, Christmas holidays, like there were so many posts about Danish entrepreneurs, European entrepreneurs complaining about how Denmark is not innovative and there's no way you can build a company here. Now I'm moving to the U.S. Or maybe they don't even say the last bit, but they kind of insinuate. And I'm just like, come on. Like the average Danish person is not that different from the average American when it comes to work ethic.

18:27Everyone who has done real data analysis, real vox pops or whatever you call them on how many hours people work. It's not that different. And in the U.S. you have the same people saying that U.S. people work so hard. also complaining that everyone's got two jobs, just chilling out on their sofa at home, working two tech jobs at the same time, scamming their employers. Kind of like there's something here that doesn't match. Yeah. But, you know, I think it's like perception reality, right? And this is always the issue. And I think this confidence crisis that, you know, we've kind of been living through, you know, certainly over the last year or so.

19:16So, you know, this is why I think we need to move on from that and to find our confidence. And I think what always surprises me too is how quick we are to fail to celebrate the actual success stories, you know, that we have, right? And take ASML, right, is a good example. You bring it up in conversation and a lot of times you'll find people find ways to discount their success. Oh, it doesn't count because it's this corporate spinoff. You know, it doesn't count because, you know, this was founded all those years ago. The reality is we should be shouting from the rooftops because this is a true generational company.

20:02We should be so proud of, you know, the uniquely complex technology challenges that they've overcome and the market dominance that they've been able to achieve as a result. But no one is saying NVIDIA has been around forever. Right. Yeah. You look at NVIDIA, 98 % of their market value creation came in the last five years. It's a 30 plus year company. It's the same with Spotify, right? Like Spotify. Here you have Europe's first VC backed 100 billion company. that, you know, I think people look past the fact that they achieved that from within a true red ocean. You know, it was a bloodbath when you look at how much capital and focus was being, I guess, like allocated from every major US tech company to try and win in that category, you know, and here's this, you know, beautiful champion that's emerged from Europe.

21:03And, these success stories because they also point to what's possible. And obviously the big role that they play as role models for the ecosystem as a whole is to kind of set the bar for what we can achieve. And obviously the other beautiful thing is that the next generation ends up being hungrier and they want to go and beat that. And it's back to this point on how does the bar get raised? I think you had a very good point by labeling it crisis of confidence, because that's exactly what it is. It's more crisis of confidence than it's anything else. Because when you go and look at the data, when you go and look at how Europe has actually evolved over the last decade, there's no doubt that we are magnitudes better today and that we are on the exact right trajectory.

21:55you're going to see the same stats or the same any firm that is growing up from fund one and fund two are seeing pretty good meaningful conversations with sophisticated us lps today yeah they know that there's a lot to be money to be made here it's just not there's not that many lp podcasts that are very vocal because it's not the nature of lp investing typically So it's just very, very different for that reason. Yeah. I think the other thing, albeit on a broader scale, there's this crisis of confidence. I think the reality is that when you go and speak to the people that are doing and building, they have that founder's mindset, right?

22:37They're trying the hard things. They're beating the odds. They're taking bold action. They're ambitious. And so those core fundamentals in the startup ecosystem, they're there. And, you know, that's what's driven everything up until now. And that will be the key to kind of, I guess, like, you know, having another 10x from here. I do want to ask you, looking at this last decade and compiling all the data for the report, are there ways where you think it's worthwhile to just mention how Europe differs from the US? The obvious things that are different are, you know, we're obviously earlier in our journey.

23:21So, you know, from a scale perspective, that's different. You know, the fragmentation is different. I think we talked a bit about, you know, some of the cultural differences. And I think there's a big point about our ability to to storytell and build brand and shape narrative. But I think what was really interesting to me from the documentary that we did as part of the launch of the report. So we went out and we spoke to founders from big European winners. So from Spotify, RDN, almost last gen companies to the new wave of companies like Wave. And the thing that struck me, which I think is a really intriguing point about what makes Europe different is they all said their success has been because of starting from Europe, not in spite of it.

24:13And so what they basically meant was that the challenges that they faced in overcoming some of the things that make it perhaps slightly more difficult to scale due to fragmentation, due to the diversity of different markets that you're trying to scale across, that built a level of resilience that was foundational to their ultimate ability to go on and achieve the success. that they have. And so I think there's definitely something about the diverse fragmented region that we have that breeds this resilience that makes for a kind of unique advantage for the region as a whole. I think then maybe one other thing that I would say is I do see that culturally, it's pretty clear that Europeans take a conscious approach to how they want to apply technology.

25:12You know, when we looked at some of the numbers last year, you know, about a fifth of all funding goes to companies, you know, that have some form of like sustainability focus, the double the ratio that you see in the next largest region. So there's something to that. I think maybe one last point that I'd make is, you know, coming back to this idea that, you know, we're an earlier stage ecosystem compared to, you know, to the U.S. is there's some big opportunities that come from that, that will ultimately power, you know, the future growth and the next phases for the ecosystem. And specifically, I would say, untapped talent.

25:57in the US, they've scaled and nurtured their talent pool really effectively. You know, it's been able to grow so fast in part two because, you know, over many decades now, they've been a magnet for global talent. You know, something like a fifth of all US enterprise value comes from European founders, tech enterprise value, which is pretty amazing. We, on the other hand, up until now, have had a bit of the opposite challenge. I've seen that change, where we've seen talent slip away and go and build outside of Europe historically. I think that has absolutely shifted. But we've still got massive pools of talent that have not yet been captured by our startup universe.

26:40And so I think that's going to be a big opportunity for us as we continue to have this magnetic effect of pulling more of our brightest minds into, you know, what we're doing here in the startup world. And, you know, I think it applies both to the more mature European countries, whether that's here in the UK where I am, but also as you look further afield, you know, whether you go south or east into Europe, you know, there's a big tailwind that will come from, you know, basically seeing those ecosystems that continue to grow and develop in the same way that we've consistently seen all across the Nordics and Baltics and Central Europe too.

27:22I had a gem from Beck Ventures, formerly early bird East, digital East on the podcast as well. And what he said was also, you have a very interesting dynamic in Central Eastern European countries, which is that tech talent is actually quite patriotic. They would rather work for a local upcoming champion for less money than for a US subsidiary or US arm of Eastern Europe. I think that's a good point. And I think that it's definitely something that spells a great future success for our ecosystem. And exactly, it speaks to what you just described, right? We obviously have seen a bunch of European talent go and work inside big US tech because if you take AI research centers for the big US tech firms, Facebook, Amazon, Google, here in London, in Paris, in Zurich, they've all built a big presence there and they've sucked in a lot of European talent.

28:32And I remember having conversations probably like seven, eight years ago where people were really worried by what that would mean for, you know, sort of the long term health of European technology. And we always said, hey, the good thing is, is that sure, like this is going to have an inflationary effect on salaries. And, you know, in the short term, it does mean that they're not starting companies. But ultimately, what's going to happen is they're going to be exposed to great. they're going to be exposed to the very best products you know at the greatest scale and that's going to be an amazing breeding ground for future talent and i think what's been cool to see is that you know we've really now seen that talent start to to spin off like we always felt like they would never stay there forever you know at some point they would then have that you know not everyone of course but like many of them would would start to get their own ambitions to you to want to build, they'd get that itch and they'd want to go and scratch it.

29:34And so even if you look at the likes of Mistral, right, you look at the founding team there, they came from Facebook, from Facebook AI research, from DeepMind, and you've seen that so consistently now. So that's the flip side of it. But I do genuinely see, and we, of course, being Atomico, have a lot of those conversations where there's a big alignment between founders that want to build for Europe, where the message that we have of building a healthy, sustainable European ecosystem really resonates with them too. So for sure we see that as well. Now that we're on the topic of AI, let's talk a bit about Europe's role in the AI race and how important this talent advantage that we do have is.

30:21I think the first thing to say is we're so early on this AI journey, right? It's like you already see everyone saying the AI race is lost. You know, we've lost it. And, you know, we might as well give up and pack up, you know, our bags and go home now. And I think, you know, it couldn't be further from the truth. You know, of course, we've seen some amazing winners emerge already. But, you know, this is a new super cycle. And this is going to play out not over the next few years or decades. But, you know, it's like many, many decades beyond. So this is this vast frontier where you're going to see, you know, so much value being created.

31:02Yeah. So, you know, where's Europe? We have all the fundamental ingredients because from a talent perspective, you know, I think people are surprised when we tell them that there's as many people working in AI roles here in Europe as there is in the US. It's pretty much, you know, neck and neck, the race there. And of course, that shouldn't be surprising because when you look at where are the world's leading academic hubs for AI research, so many of them are here on the ground in Europe, whether it's Oxbridge or Max Planck or ETH Zurich or a bunch of the Parisian Institutes or even Leuven and some of the places in the Benelux, we have always had this foundational layer of talent.