The magic behind our new fund: Elaia Delta
Great news: we just held the first closing of our new fund, Elaia Delta at €115M!
It has been a long journey; but this process, rather than just painful, was actually a fantastic period where we had to clearly present our firm and our strategy to existing and new investors — a healthy and deep questioning about who we are, what we want to achieve and how we’ll do it, that occurs every 3 to 4 years.
A common question we got was « Why is this fund called Delta? »
Many guessed that we chose Delta since it is the 4th letter of the Greek Alphabet and this is our 4th generation of funds. It is not the reason why, and honestly, it wouldn’t have been a great naming tactic, since our 5th would then have to be named Epsilon, mostly used to label super tiny — irrelevant? — values!
Actually and joke aside, there are better reasons behind this Delta symbol that perfectly captures our ambition.
Delta is a triangle
A VC fund is defined by its strategy. Delta’s strategy is based on the three vertices of our own virtuous triangle: Deep Tech, Early Stage, Portfolio Management.
Deep Tech
First, we have consistently believed that the digital revolution, which is beyond any doubt at least as profound as the industrial one, is a tech-based disruption. Most of the significant breakthroughs have been and will be coming from companies dominating a key technology, if not several ones. Chasing this kind of beauties implies that we are doomed to finance the supposedly unsexy companies (as opposite to the appealing B2C kinds such as BlaBlaCar or Spotify), mainly in the B2B or B2B2C sector. This is not easy to sell: pitching our portfolio to non-expert investors or just trying to explain what we do for a living in a dinner party would be much easier if we could mention products or services that everybody uses or at least knows! Anyway, we truly believe that the most promising opportunities lying ahead are around the deep techs developed on several Exabytes (billion of billons of bytes!) of data produced daily.
Early Stage
Second, another historical characteristic of Elaia is that we have only been investing at early stages since our first deal in 2003. Including a majority of pre-revenues seed deals. We have done it over and over again, and we’ll keep doing it, because first we love it and because we believe this is how we can best help the startups grow. As a side but not negligible benefit, this is also often the best option for a continental European VC to get into the best in class locally created start-ups: if you were a founder of a rocketing European born venture and you were looking for your Series B or C, or even sometime your Series A, would you pick a local fund to lead your round if you had the chance to pin a great US VC logo in your cap table? I wouldn’t…
Portfolio Management
Third, a VC is part of the financing industry. The only long-lasting VCs are the performing ones: the ones that send back to their investors much more cash than they invested, on a regular basis. The quest for making the world a better place thanks to digital innovations or the fantastic window on the future offered by getting access to a large deal flow is great; but they cannot be the only reasons for an investor to back a VC.
So we, at Elaia, became obsessed with always improving our performance metrics and their predictability. The main issue is that if you really back entrepreneurs at an early stage, you cannot help having a significant part of your investments returning poorly. This makes the math of VC performance quite desperate, at first glance, unless you believe not only in the existence of legendary animals but also in their proliferation. The classical VC performance theorem was that “to perform or not to perform” is just about having one or two mega winners in your portfolio, the other investments being kind of irrelevant. We at Elaia couldn’t just accept that rule, even if it worked pretty well so far for us. So we did some serious “finance engineering”: we reviewed our track record line by line to understand what we did wrong and what could have been done even better; we audited our decision making process, we back-tested some new ideas on our past portfolios, we implemented new concepts in our 2012 fund and monitored their impact for almost 5 years. We ended with a refined and optimized portfolio management model. We already see the amazing impacts on volatility reduction and on value creation on our previous fund. We are now eager to see it flying on a larger scale with Delta.
Delta is a Greek letter
Greek letters are linked to science and especially Math. Which is a good clue of what we believe will be the next Eldorado: we are entering the era where mathematicians will rule the digital deep tech world.
Let’s make a short digression about a special characteristic of Math research (for the ones who know me well, I am sorry, I just cannot help myself!). Mathematics is fundamental to understand the world and how it works. Galileo even said that the Book of Nature is written in the language of Mathematics. Descartes, in 1637, made one of the major steps in deciphering the Book of Nature by introducing the concept of coordinates. He did so in order to ease the description of geometric curves. But he couldn’t imagine that he laid the foundations of the digitalization of the world and the massive impacts that would be produced over the following centuries on mankind and its development. That is maybe the most fascinating fact about the importance of math in human development: usually mathematical discoveries are made many decades (if not centuries) before their application into innovation. For example, Fermat’s Little Theorem and the Chinese Remainder Theorem were discovered and proved long before they became the basis of modern cryptography, or Ito’s stochastic calculus was precisely defined in the 40’s when nobody could anticipate that in 1973, the Black & Scholes model would change the financial markets. So, mathematicians work for the beauty and the elegance of what they imagine and discover, even if eventually many of what they have been working on will turn out to become a fundamental piece of a great technical innovation.
Let’s go back to the digital revolution. For the last 30 years, it was all about computing capacities then network availability then native usages of digital tools and services. But this is mostly done now; real game changers in these fields are unlikely to emerge out of the Valley or China. Our new frontier is about data and understanding their meaning. The current buzz words are machine learning or AI and believe me, they are here to stay as a basic feature of any further digital innovation. Is this linked to new ideas in math? Well, the industry is just currently running equations and models invented someday between the 60’s and the 80’s, and anyway, making implicit approximations of mathematical solutions is just the very basic method used to demonstrate most of the fundamental Analysis theorems. What’s new is that for the first time ever, the available computational capacities allowed the convergence in human time of such implicit approximations towards an acceptable solution. Computer Science and Mathematics have merged again! And, now it’s time for mathematicians to find new applications while keeping on developing their great theories.
Let’s face it, it will be a tough global play. The budgets invested in R&D in data science by the Silicon Valley champions are second to no European effort whether public or private and the data sets they own are the most extensive we can imagine. But France has a great role to play here. Math has been one of the bases of French elite education since our Revolution — Math skills are quite independent of the social origin of the student. We are the second most awarded Fields Medal nationality, right after the US, which has “imported” most of his laureates over the last decades by the way. Our Universities and “Grandes Ecoles” put thousands of brilliant new mathematical minds in the market every year; this is not a new fact: these smart kids have long been joining Goldman Sachs to develop models in Investment Banking or Airbus to design a new jet for example. Today, they are building their own start-ups and we will fund them.
Delta stands for Difference
As you may remember from your math studies, Delta is the classical symbol used for differences. At Elaia, with this new fund, we want to make a difference.
Making a difference in the entrepreneur ecosystem.
Of course, VC and entrepreneurs are different kind of animals, and are considered by many minds, as mainly opposed in interests. We don’t think so. When you invest early, you make money or not depending only on the development of the company you back, i.e. if entrepreneurs are successful. It is not about deal structuring or pricing but about how your company will develop. Of course, better terms mean more return and the other way round, but at Elaia, we have always been entrepreneur friendly, because we believe that fairness is the best solution for any issue that might arise during the negotiation of an early investment.
Being entrepreneur friendly is not just about deal terms. It is also being responsive when a portfolio company needs us. Or being transparent in our intentions: if we want to support a company, we just say so, and if we don’t (sometimes just for a question of amount raised or offered terms), we also say it as early as decided and we try to figure out a solution, even if this means getting diluted by other funds….
It is not just towards our portfolio companies. It also means answering in a reasonable timeframe to an entrepreneur who sends us his memo. Or giving a little bit of color when we decide to pass, rather than just the classical and terribly hollow “thank you, but your opportunity is not matching our strategy”.
Being entrepreneur friendly was our temperament; it is now our signature.
Making a difference in the LP community.
Let’s be honest, our asset class, European Venture Capital, is not very attractive at first sight: no performance on average, instability of teams and strategies, limited liquidity (for the profane: the little performance is made out of new round valuations rather than full cash exits) … Maybe, the sector is too damaged by heavy public cash injections, by attractive tax cuts justifying too many deals or by large fund managers playing the “management fee” game, but we believe that many of us have the means to establish a standard of performance and quality. It possibly means to implement new models of Management Companies where decision-making processes or compensation schemes are much more aligned with LP’s interests. We have been trying to do so for many years and of course, we made some mistakes. However, we have now reached a solid level of maturity and have proven our ability to deliver performance fund after fund and to imagine a sustainable partnership model based on fairness, transparence, team work, a mix of internal promotion and external hiring, a real balance of genders, ages and skills, etc. We are honored to welcome back all our LPs from our previous fund in Elaia Delta, and honored to also welcome a rich set of new LPs, convinced by our approach.
So here we are.
Digitalization is the new black, entrepreneurship is a real trend and not only a mere lifestyle and France is embracing this new wave. We have a brand new fund ready to go; it is time to heavily invest again, to create a new portfolio where we will see hopefully emerging a new Criteo, a new Sigfox, a new Mirakl, a new Teads, a new Orchestra Networks, a new Agnitio etc. We have already backed 4 fantastic teams with Elaia Delta and we have another deal in closing; proud to be your partner for the adventure ahead. Let’s make it big!
So if you are a great deep tech company, come and meet us, tell us everything about you and join the Elaia Partners Family!
