By Alex Derber, VCJ Correspondent
Pure-play hardware funds are a rarity in Europe, so a new Belgian investor recently raised eyebrows when it finalized a €117 million ($135 million) fund for early-stage nanoelectronics opportunities.
Based in the tech hub of Leuven, Imec Xpand is an independent VC with links to the Imec R&D center, which specializes in semiconductor innovation.
After 18 months of fundraising, LP contributions to Imec Xpand are split evenly among Imec, local government, financial investors, and corporates including Samsung and Philips.
First-time early-stage funds rarely surpass €100 million in Europe, so breaching that initial target was a big achievement, especially given the tiny presence of Belgian investors in Europe’s venture ecosystem.
But investors are hungry for this type of opportunity, says Tom Vanhoutte, a partner at Imec Xpand.
“Many funds are shying away from hardware investments, while our direct competitors in the tech-transfer funds are typically much smaller and don’t have financial return as their primary key performance indicator,” Vanhoutte says.
Vanhoutte describes his firm as halfway between a tech-transfer fund and a traditional VC.
He says years of advances in data analytics now require hardware improvements to realize their potential.
“In life-science applications, where data is generated for medical reasons, the quality of your device generating the data is at least as important as the data itself,” he says.
He also sees great potential in hardware security, quantum computing, display technologies for augmented reality, and self-driving cars.
“There is no network today, even 5G, that performs well enough to enable a network of self-driving cars,” he says. “So you need hardware innovation that will allow you to process data on a chip before you really have a self-driving car for everyone.”
Of the fund’s four initial investments, three were at seed stage. While it can also invest in Series A and B rounds, the firm likes to participate early, despite the greater technology risk.
“If you develop a technology where semiconductors play a role, it’s crucial you get involved at an early stage because once something has been developed to a certain specification it’s very difficult to change,” explains Vanhoutte.
To help develop their technologies, the firm’s portfolio companies can work with Imec and even use some of its IP.
Imec Xpand can invest up to €8 million over a company’s life to push growth. For initial tickets the firm will invest up to €2.5 million at a very early stage.
But paying up for quality is critical, Vanhoutte said. “To be involved in the right type of opportunities, even at an early stage, you have to be willing to put market valuations out there.”
Among the firm’s early investments is New York-based Mousensor, a biotech startup that uses mice to develop chips that could potentially identify any smell.
It is one of two U.S. investments by Imec Xpand. But most of the 15 or so investments it aims for will be in Europe.
“For early stage it’s beneficial to be close to the companies you support,” Vanhoutte says.
He adds: “We have not seen premiums for U.S. companies yet, but no doubt we will be confronted with them in the future.”
Alex Derber is a U.K.-based contributor. He can be reached at email@example.com.