At Luxembourg Venture Days 2024, a panel discussion provided an insightful exploration into the current state of venture capital in Luxembourg, Europe, and globally.
Industry experts including Yannick Oswald, Partner at Mangrove Capital, joined by Victoire Laurenty Principal at Wendel, Michael Mc Graw Principal-Growth Equity at Inovia Capital, Jeremy Shure Senior Investment Partner at Sella, and Philippe Nyssen Principal at Sofina, to share their perspectives on the latest trends, challenges, and opportunities in the world of venture funding during the Luxembourg Venture Days.
“I think it's a great panel. We saw big long-term trends that all the panelists were excited about. Obviously, AI was the topic today. One lesson was that we're all-seeing massive productivity gains in our companies, which then translate to also capital efficiency. And I think this is not. We see it in the startups today and tomorrow this will be a big opportunity for economies at large and for Luxembourg. Also, I think what was clear to me is a very exciting time to be in the venture capital world and in the startup world. We're seeing a lot of innovation, but not only from startups, but also from the best investors and how they think and adapt to win in the next 20 years,” said Oswald.
One lesson was that we're all-seeing massive productivity gains in our companies, which then translate to also capital efficiency.
The panel began by addressing the current state of venture capital globally, with a focus on the growing waves of innovation and their impact on the VC trends. While innovation is driving the industry forward and becoming increasingly global, they also highlight the challenge of navigating market hype to identify genuine opportunities. The panellists explored these trends, opportunities, and challenges in the venture capital ecosystem, shifting to AI as a main theme of the market.
The panel addressed the rise of AI as a key theme in venture capital today. As Oswald noted, "AI is undoubtedly dominating headlines, with much of the early focus being on infrastructure layers like hardware and chips. However, we are now witnessing a shift toward applications of AI in solving real-world problems, particularly in industries where it can add significant value." The importance of identifying AI applications with clear return on investment (ROI), especially in niche areas like cybersecurity, where AI can help defend against threats that previously only larger businesses faced was highlighted.
“I think I'd obviously be remiss if I didn't talk about AI, which is probably the headlines every day. If we contextualize a little bit where we are today, like a few years ago where we saw a lot of the capital going was in the infrastructure layers. We're talking about hardware and chips. We're talking about software and the front-end models. Where a lot of us today, in recent years, are spending a bit more time on the application, when it is this hardware being used to solve real problems. So, AI is real. That's an opportunity,” said Mc Graw. The discussion also touched on deeptech, another growing focus within venture capital. Public funding and significant private investments are being channeled into deep tech, particularly in fields like robotics and advanced software.
We are now witnessing a shift toward applications of AI in solving real-world problems, particularly in industries where it can add significant value.
Deep tech companies, especially those from France and Spain, are showing strong growth, and we expect this sector to expand significantly across Europe in the coming years. With a long-term investment horizon, the panel agreed that patient capital is essential to supporting the development of these high-impact technologies. “So we invested that for a minute. What we've been doing, entrepreneurs, PBs, LBs, for the past 10, 15 years is institutionalize and escalate the votes of non-institutional ventures that are very long. And so we basically built a factory line,” said Nyssen.
“We have a great institution in the European Union as well. But we don't have the business model yet. There are two big states and several that are really doing revenues. Still, in the early beginning, in the US, the valuation is super high for AI. But it is because the companies are growing faster,” said Laurenty. A report was referenced, highlighting that AI tools have improved productivity by up to 50% in certain companies. The use of AI in startups allows even small teams to operate more efficiently, avoiding the technical debt often associated with scaling.
This increased efficiency, pointed out by the panel, is a key factor driving investment interest in AI-driven startups.
AI companies are currently valued 68% higher than their non-AI counterparts. This is driven by factors like fear of missing out (FOMO), speculative future potential, and the pressure VCs face to deliver results. After the record financing year of 2021, many companies were overvalued, leading to a market correction. Now, more companies are adjusting to reasonable valuations, especially those outside of the AI sector.
There is a growing shift from focusing purely on revenue growth to emphasizing profitability and capital efficiency. Companies are increasingly evaluated based on their ability to generate quantifiable, sustainable results. AI enables the creation of capital-efficient startups, where businesses can scale quickly with fewer resources. For example, MidJourney reached $200m in revenue with only 11 employees and no outside funding.
Companies are increasingly evaluated based on their ability to generate quantifiable, sustainable results.
This has attracted VCs interested in high-growth, low-capital startups. “They raised a lot of capital, sometimes teams that found their niche and actually raised money, but don't necessarily have energy to raise capital for traditional finance, so there's a question about the quality of those teams. And then they have to deploy the money on a fixed timeline,” said Shure.
While large, established funds continue to dominate, there are opportunities for smaller, emerging managers, especially those who can demonstrate sustainability and capital efficiency. “On the other hand, there's a lot of hype and sometimes it's a bit difficult to understand what is real and what is fake. And on the other hand, for all the followers here and investors, the name of the game today is capital scarcity and liquidity challenges,” said Laurenty.
