Daphni secures $215M for its third fund

French VC firm Daphni is announcing the first closing of its new fund, Daphni Blue. The firm has raised €200 million (around $215 million at current exchange rates). It expects to raise as much as €250 million ($270 million) by the end of the year.

Some of Daphni’s most remarkable past investments include Back Market, Swile, Hubcycle and Pasqal. Overall, the firm has invested in 70 European startups since 2015.

With its latest fund, Daphni plans to invest in another 40 startups. Limited partners in Daphni Blue include Crédit Mutuel Arkéa, Bpifrance, the European Investment Fund, PRO BTP and Swen Capital Partners.

“We need to ask ourselves how we can both differentiate ourselves, and support technologies or services that are sustainable when we invest in new projects,” founding partner Pierre-Eric Leibovici told me.

“Because at the end of the day, there are cycles, and we can see that at a given moment, either the market consolidates, or it is dominated by American players, or in the end, there wasn’t enough of a breakthrough to begin with.”

While most VC firms mention artificial intelligence in every other sentence, Daphni wants to put an emphasis on science (at large) as the main factor for the next wave of innovation: life sciences, biology, physics, chemistry and mathematics.

“When you talk about quantum computing, well, quantum computing is fundamental physics combined with hardware and software,” Leibovici said. He also said that large language models are mathematics breakthroughs first and foremost.

As a result, Daphni is recruiting different profiles to join the team. For instance, a PhD graduate and a PhD student are on the investment team.

“There’s another element that is a new trend. The new generation of researchers are much more open to commercializing their fundamental and applied research, because they see all their friends around them starting companies,” Leibovici said.

While French universities are setting aside a portion of their budget to attract American researchers, Daphni says that it didn’t choose to refocus on fundamental science because of that.

“It’s a coincidence. We launched this long before there was this trend,” Leibovici said. Of course, Daphni is open to investing in American researchers who are starting a startup in Europe.

Up next, Daphni will have to deploy this newly raised capital and prove that it has found an efficient investment strategy. “Raising is not an end in itself. What is an end in itself is distributing returns, and therefore exits,” Leibovici said.