July 6, 2023

Investment Outlook by Nicolas Barthalon on Bondguide

Investment Outlook by Nicolas Barthalon on Bondguide

BondGuide: Mr. Barthalon, first of all, just to warm up: Can you say a few words about yourself and what you're up to these days?

Barthalon: Certainly! My name is Nicolas Barthalon, and I am a venture capitalist currently acting as a Principal at Ventech in Germany. Ventech is a pan-European Venture Capital Fund that specializes in early-stage investments in tech. Having lived both in France and Germany, this experience has provided me with a deep understanding of both cultures and allows me to bring a broader perspective to the startups we support. As a French investor based in Munich, I enjoy supporting ambitious, tech-savvy, early-stage startups in the German market while adding my cross-market expertise. Within Ventech, my primary focus lies within the German ecosystem. In my role, I have been actively involved in notable DACH companies such as Frontastic (exited, buyer: Commercetools), Realxdata (exited, buyer: Moody’s Analytics), 7Learnings, Prewave and Looking ahead, I am interested in opportunities coming from the silver economy, robotics and the digital health sector.

BondGuide: Where are people currently investing within your scene – and why?

Barthalon: Well, Generative AI and climate tech are two areas currently attracting significant attention and investment. 

We see a growing interest in everything related to AI, especially Generative AI, due to the latest progress in the field. It has been a topic of research for quite some time, and now, we are witnessing the emergence of applications from industry giants like Microsoft/OpenAI (ChatGPT) and Google (Bard). This trend has also paved the way for new startups to enter the market, by building on top of these established models and focusing on vertical use cases or on creating new models “from scratch”. One example I have in mind is Mistral AI, a European startup (headquartered in France) specializing in generative AI models, which recently set a record by securing 105 million Euros seed round at its first fundraising. The rise of these new generalist models pushes many large companies to reconsider their strategic options, attracting considerable investor attention.

Another crucial focus for investors at present is climate tech, given the environmental and energy crisis experienced not only in Germany but globally as well. Startups are exploring various avenues for energy production & storage, such as home-based hardware solutions or software-driven approaches that help individuals to make informed decisions while buying electricity from the grid. This particular focus is highly relevant to Germany, as the country has moved away from nuclear fission. Consequently, funds are primarily flowing into German companies engaged in fusion power.

BondGuide: Are we actually in some kind of disruptive upheaval of some industries right now? During the Corona lockdowns, something like this was often claimed, but it seems to me that in 2023 everything will continue as it was before 2020!

Barthalon: The way I see it, COVID-19 challenged our daily lifestyle and our way of doing business and thus acted as a digitisation accelerator for many sectors. Take healthcare, for example. We've witnessed a shift towards embracing new digital tools, with telemedicine and remote patient monitoring gaining more and more acceptance. However, there's still room for improvement. Digital health apps (so called “DiGa”) that support patient treatment must prove their efficacy in order to be reimbursed by health insurers (Krankenkassen), and few have experienced widespread adoption yet. So you could argue that there was a disruption due to the sudden shock created by the pandemic, but in the end it accelerated changes that were coming anyway. We definitely see sectors where digital innovation during COVID-19 will impact the economy on the long run.

Indeed, we are seeing a renewed recognition of the critical role played by human resources (HR) in talent retention and acquisition as the “war for talent” turns into a war against talent attrition. Now, many tools are being tested to improve productivity and retain employees, instead of solely looking and competing for new talents. Moreover, companies have adapted to new job criteria. Many individuals now give greater clout to their personal time and now seek greater flexibility in their work arrangements. They also place greater importance on a company's reputation and brand image, particularly among the younger generation. 

Furthermore, lockdowns have spurred the growth of e-commerce. This has significantly transformed the dynamics of commercial real estate. As city centers and public spaces are no longer utilized to the same extent, we're witnessing a reconfiguration of the market, accompanied by decreasing prices.

BondGuide: On the industry side, who are the beneficiaries of the new world we live in now? The interest rate landscape is very different from how it was a few years ago, when everyone thought it was a one-way street.

Barthalon: There's a clear trend emerging: “insourcing” is on the rise as local production becomes the new priority. The supply chain issues during Corona have impacted our economies, leading to bottlenecks in US and Western European markets. For example, the pharmaceutical industry is bringing back part of its production to Europe to prevent shortages, the energy sources are being diversified after the war in Ukraine started, and we're seeing increased support for European startups like Mistral AI in the deeptech sector, as governments strive for more tech sovereignty.

In response to these changes, governments have been more interventionist, introducing regulations to ensure the economic sustainability of their local market. Take supply chain management, for instance. The new German law on supply chain transparency is now being extended across Europe, requiring companies to be more aware of potential supply chain disruptions. Ironically, following the push for decentralized finance powered by distributed ledger technology, there's now a push for greater transparency and tracking of interactions between sellers and buyers.

Adapting swiftly to these evolving dynamics is crucial. Companies that embrace the challenges and seize opportunities arising from new regulations will definitely benefit from this changing landscape.

BondGuide: Has the exceptional situation during Corona ensured that business angels are more advantageous – or do people prefer to remain cautious, since the visibility is now also limited?

Barthalon: In 2021, business angels in Germany have invested heavily into start-ups, they were the most active continental Europe business angels by investment volume! Due to increased competition back then, they were not necessarily in an advantageous situation. Nonetheless, we can say that the exceptional circumstances during the pandemic have faded away and gaining investor trust is much harder now than two years ago. It is worth noting, though, that good companies with visionary concepts and robust growth metrics continue to secure substantial funding, as demonstrated by our portfolio company Prewave, a supply chain risk intelligence platform, which recently raised an impressive €18 million. This instance show that exceptional startups can still attract significant investment, even amidst uncertain times.

The German interview with Bondguide: