What’s up at Innovation Nest

It has been a long time I we wrote what’s going on at Innovation Nest, hence a few words where we are.

Fund 2 performance

In 2022, we completed the Fund 2 investment period. As I wrote a year ago, we invested in 36 companies in 10 European countries. The vision of investing in Europe has been realized. Where are we? How are portfolio companies doing?

The pre-covid investments

We invested in 17 companies from 2017 until 2019. So far we as much as 7 companies that we either successfully sold or they are growing and achieved a state of Round B or Round C. Comparing with other funds across Europe, this result is very good.

The successful companies are: Antavo, Autenti, HCM Deck, Infraspeak, Perfect Gym and two companies that we exited: Nethone through a merger with MangoPay and Prodmart acquired by Autodesk.

The post-covid investments

From mid 2020 until mid 2022 we invested in 19 companies. Many of them are on a confirmed growth path, just to name a few: AI Clearing, Brink, Ember, Kenjo, Meisterwerk, Pilot and Sense Street. This cohort looks very promising.

Conclusions

Last year was difficult for many startups but not for the companies in the portfolio of Innovation Nest.

There were no down rounds, all companies that had at least moderate performance raised follow-on rounds. Personally I am very proud of the companies we invested in.

The next fund

Having finished the investment period in Fund 2 we started to prepare the next fund. At the beginning of last year I scheduled preliminary talks with limited partners of Fund 2 and than the war in Ukraine started. The attention was moved to other issues.

After initial approach to current investors, in October we started fundraising. But the fundraising situation is tough. The process went slower than expected and last month we decided to move the launch of the next fund to 2024 and to have a break in the fundraising.

The AI revolution

The tough financial market situation coincided with an even bigger shock that takes place, namely the disruptive change in technology brought abnout by Large Language Models with their efficiency epitomized by ChattGPT.

The first digital revolution was broiught about by mass adoption of computers by business and by individual customers. The second one was the mass adoption of Internet in 90’s — when I had the opportunity and privilage to take active part as a founder of Onet.pl.

Now generative AI, and especially Large Language Models that are the engine for knoledge processing and communication with humans, are starting the third revolution

Cycles of competitive advantage

In early 90’s it was the novelty of the application of tech in new area that generated the competitive advantage and the spectacular growth of several businesses. The technology issues were central for building businesses in these period. Thereafter the situation changed, the tech become a commodity and the advantage was created by execution. Of course there are several trends cloud, mobile revolution, blockchain and others, but the biggest tech revolution in software was, in my opinion in 90’s.

Now there is a turn of the tide again. Genrative AI will bring the biggest change since the mass adoption of Internet.

It has a profound implications for the VC industry.

• Tech matters again. Tech competencies are again essential for VC investors
• Land grab is not necerssarily the best strategy, often the second or third generation of startups attacking specific problem will succeed

Conclusions

There is a natural implication for Innovation Nest: as times change, we will go deeper into tech, next investments will be much more AI driven. And we want to understand the dynamics how tech will deliver value and build foundation for long term success in specific areas.

I am looking forward to the next 12 months — to the development of the portfolio, to the growth of AI technology and its influence on B2B software, to our research into AI revolution and microtheses that will lead the future investments.