Charting the Course for 2024: AI, Sustainability, and Disruptive Innovation

As we reflect on the challenges and opportunities the built world and technology sectors faced in 2023, we find ourselves cautiously optimistic as we step into 2024. Surprisingly resilient amid global conflicts and climate change shocks, the world economy is beginning to rebalance, setting the stage for a promising year.

The evolution of artificial intelligence (AI) from hype to strategic adoption, especially with the integration of GenAI, emerges as the most promising prospect for tech businesses in the coming year. Alongside, the built world is now strongly focused on ESG agendas, highlighting a shared commitment to gather better data for socially responsible initiatives in urban development and construction.

With sustainability and technological innovation at the forefront, the real estate sector is gearing up for an exciting phase of technology adoption. Buildings are evolving through the integration of AI, machine learning, IoT, and automated technologies. This shift promises a future where living and working spaces actively contribute to a sustainable and digitised urban environment.

The Pi Labs team is positioned at the epicentre of these industry shifts — here’s their outlook for the year ahead.

Dhruv Gupta

(Investment Manager)

This year will be a continuation of ‘flight to quality’ for VCs; the best companies will raise a disproportionate amount of capital. I see internal bridge rounds reducing as investors decide to cut losses and focus on winners, resulting in more start-up closures in 2024. This will inevitably be hard for affected founders and employees but is net positive as talent and capital gets reallocated to companies that create the highest value and impact.

Energy circularity & flexibility — Battery prices have fallen 83% in the last 10 years, share energy from renewable sources in UK has increased 3x in the last decade (44.5% in 2023 vs. 14.1% in 2013) and energy systems in real estate are rapidly shifting to electric. This paves a clear pathway to for net zero operational carbon in real estate, but we are lacking critical software layer to orchestrate this complex symphony. 2024 will be a pivotal year for software start-ups such as Elyos Energy, OpenVolt, Axle Energy, Enode and others solving this complex problem, enabling the energy transition with great UX.

Augmented reality — Apple’s entry into the augmented reality headsets will open floodgates for new apps by high quality app developers. We will likely look back at 2024 as the 2007 iPhone moment for AR — yes, there is a lot to improve on hardware, but the app economy has stated. In the built world — how we interact with physical spaces, whether it is buying or planning spaces will fundamentally change.

Hugo Silva

(Principal)

After a very complicated 2023, we found the later part of the year to bring some success stories for our portfolio companies, with several rounds finally coming together. There is a sentiment in the market that 2024 will slowly improve, with customers and investors back on track as capital markets recover. As for things that we are excited about, I’m personally curious to see what happens with generative AI after all the dust has settled, and who are the companies that built real businesses, versus the ones that didn’t quite make it.

Michelle Wilk

(Investment Manager)

2023 saw our team travel to Munich, Paris, Helsinki, Copenhagen, Warsaw and New York to source and meet exciting start-ups. 2024 will see us continue to double down on our global investment mandate, in keeping with our 80:20 mandate across Europe vs. rest of the world.

Within Europe, we see France as a particularly promising geography to focus on in 2024. As well as increasingly becoming a frontrunner in the start-up AI race (e.g. Mistral’s record-breaking Seed and Series A raises), initiatives such as the S/EIS equivalent tax breaks (known as the JEI, JEIC & JEIR) are expected to inject an extra €500m of funding into the start-up scene. This — combined with the uptick in new French funds launched in 2023 ($4.7bn in extra capital) — should only make it an increasingly attractive place to launch, grow start-ups and attract talent.

Lastly, much of 2023 saw Pi Labs doubling up as a climate tech investor — meeting start-ups across heat pump installation software, to EV battery monitoring software, right through to computer vision tech to better sort recycling within waste facilities. With no shortage of climate work still to be done, we expect this focus to continue long into 2024 and beyond, as we continue to back businesses playing an important role in decarbonising the cities and places around us.

Henry Martin

(Business Development Manager)

2024 is going to be an exciting year for technology adoption in the built environment. With interest rates remaining high, industry challenges around individual asset disposal and asset acquisition remain high. Therefore, with a huge number of real estate groups unable to transact with the assets in their existing portfolio, there is going to be an increased emphasis on improving what you already have. The solution? Technology.

In 2024, the real estate groups prepared to meaningfully commit to technology adoption are going to generate the most upside. In a market where (non-distressed) transactions are sparse, the assets using tech to operate more efficiently, more sustainably, and more collaboratively (with tech-forward tenant engagement solutions), are going to be the most valuable, and therefore the key to competitive advantage.

It’s also going to be a year where the specialist VCs dominate, owing to the proliferation of undifferentiated, generalist VCs in the boom of 2020–21. On the direct investment side, bridge rounds (which were a staple of start-up fundraising in 2023) will become “no round” (i.e. if the company can’t hit their growth targets, don’t expect VCs to offer more cash), or uplifts (i.e. tough economic environments regularly produce some of the strongest, most resilient companies globally).

Juliet Kerr

(Investment Analyst)

Continuing its trajectory from 2023, sustainability remains a key focus for the year ahead. In particular given the built world’s impact on our climate, this will continue to be an important area for us. With growing attention and funding pouring into AI in the past year, new developments in this space are poised to decarbonise and transform the real estate sector. In addition, we may see a growing recognition that software alone may well be insufficient to address our climate crisis. As such, solutions that go beyond this will likely emerge and grow in the coming year — we’re always excited to hear about new ideas that challenge the traditional software/hardware dichotomy, and think outside the norm!