Why? The story behind the btov Industrial Tech Fund

When we announced the second closing of our btov Industrial Technologies Fund in mid February, we got a lot of positive feedback from the European tech community — as well as many questions. What will you focus on? How do you differentiate from other players in the field? When do I pitch my startup to you? And there also was the question of — Why? Why do you do this, why do you commit the next 10+ years of your professional lives to this mission? This is the most fundamental of all questions and I thought it would be worthwhile sharing our answer.

The ingredients

Firstly, we see a great investment opportunity, which is still largely unaddressed by most mainstream investors. The industrial ecosystem is exposed to two fundamental evolutionary pressures: the need to digitize the whole value chain from concept discovery to design to prototyping to testing to manufacturing to life cycle management. And the need for step improvements in resource efficiency — lower consumption of input factors, drastic reductions in waste and the drive towards a truly circular economy, driven by regulation — but also by good business sense.

Europe has a fantastic R&D base in many of the industrial technologies which we cover, which allow industrial enterprises to react to these pressures and to exploit the opportunities they create — from semiconductor to photonics components, from robots to autonomous vehicles, from additive manufacturing to cognitive supply chain control systems. Large multinationals like IBM, Huawei or GE are ramping their R&D capacities in Europe. Industrial deeptech M&A activity is on the rise, as recently exemplified by the sonnen, relayr and data Artisans acquisitions, with interesting valuation metrics being applied.

Advantage: Europe

Secondly, Europe, for the first time in a while, has a natural advantage in an investment domain. Our continent has delivered globally recognized thought leadership both in industry 4.0 related as well as in green technologies. We have the thought leaders, but also lead customers and supply chain partners within a maximum of two hour flight distance around most of the companies we look at. Germany still leads the world in number of industrial hidden champions, and much of the traditional European industrial base has started to react to the secular wakeup call for more external innovation.

Increasingly those players buy earlier, and with a higher risk appetite from our startups — the best funding mechanism for our companies is revenues. The corollary step after earlier customer engagement will be a higher willingness to buy the partnering startups themselves, eventually reducing our troubling exit dependence on the deep pocketed US and Asian buyer universe which is so dominant in many consumer technology areas.

Our passion

And thirdly, we have raised this Fund because we are passionate about the themes we work on and the sustainable positive impact which our companies can bring to society. A lot of money has been made by making it easier to spend ever more time on binge-consuming digital media; by driving consumers to ever more effortlessly buy ever more products which they might not really need; and by pushing globally acting intermediaries into local service industry structures, shifting value from those who now need to deliver those services on a marginal cost basis to affluent consumers.

Whilst financial gains were great in supporting these “disruptors”, we as a team are somewhat old fashioned, and have less of a “zero sum” investment aim. We pursue technologies that benefit the environment by reducing raw material use, GHG emissions or closing recycling loops. We are excited by companies that produce a social benefit by empowering workers to becoming more productive and supported by sensor enabled smart work environments. We take our governance duties very seriously and always contemplate the ethical and societal impact of dual use technologies (like cyberphysical security or autonomous cognitive systems). “ESG (Environmental, Social and Governance) awareness” did not have to be externally enforced on our thinking. We are proud of being able to contribute our small bit to European competitiveness — whilst upholding our European values — and still generating exciting returns for our investors.

Growth investors: see the light!

So what can hold us back on our mission? We have witnessed the ecosystem evolve for more than 20 years. We now have better management teams, better service providers and have learnt many lessons from our successes and our mistakes. What is still lacking in Europe is growth capital that lives up to its name. That is not fixated on “€1m MRR” or “25 paying customers” metrics, but is willing to “believe” and “see the light” as we do. Today we are often forced to work with strategic investors in our Series B and C rounds — and sometimes that is a good solution. But it also imposes constraints on the scope and size of companies we can build. So we do hope that financial investors will start to share our view that there is more to the investment world than “software only” companies, being judged by self explanatory MRR metrics. Software has not eaten the world. The real world of distributed sensors, embodied cognitive automata and smart actuators — all of course augmented by software — is biting back! And that is the opportunity definition with which we aim to evangelize the growth investor community in the years ahead of us.

Christian Reitberger
(for the btov Industrial Tech Team)