Sisyphus Ventures €20m fund backing defence founders: Louise Boucher, Founder and Managing Partner.

0:00Hello and welcome back to the Scaling Europe show presented by Deal. I'm Seb Johnson. Today I'm joined by Louise. Louise is of Sisyphus Ventures, a super interesting fund in a super hot space. How are you doing today?

0:12Louise Boucher:Yeah, thanks for having me, Seb. It's great to be here. It's great to have you. Can you give a quick introduction? Who are you? What are you building? What are you investing in? What's going on? Yeah, sure. So I'm a founder and, well, solo partner of CISF's Venture. So it's a 20 million fund to invest in the most ambitious defense funders over the next three years. And so I've launched the fund basically in December, but really was three years in the making because I was working in journalists fund before as a VC and I started doing defense investments since 2022 when the war broke out. So it took me a couple of years to actually build a portfolio, learn a lot, to grab the for thesis and being like, now I'm ready, let's build this fund.

0:52Amazing. Can you tell me, what is the thesis? What are you looking to invest in?

0:56Louise Boucher:Yeah, I think like what the Ukraine war showed us is that really warfare has become technological. And so the battlefield is becoming autonomous. So what it means basically now is that you have to invest in systems which will be 10x smarter, so autonomous, 10x cheaper, and so also 10x scalable and so produced at scale, which is very a revolution because the traditional battlefield used to be dominated by very complex, very expensive systems. People think about fighter jets, which are the most obvious, let's say, example, which are now, let's say, replaced by cheap autonomous drones. But really, this is happening across all domains, from the air, the sea, the land, the subsea, and across the whole different systems from the Boeing radios to the radars to the naval forces you're building.

1:49Amazing. And you mentioned that you've been investing in this space for a few years now, since the beginning of 2022. Can you touch on some of the investments that you've made and maybe some of the more interesting ones and talk a bit about what excited you about them?

2:01Louise Boucher:Yeah, I think what was interesting since back then is that really it was very much taboo to do anything defense related. So I invested both through my previous employer. So I was working at First Capital, very good seed fund in France, then later on in North Zone, which is a more like multi-stage fund based in London. And so I invested both through a fund and also mostly through angel checks because it was really hard to basically go through the LPA and the LP, let's say, restrictions. And so I did a couple of them. The first one was really software, a company called Command AI, so doing combat management system, which is doing super well for itself.

2:36Louise Boucher:And then my first angel check was in 2024, a company called Harmattan AI, which became the first French unicorn in defense, doing really anything autonomous drones. So reconnaissance drones, interception. And so with this one, I really learned what it meant to build what we call a new prime. So to go after the traditional primes, the Rheinmetall, the Dassault, the Siong, build anything, again, cheaper, more scalable and autonomous. Then I did a couple of more, you know, across the US, Germany, from the manufacturing to the explosives to the missiles, let's say categories. And so last year, I could really see my portfolio skyrocket on one hand.

3:19Louise Boucher:I could see more and more defense funders reaching out to me, being like, hey, you're one of the investors in Europe who's done defense. I want to go into this category. Let's chat about it. And by the contrary, there was a gap with how European VCs were reacting to what was happening in defense. So from my experience, they were just not taking seriously the category, dismissing it as like a hype. So we went from it's taboo to it's a hype basically in a week. And I could see that US VCs were very aggressive in how they were deploying in European defense. So for them, the thesis was clear. For me, the thesis was clear.

3:54Louise Boucher:And yet still the local market and the local capital market were slow to move. So basically, I resigned in May last year to be able to explore what it meant to build a defense investment fund. And so then launched the fund, of course, later on. Amazing. Do you think the traditional, the more mainstream European VCs are waking up to it? So it's a fair question. You know, I work with two types of investors, mostly the US ones who, let's say, use me as a scout and are very aggressive. they've made money in defense over the past seven years so for them it's about replicating the playbook that made them so successful in the US.

4:31Louise Boucher:Second bucket then is the European VCs who are starting to open up to defense so I spend a lot of time with different partners to let's say educate them on the market so when there's still happening in defense in Europe I always had a few you know journalist phones calling me up be like hey what do you think about the thesis what I was supposed to look for here. I'm happy to spend time with them, but some of them still are like, let's do defense, but not anything offensive or anything kinetic. Usually that's when I stop the conversation, because what I try to explain to them is that as a venture capitalist, you're supposed to look for, you know, outsize your returns.

5:07Louise Boucher:And so defense in itself, it's a tough category. Sending to government is a complicated go-to-market. But what makes this category also so attractive is that once you manage to master that, you can really expand your catalog of products and then sell more and more to the same government. And Palantir or Endurel have something to show that. So as a VC, you invest in a company who's starting with a wedge, let's say, interception, like drones intercepting other drones. But really what you want them to do is to be able to crack, go to market in Germany, let's say, and then expand again the catalog of product across multi-domain, across multi-products, to be able to generate multi-billion revenues.

5:50Louise Boucher:That's what the housing is doing. That's why they're acquiring these companies to go into the autonomous fighter jets, into the maritime as well domain. And so as a VC, if you invest in a company in defense day one and you want them to stay in their little swim lane, it just shows that you basically want to kill the company and any tax of returns from day one. yeah i guess the thing yeah that they're they're still reluctant to back the aggressive defense stuff right the stuff that is still a bit a bit taboo um and i know that when i've spoken to some vcs they are still betting big on you know or i guess they're trying to be political about it and talk about investing in dual use dual purpose technologies what are your thoughts on that yeah i think so i'm really against uh let's say dual u as the beginning i that's why i also pitch myself as a fund at being like defense fund.

6:41Louise Boucher:I didn't want to pitch it as resilience because I want to make it very clear we're going to go into kinetics, defensive, missiles, explosives, types of systems, which attracts funders and LPs because it's very clear, you know. And so what happened before was that funders had to pitch themselves as dual use to be able to find some capital and navigate, let's say, LPA restrictions. The great thing today is that you don't have to do that anymore. There's a sense of urgency, which means now, let's say, easier and better to sell to the governments. So you can go directly single use, directly go for military use cases and, well, basically get your first contracts out of that.

7:18Louise Boucher:And in the long run, most defense companies are dual use. Again, Palantir is a great example of that. The Thales, the Saffron, even Dassault Aviation, which make the fighter jets. Let's say 30 euro revenue comes from private jets, actually. So long term, most technologies are dual use. But in the next three years, in the first three years of your company, I think you have to focus your resources on being like military first. And so the good thing is that the funds that still like, you know, look for dual use, I think for funders, it's easy for them to like filter them out. And so today there's enough capital from the US and from local Europeans who woke up to be able to raise your seed series A, series B, without having to go with these funds who are looking for dual use purposes.

8:06Interesting. And when you were raising the fund, is that a thesis that you're very direct about saying, I'm not interested in resilience, I'm not interested about dual use, I want to do defense for defense's sake? Did that resonate with LPs?

8:19Louise Boucher:yeah I mean like you know as most thing when you're let's say contrary and very binary it would you know it rejects some people and then it attracts some others because again at this it's very clear which means that my LPs invest in me because they're happy that my LPA is unrestricted and so they are happy that if I see some amazing opportunity in missiles we'll be able to be fast enough to be able to invest in this company. So it definitely resonated with some, but not all of them together. But again, I feel like it changes. Like, you know, I started raising in September. The fund has been live since December.

8:57Louise Boucher:And what I see is that in September, people were talking to me about the Ukraine war all the time. What's going to happen when the war ends? After what happened with Greenland, I think most of my LPs and prospective LPs understand it's about a new while older, potentially being less residents in the US. And so people also realize it's actually more and more important to be able to defend yourself. And so I think the ethical, let's say, concerns are a bit winding down slowly, but it's happening. Yeah, and I guess it's great for you in the fun, right? I think you've been obviously been betting on this space for a long time now as being slowly proven right.

9:34You mentioned that we've gone from being taboo to being hype. I think last week Stark became a unicorn. We've seen Quantum System triple devaluation last year. Is it a bubble? Do you think this is a bubble? We're seeing more and more drone companies, more and more money being thrown into it. What's your take? Is European defence, is it a bubble right now?

9:53Louise Boucher:It's a fair point. Again, I think we went from it's a taboo to it's overhype in a week. And so we didn't really give time to the category to just be able to scale and create winners and create losers. That's the first thing. If you go more into details, actually, I think we've really just barely scratched the surface. Yes, valuations have really increased. I feel like everybody right now wants to raise a round to become a unicorn. So there's definitely some heating signals. But again, if you just look at the data, where are the money, where are the contracts actually going? A year ago, there was basically no money going to startups and defense tech.

10:33Louise Boucher:Like the big first big contracts have all been awarded in the past, I want to say six months, but it's not even true in the past four months. UK, France, Germany has to issue like real contracts to startups like Stark, Helsing, Harmattan in the past four months. That's it, you know. So if anything, we've really barely scratched the surface into the types of products we need to build and the types of contracts that are yet to be awarded. So, of course, I'm biased, but I'm still very bullish here. Yeah, I think that's absolutely right. I think there's always going to be companies that are probably overvalued, but the market size is going to be huge.

11:09You know, if we really commit to spending the proportion of our GDP that we are committing to on defense, then the opportunity is absolutely massive. I want to talk about where you're looking, right? So German companies seem to be doing particularly well. This sort of like shift from manufacturing to defense, they seem to have that sort of historical footprint that enables them to do well. But I'm curious, where are you looking? Where are you meeting founders? Are they spinning out of technical universities? Are they ex-big private companies? Are they ex-whatever, you know, Palantir, Anduras? Where are you looking for founders across the ecosystem?

11:39Louise Boucher:Yeah, it's a very fair point. Similarly, as in the US, there's not yet a single, like, geographical hub in defense in Europe. So I'm based in London. I see a deal flow, of course, mostly from Germany and Eastern Europe, where I'm most bullish on. But you also see great teams from France, from the UK, so from all over. So just geographically, it's spread out, first thing. In terms of profile, there's definitely a premium for people going from Palantir, Anderil, and also housing. But it's just because they already saw the scale, again, what it means to scale a company in defense, both in terms of go-to-market and speed of iteration.

12:16Louise Boucher:So having people who live there from itself has a premium. But most importantly, I'm very bullish that founder from defense can come from any type of background. If you look at housing, he was, you know, repeat founder for the gaming industry. Pamela Lucky from Andrew Real was also a repeat founder from the VR space. And we have many examples like that. So what I'm looking for and what I'm seeing is that you have usually a CEO that comes from the tech world, software world, out of university, dropout, anything, who's very good at pitching himself because it's capital intensive. So you need a visionary founder who's good at fundraising.

12:52Louise Boucher:but what's important about him is that he managed to day one basically on board over funders who came from the defense world so who already sold multi-hundred million worth of contracts to multiple ministry of defense someone who's of hope built hardware before so who knows how to build these boats these autonomous drones we're talking about and potentially someone who comes from the manufacturing side of things because again it's about producing the systems at scale and so what it says about its founders these teams never meet organically so it's about a founder who really went out of his way out of his network to be able to push them and that's really rare and that's what you see as a most important factor to then be able to create a outsized winner yeah that's super interesting yeah it's like it's not the ability to know so much about the industry or to build or to sell it's like building the most amazing team of people in their own areas of expertise bring them under one vision and one umbrella and use that to build a game-changing company.

13:53Louise Boucher:Yeah. Yeah. And again, I think we've seen that with Quantum Systems, the harm at the start, but they're all quite outspoken about the fact that the first contracts you're going to get are going to be from the founder you have on your go-to-market scale, who already sold contracts before and who's going to get you the first three contracts based on this existing network. And then you can build from there. But the first three contracts, again, it's about pre-existing network. interesting um and what are your thoughts on this movement towards resilience you know we are moving away from buying uh so much u.s tech you know i think that there's a pushback that actually we need to be independent there's things people have been talking about u.s kill switch from some of the technologies that we've already bought what's your view should we should we be buying u.s tech is there is there a level of like strategic interdependence that we should have versus complete autonomy?

14:43Louise Boucher:Yeah, I think, you know, it's a debate. Just like I was at the Munich Security Conference last week, which is like a huge event in defence in Europe. Germany and France like don't agree on that at all. So it's an endless debate. But the main takeaway is that there's a balance between having a sense of urgency. And so you need to rearm yourself. You need to rearm yourself. So you're going to buy whatever's available to you today. And the need to be more independent and more resilient. but we know it takes time to scale ecosystems. So there is a big balance into you need to buy equipments which are ready today while investing into the supply chains and the equipments that will enable you to become independent in the next five to ten years.

15:24Louise Boucher:Now the good thing is that looking at what I'm looking for, like the, again, defense, tech, autonomous systems, US is a bit more advanced than us, but for most systems, they're also just barely scratching the surface. So on the maritime side of things, they have companies which were created two years ago, and most of our companies were created the last year. But it's still early stage, basically. What the U.S. still dominates on is the penalties, the data integration, is the intelligence, the cyber offense side of things. And to be fair, I'm more bullish that I think Europe should just buy whatever Palantir is building today to be able to be ready for counteroffensive on the cyber part, for instance.

16:04Louise Boucher:So it really depends on the categories. But I think for most of the categories, we are on par with what the U.S. has to offer today. So we should more invest into what we have locally. Interesting. So a bit of both. Where we can't plug the gap right now, let's buy U.S., but where we can push the ecosystem, try and lift it up. That's what we should do. But to be fair, when I see some countries still buying the F-35, so the American fighter jet, Denmark did that in January, even though the Greenland incident happened over Christmas. I still think they're shooting themselves in the foot, but it just shows that it's hard to change your doctrines.

16:39Louise Boucher:If all your pilots, all your military doctrines have been trained against this specific type of fighter jets, you're going to want to change, but you cannot change overnight. And so, again, a new world order is going to last and going to be going to change for the next 10 years. It doesn't happen in one week. Yeah, interesting. And I always want to talk about the general capital requirements for the defence sector. It's a very different model, a very different world to the typical VC-backed software companies that we've seen. Those software companies have been able to stay quite lean, become profitable, have very, very long windows to IPO and liquidity.

17:16I want to get your view on how does the model compare to typical software businesses or even other companies that were backing in AI? Do they need more capital? Do they rely more on debt? Do you see them IPO-ing sooner? What's your take on the whole kind of structure?

17:31Louise Boucher:Yeah, it's a fair point. And we still have yet to see, you know, a defense unicorn with a 20 people team, kind of like in AI, what's happening. So definitely different asset class. And I think also that's why some VCs are reluctant. you see valuations who start to skyrocket let's say after series B so when a company has been able to win programs of record I think on the early stage sort of things it's still quite okay to be honest the good thing is that we're going to see the IPO of NGL SpaceX Qantas Systems in the next 18 months so it's going to provide liquidity and also strong signals like our investors really have appetite for this kind of companies and I think my answer is yes, because just as when I see the demand I have for secondaries for these kind of companies, people are ready to pay any price just to be in quantum systems and do real housing today.

18:25Louise Boucher:And so just in terms of like returns, again, yes, it's capital intensive, but there are two things. You mentioned the non-deleteer part of things. Here, the US is a bit more mature. You have, you know, so a founder's fund just like launched a bank or Arable also to finance defense assets. JP Morgan launched a 1 trillion fund to back this manufacturing, let's say, CapEx. So US companies have definitely more access today to non-delutive capital to finance their manufacturing CapEx. It will happen in Europe. Today they have to rely on equity, but it will happen. So this is one of the good ways to be able to scale without just diluting yourself too much.

19:03Louise Boucher:And then again, we still forget, but if you look at the public market today, at least in Europe, the most valuable companies are, well, luxury on one side, and then it's defense, you know. So the Neo Primes we are backing today, they have better margins because they are software-defined, they have much stronger growth. And so because of that, their ideal will be blockbusters, to be honest. So I'm quite confident that it's a tough category, but once you're a winner, it's uncapped, you know, and it's just great winners to be in. Yeah, huge, huge companies come out the back of it. I think it's really interesting what you mentioned there at the beginning.

19:39It's like in the very early stage, it feels that you're investing a lot in R &D with very little traction. or no traction in kind of seed series a but once you can sign those big government contracts and if you can get there then it's game changing and it feels like it's quite an interesting model it's very different to like selling to enterprises where you you maybe you start with s &bs or smaller companies you work your way up we try and sign long contracts whereas it feels like defense is like you've got to build something that works and then you've got to sell it to the government and if you can do that it can be really big and it can get really big quite quickly

20:10Louise Boucher:but on that to be honest it used to be what you described but again because today there's a sense of urgency actually the best companies and team managed to make revenue in the first 12 to 18 months within their existence so it's not so much about being that deep taken more yes you can have to build a product but you can still finance your end through contracts so you can already see the go-to-market signals and the strength of the team on that very early on which is also what makes the category more exciting today than five years ago. Interesting. Like, we haven't got much time. I want to finish with what are your views on both the strength of the European defense ecosystem and then some of the major weaknesses?

20:50Louise Boucher:Well, I think weakness, people always say fragmentation, and I think it's true compared to the US again, not in absolute terms. I think there's like one that a point where like the US uses one type of tanks and I think Europe has 19 and you can use at that point for like basically any type of systems so because it's fragmented it's smaller markets which means you one company like housing had to go and to open like really like big teams both in the uk in germany and in france to be able to sign local contracts there so you just have to duplicate your efforts so technically small capex intensives for smaller markets i think like in terms of strength what we forget is that france and germany are the world's second and third world's biggest arm exporter.

21:35Louise Boucher:So we have this natural, let's say, networks. Like we know how to sell these contracts and to the systems to every way of the world, and we are very well recognized for that. If you take the biggest 100 global defense companies, 30 of them are Europeans, which means we have the local talents here of people who know how to sell multi-billion contracts to Middle East, India, US. We have the people who know how to make the boring signal radars, radios, but that actually make the military systems work. And most of the countries, most of the world doesn't have that. So again, we have this natural export ways.

22:11Louise Boucher:We are well recognized for that. We have a talent. Now we have a capital. So I really think we're on the verge to create the next, you know, 10 biggest defense companies in the world. Amazing. Well, what a place to finish. Thank you so much for joining me. It's such an exciting sector to be in. And yeah, I'm very bullish on it. I think we need probably 10 times more money invested in it than we are at the moment. Thank you for your time. So you're bullish it's not a bubble then? I don't think it's a bubble. No, no, no. I think in five years' time, the defense sector is going to be so much bigger than it is today.

22:44I think the need to rearm is existential. And I think it's moving in the right direction. But it's going to be potentially as big as AI investment is, especially here in Europe, in five or ten years.

22:58Louise Boucher:amazing well thanks for your time no likewise thank you very much