Bridging Europe’s ‘Missing Middle’ in Venture Capital – A Conversation with backtrace

Europe’s software runs on layers of tech most people never see: distributed datastores, developer APIs, observability systems, and runtime environments humming in data-centres.

When those layers falter, every shiny app on top blinks out. Yet only a sliver of European venture money chases the builders of this “engine room.”

That funding chasm—and the intellectual thrill of fixing it—pulled former engineer-founder Dominik Tobschall away from the comfort of large funds to co-create backtrace, a pre-seed vehicle for the infrastructure that our world runs on, backed by prominent tech founders and institutional LPs. The story below unpacks why that middle layer matters, how Dominik thinks about scaling it, and what must change for Europe to set global standards rather than copy them—told in three chapters.

The Unseen Machinery

Gen-AI, fraud-scoring engines, even your ride-hailing app all rely on hidden building blocks: databases, orchestration frameworks and execution environments few users can name. Europe excels at writing this kind of code—Elastic (NL), Datadog (FR) and Stripe’s Irish founders are reminders—but the fruits often migrate west for growth capital and Nasdaq valuations.

Nvidia’s valuation has just punched through the $4 trillion mark—vaulting past Apple to become the world’s most valuable public company—and that single chipmaker is now worth almost twice the roughly $2.2 trillion market capitalisation of every listed company in Germany combined, a stark reminder of how little of global tech equity Europe currently captures.

Dominik lived that invisibility firsthand. As co-creator of sabre/dav he spent years debugging calendar-sync protocols no consumer ever notices, then watched American VCs embrace similar plumbing startups while European investors queued for consumer SaaS.

That contrast seeded a ten-year dialogue with fellow engineer-turned-VC Michael Münnix—until they launched backtrace in 2024 to invest where others shrug.

The Missing Middle

European venture exhibits a bar-bell shape: at the top sit generalist funds chasing “shiny” SaaS (47% of all VC cheques in 2023); at the bottom, deep-tech pools back quantum or fusion projects that need hundreds of millions but decades to mature.

In between—the tools that every product relies on—capital thins out. Over 90% of Europe’s deep-tech-specialist funds manage < €300 million, too small to lead Series B rounds for infrastructure startups.

Founders therefore perform the well-worn “Delaware flip”, inserting a U.S. top-company so later-stage Silicon Valley funds feel at home.

The result?

Talent and secondary share options follow the parent, and Europe loses the spill-overs the IMF says are critical to productivity growth.

The continent’s cumulative growth-stage shortfall now stands at roughly €375 billion.

Meanwhile, demand for core tech is exploding. GPU-heavy AI workloads are exhausting European data-centre capacity faster than new megawatts and planning permissions appear, according to CBRE, while the Financial Times notes that compute, storage and energy choices—not model design—will decide who scales Gen-AI commercially.

Without robust local infrastructure, Europe’s sovereignty debate risks being moot.

Loops That Reinvent Themselves

backtrace plants itself in that “missing middle” with a simple thesis: back the technology bricks every other company must step on—system-level infrastructure (e.g. French start-up KERYS), core data systems behind AI workloads, developer tools—then help those teams keep R&D in Europe while selling globally.

Each layer, once integrated, becomes painfully sticky, compounding value over years rather than hype cycles—a dynamic Dominik’s partner Michael witnessed when IBM paid a premium for Instana’s observability product in 2020.

Two macro forces strengthen the bet:

• Sovereignty tailwinds. Governments and corporates now score suppliers on resilience, localisation and energy efficiency, turning middleware into a strategic asset.
• AI density economics. Big-tech capex for data-centres could top $200 billion in 2025; tools that let enterprises squeeze more work out of each kilowatt—like KERYS or specialized chip designs for AI workloads—ride that tide, not the consumer mood swing.

Dominik frames founder selection in two questions:

1. Do you own a unique insight born from hands-on pain? and
2. Can you personally sell that insight before hiring sales pros?

The rest—pricing levers around managed services, open-source adoption flywheels, or compliance wrappers—flows from those first principles.

A quiet cameo from Vestlane

Efficiency mantras extend to backtrace’s own stack.

Rather than sink months into bespoke investor-onboarding workflows, Dominik’s team plugged Vestlane’s LP onboarding rail into their fund ops—treating it the way an infra founder treats a managed database: invisible when it works, invaluable when scaling.

The toolbox analogy comes full circle without promotional fanfare: even the investors who bankroll the “engine room” now run on specialised infrastructure themselves.

Where the Story Lands

Europe rarely lacks ideas; it lacks the funding circuitry to turn hard-tech know-how into global standards. By betting early on the layers everyone else depends on and architecting a Europe-roots/US-growth playbook, Dominik Tobschall positions backtrace as both participant and proof-point that the continent can set, not follow, the spec sheet of tomorrow’s digital world.

If the flywheel works, the next Elastic or Stripe might keep its HQ—along with its talent, taxes and know-how—on this side of the Atlantic.