Meeting with at the Munich Security Conference 2020

Briefing request (SG-PDT-VPs/11564) Meeting with Mr Peter Thiel

Setting the scene

1. Your interlocutor You are meeting Peter Thiel, a German- born American entrepreneur and venture capitalist.

Peter Andreas Thiel was born in Frankfurt am Main, West Germany, on October 11, 1967. His family emigrated to the United States when Peter was age one. Thiel studied philosophy at Stanford University and acquired his Doctor of Jurisprudence degree in 1992. He co-founded PayPal in 1999, serving as chief executive officer until its sale to eBay in 2002 for $1.5 billion. He then founded , a global macro hedge fund; Palantir Technologies, a big data analysis company; and , a San Francisco-based venture capital fund. Thiel became 's first outside investor when he acquired a 10.2% stake for $500,000 in August 2004. In addition to Facebook, Thiel has made early-stage investments in numerous startups including Airbnb, LinkedIn, , Spotify. Thiel has long been a vocal supporter of President Trump - one of the few entrepreneurs from Silicon Valley - his position is very controversial in the US, in particular in Silicon Valley. In a recent interview to FoxNews, Thiel called Google "seemingly treasonous," and accused it of allowing its Artificial Intelligence tools to be used by China but not the US military. He added that the search giant should be investigated by the FBI and CIA. He is the author of “Zero to One: Notes on Startups, or How to Build the Future”.

2. Potential interest from Mr. Thiel in meeting you

• His VC company Valar Ventures is a principle investor in the German Fintech unicorn N26 with headquarters in Berlin. • The company is worth $3.5 billion and rapidly expanding its business with a strong focus on the EU • N26 has recently announced that it is leaving the UK and is closing all its operations there • Consequences of Brexit for N26 • He might be interested in the EU’s work on fintech and the forthcoming digital and Blockchain strategies • He might be interested in exploring additional investment opportunities in strategic digital technologies in the EU

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3. Strategic digital technologies: Europe vs US

• Highly innovative digital startups and SMEs are facing important barriers to access finance in Europe due to several factors: (i) Cultural factors- risk aversion in Europe much higher than in the US (ii) Less developed venture capital markets: US reaching about $100 billion and Europe reaching about 25 billion (2018) (iii) Less patient capital in Europe: high-tech is very capital intensive and require long-term investors who have an in-depth understanding of the technology (iv) Information asymmetries: Commercial banks do not have enough knowledge nor tools to assess in which emerging technologies to invest (v) Lack of collateral: IP valuation in Europe remains an important challenge, while financial institutions in the US, in particular VC firms, business angels and family offices are investing in IP-intensive companies • The lack of support for scale-ups in Europe is an important impediment for the growth of digital startups. • Time-lag: it takes often too long for European companies to come out of the lab into the markets. • There is often a challenge to find follow-up funding from R&D grants to equity or debt financing for early stage innovators.

Main messages

• To remain globally competitive, it is critical for Europe to expand its investments in research and innovation in future-oriented technologies • To address the investment gap, the European Commission is developing several dedicated investment programs that focus on high-priority and strategic policy areas. These investment programs pool financial resources from the EU, Member States through co-investments from Banks and private investors. • For instance, we set up already and will scale up from 2021 through the Invest EU programme: 1. the AI/Blockchain Fund which will start in early 2020 through a first phase of equity investments of EURO 300-400 equity investments for highly innovative early stage and scale-up companies. 2. a specific investment program for the digitalisation of traditional SMEs. The program has an investment volume of EUR 100 Million for the first phase during 2020 and will provide micro-loans (up to EUR 150,000) to SMEs to support digital transformation projects. 3. The digital Innovation and scale-up Initiative, in collaboration with the World Bank, the European Investment Bank and EBRD, addresses the geographic unequal distribution of investments in innovative technologies across the EU. • For several reasons however, the private sector in the EU is not investing yet in innovative deep tech companies as much as it could. Welcome ideas and suggestions from your interlocutor, based on his long experience in the US and his recent experience in Europe on how this situation might improve.

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Background

Technologies such as Artificial Intelligence, big data analytics, blockchain and IoT stand at the forefront of the next generation of transformative and disruptive innovations. The next wave of innovations will be based on integrating such “deep technologies” into traditional industries.

In comparison to the US and China, the private sector in the EU is not investing enough in innovative deep tech companies due to various factors: deep technology companies are IP-intensive and inherently risky; the technology is difficult to understand/valuate; large amounts of capital and long-term finance (patient capital) is required.

Several studies have highlighted that enhanced investments in early stage digital innovations and the growth stage of deep- tech companies are critical enablers for economic growth and improved societal benefits.

Increasingly private investors and VC funds are focusing their investment into a few fast growing innovation clusters, such as Paris, London, and Berlin. There is a risk that this investment gap within Europe is increasing and that less developed regions are falling behind. For instance, in the strategic area of AI, 60% of innovative AI companies are located in London, Paris and Berlin. In particular, Central & Eastern and South Eastern European countries are facing critical challenges in terms of attracting investments. Venture capital markets are underdeveloped. For instance, in 2018, the region only attracted 1.3 billion out of €25 billion in total venture capital investment in Europe. To address this gap, the Commission developed the Digital Innovation and Scale-up Initiative (DISC) which serves to enhance investments and strengthen technical assistance programs focused on digital innovations and the scale-up of digital startups in the Central & Eastern and South Eastern European region.

Potential elements that could improve VC for tech in Europe Public Procurement; Review the public procurement directive in order to make it a strategic tool for modernising public services with innovative solutions by startups. For instance pre-commercial procurement and public procurement of innovative solutions. Promotion of open, transparent and shorter-term contracts. Provide procurers with free access rights while Intellectual Property Rights remain with innovators. Employee stock options; Encourage member states to adopt best practices around the treatment of employee stock options to allow startup companies to attract the best talents. Allow stock options to be portable across Europe without penalty.

Tech Venture Building; Tech due diligence services are hardly existing in the EU but are necessary for tech startups/scaleups and their investors to assess the value and market potential of the underlying technology of a new tech service or a product. Such services offer a tech rating service provided by real technological and market experts. They require specific technological understanding, economic forecasting, trend watching, understanding of standards, IPR/patents, commerce/marketing, and the contingency issues involved. Such a service allows investors to decide to invest faster because they will better understand the investment proposition. Tailor-made services

3/4 Meeting with Peter Thiel at the Munich Security Conference 2020 would increase necessary tech-venture deal-flow in Europe for syndicated specialised tech business angels and early stage VCs.

Key figures/concerns of VC in Europe:

• Venture Capital Market: In 2018, more than €25 billion of venture capital (up from €5 billion in 2013) were invested in European companies. The US venture capital market however remains at least 3 times larger than in Europe. • Geographic Concentration: 70% of early stage startup investments in Europe were realised in 5 countries: the United Kingdom, France, Germany, Sweden and Spain. • Investment Gap for Scale-ups: There are approximatively 23.000 scaleups in the US, 10.000 in China and only 7.000 in Europe. • Investments in Digital Innovations: For instance, total investments in Blockchain startups in Europe reached approx. $1,2 billion, with an important concentration in Switzerland ($414 Mill) and the UK ($312 Mill.) in 2018 • There is a significant investment gap in blockchain innovations comparison to North America: $5,1 billion (Canada: $623 Mill.) and China $1.5 billion

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