Despite the increasing focus on health, health systems globally are still inefficient due to an imbalance between spending on treatment and prevention. The rise of new remote monitoring technologies can help prevent many diseases
The pandemic has rekindled the spotlight on health and the centrality of an efficient and accessible health system in the light of demographic dynamics, in particular the growth and ageing of the world’s population. But the healthcare sector, as it is currently configured, is still highly inefficient in many countries, where much is spent on treating the sick but little on prevention, which would help keep people healthy. Suffice it to say that in the European Union more than €2,300 billion is spent annually on health (more than 14% of the Gross Domestic Product), with an average of more than €4,500 per year per citizen. Both public and private entities spend this money. However, in recent years (with an acceleration after the COVID-19 pandemic), the focus on prevention has undoubtedly increased, driven by the growth of telemedicine platforms and vital sign monitoring devices.
Prevention needs technological innovation
With the right technologies, up to 5 million deaths per year in Europe (55% of total deaths, according to World Health Organization estimates) could be prevented, as they are caused by diseases that could be detected early – and therefore treated early – through remote monitoring of vital parameters.
The prevalence of preventable diseases with remote monitoring technologies is higher than previously thought, as these diseases often do not give symptoms until the clinical picture suddenly worsens, leading to death or permanent consequences that significantly worsen the quality of life. One example is arterial hypertension, which affects between 30% and 45% of the adult population and can trigger heart attacks or strokes.
When assessing a person’s health, the World Health Organization (WHO) indicates five specific vital parameters to be monitored, accompanied by an electrocardiogram: blood pressure, heart rate, respiratory rate, saturation and body temperature. The traditional instruments for measuring these vital parameters are the sphygmomanometer for blood pressure, the pulse oximeter for saturation and respiratory rate, the thermometer for temperature, the heart rate monitor, and the electrocardiograph for ECG. Still, except for temperature, checks are usually done sporadically. Some traditional instruments are invasive for the patient and often lack timely data monitoring. Therefore, many companies have started to develop technologies that, based on AI algorithms, can replace traditional instruments and are also able to track user data.
The most innovative technological solutions for prevention
The landscape of companies offering vital sign monitoring solutions is vast and varied. However, only a few of these instruments have been certified as medical devices, and they are often solutions aimed at a B2B market. Having CE/FDA certification as a medical device allows a physician to use the data generated by the technology for diagnostic purposes. Among the companies offering products that are not certified as medical devices, the most popular in the B2C market are Apple, Fitbit and Garmin. It should be noted that Apple Watch 7 and Fitbit can calculate ECG (for which they are certified as medical devices), heart rate, respiratory rate and saturation. In contrast, Garmin only calculates heart rate, respiratory rate and saturation.
One certainly innovative company among those not yet certified as medical devices and aiming at a B2B (mainly insurance) market is Binah. The Israeli company, founded in 2016, has developed a technology that allows monitoring of vital parameters through the camera of one’s mobile phone by breaking down the image captured by the camera into the colour components and recreating a PPG signal that is then analysed by the AI algorithm. Through this technology, Binah.ai can simultaneously measure the five vital parameters outlined by the WHO.
The companies that have proposed solutions for monitoring vital parameters and have obtained certification as a medical device include the American Biofourmis, the Israeli Biobeat and the Italian IppocraTech, all of which are currently operating in the B2B market only.
Biofourmis was founded in 2015 and has a technology that uses an AI algorithm to measure heart rate, respiratory rate and saturation through signals sent by a watch. Furthermore, Biofourmis’ AI algorithm can calculate personalised health indices for individual users to help them monitor their health.
Biobeat was founded in 2016 and has developed a technology that allows the monitoring of the five vital parameters indicated by the WHO through PPG signals sent through a watch featuring the AI algorithm and the measurement of the ECG through a disposable patch to be attached to the chest, whose signals are then sent to the AI algorithm of the same watch.
IppocraTech, on the other hand, was founded in 2017 and launched a system that allows the calculation of the five vital parameters and the ECG through a single measurement, by placing the palms of the hands on the two sensors of the device (the temperature is detected through an infrared thermometer placed on the same instrument) and sending the PPG and ECG signals to the AI algorithm located in the company’s Cloud.
Venture Capital interest in the industry
The interest of the Venture Capital funds in this industry vertical has grown significantly in recent years. As is often the case in high-tech sectors, the most significant rounds have been on companies in the US and Israel.
The US company Biouformis has raised €125 million, including €85 million in the latest round in September 2020, in which Softbank, Sequoia, Openspace Ventures and MassMutual Ventures participated. Israeli company Cnoga (which developed a medical device to simultaneously measure heart rate, saturation and blood pressure from the finger) raised €63 million, including €10 million in a Series A round in October 2014, led by Chinese fund Fortune Capital and €47 million in a Series B round in March 2017 led by Chinese company BOE Technology Group.
Binah.ai raised €41 million, including €16.5 million, in the latest round closed in February 2021, participated by Israel’s iAngels and operator Tomahawk.VC. US-based Caretaker Medical (which developed a device to simultaneously measure all five vitals and ECG via a disposable wristband and finger sensor) raised €3 million in June 2020 Series A round led by Venture Capital firm Philips Ventures.
The future of prevention
Preventive healthcare based on remote monitoring technologies will become part of our daily lives, although there are still barriers to be overcome for its deployment. The main hurdles to overcome relate to the cost of using these technologies and the user’s commitment to continue monitoring themselves. In addition, the most comprehensive and efficient technologies are still only intended for the B2B market and are available at high prices. A system of government incentives for this category of products would undoubtedly help to enter the B2C market.
Moreover, at the moment, these technologies are mainly used by chronically ill people, and healthy people almost always lack a certain constancy in the continuous use of these technologies. In fact, in addition to awareness-raising campaigns on prevention, both the consensus of the scientific community (so doctors must promote the use of these technologies) and the integration of the technologies into telemedicine platforms would be necessary in order to actively monitor the tests performed by users, so that the latter know that there is someone watching their tests, warning them in time in case of problems. An example of this integration comes from FibriCheck, which has created an App that can be installed on Fitbit watches to detect heart arrhythmias. Whenever a suspicious measurement is detected in the users’ parameters, the data is analysed by doctors connected to FibriCheck, and a report is automatically sent to the users to alert them of any problems.
In the not too distant future, we can imagine the possibility of quickly and frequently checking our vital parameters so that our doctor (or another doctor who has access to the technology we decide to use) has a constantly updated database with all the readings and trends concerning our health, and can promptly intervene if there is any suspicious value. This scenario would lead on the one hand to critical cost savings for the healthcare system, which would become much more efficient, and on the other hand to an immediate benefit for people’s health (physical and mental). Life has many variables that are beyond our control and that often influence the very sphere of health. Thanks to the spread of remote monitoring technologies, we will be able to reduce the likelihood that these external variables will negatively affect our lives or those of our loved ones and thus live more peacefully.
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The figures indicate unprecedented interest in the sector, which experienced a record 2021, even in Italy. This is due to a number of favourable structural factors, coupled with a growing interest on the part of a wider audience of investors
If there is a lesson to be drawn from the extraordinary Silicon Valley boom since the 1970s, it is that an innovation ecosystem needs an intertwining of cultural and economic factors, and common ground between investors, entrepreneurs, academia and institutions in order to thrive. From this perspective, the rise of Venture Capital as a true asset class is nothing but good news: now that VC investments in innovative startups are no longer considered a niche for a few “brave capitals,” but also a form of portfolio diversification for a broader audience of investors, one of the conditions that allows innovative ideas to progress and be transformed into successful entrepreneurial realities is being met. In fact, a sort of “democratisation” of investments in private markets (not only Venture Capital – it must be said – but also Private Equity, Private Debt, infrastructure, etc.) is currently underway. First, the trend started with a growing exposure to private markets in the portfolios of institutional investors, in search of returns that were hard to come by in the zero-interest-rate environment of the most recent recent years; then, it expanded to the portfolios of private individuals. In parallel with increased investor demand and lower financing costs, the need for funds by an increasing number of innovative entities has also grown, thanks to the powerful secular trend of the digitisation of the economy, which has completely overhauled lifestyles and business models.
It is no coincidence that 2021 was a record year for Venture Capital, with investments doubling globally. Even in Italy, where the sector had suffered from a certain dwarfism until a few years ago, last year was exceptional, with investments exceeding one billion euro for the first time. This is also thanks to greater acknowledgement on the part of the institutions, which in recent years have created a more favourable context for the innovation ecosystem, both with regulatory interventions and with investments and initiatives by public entities.
One can see the results: in Italy, even the first quarter of 2022 – which elsewhere has seen a slowdown due to the uncertainties linked to the conflict in Ukraine – has shown further progress in Venture Capital, with a total of 54 funding rounds, and €420 million invested, up 35% on the €311 million of the first three months of the previous year, according to data from the first Observatory on Venture Capital in Italy, carried out by Cross Border Growth Capital in collaboration with Italian Tech Alliance.
Italy has woken
The figures achieved are “A significant threshold to start ‘playing’ in the same league as the rest of the European countries with a more developed startup ecosystem,” Maria Ameli, Banca Generali’s Head of Equity Private Markets, remarks. With 334 deals, 2021 closed with startup investments of €1.243 billion, up 118 percent from €569 million in 2020. And rounds with investment over 20 million euros more than doubled from the previous year. “Admittedly, Italian figures are still far from European best practices such as Germany, which in 2021 recorded triple-digit growth in total Venture Capital investments, rising from €4.5 billion to €16.2 billion. However, we see encouraging signs for a further phase of growth and maturity of the system,” Mrs. Ameli adds.
The bottom line, the expert continues, is that the growth of investments in innovation through startups is taking place in many European economies at a higher rate than in Italy, thanks to a wider availability of resources, not only from public sources, and a more widespread system of infrastructures and services.
Now, however, something is moving in Italy as well. “Several initiatives, also related to the PNRR (the Italian National Recovery and Resilience Plan), pursue objectives that can enable Venture Capital to reach a new level. The Italian market showed a significant increase in the number of pre-seed/seed stage deals, from 53 in 2020 to 233 deals in 2021. The increase in late-stage Venture Capital and Growth Equity rounds is also notable, far exceeding the historical average and testifying to a significant maturation of startups,” Mrs. Ameli argues, adding that “Our country is faced with the urgent need to promote youth entrepreneurship, which is the only way to include new generations in the economic and working world by generating new value.”
For that matter, the international context also looks encouraging: suffice to think of the many triple-digit transactions seen in recent years in the United States and Europe. “Personally, I do think these should be a further stimulus for growth in Italy as well,” Mrs. Ameli says.
Investors’ interest
As mentioned earlier, an ecosystem by definition is an environment in which there is a unity of views and interests. Therefore, in parallel with the growth in investment and increased institutional support, Venture Capital is also gaining increasing interest from investors who in the past would not have approached this asset class.
“Venture Capital represents a highly attractive form of investment,” Gianluca La Calce, Head of Marketing and Offering Development at Fideuram Intesa Sanpaolo Private Banking, comments. “The focus on companies, often of an innovative nature, at a stage of development that is still early or, at least, not yet mature, has a strong appeal for the investor, together with the expectation of being able to participate in the phase of maximum growth and return. The same reasons that make the asset class attractive are those that invite, clearly, caution due to the higher risk inherent in the investment,” Mr. La Calce adds.
Experts point out that forms of investment such as Venture Capital represent a win-win situation: both for the development of more mature markets, with more investors having access to alternative formulas and a greater diversification of sources of return; and for more resources to be allocated to promising and innovative companies, and the virtuous circle effect that is created when an increasing number of companies succeed. Indeed, if a number of innovative realities succeed in the marketplace, a valuable network of expertise is created, and founders will be pushed to create new companies or make capital and expertise available to new startups, and other potential founders will be enticed to try their hand. At the same time, established companies will be able to access disruptive innovations and ideas by investing in emerging realities, often in a more efficient way and time than in solutions developed “in house.”
From the investor’s point of view, as Mr. La Calce explains, there are two interesting aspects. “The first is that of representing a complement, in terms of a driver of value generation, to forms of investment that target in the private market companies at a more advanced stage of development; the second reason is of a commercial nature, precisely because of the intrinsic attractiveness in the eyes of an investor sensitive to the idea of participating, without losing the benefits of diversification, in entrepreneurial initiatives up to an early stage.”
Certainly, Venture Capital is nonetheless a type of investment with a quite different risk factor than exposure to traditional instruments in listed markets. Therefore, Mr. La Calce adds, “By all means the target investor must already have a good level of investment experience in private markets and must be aware of the inherent risks in the asset class. These investments are mostly aimed at professional investors or, in any case, investors with significant wealth and assisted by skilled advisors.”
For financial investors, both professional and retail, Mrs. Ameli emphasises that – in addition to the advantage of being exposed to instruments decorrelated to the markets (and thus avoiding volatility in phases of turbulence) and taking advantage of the illiquidity premium to intercept higher average returns – investing in Venture Capital also offers “A ‘moral’ benefit that is of increasing interest to more and more people, and which is given by the fact of actively contributing to the relaunch of the Italian economic fabric after a moment of severe crisis such as the one generated by the pandemic.”
To this end, Banca Generali “Has created a container – called BG4Real – which acts as an intermediary between private savings and the real economy, and which has allowed us to support the growth path of some interesting innovative scale-ups, both Italian and foreign ones.” In addition, we should not underestimate the advantages for so-called industrial investors, i.e. mature and consolidated companies that focus on startups to “Pursue, above all, strategic objectives of presiding over and developing new technologies and/or new business models, accessing new skills, ideas and technologies outside the company perimeter.” This is a trend that has been strongly accelerated by the pandemic, Mrs. Ameli remarks.
Finally, Mr. La Calce recalls that “A characteristic of private markets is the extensive dispersion of results between different managers, but also the persistence of results; therefore, it is very important to have the possibility to invest with the best managers. This is a particularly relevant issue in VC, where there are big differences if you operate in the early stage or in the growth one, and where there are markets, such as the American one, which are mature and with excellent players and markets, and others with a different stage of development.”
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One of the Deep Tech’s largest and most well-recognised verticals, the sector offers promising perspectives both on defence and commercial applications. Also in Italy, which hosts a flourishing and varied ecosystem
If you could have any superpower, what would you like it to be? For many people, the answer would be ‘the ability to fly’. This is probably because as humans we have always been obsessed with ‘flying,’ with mentions of flying chariots, objects, and even personal wings, in many historical texts. Funnily enough, to deliver letters faster, people in the past have even resorted to using pigeons. Even now, when airplanes and helicopters have become readily available as means of transport, many still dream of being able to just soar the skies whenever they want in their personal vehicles of choice. ‘Space’ is another realm that has always intrigued the consciousness of mankind. It is as if the more we know, the less we realise we know. Notwithstanding that, as we explore, we have also been able to harness its properties to create resources for our technological betterment, for example, taking inspiration from the moon as a satellite and then creating our own mechanical ones.
The combined fascination with the two areas above has led to the birth of the sector Aerospace, which is in fact, a term used to collectively refer to: Atmosphere and Outer Space. The general industry deals with anything related to vehicular flight within and beyond Earth’s atmosphere, making it one of the largest and most influential industries with both private and public applications. It is, in fact, one of the Deep Tech sector’s largest and most well-recognised verticals.
Deep Tech companies produce nothing short of innovative discoveries, and therefore, for an Aerospace company to count as part of the deep tech sector, the product in development cannot be the conventional commercial aircraft or a new kind of related service. Whether a drone or satellite, the underlying solution should be as inimitable as possible while breaking some sort of technical or scientific boundary.
Investors are taking notice
We can divide recent investments into two themed verticals: Drones and Satellites. In terms of the sub-sector drones, in particular unmanned air taxis and cargo drones, $3.8 billion of investment was performed in 2021 (+216.67% from 2020) according to a report by Phystech Ventures (an early-stage deep tech VC firm). This has led to the development of no fewer than 170 different e-VTOLs by almost 130 different countries.
In terms of the sub-sector satellites, in 2021, $17 billion (+ 86.81% from 2020) was invested into 328 different space companies, as reported by Space Capital (a Venture Capital firm). The United States, understandably so, had the highest percentage of investments (62%), followed by Japan (30%), and then Italy (2%). Even though these 328 companies consisted of different space-based products, most of the investment flowed into one segment: launch and satellite (95%); the rest went into biospheres.
Governments and international institutions worldwide, mainly European, are also noticing this sector’s potential. The European Space program (already operating the likes of Copernicus Egnos and Galileo), with a budget of $14.67 billion spanning seven years from 2021 onwards, is one such example. It intends to fund applications based on services such as navigation and timing, space surveillance and tracking, and effective satellite communications.
Recently, individual countries like Germany, France and Luxembourg have also founded joint institutions like Euro2Moon (October 2021), to promote the exploitation of lunar-surface-based resources. Italy’s very familiar National Recovery and Resilience Plan (PNRR) has also set aside €1.49 billion to focus, among others, on satellite communication, space access, earth observation, and in-orbit economy applications.
This high investment has ultimately powered Aerospace companies to produce products spanning different industries and, therefore, customers. The applications can be divided into two broad contrasting categories, commercial, and defence.
Commercial applications
Most commercial Aerospace applications have a futuristic ring to them, something straight out of science fiction novels and movies. They tend to be something that most people think of when asked about the future of technology. These Aerospace companies develop products with applications striving to increase human convenience. The sub-sectors attracting the most attention are:
Mobility: The list from something that comes to everyone’s mind when thinking of aerospace: flying cars. They have been mentioned in the media since as early as 1890, almost as far back as the invention of actual grounded cars (1885). However, it’s only now that we have come close to fulfilling this age-old vision, through drones. Innovators like Volocopter (with a valuation of $1.7 billion), an all-electric air taxi manufacturer, is planning to launch this service soon. Even one of Cliffs’ portfolio companies (fund of Milano Investment Partners SGR), Orb Aerospace is in the early stages of developing an electric aircraft providing the freedom to fly, for everyone.
Logistics: Cargo drones have the capability of solving massive logistical problems. While many companies are focusing on last-mile delivery, there is also an enormous opportunity in the middle-mile delivery sector. Both solutions can drastically increase and aid express delivery services, decrease cost and time needed by current solutions, elevating the quality of life of more than a billion people worldwide. Cliffs’ portfolio company (fund of Milano Investment Partners SGR), Elroy Air, is one such example with the mission to enable same-day shipping.
Increased connectivity for Remote Areas: Automated unmanned aerial vehicles can help provide better connectivity and internet access to faraway rural areas (another Cliffs’ portfolio company, Skydweller Aero, is developing perpetually flying solar drones and has similar objectives as one of its main applications). As a matter of fact, almost 20 companies globally, including Amazon, Boeing, Astra, and Telesat, are planning to launch around 38,000 total satellites to provide broadband services to remote areas.
Healthcare & Emergency: Drones are increasingly being used to provide rapid healthcare access, for example, Zipline, a drone delivery startup (with a €2.75 billion valuation), has made a name for itself in African countries like Rwanda and Ghana where it used its drones to transport vaccinations, blood, and life-saving medications. Emergency responders are also already using drones to aid trapped people in need, especially in dangerous situations. In some cases, they have helped to prevent disasters altogether.
High-Risk Jobs: Drones can help eliminate the risk of exposure to chemicals, harmful substances, and falling from heights (one of the leading causes of death in workplaces) in many jobs. Companies such as BASF, Royal Dutch Shell, AT&T, and Dow Inc. have already begun using them. Drones are saving these companies downtime, cost, and productivity on their maintenance personnel.
Geospatial Imagery: With the rise in demand for locationbased technologies and drones for surveillance (already being used in agriculture, GPS, crime mapping, road traffic mapping, etc.), geospatial imagery providing satellites are forecasted to witness immense growth. With the major autopilot evolution in cars and airspace, automotive companies like the Chinese automaker Geely, are looking to launch their own satellites.
Space travel: Private company SpaceX made history in 2020 when it sent humans to space. Since then, there has been an elevated hype around space travel. Companies like Boeing, Blue Origin, Virgin Galactic, and even NASA (in collaboration with SpaceX), are enhancing their efforts to sustainably bring private citizens to space at scale. This sector will create an opportunity through space tourism while increasing the demand for rocket manufacturing companies.
Defence applications
While catering to a more conventional commercial market, applications like surveillance, logistics, and geospatial imagery can also fulfill and create demand for a different sector, military and defence. A significant funding source for private aerospace companies has been international governments (mainly the U.S. Federal Government). For example, according to an analysis by financial consulting firm McKinsey, out of the around $18 billion spent on space-related R&D expenditure in 2020, the U.S. Federal Government spent $12 billion. And now, especially with the current political environment referring to the Russian-Ukrainian war, many European countries (and beyond) who had wholly forsaken the idea of a high defence expenditure are forced to reevaluate. For example, Germany, which has resisted pressure for a long time, is now planning to increase its defence spending to 2% of its economic output (in addition to $100 billion) compared to 1.53% in 2021.
This is welcome news for Aerospace companies worldwide, but especially for European companies (European countries are increasingly planning to increase their spending on ‘made in Europe’ defence products), who are developing drones for operations like reconnaissance to provide battlefield intelligence, logistics to deliver essential cargo, and carrying out tasks that can be deemed as potentially dangerous.
The European Union has also already launched several programs such as EuroMale drones (Medium Altitude Long Endurance Remotely Piloted Aircraft System) and Temptest fighter jet project (sixthgeneration fighter jet). Moreover, one of the projects the U.S. Department of Defence recently supported is Anduril, a developer of long flying autonomous air systems all connected through Artificial Intelligence, which just raised $450 million at a $4.6 billion valuation.
Italy as a hub for Aerospace endeavours
Speaking of European Aerospace companies receiving a lot of attention, it might be surprising for some readers to find out that the Italian Aerospace and Defence industry ranks amongst the top 10 worldwide, with 300 SMEs and five regional players. The applications, of course, range from both military and commercial uses. The sector in Italy generates around €13 billion in revenues and is complemented by a highly skilled workforce of 64,000 employees. The ecosystem consists of many well-recognised international organisations with complex systems, encouraging small Italian Aerospace SME companies focused on the downstream and upstream activities of the supply chain. Leonardo, the Italian multinational company, and the eighth largest defence contractor globally, supports 52 Italian sites and supplies from 4,000 Italian SME suppliers.
D-Orbit is another such company that has become a leader in space logistics and orbital transportation services, after only being founded in 2011. The organization has already delivered more than 70 payloads into space.
The Italian Space Agency (ASI) also has a long history of bilateral cooperation with other international space agencies. NASA and ASI have traditionally been on many profitable space missions. The successful mission in December 2021, IXPE (Imaging X-ray Polarimetry Explorer satellite), born out of the two agencies’ successful partnership is one such recent example. Italy is also involved in EU programs such as GMES and Galileo, putting it on the third position in terms of contribution to the European Space Agency.
A promising sector
In the past, satellite technology has already changed our lives with things we now consider mundane like mobile phones, weather forecasts, credit card transactions, GPS, etc. This is just the tip of the iceberg. As aerospace technologies develop, ordinary people will be able to access a lifestyle with even more luxury and ease. Same-day deliveries, air taxis, even better internet connection and remote access; enhanced safety, more food security, and perhaps even space travel (for everybody), one day.
It should be said that very clearly, inventions in the aerospace sector aid many commercial applications. However, they can be hard to distinguish from and are part of the technological progress that often criticised military and defence spending has brought. With the ever-changing geopolitical environment, perhaps both applications could be something useful and ultimately lead to a better future. Nevertheless, we hope that the Venture Capital industry will enhance their efforts in doing their part to accelerate this much needed technological progress. Who knows, one day the industry might help aerospace companies develop another beloved superpower, time travel. It will also be interesting to track the Italian Aerospace industry’s progress over the next few years and celebrate achievements that would make the country proud and further its presence as one of the most scientifically advanced economies in the world.
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‘Decrypting growth’ is a mantra for those working in the financial industry in general (and in Venture Capital in particular), which one should never lose sight of. Of course, it could be argued that even just decrypting the complex days we are living through – after a pandemic not yet completely over and with an ongoing war – seems like a tricky exercise. And sniffing out opportunities for growth may even seem unrealistic, after the European Commission cut its GDP estimates for 2022 and 2023, due to the fallout from the conflict in Ukraine.
But without bothering with the well-known – and very true – narrative that opportunities arise from every crisis, it is worth pointing out that abdicating this exercise is something we simply cannot afford.
Venture Capital has experienced a significant growth in the last two years, and so is the innovation ecosystem, whose development is essential to address a series of challenges that cannot be postponed: the transition to an eco-sustainable and inclusive economy, the protection of health, the digital revolution, the response to new emerging needs, the advancement of humanity. We cannot go through these times under a cloud, nor can we afford to float around waiting for the storm to pass: we all, from private actors to institutions, must roll up our sleeves. By focusing on innovation, by supporting entrepreneurship, by pushing education and training to create a new managerial class that is up to the task, by finding solutions to involve everyone in economic growth. In this new issue, Claudia Segre, a long-time manager in the world of finance and now founder and president of the Global Thinking Foundation, penned an article explaining the indissoluble link between participation and growth, and how financial and digital inclusion is essential for economic progress.
‘Decrypting growth’ is indeed the unifying thread running through the contents of the fifth issue of our magazine. In this edition, we explore the opportunities in a number of promising verticals: HealthTech, which enables better prevention and thus makes healthcare systems more efficient; TravelTech, which is innovating the business models of the tourism industry to make it more resilient to shocks; and finally, Aerospace, a Deep Tech niche that promises to ‘Turn us all into superheroes.’
Transversally, Venture Capital – ‘The most human-centric financial sector’ – is always at the heart of our analyses, because it allows entrepreneurs’ dreams to come true, as Anne-Valérie Bach, Managing Director of French VC Capagro, explains in an interview. Yet, we also talk about it from a further angle: not only as a tool for entrepreneurship and innovation, but also as an asset class.
In the interview section, we also sat down with Marco Lavazza, who told us how innovation is part of the family company’s DNA, and the role of open innovation in strategies. A pattern echoed in the warning of Francesco Cerruti, General Director of the Italian Tech Alliance (an association that brings together Venture Capital, innovation investors, startups and innovative SMEs), who claims that without adequate support for innovative companies, the country’s economy risks being damaged. It is no coincidence that innovation is also at the core of the entrepreneurial recipe of Poke House, one of our best portfolio companies – as co-founder and CEO Matteo Pichi explained, describing how his company managed to grow and expand during the pandemic. It is also an integral part of the Otrium model, another company in our portfolio, which digitises outlet sales to counteract one of the factors that makes fashion an unsustainable industry, i.e. the high number of unsold garments that end up in the incinerator. Federico Garcea, co-founder and CEO of Treedom, highlighted instead the reasons why planting trees means focusing on ‘natural technologies’ to save the planet.
Inclusion, innovation, sustainability, the farsightedness of patient capital ready to identify the right ideas to focus on and turn into concrete projects, and the support of institutions to make it possible: we need all this to grow. As well as the energy and courage to look beyond these days’ uncertainties, and to approach each project with a long-term vision. For this to happen, individualism will also have to be overcome and efforts will have to be made to work at a ‘system’ level, to create collaborative networks, to pursue a unity of views and actions between investors, entrepreneurs and institutions.
To play a complicated symphony, soloists are not enough: an entire orchestra is needed.
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We are happy to share the digital version of the fourth issue of The Society Magazine – Decrypting Tomorrow, featuring insightful analyses, interviews, and updates on the world of Venture Capital and innovation.
“Decrypting Changes” is the title of this issue which perfectly sums up the role of Venture Capital not only as the ideal guardian of the innovation dynamics, observatory and “research office” of change, but actually as an enabler.
Milano Investment Partners SGR (MIP SGR) announces the new Cliffs fund’s investment in VitroLabs Inc, a Bay-Area based biotechnology company that is developing a new scientific process to grow the world’s first cellular cultivated animal leather.
MIP SGR is the only Italian investor to access and successfully conclude the Series A round that saw VitroLabs raise USD 46 million. The round is led by Agronomics, other investors include BESTSELLER’s Invest FWD, global luxury group Kering, Khosla Ventures, actor and environmentalist Leonardo DiCaprio, New Agrarian, and Regeneration.VC.
Exoticca, a Barcelona-based digital tour operator, aims at becoming the leader in this travel industry segment, one of the last in the hands of offline agencies, as CEO Pere Vallès explains
Making dream trips come true. This is the idea behind Exoticca, a Barcelona-based tour operator specialised in multi-day package tours, as CEO Pere Vallès stated in an interview with The Society Magazine, in which he depicted his vision of the future of the travel industry.
The company, present in the United States, Canada, United Kingdom, France, Spain, and Germany, operates an online platform for the purchase of multi-component complex packages to over 50 destinations worldwide. Vallès, a serial entrepreneur and investor with over 20 years of experience in leading technology companies, explained that Exoticca is now de facto democratising multi-day tour packages, one of the last strongholds for offline agencies, where the company aims at becoming the industry leader.
How does Exoticca work and how is it changing the way people travel?
Exoticca is digitising one of the last segments of the travel industry that is still offline and in the hands of the traditional brick-and-mortar travel agencies: multi-day tour packages (i.e., trips to long-haul destinations with multiple components, including flights, hotels, land transportation, activities, etc.). We believe that, as it has happened in other travel categories such as flights or hotels, multi-day tour packages will also gradually migrate online. As a company, our mission is to make multi-day tour packages accessible and affordable to all travellers by offering the possibility to book these types of trips online at super[1]discounted prices. Our value proposition is based on two pillars: convenience and best value. In terms of convenience, we remove all the existing friction from the purchasing process by allowing our customers to do the entire discovery and purchasing process online, providing them with real-time pricing and availability for the products they select. In terms of best value, we have managed to bring down the cost of our tour packages by an average of 35% through and intensive use of technology and the disintermediation of the value chain. In this regard, we can say that we are democratising multi-day tour packages as we are making it possible for many travellers to experience a safari in Africa, an exotic vacation in Japan or a tour in Peru – before, only a small minority could afford it instead. Our mission is to make dream trips come true.
You have managed to grow despite the pandemic and its significant repercussions on the travel industry. How did you succeed in that?
The pandemic was an unprecedented catastrophic event for the entire travel industry and it caught us, and everyone else, completely by surprise. After five consecutive years of more than doubling our sales every year, they came to an almost complete halt overnight. We knew that we had to react quickly and had two broad alternatives. The first was to go into ‘hibernation’, furloughing all our employees while waiting for the end of the pandemic. This was what most travel companies did, but we decided to follow a different path by trying to reactivate sales through a series of aggressive and creative measures, even under the worst possible market conditions. In particular, we implemented three measures that proved to be key in our sales recovery. Firstly, we have removed the uncertainty of booking at this time by offering the most flexible cancellation policy on the market, so that you have the peace of mind to book now knowing that you can cancel at any time, for any reason, and get your money back. Then, we went back to all our suppliers and renegotiated our contracts in order to ensure us the possibility to offer our customers never-seen-before prices to 50 destinations worldwide. Finally, we extended our travel window until the end of 2023, so that customers could select for their next vacation a date in which they feel it would be safe and comfortable to travel again.
How do you think technology is reshaping the travel sector? Do you believe it will play a role in the industry’s post-COVID recovery?
There are still many opportunities for innovation in the travel industry, and technology is clearly one of the key drivers. I believe that innovation will come not only from disruptive technologies such as AI, augmented reality or blockchain, but also from incremental improvements based on more mature technologies that can make processes much more efficient and improve the customer experience. In our case, we have used technology in order to have the possibility to disintermediate the complex value chain of multi[1]day tour packages, bringing down the cost of these packages by 35%. We have built an engine that allows us to interconnect directly with the provider of each component of the package – which, on average, has 25 different components – and provide real-time pricing and availability to our customer for all our packages across 50 destinations. We have also completely automated the booking process and the relationship with our suppliers, in order to become more efficient and pass the savings on to the customer.
What do you envision for the future of travel and what will be the main driver of growth in the next 10 years?
Never bet against travel. There is an inherent need to travel amongst human beings and, therefore, travel will continue to be one of the main verticals in our economies, representing about 10% of global GDP. Therefore, once the COVID pandemic is over, I expect a very strong recovery and rapid growth for those players that have been able to take advantage of this global crisis to improve their business models. Currently, there is significant pent-up demand and an excess of savings, which will lead to an explosive growth in the travel industry as soon as travel restrictions are fully lifted. I believe that online players will have an advantage over traditional brick-and-mortar travel agencies in this recovery, because the trend towards e-commerce in all verticals has accelerated as a result of the COVID pandemic, and this trend will continue in the future.
How do you see Exoticca in the next 5 years?
Our ambition is to become the global digital leader for multi[1]day tour packages. Our business model, based on building our own product portfolio, has fared much better during the COVID crisis than those of pure marketplaces, because it gives us full control over the pricing and the customer experience in all our destinations. This has allowed us to grow and improve our unit economics even during the pandemic, which puts us in a very strong position now that the COVID emergency is in remission and travel is starting to recover. There are three major factors that clearly play in our favour. First, there is significant pent-up demand, with people eager to travel again while family savings and cash deposits are at record levels. Then, the competitive landscape we are now facing is completely different from that before COVID, as the crisis has hit many of our competitors hard. Finally, the trend towards e-commerce as a result of the pandemic is accelerating the transition from offline to online in the purchase of multi[1]day tour packages. The combination of these three factors should catapult the company to the digital leadership in this travel category, which is very exciting.
Exoticca is paving the way as a travel-tech company, but what are the most promising startups emerging in the travel industry?
It is difficult to point to a single direction, as the travel-tech sector is booming with new ideas. In general, I would say that the startups capable of either significantly reducing the cost of traveling or significantly improving the travellers’ experience or, even better, to do both at the same time, will be winners. As per specific trends, I find the application of a subscription model to travel to be very intriguing: this is something still very incipient in our industry, but a common trend in many other verticals. I believe that the subscription economy will play an important future role in travel, and – who knows – maybe we might be part of this trend in the future also at Exoticca. I also like the startups that cater to a very specific demographic, as they tend to solve real pain-points in a very effective way. Finally, I am personally a big believer in real authentic experiences in travel, and those companies which can master this and build a brand around it will have a clear advantage.
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A fairly recent wave in technology that is still in its early stages, able to bring brand-new solutions that could further mankind to a whole new level
The world waited with bated breath as the best bio-scientists in the world were assigned the task of creating a vaccine efficient enough to be administered to the majority of the human population and lower the mortality rates caused by the novel SARS-COV 2 or Coronavirus, with the hopes of bringing everything back to normal, in as little time as possible. In another instance, recently, there is an increase in entrepreneurs who are entering the space industry. This involves sending rockets to the ionosphere, orbital launch rockets, and suborbital tourist spaceflights. Disregarding moral criticisms directed at these feats, this space race is bringing the world closer to more accessible space travel and has captured the public imagination. With the vaccine out in less than a year and successful aerospace missions, a focus is brought on humanity’s new capabilities for rapid innovation. Not only molecular biology and aerospace but significant development in diverse fields such as quantum computing, synthetic biology, climate tech, materials science leading to huge technological breakthroughs is expected. All these disparate groups of industries form a fairly recent wave that is still in its early stages, called Deep Tech.
A closer look at Deep Tech
According to the online startup-focused newspaper TechCrunch, Deep Tech is the generic term for technologies not focused on end-user services. It is defined by its combination of visionary ambition, fundamental research, and commercial pragmatism. Following on from the previous example, although companies like Moderna and Pfizer accomplished a great feat, they benefited from the work of many others, including governments, academia, Venture Capital, and big businesses. Deep Tech ventures bring together talents like engineers, scientists, and investors to develop brand-new solutions that could further mankind to a whole new level. This could include developing technologies to combat the looming crisis of climate change or building something as futuristic as flying cars/drones or synthetic biology to eliminate food insecurity and animal mistreatment. Consequently, these solutions require large R&D funding and can take years to develop their first prototypes. Most of the solutions are physical instead of software. There are many businesses that are developing technologically advanced solutions that are worth investing in. Flying cars, instant home delivery of essentials, a better connected world are some expectations that most people have and think of when imagining the future. Many companies in the Aerospace industry are producing drones operational in the specific sectors mentioned above that provide a huge investment potential while being good for the environment. There are also potential investment examples of products in development that can affect something as basic as the way we eat and dress. Cell-based leather or animal products offer an amazing opportunity as they provide the world with an alternative source of protein without affecting the quality and in turn, decreasing animal cruelty.
The ecosystem so far
While in the future we can expect more tangible breakthroughs to dominate several headlines, here are some important not-so-known milestones. The CRISPR-Cas9 genome editing technique was awarded the Nobel prize in 2020, while Crispr Therapeutics’ market capitalisation tripled to $11 billion. A language model that uses deep learning to produce human-like text called GPT-3 was released by OpenAI. Embryo-like structures from stem cells alone were made by researchers for the first time. This will help us understand how life as a whole came into existence while raising vital ethical problems.
On the whole, the amount of funding and activity in Deep Tech is undergoing an intense explosion. There was a 20% a year growth in global private investment in Deep Tech from 2015 through 2018. This number is exceptionally impressive given that Consumer Retail only had a 11% increase in global private investment from 2017 to 2018. According to Boston Consulting Group’s preliminary estimates, investment in Deep Tech (including IPOs, minority stakes, mergers and acquisitions, and private investments) more than quadrupled over a five-year period, from $15 billion in 2016 to more than $60 billion in 2020. However, this investment is unequally spread, with synthetic biology (56%), artificial intelligence (16%), and advanced materials (14%) industries forming around 86% of the total. Even though Synthetic Biology has a CAGR of 61% from 2016-2020 and is a rapidly growing technology segment, this
unequal distribution leaves only 14% of the funds for other industries. This is a missed opportunity given industries like Quantum Computing which grew at a CAGR of 115% from 2016-2020. Deep Tech funding is pretty unequally distributed also on a regional level. The U.S. comprises 75% of the total investment.
Keeping in mind the quadrupled growth, in reality, the global investment community has not yet taken up this opportunity. Deep Tech is still developing in a patchy and skewed fashion, and is considered a niche investment. The lack of initial investment in Deep Tech in comparison to other industries isn’t due to lack of dry powder, which is at record high levels ($1.1 trillion in Private Equity, $331 billion in Venture Capital, and $250 billion from Growth Capital). It can be mostly attributed to the lack of knowledge of the industries and the inability of companies to promote a product that will be ready for the market several years from today.
Future of Deep Tech and Trends
A Venture Capital firm, Draper Cygnus, sees an equity appreciation for the sector estimated in $50 trillion by 2030, due to different foundational Deep Technologies converging and reaching a level of acceleration that will likely create an immense amount of value and positive transformation in the world. This appreciation is equivalent to 5 to 10 times the wealth created over the last ten years by the current technology wave, as Draper Cygnus explains. Below is a list of some of the industries that most investors agree will be the face of innovation for the next few years.
Quantum Computing. The Quantum Computing market is projected to reach $64.98 billion by 2030. The necessity of advancements in Quantum Computing is driven by the adoption of cutting edge technologies that tend to have their own processing and computing requirements like machine learning. Moreover, the energy required to sustain the current computer infrastructure is unsustainable.
Space Industry & Connectivity. Research from Morgan Stanley shows that the general global space industry, which is at a revenue of $350 billion currently, can grow to a revenue of more than $1 trillion by 2040. This investment theme will impact industries such as Aerospace & Defence, TelCom, IT Hardware and Satellite Broadband internet access. Aerospace initiatives like communication, logistics and transportation drones, are already establishing themselves in the consumer market. They are also contributing to providing connectivity to remote locations, especially now with 5G expected to reach 80% of the global population by 2030, enabling new services, business models and customer experiences.
Synthetic Biology. The global Synthetic Biology in agriculture and food markets is projected to grow to $14.12 billion by 2025, at a CAGR 34.56% from 2020 to 2025. AgriTech solutions moving away from the traditional farming practices to more sustainable practices and advancements, like development of cell-based meat/leather options, are urgently needed to combat issues like food insecurity, animal mistreatment and climate change. This technology can also be used in personal care, luxury fashion, industrial enzymes, pharmaceuticals, probiotics, nutraceuticals, and green chemicals industries.
Energy & CleanTech. All companies innovating in Deep Tech need to be mindful of the sustainability of their products. CleanTech is one of the most important industries for the next few years, both financially and ethically. Currently, one of the biggest obstacles to the growth of the renewable energy industry is the lack of technology available for storage. Innovative startups are solving this problem by developing batteries and optimising them with Cloud-based technologies, renewable energy from clean sources and making nuclear energy safer.
Artificial Intelligence. Companies are already annually spending nearly $20 billion collectively on AI products and services, leading to an impact on a multitude of industries like transportation, manufacturing, healthcare, education, customer service, etcetera. Maturing of AI will enable new applications, eliminate repetitive labour and support global reach of highly specialised talents and services.
Healthcare & Life Sciences. Unsurprisingly, the health market is estimated to account for the biggest proportion of Deep Tech startups at 51% in 2020. This number and the unanimous growth prediction from investors of all kinds is undoubtedly affected by the pandemic. Application for Deep Tech within this field includes affordable medical devices, AI diagnosis, precision medicine, robot-assisted surgeries, at-home medical services and preventative care.
Why invest in Deep Tech?
Alongside Deep Tech investments bringing real impact by changing lives through the radicalism that the reach and applications of their solutions provide, successful implementation also promises high unprecedented return multiples for investors. This is because a competent business model of such a venture ensures the inherent power of its solution to create its own market or disrupt existing industries. It also provides the company with a valuable competitive advantage, since usually the underlying IP is either hard to reproduce or well-protected. Moreover, as mentioned earlier, the barriers to entry are often assumed to be quite high, due to the high R&D costs and the time it takes for a new entrant to reach the same level of market-ready maturity as an incumbent.
Due to the above reasons, more than the available financials, investors carry detailed technical due diligence, investigating the science behind the business model, to make sure that the team is able to actually execute the idea and bring the product to market.
There are, however, some issues associated with investing in Deep Tech. One of them is market risk. Since many companies seek to fund in the early stages of research, long before the development of a product or prototype, there are very few KPIs to evaluate traction and the financial health of the venture. Another issue that investors investing in a broad spectrum of industries face is a lack of specific in-house experts that can help accurately assess the potential of the technology behind the product. In line with a report called “The Deep Tech investment paradox” by BCG, 81% of Deep Tech ventures indicate that investors, on average, lack scientific or engineering expertise to assess its potential. They are uncomfortable dealing with unfamiliar technologies reducing their scope of investment. To mitigate this, new investors tend to analyse the value of patents, develop their own network of experts, collaborate with other key investors/companies who have the expertise to evaluate the technology or use incubators. In fact, big corporations play a huge role in validating products for the funds and as compared to Consumer Tech. In essence, sectors like Deep Tech require an elevated sense of intuition, knowledge and capabilities from the Venture funds themselves. Failure to invest in this sector and unequal distribution, though, not only risks capital missing the rewards of the next wave of innovation; it also risks slowing down the progress of humankind and our race against time to combat issues such as climate change. Thankfully, due to the increase in investment and the attention brought to this sector, we can encourage development and imagine a more technologically advanced and sustainable world sans the humanitarian issues that plague it today.
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Reducing carbon emissions to combat climate change is a priority that can no longer be postponed, and it is a battle that must be won in several sectors. In this scenario, sustainable alternatives to fossil fuels will play a key role
A greener future for heavy transport is needed. The sector (trucks and lorries, aviation, shipping, and trains) is responsible for the annual emission of about 4.3 billion tons of CO2, representing 8.8% of annual global carbon dioxide emissions, according to 2016 data reported by climatewatchdata.org. Vehicle electrification promises more sustainable mobility and transportation, although the use of batteries in heavy transport may be unsuitable due to several factors. In particular, it can be challenging to implement if the vehicle needs to be very light, achieve a high degree of range, or need short refuelling times. For these reasons, sustainable solutions being explored for heavy transportation include hydrogen and e-fuels.
An alternative “colour” power source
Hydrogen is contained in water and hydrocarbons, and is one of the most abundant and available elements in the Earth’s crust (as well as the most abundant in the universe). There are four main ways to generate it, associated with various colours which depend on the production process and impact on the environment: grey, blue, green, and pink.
Grey hydrogen. The most common – and polluting – process for hydrogen production is the one that uses natural gas or coal as a raw material, which, reacting with steam at high temperatures and generating pressure to produce synthesis gas, mainly produces hydrogen and carbon monoxide. The synthesis gas obtained is then reacted with additional water to produce pure hydrogen and CO2. This well-established process is already widely used in industry, but it generates significant carbon dioxide emissions. This is why the hydrogen created by this “unclean” process is called “grey.”
Blue hydrogen. Blue hydrogen production relies on the same basic processes as grey hydrogen. Still, unlike the latter, it aims to trap up to 90 percent of GHG emissions through carbon capture technology and is, therefore, a cleaner technology than the former. In some cases, the carbon is stored underground, a process that requires significant capital osts. Alternatively, it is reused as feedstock for industrial applications, where, therefore, the CO2is still released into the atmosphere.
Green hydrogen. The most promising process, green hydrogen, uses renewable energy to power electrolysis that splits water molecules into hydrogen and oxygen. This is the cleanest process since it uses energy from renewable sources, which is why the hydrogen produced in this way is called “green.”
Pink hydrogen. Pink hydrogen is also produced by water electrolysis, but the process is not powered by energy produced from renewable sources but by nuclear energy. It is, therefore, a clean process but more controversial than that for the production of green hydrogen.
Experts bet on “green”
Total annual demand for green hydrogen could grow from 62 million tons in 2018 to 530 million tons in 2050 (compound annual growth rate between 2018 and 2050 of 6.9%), replacing about 10.4 billion barrels of oil equivalent (37% of global pre-pandemic oil production) in various sectors such as heating, transportation, power generation, chemicals, and primary steel production. The report “The dawn of green hydrogen” – published in 2020 by Strategy& (PwC) – states that the annual global export market for green hydrogen is expected to be worth about $300 billion annually by 2050.
Currently, green hydrogen costs much more than grey hydrogen (we are talking about a 73%-110% higher production price) and even more than blue hydrogen (27%-31% more). For comparison, green hydrogen costs between $2.1 and $3.8 per kilogram, compared to $1.6 to $3 per kilogram for blue and $1 to $2.2 for grey. However, by 2030, green hydrogen is expected to become 8%-13% cheaper than grey hydrogen and 27%-29% more affordable than blue hydrogen, again according to the previously cited report.
The main cost for on-site production of green hydrogen is the cost of the renewable electricity needed to power the electrolyser, which makes the production of green hydrogen more expensive than blue hydrogen, regardless of the cost of the electrolyser itself. A low cost of electricity is, therefore, a necessary condition to produce green hydrogen competitively. However, low electricity cost alone is not enough, and reductions in the price of electrolysis equipment are also needed.
Green Hydrogen cost
Source: “The dawn of green hydrogen”, Strategy&,PwC 2020
In this regard, it is worth dwelling on this process, pointing out that there are currently three leading technologies for electrolysis with different levels of maturity.
Alkaline electrolysis (“AE”) is the most basic and mature technology and has a market share of about 70% of the green hydrogen market. It benefits from low cost and allows for a process that has a long operating life. However, alkaline electrolysis processes need to run continuously; otherwise, the production equipment is at risk of damage. Therefore, the intermittent nature of renewable energy rules it out as the sole source of energy for this type of electrolysis.
Proton exchange membrane electrolysis (“PEM”) is another technology used in the green hydrogen production process, with a market share of about 30%, adopted by most major electrolyser manufacturers. PEM has many advantages over AE (speed, safety, etc.), but it also has a significant disadvantage: costly materials.
Anion exchange membrane electrolysis (“AEM”) is, according to experts, the most promising technology to date. So far, research on AEM systems has been limited to laboratory tests, focusing on developing electrocatalysts, membranes and to understanding operational mechanisms with the overall goal of achieving high efficiency, low cost, and stable AEM devices.
The synthetic alternative to fuel: e-fuels
Green transport alternatives also include e-fuels: synthetic fuels resulting from the combination of green hydrogen and CO2 captured from a concentrated source (e.g., exhaust gases from an industrial site) or the air (via direct air capture, or “DAC”). Hydrogen can be used in the transport sector for electric fuel cell vehicles or can be brought to react with CO2 to form other gaseous fuels, such as methane or syngas. Syngas can then be converted into liquid e-fuels, such as diesel or gasoline using Fischer-Tropsch synthesis. E-fuels are also described as electro-fuels, Power-to-X (“PtX”), Power-to-Liquid (“PtL”), Power-to-Gas (“PtG”), and synthetic fuels. Compared to fossil fuels, these products achieve significant CO2 reduction, offering a compelling complementary alternative for low CO2 mobility. The potential emission reduction is about 85- 96% if calculated with basic well-to-tank methodology (which considers the energy costs associated with the processing of the primary source, i.e., extraction, processing, and transport), or 70% if calculated with LCA methodology (which quantifies the environmental impacts along the entire life cycle, and therefore from the phase of extraction of the raw materials needed to produce the materials and of the energy to produce the product, until their final disposal phase). Furthermore, most synthetic fuels, including synthetic methane, diesel, gasoline, kerosene, and others, can be immediately used in existing appliances and infrastructure.
Production costs for e-fuels are currently relatively high (up to €7 per litre) but are expected to decrease over time thanks to economies of scale, progress in technical knowledge, and an anticipated reduction in the price of renewable electricity; this should result in a cost of about €1-3 per litre (without taxes) by 2050, about 1-3 times the cost of fossil fuels, by 2050.
Because of conversion losses, the price of electricity is also the primary determinant of the variable costs of e-fuel production. Access to a sustainable and affordable renewable energy source is therefore essential to the economically viable operation of a synthetic fuel production facility.
A boost in demand for these alternatives to diesel and gasoline may come from regulations in some countries. For example, based on the European Commission’s Renewable Energy Directive II (“RED II”), in May 2021 Germany passed a law to increase emission reduction targets in its transport sector. To meet these ambitions, a roadmap was signed for an electricity-based, environmentally sustainable aviation fuel market. The German government has decided to prescribe a fixed quota for synthetic blended kerosene, expected to be 0.5% by 2026, with an increase to 2% by 2030. The binding, progressively increasing minimum percentage for electricity-based kerosene envisioned by the federal government will massively advance its production on an industrial scale. The government’s legal provisions create the investment certainty needed to further develop sustainable technologies and plant construction.
The Venture Capital interest in green hydrogen and e-fuels
Both green hydrogen and e-fuel are young sectors, whose technologies are in the research and development (green hydrogen) or validation (e-fuel) phase, so we are only just starting to see the first investments from venture capital funds.
As for green hydrogen, the main deal seen so far involves the $24 million round raised in June 2021 by U.S. company Electric Hydrogen, participated by Breakthrough Energy Ventures, Prelude Ventures, and Capricorn’s Technology Impact Fund.
As for e-fuels, the main deals involve two German companies: Sunfire, which raised over €54 million from January 2013 to November 2020, in several rounds participated by Inven Capital, Idinvest, and Total Carbon Neutrality Ventures, among others; and Ineratec, which closed a round in July 2021 (with an undisclosed amount) by Planet A Ventures and Extantia Capital.
What future for heavy transport?
Green hydrogen probably represents the long-term future for transport, as it is the only solution with zero impact in terms of CO2 emissions. The still-preliminary stage of the technology (especially AEM hydrolysis, which, as mentioned above, is the most promising), as well as the high costs and high investment needed to build the infrastructure, could make the wait for green hydrogen development a long one. Meanwhile, something is already moving; at the beginning of October 2021, the new joint venture between Ardian and FiveT Hydrogen, Hy24, was announced, aiming to raise €1.5 billion invested in green hydrogen infrastructure.
Although it represents a temporary solution, as it does not entirely zero CO2 emissions, e-fuel has the advantage of being easily storable, and could be used in existing infrastructures. Therefore, it is likely to assume a scenario in which e-fuels could represent the main sustainable alternative to fossil fuels for heavy transport in a first phase, to be then, in a second phase, flanked (and, in a third phase, replaced) by green hydrogen.
Accelerating the transition from fossil to renewable sources will require efforts on many fronts. On the one hand, governments will have to continue to incentivise the shift to renewable sources by imposing obligations (as Germany has done for air transport), by granting subsidies to lower a cost that is not yet competitive with fossil fuels, as well as by allocating resources to fund R&D projects focusing on e-fuel or green hydrogen, and finally by investing in infrastructure to promote the development of hydrogen. On the other hand, Venture Capital funds and large companies will have to be more daring in these two young verticals with high growth potential, investing more than they have done so far. It will also be necessary for the cost of renewable electricity to fall further to allow greater competitiveness for both e-fuel and green hydrogen.
Reducing CO2 emissions to combat climate change is a priority that can no longer be postponed, and it is a battle that must be won in several sectors. At a time when we are finally seeing an initial transition from fossil fuels to electricity for light transport, we cannot ignore the heavy transport sector, which accounts for 8.8% of global annual CO2 emissions and urgently needs to speed up the decarbonisation process. The technologies are known, but they still need to be improved. The road will be long and there is no more time to lose.