Meet Europe’s ‘other’ defence tech unicorn: Tekever

0:02Hello and welcome to the Sifted podcast, the show where we help you get to know the brightest and boldest people and companies in Europe's startup ecosystem. I'm Amy, Sifted's editor and your host. And today I'm joined by my colleague Freya Praty, one of Sifted's senior reporters and our investigations lead, to get under the hood of a company that she's been looking into this week, which is Lisbon-based defence unicorn Tekova, which makes surveillance drones used by everyone from the Brazilian Navy to the UK's home office. In May this year, it raised a whopping€70 million and promised to invest£400 million to build drones in the UK alongside the country's Royal Air Force.

0:41TekkaVille was founded way back in 2001 and bootstrapped for its first 21 years, making it a lot older than most top European defence startups. We'll get into why exactly investors like Spotify back a Ventura and the£1 billion Euronato Innovation Fund are backing a slightly more mature company compared to its newer, shinier peers like Helsing or Quantum Systems. So Freya, let's share notes about what we know and perhaps some of our listeners can get in touch with other tidbits of information that they might have. Welcome to the pod, Freya. Hello. So for a company that's almost 25 whole years old, there's not that much information out there about Tekova.

1:19But Freya, you recently interviewed the CEO. So what do we know of what Tekova actually does and who it has contracts? Tekova's main technology is surveillance drones. So they will go out and feed information back. AppTekiva also works on the software that analyzes that information. So they're not just a hardware company. They're also looking at that software. They have contracts with many, many countries. Their first significant one was with the European Maritime Agency to survey the coastline around Europe. They've also got a similar one with the UK Home Office. But they have contracts all around the world.

1:52They've got stuff in Senegal on fishing. They've got stuff with the police in Spain. They've got stuff in Nigeria. They're working with the Navy in Brazil, primarily on civilian cases, because that's what they'd worked on until in 2022. They realized this tech was applicable to Ukraine. They started using it. They're still surveillance. They haven't gone into strike drones, as they call the drones that would actually deploy weapons. So they've been used to go out from the front line and survey targets, which are then hit by other weapons. And so that is maybe one of the main differences between it and other companies that we've talked about on the pod before, like Helsing and quantum systems because they do strike and surveillance drones whereas Tekfa is just surveillance.

2:34Yeah and we had a Ricardo Mendes the CEO and I had a chat about how they see themselves in comparison to companies like Helsing or quantum systems and he was very clear that they won't go into strike drones. He said that it's a really different type of technology and not one that they're equipped to do and I think they see their expertise as being very much in these surveillance drones that they've been building for such a long time. I was interested in how they compare to companies like Helsing, which pride themselves on very quick iterating, and whether a company that's 20 years old can also do that.

3:05They were very clear that that's something they've always done, that they can bring that kind of maturity and expertise around profitability and financials alongside tech innovation. So they aren't concerned about the competition from companies like Helsing or Quantum Systems. And are they actually even in direct competition or Helsing quantum systems are much more focused on the sort of war zone applications and Tekova's doing things like, you know, surveying water pipes to check there's been no damage to them or flying over the British channel to see if there are migrant boats coming. Are they playing in the same sphere?

3:47I think they would be in that Helsing will also be looking at some surveillance applications within the battlefield. They're obviously not competing on the strike element, but their work in Ukraine is, as Ricardo said to me, in the kill chain, as it's termed in defence. So they go and find a target and then it would be up to the Ukrainian military to deploy another system on top. So I guess all companies probably want to be right across that chain. So they would be competing with Helsing or Quantum on ownership of those decisions via the intelligence, I think. and they're planning to do a lot more investment in the UK aren't they tell us a bit more about that sort of the plan there and all the jobs that they're hoping to create this was announced in May when they secured their unicorn valuation it was announced at the same time they're calling it the overmatch program which is a 400 million pound investment in the UK in terms of infrastructure they will buy and build part of this is buying a air base in West Wales which they'll use as an R &D facility.

4:45And the idea is this creates a thousand jobs across the next five years and contributes to the UK and by extension NATO working out how it can use AI effectively in its defence. Very excitingly, I actually drove past this airbase at the weekend. It is a very sort of indistinct tiny airbase called the West Wales Airport in the middle of absolutely nowhere near a coastline which is mostly populated by tents and dolphins and baby seals so quite exciting for the for the local west wales community to be getting this portuguese tech startup create a lot of jobs there they also ricardo said to me that there'll be more infrastructure announcements in the uk but also across europe in the next few months so they originally headed to the uk because of the talent coming out of british universities he said that france has a similar talent stream that they want to capitalise off.

5:40He was very clear that because of the war in Ukraine, all across Europe, there's going to be a need for better infrastructure around defence. So I think that's why they've raised this recent round is partly to fund things like the overmatch programme in the UK, but also because they think all countries across Europe are going to be clamouring for this kind of infrastructure in the coming years. And we mentioned that they recently raised 70 million euros and they didn't actually take on any new investors in that round. They were all existing investors. What does that tell us? I spoke to Mohamed El-Husseini, who is the head of Ventura, which was the first fan to back Tecova.

6:18And he wanted to get across that the lack of new investment was because the current investors are also convinced that this company is going to do big things. But in comparison to some of the other companies that we've mentioned, like Quantum Systems and Housing, Tecova has raised significantly less money hasn't it despite being older as we said it was bootstrapped for a long time is that a sign that vcs are less excited about this company or is it just a lot more frugal than those other businesses they definitely want to position themselves as a frugal company and they are profitable they said that they need they raised the first vc investment they got because they wanted to be able to build a backlog of drones rather than just building drones when order came in, they wanted to be able to react more quickly.

7:03So they wanted to build stock up was their reasoning. The investors that have backed them seem really excited about this bootstrapped history of theirs. So Mohamed from Ventura was really bigged up that that was a reason why they invested. And I guess it will attract investors that want a bet that is slightly less, yeah, is different to companies like Helsing, which are raising huge amounts to expand really, really quickly. It's a different way of building a company. Mohamed said he likes that from the first year they were reinvesting profit into growing the company and that meant that they were growing in an organic way that was a bit more sustainable.

7:39He said he got a lot of inbound into his LinkedIn mailbox from people wanting to join the round but they didn't need to take it. That is obviously the narrative he would say but it does seem to make sense that they could cover the round themselves. And what do you know of Ventura? It's not a VC that we come across very often. Yeah, they're really interesting. They were started by, as I said, this guy, Mohamed El-Husseini, whose family have links to some of the sheikhs in the UAE. There's an interesting FT piece on that. They have made some big bets. They backed Spotify and Uber and Alibaba early on and made, I think, quite a lot of money from it.

8:15But they fly quite under the radar, I think purposefully so. Mohamed, on our call about Tekova, explained more about how they work. So they're a deal by deal investor with LPs. They don't hold LP money for long. They just go out and ask who wants to invest in Tekova, for example. Through that, they don't charge any management fees, which they're very proud of. And I've not heard of any other VC doing that. So, yeah, they're slightly different and they have made some big bets, which is it's interesting. They haven't had so much public attention. They've also hired some really interesting people.

8:44They had Peter Mandelson, who's a British politician who became the UK's ambassador to America. He was on their board until February this year when he took the US ambassador job. So they're a really interesting VC and one I want to work on more about because I think they do make these really interesting bets. They hadn't invested in any other defence tech until this. So they also seem to be generalists in an interesting way that they'll clue up strongly and make a bet and then move on to the next sector. And it also has some big state-backed investors in it, doesn't it, as well, Freya? Yeah, it's got the NATO Innovation Fund, which I spoke to a senior associate at the fund, Ben Balmforth, who talks about the rapid iteration tech have been doing in Ukraine, that he was the reason he wanted to back them, which is one of the main reasons investors back defense tech at the moment.

9:31They've also got NSIF, which is the UK's security service investment vehicle. So I imagine stuff like that will have been part of how they got these big contracts with the RAF or the overmatched project to invest so much in the UK and across France, etc. Those investors will be helping with that. And what was the CEO like, Ricardo Mendez? What was he like when you were chatting to him? He was really nice to interview. He was very thoughtful. I do quite a lot of interviews where it feels like somebody's got a script ready and they're reading it out. He would take time to reflect on the answer, which is nice as an interviewer.

10:07We had a good discussion about something I've written about recently over how companies decide where they can deploy their technology. And I've interviewed some defense CEOs who aren't really interested in getting into that question with a journalist, but Ricardo was willing to say this is really important and this is how I think about it. So he seemed quite reflective, which I thought was great to see, given the strategic nature of his technology and how important that is. And what's his background? What did he do before Tekova? He is one of the co-founders. So he was there in 2001 when the company was founded.

10:40He was a student at the IST Engineering School in Lisbon, where he met his other two co-founders. The early years are interesting because they didn't move to drones for about seven years. He was telling me that they started with the idea that autonomy would transform a whole range of industries. And it sounds quite basic looking back 25 years. And he was really keen that I position myself from the point of view of someone in the year 2000. I think so it didn't sound basic. So he was saying we believed cars and fridges and planes would all be autonomous and connected. That's where the idea for it all came from.

11:12The first seven years they were just working on sounds like any project that came to them that involves software and connectivity. So stuff like workflow tools for an electric company was an example he gave. And then they got into drones. So his background is in software and AI broadly. It's not in defence. What challenges do you see ahead for Tekova? We had an interesting discussion about the role of China, which I'm used to covering climate tech, where China is so dominant across things like batteries and solar panel production. I hadn't quite figured that, of course, it's also becoming increasingly dominant in something like defence, which also needs a supply chain of some similar components.

11:48So we talked a bit about that and therefore Europe's need to compete and not be undercut by the way China can create those technologies in such a cheap way. So that was a challenge that he foresaw. That's led to a huge kind of need in Ricardo's view to up the spending in Europe and up the way we procure and iterate and cut red tape, which is something we see from a lot of defence founders. And Freya, what are some of the other companies on your radar at the moment? I'm looking a bit at Mistral at the moment. We have a reporter, Daphne, who's obviously across Mistral all the time, but I'm interested in their links to the Middle East, which I think are significant but quite underreported.

12:29And there's a lot of talk at the moment about them raising a big round from two MRRC investment funds, potentially. So I'm really interested in that dynamic. And any other stories you're looking into? What would you like tips from our dear podcast listeners on? I'm interested in the new cohort of AI agent companies or different AI applications, which ones will not live up to expectation, which I imagine some of them won't. In the same way we had the boom and bust cycles of previous years, I think that the next one will be in that kind of area, particularly around gaining loads of customers and then churning all those customers.

13:08So I'm interested in which companies I should be looking at that are probably about to do that. And Freya, where can listeners find you or follow you? You can follow me on LinkedIn. It's just Freya Prattie. And then I am trying to post more and more on Blue Sky as a Twitter replacement, which is also Freya Prattie. Amazing. Thank you so much, Freya. Thanks. And that's all for now. If this has piqued your interest in all things defence tech, you might enjoy our recent interview on the podcast with the Visionaries Club founding partner, Rob Lacher, where he touches on why defence startups might want to remain stealthy.

13:40and also check out our deep dive episode on Helsing with our senior reporter, Anne Schraders. You can also hear a lot more about all things defence tech at the Sifted Summit, which is happening in London on the 8th and 9th of October. And you can find more information and tickets on our website. Please let us know what you thought of this episode. You can email us feedback, podcast at sifted.eu. We love to hear from our listeners. We love it when our listeners rate and review the podcast. and we also love this podcast's producer, Maya Durampal-Holme. Thank you for listening.