What will power European Dynamism?

0:00Mike Butcher:Welcome to Path Founders, the new tech media title covering the entrepreneurs who code, the capital that backs them and the consequences. My name's Mike Butcher. Please do like and subscribe so we can continue to bring you this journalism. If you're in tech circles, you might have heard of the phrase coined a few years ago in the US, so-called American dynamism. But what about European dynamism? Is Europe finally moving from a place that often invents important technologies, but rarely capitalizes on them to a place that also builds and scales the companies that define the future. A new report from the European VC Red Alpine, together with the tech publication Sifted, argues that Europe's next wave will not come from copying Silicon Valley consumer internet playbooks, but from sectors where Europe has genuine structural advantages, intelligent enterprise, digital health, new energy, space, biology and robotics.

0:59Mike Butcher:And there's a case for being bullish on this. Europe has deep research talent, strong universities, serious engineering culture, growing venture capital maturity and a rising sense of urgency around sovereignty in energy, defence, data and infrastructure. But the sceptical case is just as clear. Europe still produces plenty of talent, but too often fails to keep the biggest companies. So the real question is not whether Europe can innovate, because it clearly can, but whether Europe can convert that innovation into globally relevant success. Joining me now is one of the report's authors, Sebastian Becker, who's general partner at Red Alpine.

1:42Mike Butcher:And the report is called European Dynamism Appropriately Enough. Sebastian, welcome to Path Founders. Thank you, Mike. Thanks for having me. Right. So do you think that your use of the phrase European dynamism is designed to be deliberately provocative? Are you coming at it from the same angle as the culture in the US? Or do you think there's going to be something different about this? Yeah, great question. So I think the US counterpart, I mean, everybody reads what A16Z publishes, has a strong, I would say, also political component with a focus on infrastructure, on defense in the US. And, you know, we just love the energy of this, of, you know, dynamism, of the word dynamism.

2:35And we see it rather as a pivotal point for Europe, where we have finally the chance to catch up. because as you already said, we have the talent. Capital is opening up for companies and we are producing some great innovation here. So we really think this is describing this moment for Europe and the start of a new beginning.

2:56Mike Butcher:Okay, well, you deep dive into six sectors, intelligent enterprise, digital health, energy space, biology, robotics. Why those particular sectors in particular? Yeah, I mean, what's currently happening is that, you know, with AI, the software modes are radically eroding. And because this is happening and many VCs have deployed their capital in those areas, it's kind of a ticking time bomb. And what we believe is that the real modes are either if you have, you know, if you're in the software space, some unique data, you have distribution advantages that others don't have or network effects, or you move more on the scientific side of things where you have real science backing those innovations up.

3:53you're producing hardware which is hard to copy and these sectors that we mentioned in the report are one we have great talent and research for them in Europe and second through the acceleration and AI as a catalyst we see those areas getting a lot of momentum in the future.

4:13Mike Butcher:Right but it still doesn't quite necessarily talk about the question of scaling. And tell us about how you think that Europe can scale the companies that innovates with. Yeah, sure. I mean, the biggest structural gap when you compare Europe to the US is that the US has a way bigger market, you know, without borders and languages and cultural differences, and they have more capital available. However, especially the capital piece is changing over time. We see now that, I mean, all or most of the major US venture capital companies have now opened European offices, are backing European companies.

4:57We see Decacons produced in Europe at an unprecedented speed. So I do think that Europe is right now at the point where we not only create companies, but we can already scale them. Look at Eleven Labs. It's a company that's used globally, but it's produced in Europe, just as one example.

5:16Mike Butcher:Right. But Eleven Labs isn't what you might call sort of infrastructure or deep tech, is it? Or would you say it is? I would say that they're at the forefront of AI when it comes to, you know, language models and like those voices. And they're producing something unique, which obviously the big labs are not managed to catch up yet. Well, that is a fair comment. Yeah. And Europe has also obviously produced some pretty serious AI companies, Mistral, Eleven Labs, Synthesia, Ninefin and others. do you think it has enough ambition and growth capital to build these trillion dollar outcomes I mean the ambition is definitely there and I admire every founder who stays in Europe and builds companies here and you know I mean we can always talk bad and say like okay the best talent is leaving and I don't have hard feelings for the founders and the good people that say hey I try my luck in the US.

6:18But what I'm seeing more and more is that people are deliberately building in Europe because they're saying, hey, I love this continent. I have my education here. I want to rebuild this continent again. And recently, it's not announced yet, but we invested in a company where the founders are Europeans. They moved to the US, but now they are coming back because they say we have better talent and cheaper talent to build a company here. Right.

6:44Mike Butcher:And presumably also they've got the the the venture backing to do that as well. But do you think that there's going to be a sort of a pivotal moment where some breakout European companies are able to invent kind of new new technologies just for want of a better phrase that will stay in Europe? Because it's always such a big pull to to go abroad, isn't it? Yeah, no, it is definitely. And, you know, if you want to have my honest answer, if you want to exit at one point your company or digging into a very deep pocket, doing an IPO or something, the capital markets in Europe are not there yet. And therefore, at one point, a company might search for a U.S.

7:35market entry in order to build the capital market story. And this might change over time, but at the moment this is the case, but it doesn't mean that you need to move the headquarter to the US. It just means that your product would be better if your product is also working in the US. Right.

7:51Mike Butcher:Well, so digging down into some of the sectors you looked at, you had energy, space, robotics and also health. And do you think that Europe's regulatory environment may be an advantage in health and biology because companies are forced to build in a kind of regulatory setting here? It's quite, you know, it's quite a high bar to achieve stuff here. And that and that to some extent powers, you know, a new wave of companies and sort of a European dynamism, shall we say? Yeah, I mean, that's a good question. In general, I'm totally opposed to any unnecessary burdens, bureaucracy. However, when it comes to digital health, there are some points which could be an advantage because especially in Europe, the healthcare providers are super risk averse.

8:46and having already, you know, like a certain level of validation or certification helps them in order to adopt technology faster.

8:57Mike Butcher:Yeah, absolutely. And another aspect of this is energy. And we know that Europe made some pretty strategic mistakes on energy. It got too drunk on Russian gas and then, of course, Russia invaded Ukraine. And Europe hasn't really invested in nuclear. but your report is quite bullish on fusion technology. But the issue is though, of course, is though fusions is quite a long way off. Shouldn't we be doubling down on things like small modular nuclear reactors? Yeah, I think doing one thing is not necessarily saying not doing the other. So I think both technologies are worth exploring and backing. But what's happening right now in fusion is super exciting.

9:45The saying infusion is it's always like 20 years away. But at the moment, there are some things coming together. One is that, you know, we have already infrastructure built because of the ETA project in France. We have the scientists here. We have also the urgent demand from governments in order to find a solution for the energy problem. And thirdly, we have now this change of venture capitalists willing to back more, you know, hardware and more innovative problems. And this in combination with the advancements in AI and compute technology helps especially fusion. because right now it is possible, it becomes possible to simulate the magnet design in order to make such a stellarator that Proxima Fusion, for example, is building possible.

10:40Yeah, and just a funny anecdote around the stellarator and those magnets is, so Princeton tried, I think, 20 years ago to develop them themselves. but in the end they aborted mission and said like we can't do it um we are not able to but probably the germans can and that's what germany did so max planck institute they developed the wendelstein 7x which is now the um the base technology on what proxima fusion is building

11:12Mike Butcher:on it it's really exciting well yeah that that is true yeah but also there um i think one of the fusion companies that was it Proxima or Marvel has actually building its first test reactor in the US so there is also a problem there that I think you I think you might find whoops my phone just went off now another aspect of the report is that you looked at space and you say that Europe's got an advantage in satellites data propulsion and even launch and of course also now defense infrastructure is now a big topic these days there there is no an issue though as I think that should Europe concentrate on the kind of the guts of the the satellites and those space technologies rather than launch because hasn't SpaceX won that game I mean SpaceX is a phenomenal company we are also in Hester that one so I think they're doing a phenomenal job in and pushing what's what's possible there.

12:16The problem is, yeah, if you want to launch something with on American soil, you need to provide the government with the information about what you're launching and the plans, the technology behind it. And therefore, there is a real urge when you come and look at it from a sovereignty perspective to build our own launch capabilities, means for defense, but also for maybe other technologies that we want to protect and keep for Europe themselves. So I think, yes, SpaceX is way ahead of the current launch capabilities when we look in Europe, but I would say that the game is lost and we shouldn't pursue our own.

12:57And there are some great examples, for example, ESA Aerospace, who are on a good path in achieving that.

13:04Mike Butcher:You also delved into robotics and where Europe's industrial base looks pretty relevant actually for robotics. What's your thoughts about Europe's capability to develop robotics? Because we're seeing the robots coming out of China right now and they're pretty astounding. Yeah, no, like those robots, especially from China, those demos are insane if you look at them. However, you need to differentiate that these are scripted demos, right? So it's pre-programmed and you can, if something is pre-programmed and nothing is happening around them, you can move very fast and it looks really fancy. However, what's really tough is currently to build like real intelligence so that robots can move around and adapt to things that are happening around them.

13:53And this is not solved yet. This is also not solved by the Americans yet. And we believe that on the software piece in order to build the brain for robotics, we have a pretty good shot. Are we the cheapest at the moment in producing those robotic hardware? No. Do we need it to be? Probably not. Yeah, but we need to be able to deploy them. And just for an experiment, you know, we have so many industries that have their supply chains in Asia because it's cheaper to manufacture there. But when you are able to fully automate manufacturing factories, you can bring back a lot of this in Europe and produce it even cheaper because you have not the logistic costs and the risks behind it.

14:38So it's a big, big opportunity for Europe and we should go all in for robotics and industrial automation. Okay. And do you think that the European governments are up for that? I think why not? But if you produce, you know, if you increase productivity, that means that we are heading back to GDP growth. And that would be amazing.

15:01Mike Butcher:Yeah, true. Okay, right. Well, zooming out, if we have this conversation again in five years, what would you count as real proof that European dynamism is more than a good narrative? Yeah. So I think what we need to show is that further capital is flowing into Europe so that we keep those and even increasing the pace in which money is flowing into Europe. Good would be if European money that is deployed in Europe is increasing massively. I mean, that would be a great success because then we are able to also finance our innovation ourselves. And if we see more Deca-corns and maybe like a Centacorn, that would be really, really amazing.

15:50Mike Butcher:Well, I think the report definitely makes for some good reading. It's got some great data in there and I commend it to everybody. And I think Red Alpine will furnish people with the link to download it. But for now, Sebastian Becker, General Partner at Red Alpine. Thanks for joining PathFounders.

16:18We'll be right back.