Specialised VC funds with a narrow focus on things like climate, deeptech and, in some cases, Web3 — have been popping up in Europe for a while. But there’s a new kid on the block in 2023: industry tech.
Funnelling money into industrial sectors — like supply chains, digitising industrial processes and hardware — may not carry the glitz of backing a buzzy AI startup, but considering these areas contribute to just under one-third of greenhouse gas emissions in the EU, there is significant potential for impact. There’s also money to be made, and limited partners (LPs) are on board with that.
“Our very clear focus [on industrial tech] seems to resonate with LPs,” says Maria Wasastjerna, founding partner at Finnish VC Kvanted, which has just closed its first industrial tech fund at €70m. “We’ve really filled a gap, and we don’t compete with some VCs who are more agnostic.”
The investment focus
Kvanted has categorised the sector into three themes: industrial automation, sustainability and supply chain resilience. The Finnish VC is currently scouting for startups in those areas across Northern Europe.
Kvanted’s €70m fund will back about 20 startups, with initial investments ranging from €500k-3m. The fund also has a 12-year cycle — instead of the traditional 10 — which aligns with the longer development cycles inherent in industrial startups.
“We don’t shy away from also investing into hard tech,” Wasastjerna says, pointing out that when other VCs won’t invest in hardware, Kvanted will.
So far, the fund has only made two investments: one in Fractory, an Estonian startup that has developed a cloud manufacturing platform connecting engineering companies with the market, and one in the Dutch-Finnish startup Resoniks, which is developing AI-powered acoustic analysis for metal companies, allowing them to detect faults and irregularities more easily.
The rise of industrial tech
Compared to sectors like fintech, healthtech or even foodtech, industrial tech is a less mature investment sector. However, according to a 2022 Dealroom report, it was one of the few areas that experienced a double-digit percentage increase in investments last year, compared to 2021.
Investments in industrial tech have more than doubled since 2020, reaching $5.5bn in 2022.
“I think it is important to keep in mind that a lot of the climate tech investment can also nicely fall into industrial tech. And that’s also something that we see as really important as an article eight fund,” Wasastjerna says, referring to the “light green” environmental, social and governance (ESG) classification of the fund.
She also thinks there’s a misconception that major industries have undergone the same digital transformation as the rest of society. According to her, that’s not the case.
“We see that the next industrial revolution is about to come, in the sense that traditional industries haven’t truly been digitalised, yet. There’s still a lot of manual stuff, and a lot of room for improvement,” she says.
A VC payday
Industrial tech investments have previously been the remit of corporate venture capital more than VCs. According to Wasastjerna, that has meant slower investment decision-making, extensive corporate guidance and changes to financing strategy.
The difference between corporate and VC strategy is also a challenge — “there is not the same long-term solid perspective and strategy compared to a VC fund,” Wasastjerna says.
With upcoming ESG regulation and a broader push for lowering emissions, Wasastjerna also thinks there’s an opportunity to make money.
“I think the regulatory push, or even the tsunami, is really in favour of the sort of VC funds that are now trying to tap into this domain,” she says.
