Some criteria for investments are applicable to all kinds of sectors. The fundamental truth for venture capital in general is to invest in a team that that will be able to competently handle tough challenges when faced with them. Investing in hardware, for example, requires a team and a product that will be able to scale; a team with a vision and a range of products that will evolve either horizontally, with more products completing the range, or vertically with more features and more products based on the same core technology.
George Ugras (AV8 Ventures), Aymerik Renard (Hardware Club), Christian Reitberger (Matterwave), Dieter Kraft (TRUMPF Venture), and Eric Benhamou (Benhamou Global Ventures), all members of INPHO’s Editorial Committee, all described the different impacts the health crisis has had on the current economic situation and, therefore, on entrepreneurship in the following sectors:
As we will see, many sectors had to face many present challenges and had to adapt to a consequent change in behaviour that has occurred in the past few years. The durability of this change is however very difficult to predict, making it important for entrepreneurs to focus, not on today’s problems, but on tomorrow’s issues, which is going to be a very different world than the last two years.
In today’s world, global access to healthcare is unbalanced; in the US, billions of dollars are invested to modernise & improve the way healthcare is provided, welcoming European companies offering great innovative technologies. For George Ugras, Managing Director of AV8 Ventures and Chairman of INPHO Venture Summit, Covid-19 has had a lot of effects on the healthcare system in the past 2 years, both positive and negative. On the one hand, its after-effects will be felt as a lot of diseases have been ignored during the health crisis while the virus has taken major importance in all research facilities, pushing back all ongoing research.
However, the heightened awareness of the majority of the global population about biotechnologies will create a tremendous number of opportunities in the near future. Lots of new ideas have emerged, and according to George Ugras, the vaccine technology, mRNA, has paved a new path to how we tackle other diseases, and it has opened people’s minds to new healthcare models with innovative approaches. The use of AI also changes the way we look at genetic diseases, as sequencing data alone has proven ineffective. With AI technologies, companies have been able to integrate other personal data and provide a much more holistic view of individuals. AI-enabled medicine is expected to generate new unicorns in the year to come. When it comes to medical imaging, the technology and use of AI is already set. However, the approach to integrate it in a physiologists’ day-to-day work still requires further improvements. There is thus still room for companies to innovate by proposing new business models to disrupt the sector. New healthcare models, and how they are delivered to patients, are thus definitely part of the hot topics to invest in
Covid-19 made the world realise how interdependent our global supply chain was. As Aymerik Renard, General Partner at Hardware Club (HCVC), mentioned, we have observed a cascade effect by the pandemic on distribution channels: quarantines led to an absence of people on sites, which led to a shortage of materials resulting delays and risen prices. The many shut downs of borders also affected the logistics with delays and bottlenecks. All these factors have made it difficult to produce and deliver on time and to maintain companies afloat. It has thus awakened an increased interest in supplying locally, and in automation to control production lines and in programming with the introduction of more cobotic and robotic solutions. An effort on this can already be observed, both inside factories and on docking areas.
Start-ups play a major role in this scenario, taking advantage of these opportunities and bringing new solutions to major players. For them, automation represents massive costs in terms of infrastructure, transportation, design, and human resources. Elon Musk famously talked about automation, when TESLA was trying to ramp up the Model 3 production lines: they faced all the challenges of traditional manufacturing. The good news is there are a number of start-ups tackling that area, as for example Fast Track Automation, a company of HCVC portfolio. Many new business models are emerging, as Robot as a Service, with companies offering person-hour equivalent type of structures instead of selling robots for a very high price. This results in factories being more agile, and automation affordable for any size of factories. Eric Benhamou, Founder at Benhamou Global Ventures, also added that the Health Crisis intensified the emerging trend of ordering online. We are no longer looking at the human problem of needing salespeople, but now facing deliveries efficiency issues. AI, of course, is vital to solving this new problem, which principally hinges on mathematics. Deliveries are now happening every second of the day, and trying to make any improvements in development, software, and in algorithmics, comes at a very high risk.
AI is shown to be useful in many sectors, as we have seen previously, medicine and the supply chain rely heavily on it. However, recent developments have highlighted the weaknesses of AI, increasing any form of bias in an algorithm. For Eric Benhamou, the ethical part of an AI algorithm was not at the forefront of priorities in its premises, we are now much more sensitized to any kind of unreasonable behaviour. Behind the concept of Ethical AI lays the implication that models are stable and do not drift. Decisions made by AI must be explainable and the data they rely on must be free from bias. The description is however much easier than incrementation, as up to now only “how to” guides are being created.
Usually, Ethical AI approaches need to be taken at a very early stage, as the ones Benhamou Global Ventures is looking into, so companies are not already prisoners of their own business models, and the “how-to” guides are very important as they will allow us to build stronger and better companies for the future. Ethical AI promises to be a very hot topic, as both AI and ESG (Environmental, Social, Governance) are gaining major importance in the current economy. If over the last decades ESG was a nice to have, today, it is very hard to find any company that doesn’t have an ESG plan. Eric Benhamou highlights that it has come to a point where even private investors are required to have this kind of policy and to invest in companies that have one as well. Ethical AI is a strong part of ESG policies. Another growing aspect on that topic where Europe is already quite advanced is the Carbon Footprint, the tools to assess it, or climate-oriented solutions including recycling or energy storage. Sensitivity in favour of Cleantech and sustainable technologies started for some companies decades ago, but it was not that systematic but it was very capital expensive. Nowadays, this sensitivity is increasingly integrated in the strategies of many big corporations. For Dieter Kraft, Managing Director of TRUMPF Venture, if decades ago it was considered as a specificity for the companies which implemented it in the first place, there is no room for change anymore and it is changing the industry massively. On the one hand it is a huge constraint that weighs on companies and investors, while on the other hand it reflects a broad awareness from the much younger and stronger generations. As Eric Benhamou points out, we might not be able to dispose of Climate Change issues in one year, or even in a decade, but it will generate a fast track of investments and multiple social debates.
It was pointed out that, in the frame of ESG policies, multiple business models are exploring Circular Economy business models at the moment, such as reuse, recycling, reducing waste, packaging for a second-hand market, and a lot of start-ups are currently funded to professionalise that area. In some countries, incentives are encouraging start-ups to position themselves in that area, France for example has deployed initiatives to reduce waste in the textiles industry. For Dieter Kraft, at TRUMPF, they have had that sensitivity to Cleantech and Sustainability for over a decade, despite the capital expenses. Today, their habit to take ESG into consideration is a strength as the Circular Economy and social impact are getting closer to their core values, and according to Dieter Kraft, it is not something you can switch on in a day.
We see new business models and the impact on the environment are disrupting the whole supply chain. Even so, Dieter Kraft indicates they have also impacted the new space sector. Where we used to have big corporations looking at the design of a rocket’s powertrain for example, today, we see a massive influence of lower cost technologies, and space is used for many applications which have totally changed the market where start-ups are finding their place.
Christian Reitberger, Partner at Matterwave, describes the industry of semiconductors as very attractive as it represents more than $500B, and it would appear that a market this size could afford to be very innovative, being driven by large corporates with an enormous R&D budget. Start-ups could arguably have a major part to play. But the truth is, at the moment, these big players are not innovative because running a semiconductor supply chain from EDA to packaging is an enormous undertaking. However, improving, design exploration, architecture or production processes or metrology, is a very interesting topic for start-ups to position themselves in.
Christian Reitberger also mentions the many actions being announced by the various regions like the US, China or even Europe with the newly announced Chip Act. Now, we will see these announcements being translated into actions, opening a golden age for semiconductor investing. It will require a collective effort from the entire ecosystem, including investors to invest in smarter ways to run the semiconductors supply chain, implying new EDA tools, new generative designs, innovative architecture, new materials and lots of systems. All of these aspects will be required, but the most important will be to innovate and to get more performance out of the innovations. Today we need to find a way to avoid the different shortages, in components and in skilled labour, in which, again, AI could help a lot.
For Christian Reitberger, the first goal when investing in Quantum technologies is to solve the industry’s problems. If a company changes the way we currently solve the problem using quantum technologies but achieves the same results, it will not be able to raise funds. The idea is to solve a specific problem and bring a performing solution with better results. And this is something quantum technologies can help with, if done in a smart way.