Accel announced on Tuesday that it had raised $650 million for its seventh fund, which will invest in European and Israeli early-stage firms, indicating that the venture capital market may be recovering.
The firm, known for its early investments in Facebook and Spotify, announced a new fund to support founders creating global category-defining companies in Europe and Israel.
According to Harry Nelis, general partner at Accel, the European tech environment, in particular, has changed dramatically in the roughly 25 years since the firm started its London office as a separate fund in 2000.
“The environment has dramatically changed since then,” Nelis informed CNBC. “People would ask us, can Europe generate $1 billion outcomes?”
“Now, there are more than 360 venture-backed unicorns across Europe and Israel, and the whole ecosystem has evolved from one that raised about $1 billion in capital to now $66 billion in 2023.”
Talent ‘flywheel’
Nelis stated that Europe is currently producing a more promising talent pool as a result of a “flywheel” of experienced employees from other companies that have achieved unicorn status becoming founders of their own startups.
According to a research produced by the business last year based on Dealroom data, employees of 248 venture-funded unicorns in the region fueled 1,451 new tech startups across Europe and Israel.
Nelis mentioned that there are new locations in Europe that investors aren’t paying attention to, but that have great potential for technological innovation.
He cited Lithuania and Romania as examples of countries where great technological breakthroughs are emerging. In Lithuania, for example, secondhand marketplace Vinted is currently a $4.5 billion “unicorn” company, while in Romania, UiPath has a public market valuation of $10.9 billion.
Accel aims to invest in 25 to 30 firms with its latest early-stage fund.
The establishment of Accel’s seventh European fund comes as investment for high-growth tech businesses has plummeted in the last two years.
That’s because macroeconomic uncertainty induced by Russia’s full-scale invasion of Ukraine, along with increased interest rates from central banks, has resulted in a reset in technology valuations.
Against this backdrop, Accel’s ability to raise such a substantial fund for European and Israeli businesses shows that the bleak technological landscape may be improving.
The firm was able to close its eighth fund for the region in only a few months, according to a source familiar with the subject who spoke on the condition of anonymity because the facts are not public.
It comes after Plural, a venture capital firm founded by Wise, Skype, and Songkick founders, created its own 400 million euro ($431 million) fund in January to support European digital businesses.
World Fund, a climate-focused venture capital firm, closed a 300 million euro fund in March.
Magnus Grimeland, CEO of seed investor Antler, told CNBC earlier this year that early-stage venture activity and private business valuations have been gradually increasing since the beginning of the year — and he expects Europe to follow suit.
“It’s on its way back,” Grimeland said during an interview at Antler’s London office in March. “We see much more activity in the portfolio. In New York, we made eight investments in January, seven of which have already received follow-on investments. The United States always acts more quickly.”
Europe’s AI Opportunity
Even as startup funding has declined, optimism over artificial intelligence has resulted in a rush of funds into AI-focused firms.
For example, companies such as OpenAI, Anthropic, and Cohere have raised billions of dollars.
Nelis stated that Accel does not want to be distracted and focus entirely on a hot topic like AI with its latest financing.
Instead, he stated that the firm will approach its future startup bets with its “prepared mind” attitude, which promotes deep focus and a disciplined and educated approach to investing.
“We’re lucky that with DeepMind here in London and with Fair [Facebook AI Research] in Paris, there’s at least two big centers that have great AI expertise,” Nelis stated to CNBC.
“Together with smaller centers across Europe, we think that Europe is extremely well-positioned to create some important AI companies, the same way we created important enterprise businesses.”
According to Nelis, Accel’s approach to AI is divided into three layers: the “foundation model” layer, which refers to the algorithms that underpin sophisticated AI systems, the “tooling layer,” which aids applications that operate on top of these algorithms, and the “application layer.”
He also believes that Europe will excel when it comes to AI application companies, as opposed to foundation models, where U.S. technology behemoths have a significant advantage.
“My expectation is Europe is going to generate some really interesting AI application companies,” Nelis stated to CNBC. “The foundation layer is a layer where at least for now the U.S. incumbents currently have a real advantage — they have the advantage of compute power, large datasets, and lots of capital.”
The company has previously invested in Synthesia, a $1 billion generative AI startup funded by US chipmaker Nvidia that lets businesses create presentations using AI-generated avatars.
Victor Riparbelli, CEO and co-founder of Synthesia, told CNBC that his company joined with Accel last year because the firm’s team understands “how to strike the right balance between visionary and useful technology.”
“Over the last year, there have been a lot of cool demos and perhaps too much frothiness in the AI industry,” Riparbelli told CNBC in an email. “It was really important to us to partner with a fund that is as focussed as we are on delivering real, tangible business value.”
