Key Takeaways
- Europe’s venture ecosystem has matured significantly, with startup creation now viewed as a mainstream path for ambitious founders and talent across the continent
- Companies such as Wayve and The Exploration Company illustrate how globally relevant businesses can emerge from Europe by taking differentiated approaches to large, complex markets
- Venture opportunity in Europe is becoming more geographically broad-based, with important hubs extending beyond London, Paris and Berlin into a wider set of local ecosystems
- AI is creating rapid opportunity and disruption, increasing the importance of backing adaptable teams and differentiated technical insight across the venture landscape
Institutional investors are increasingly looking at Europe as a growing source of globally relevant innovation. In this podcast, Adams Street Partner & Global Head of Fund Investments Brijesh Jeevarathnam speaks with Balderton Partner Suranga Chandratillake about how Europe’s venture ecosystem is evolving as founder ambition rises, technical talent deepens, and new startup hubs emerge across the continent.
Using examples from Balderton’s portfolio, including Wayve and The Exploration Company, Brijesh and Suranga discuss why differentiated thought can emerge outside traditional technology centers such as Silicon Valley, how Europe’s venture market has become more geographically broad-based, and why AI is creating both opportunity and disruption for venture investors and founders.
The conversation also touches on ecosystem maturity and the growing importance of backing teams that can adapt as technology evolves.
Transcript
Brijesh Jeevarathnam: Hello and welcome to the Adams Street podcast. I’m Brijesh Jeevarathnam.
At our recent EMEA investors’ conference in London, I sat down with Suranga Chandratillake, Partner at Balderton, to discuss the evolution of the European venture market.
London-based Balderton has been investing in Europe’s start-up ecosystem for more than 25 years. In that time they have raised $5.7 billion to back companies including Revolut, Net-a-Porter, Depop, Quantum Systems, and Proxima Fusion, from seed to IPO.
Suranga was an entrepreneur before he became a venture capitalist. He founded blinkx in 2004. This is the video and audio content search engine that he took public in London in 2007. He the company for eight years prior to joining Balderton in 2014.
Using examples from across Balderton’s portfolio, including autonomous driving company Wayve and The Exploration Company, which builds reusable space capsules and rocket engines, Suranga explored how innovation, ambition and increasing ecosystem maturity are reshaping venture across Europe.
We also touched on the rise of new startup hubs, the globalization of European founders, and the opportunities emerging in AI.
I hope you enjoy these highlights from our conversation.
Brijesh Jeevarathnam: When people think about autonomy, autonomous driving, they might say, “Oh, you know, Tesla, Waymo, et cetera.” It’s great to see a story right here in London, and the founder, Alex Kendall, is a Trinity College grad. And my question to you is: what is the fundamental problem Wayve is trying to solve, as maybe distinct from these other companies that I talked about? And why do you think a company based in London has a right to win globally?
Suranga Chandratillake: This is one that I led, and I knew Alex actually from when he was still at College. I happen to live in Cambridge, so I get to meet a lot of the Cambridge entrepreneurs earlier. And he was working on really interesting problems around computer vision. And at the time, had a huge ambition, along with his co-founder, to start a company in that area, but he didn’t know what problem he wanted to solve.
And then what happened over the next two years between first meeting him and I was investing in him was that his ambition, the scale of his ambition, became clear. Because when I first met him, he was clearly very smart, wanted to build a company, but I didn’t know how big that company was going to be. Two years later, it was clear he wanted to build a hundred billion, maybe even trillion dollar company.
And those sorts of people are very, very rare, especially in such a humble, Kiwi package, as Alex is, and so that’s why we backed them.
What’s interesting is that, in those two years, I met every single self-driving car company in Europe and quite a few of the US ones, and basically thought it was an uninvestable market for us. Because as a European investor, every single other player I saw was essentially doing what Waymo or Cruise or Aurora was doing, but in the US. And they were doing it in the US with more money. They were already three years ahead. I just couldn’t see how any of these sort of companies would ever catch up.
And then Alex and his co-founder came to us and said, “No, no, they’re all doing it wrong. We’re doing it a different way,” which is an incredibly arrogant thing to say, because obviously the number one player is Waymo and Google was plowing billions of dollars a year into it. But then when we listened to him, they said, “We’re going to teach the car to drive the same way a human does,” which is just have cameras, and actually originally just one camera pointing out of the front, kind of similar to a human looking out of the front of a car. And we’re going to hook up the accelerator, the brake and the steering wheel, and we’ll have humans drive cars around and the car will see that when a human sees this, they tend to do that. And through that way, it’ll sort of reinforce, build a machine learning neural network end to end that will just know how to drive.
And their thesis was that if you do it that way, you can do it quicker, but also be more resilient because in the same way that any of us, you might learn to drive in Japan, but if you are here in the UK, you can do a decent job of driving around, same in the US, not as good as a native driver, but you can figure it out, because you know the basics of what driving is.
At the time, this was a completely contrarian approach, and that’s why we backed it. We backed it because of a contrarian approach, and most of the best venture bets tend to be on that basis.
The other really interesting thing about it from our point of view is that I think one of the reasons why it was a contrarian approach was because they were outside the Silicon Valley bubble.
So in this particular case, autonomous vehicles, all the other significant players were not just in the US; they were in Silicon Valley. And they all came out of really one group in Stanford, arguably, which had been involved in autonomous robotics for a very long time, very smart people, but very much one way of thinking. I’m not being negative about the approach, but they had real groupthink, and they really believed about it one way.
It’s interesting, when we diligenced the company, we showed it to a combination of academics and also people who worked in the autonomous vehicle space. All of the autonomous vehicle people said it was a terrible idea that would never ever work, and all of the academics said, “I don’t think it will work,” but then got really excited and would call back two days later saying, “I want to learn more about this.” So we just sort of understood that curiosity was going to drive it.
And I think that’s a great example of where being outside the bubble and having a different background, having a different perspective, basically, means that you can approach a similar problem in a very different way.
And venture is all about solving problems in a different way. It’s not about doing the same thing over and over and over again.
As I say, I lived in San Francisco for 12 years. I love the city, I still have a home there. But a lot of people think the same way, and when they’re going in the right direction, that’s very powerful. The momentum is tremendous, and it’s still the best place to do that kind of thing. But every now and again, they miss something, and I think that when that happens, you can create absolutely enormous companies, and that’s what we hope Wayve will be.
Brijesh Jeevarathnam: In that same vein, let’s go from automobiles, large incumbents, to another one, space, which has been the domain of government and maybe large corporations, but now venture as well.
My question here is, I guess, twofold. One is the investment thesis and the potential for a venture-like return. Obviously, SpaceX is a big story, but it’s a long duration story. Part two is: is part of the thesis here kind of a bet on a sovereign tech stack, by which I mean we expect there to be European winners versus, let’s say, American and maybe other geographies, China, et cetera, in AI, in energy, in space, et cetera?
Suranga Chandratillake: Yes and no. The founder of the exploration company, Hélenè [Huby], is a French national. She’s lived and worked in Germany for a long time, and she actually worked within the European Space Agency for a number of years. She led their module development, so she knows this particular area really, really well. Their focus is building the modules that actually get launched into space.
And what she discovered was that making space work in Europe is a different beast to making it work in the US, partly because of the geopolitical aspect of it: the fact that you have multiple countries, you don’t have a single massa effectively, you have multiple agencies. Yes, you have combined European efforts, but they’re really made up of multiple separate pieces.
And also, the skill sets and the expertise is also in different places. And so there’s a kind of level of orchestration required that just doesn’t happen in the US. So solving that problem here is different.
But then what she also realized was that a bit like, I think, Elon Musk realized, x years ago when he started SpaceX, or moved into SpaceX, was that this sort of approach of doing this in a government funded way leads to a very, very one layer at a time, slow progression approach, which actually can be short-cutted by doing it in a more private company type approach.
So she sort of combined the best of Musk’s kind of venture-led company building, but within the context of doing this in Europe. And actually, the product that she’s building, which is a highly reusable module, which has a whole bunch of metrics around it that make it lower cost, lower energy, et cetera, et cetera, compared to the other things that are out there, that’s a completely global product.
She has demand from Asia, she has demand from the US, as well as of course Europe for that product. She actually has demand from Africa, which is really interesting because it’s really the only product of that sort that is genuinely affordable to some of the states in that continent.
So from that point of view, it’s a completely global opportunity, but you’re absolutely right. I mean, when you see a sort of geopolitical reality where certain continents are having to think a little bit more about having their own sovereignty around some of these technologies that really matter, then there’s also an additional opportunity that way as well.
Sovereignty is an important trend, but it’s not a thesis we’re investing in. It’s a factor that powers part of what we do and the way that we look at the market, but it’s not something we’re chasing.
Brijesh Jeevarathnam: 25 years ago, so right about the time when the firm was founded, it’d be unthinkable in Europe to look at venture, or startups broadly, as the solution to problems in large industries—space, defense, energy, big hairy problems. But today, it’s almost the first place that we look for solutions in Europe. Can you talk about what drove the change?
Suranga Chandratillake: I left the UK in 2002 originally, and I was away for about 12 years. And when I left, the idea of doing a startup, starting your own technology company, was almost unheard of. It wasn’t completely unheard of. There were a few, of course, dot-com companies across Europe, but it was a really bizarre thing to do.
And when I talked about my desire to do that with my peers, who were fairly recent graduates from great universities across the UK and Europe, generally, if you said, oh, I’m thinking of being a founder or I’m thinking of being an entrepreneur, I think the word founder didn’t even exist at that point here, people assumed that meant that you’d lost your job and you were trying to find an excuse for what you were doing next.
So it was a very bizarre thing to do, which is one of the reasons I moved to San Francisco, where it was much more normal, obviously.
When I came back about 12 years ago now in 2014, it had changed dramatically and it was a much more normal thing. But I think it was still a fairly—people talked about it being a brave choice. Whereas now, when you look at young, smart, ambitious people, and also not so young, smart, ambitious people, there’s much more acceptance that a really valid track to do what you want to do is to either start or join, you know, a fast-growing technology startup.
So I think that’s the first thing, the supply side, if you will, the talent, which is ultimately what all of this gets driven by, has changed completely. And so, you know, the best of the best are thinking about solving problems this way rather than, you know, joining a government or becoming an academic or joining a large company or whatever.
And then on the demand side, I think it’s slower, but Europe in general is beginning to replicate that sort of appetite that the US has actually had for a very long time to look to technology as a way to drive whatever goal you might have, you know, whether it’s economic, whether it’s military, or whether it’s sovereignty related or whatever it might be.
And we see that across government spending, you know, almost every European country is either in the middle of or has recently completed huge reviews of the way that they spend their cash and capital, and making sure that they’re backing smaller companies and local companies. You see it across corporates as well. So I think, you know, the sort of, you know, FTSE 100 type companies and the same across the rest of Europe, 10, 15 years ago, they were never the first buyer of a new, you know, cybersecurity startup software. Now they are often first in line.
So both on the demand and supply side, we’ve seen this cultural shift, I would say, and that’s exciting for us, right? Because it means that the companies you build in the middle of those two forces can actually thrive, can grow rapidly and do all the things that VCs want them to do.
So our funds are about 55-60% European capital and about 40% US. What’s interesting to me is the trends. So 10 years ago, when I sort of first raised a fund with the firm, we were about sort of 70-80% US, so very heavily US weighted. Over the last 10 years, Europe has grown, but actually right now, a lot of the demand we’re seeing, and we’re not raising a fund right now, but I think next time round, we’ll be doing a lot more meetings again in America.
So it’s interesting, the US LP base has clearly woken up to the opportunity all over again in Europe. And I wouldn’t be surprised, therefore, if we swing back again towards US being the majority LP base for us.
But it’s all European and US in our case. If I were to talk to some of our peers, they certainly have capital from other parts of the world as well, but the majority is European-US.
And it’s interesting if you look at the European capital in the UK, it is generally not pension funds. There are a few private company pension funds that do it, but obviously all the large more public funds do not really in any massive amount. So it’s mainly endowments, universities, some family offices, we don’t have a huge number of family offices, but we have a few. And then also things like insurance companies and so on. So it’s a mix, but Europe is, was on a positive trend, but seems to be still on that positive trend, but America is coming back faster.
Brijesh Jeevarathnam: This is clearly a structural change. It’s taken a long time to really have European venture ascend over time and become truly global scale venture. I do have a local kind of maxima question, which is your [managing] partner Bernard [Liautaud] recently said: this might be the best time in this career to invest in European venture. Is that marketing? Is that—what do you feel? What are your thoughts on that?
Suranga Chandratillake: Certainly we feel extremely excited about the opportunity set ahead of us right now.
So I’ve been a GP now at Balderton for over a decade. So I have a pretty good memory of everything we’ve seen and the companies we see, the ambition we see, the kinds of founders we see. And there is absolutely no doubt that the number of companies that could be of scale, the level of ambition and kind of energy that those founders have, and just the frankly, the ability that they have around those early critical first two, three years where you really have to get stuff done, where you have to get traction, because if you don’t start quickly, others catch up very quickly, all of that is at all time highs.
It is also more expensive than it was before. So—and I think as investors, obviously we have to think about not just investing, but also ultimately one day selling—and so that’s another interesting question, which is very, very hard, I think, and certainly not something that I feel confident predicting with any real level of detail. But then, of course, things like AI mean that the scale of some of the opportunities that appear to be ahead of us are so large that maybe makes perfect sense to invest at those higher levels.
So I always say, like, on the one hand venture is it’s a type of financial investment, et cetera, et cetera. But it’s also really a bit of a craft. I mean, it’s really about a room full of people with an idea, deciding for some sort of slightly irrational reason that, rather than working for a big company and getting a great job, they’re gonna build this thing. They know they’re gonna probably fail. They go for it. There’s a mess of a journey to get there, and at some point it starts to work in a very few cases. Most cases it doesn’t.
It’s a very sort of scrappy end of the financial markets. So to me, it’s those raw ingredients that matter the most. Can you find those things? And we see more of that with more ambition and more scale than we’ve ever seen before, which is, I think, why Bernard is so excited.
The other really interesting thing I would say about Europe is that we do genuinely see this now in more places across the continent. I mean, the UK is still the largest market from our perspective for opportunity. You know, France, Germany, very close, second and third. And then the Nordic region, if you group it as a region, it is probably is easily number four. And also within that, there are certain cities like London and Paris and Berlin and Munich and Stockholm that are really strong. But actually, we also see—we have great investments in Istanbul. We have great investments in Madrid, great investments in Athens, great investments in Helsinki and so on. And so I think that is also very exciting. It makes our job hard, right? I mean, we have to really be in a lot of places at once, but this dynamic that I’m talking about is lighting up all over the continent.
Brijesh Jeevarathnam: Just really a pan European opportunity now much more than three, five, seven years ago.
Suranga Chandratillake: Yeah, I think so. I think three, five, seven years ago, the talent was out there. It would often migrate to one of these centers. You would back lots of Eastern European founders who were in London, you know, things like that. And you have Spanish founders who’d made it up to Germany or something like that. Whereas now actually they’re just doing it in their own backyards.
By volume of startup and also by success of those startups, the most interesting hubs by far are London, Paris, Berlin, Munich and Stockholm. Stockholm is having a real resurgence right now. Stockholm went through a sort of quiet patch. They’re currently really, really, really enjoying a lot of success around AI.
But it’s interesting because really, really interesting companies get built in very unexpected places. So for example, UiPath, which was a $10 plus billion outcome on the public markets, came from Romania. So you can’t just spend all your time in London, Paris, et cetera, and expect to hit all the great companies. You have to be willing to fly and do other things.
The fastest growing company we have in the portfolio today from a revenue perspective is a company in Istanbul. So, you know, that’s one where we found out about it because we had a great relationship with an angel who had sort of backed the company earlier on, heaping my partner, Rob and I with emails saying this company is really exciting. Within 24, maybe 48 hours, both Rob and I had gone to Istanbul to meet the team, understand what was going on. I think we put a term sheet out four days later. And that’s the kind of speed and scale at which you have to be able to operate. So yes, there are these central hubs that really drive a lot of the outcomes, but you have to be willing to go anywhere if you want to find the best investments.
Brijesh Jeevarathnam: Let’s talk about some sectors. I think it’s fair to say early in European venture’s history, maybe in the 2000s decade, there were more kind of local champions, if you will. And perhaps arguably, fintech was the first sector when we started seeing not just pan-European, but also really kind of global winners. And Balderton back Revolut in the earliest round. Do you agree with that, about fintech being kind of a catalyst, if you will? And what lessons did your firm take away from what worked there to the other kind of pan global investments you’re making?
Suranga Chandratillake: So it’s very natural if you’re an entrepreneur to solve a problem that you see in front of you. And if you are an entrepreneur in France, you’re gonna look around where you sit and you’ll solve a problem that works in France. There’s no guarantee that the problem that exists in France and the solution that you have will work outside France. And there are many entrepreneurs, in the old days, who wouldn’t ask that question early on. And so they’d find themselves capped.
Now you can still build interesting businesses, maybe even venture scale businesses in certain markets on a national level. But as we know, the most interesting companies are global players.
And I think the sectors where we saw that work first were sectors where Europe was already a global thinker. So I’m not at all surprised that we saw a range of global fintechs come out of places like the Netherlands and the UK, because these are, for hundreds of years, centers of financial powerhouses. Unsurprisingly, there’s lots of talent who understands those markets, who think globally. And so, unsurprisingly, those people started companies that were tech first that grew very large.
And Revolut is a great example. We did the pre-seed round at Revolut and then followed up with the seed on the Series A. And [Revolut founders] Nik [Storonsky] and Vlad [Yatsenko], when we met them, they had two other employees. All four of them had just left investment banks in London. So they were all immigrants. They’d all come in from different places, because if you’re European and you want to work in financial services, the place you come is London. And so they’d all come here, experienced the pain that is having to sort of change their money in different countries and so on. And they said, “Okay, we’re going to build a company that will fix this problem.” And that’s what the four of them wanted to do. So that kind of idea keeps on repeating.
But we have seen it, therefore, in other sectors as well. So another early sector that worked very well was consumer, which again doesn’t surprise me because Europe has had great design, fantastic consumer goods of various sorts, luxury goods. One of our early hits was YOOX Net-a-Porter, which still powers the e-commerce behind a lot of high-end brands. If you look at companies like Vinted or Depop, which are fashion companies, if you look at Spotify, consumer company in the music space. So Europe has been good at different areas, but in those early days, I think it was—it would often resonate with an industry that Europe was good at anyway.
Now it’s much broader base. And particularly for someone like me, my partner Bernard actually, who you already mentioned, we’re both enterprise software people. That’s what we did in our careers. We built companies that sold software to other companies. That sector has become stronger in Europe than ever before. If you go back 10, 15 years, a lot of the really best enterprise software founders in Europe actually went to the US to start their companies. So if you look at companies like Datadog or Snowflake and a plethora of others, at the heart of them, they’re European founders, but they had to kind of leave to start those companies. Now those people don’t do that. They stay and do it here.
Brijesh Jeevarathnam: What is your firm’s view and your view on AI and the opportunities, and maybe the pitfalls in the coming cycle?
Suranga Chandratillake: It’s an evolving thesis at this stage. And I think it should be. I’ve been involved in AI for a very long time. That was sort of what I specialized in at university.
The first company I worked for was effectively an AI company. My company had AI at its core. So I spent a lot of time looking at this. And I think the way we look at it is that, essentially, if you consider sort of foundational AI as being these sort of models and other infrastructural pieces that are required to make AI happen, and if you split that up from the application, applications are very exciting because you can capture very, very rapid traction and you can generate revenue very quickly. You can build a business very, very quickly. The problem with the application layer is that it is ripe for disruption on a fairly regular basis. And we see this all the time. So if you backed a really interesting AI-powered HR application software company two years ago, it’s almost certainly out of date today. So if you are going to invest on the application layer, which we do to some extent, then it’s really about backing teams and not companies or products, which I think is sort of classic venture.
So I actually really love that because …
Brijesh Jeevarathnam: So they can pivot.
Suranga Chandratillake: Yeah, exactly. Because it’s not about picking a product that you’ve analyzed and looked at all the numbers on. Sure, you do that, but you’re really doing that to understand the people that you’re backing because you know that they’ve got to have a long-term thesis. They’ve got to figure out how to bend what they’re doing to the technology as it improves.
On the more foundational level, the infrastructural level, actually I think it’s more like investing in traditional tech. It’s deep tech. It requires a technical knowledge. I mean, that’s why about half of our partnership has technical backgrounds because we think you really need to ask the gnarly questions. You can’t just outsource that sort of diligence to other people. And you know, Wayve is a great example. So I won’t belabor the point, but that was a contrarian view on building a different kind of AI company. That’s the kind of company we look for.
Another one which we backed last year called Prior Labs, similar sort of idea, a very, very deep tech team building a foundation model for tabular data. So you know, traditional language models are all about sequential data or language. Tabular data in tables is completely different because it’s not sort of read just from right to left, but it’s also read up and down. And Prior Labs did that really well, built a really interesting product around that. Unfortunately, slash fortunately, just got acquired for $1 billion by SAP. So great outcome for us, but maybe a bit too fast.
So you know, there are companies like that there too. There are fewer of them, but I think those you can back the product and the tech because they’re long burn and they will take time and they’re real barriers to entry. On the application side, it’s all about back and teams.
