Health care, finance and data analytics are currently the main areas in which domestic venture-capital (VC) investors are seeking technological solutions. This applies primarily to so-called generalist funds, which pursue relatively broad investment strategies.
“In the past two years we have recorded 64 transactions in the broadly defined health-care sector, and every fourth one involved a company that either makes significant use of artificial intelligence (AI) or develops AI-based solutions. Deeptech also matters, as it most often attracts so-called mega-rounds [transactions with above-average market value—ed.]. These include companies such as Iceye and ElevenLabs. We also identify compelling projects operating at the intersection of these three areas – health care, AI and advanced technologies – among them Ingenix and QurieGen,” says Rozalia Urbanek, board member for investments at PFR Ventures.
She stresses that AI components within individual industries are likely to drive their further development. The technology, meanwhile, appears above all to make product development faster and cheaper.
“In our ecosystem we still lack clear-cut examples of sector-focused funds. One partial exception is deeptech, where funds such as Expeditions and Balnord are active. The vast majority of teams, however, opt for broad strategies, geared toward opportunistic deal sourcing. We are also seeing a trend of former entrepreneurs moving to the investor side. In the long run, this may translate into more clearly defined, sector-specific investments,” Rozalia Urbanek adds.
Deeptech, defence, artificial intelligence…
Over the years, investment trends have shifted – reflecting the pace of technological progress, market saturation within specific technology categories, and emerging social challenges, among other factors.
“There are many variables in the venture-capital market,” says Mateusz Bodio, managing partner at the multi-family office R+. “On the one hand, trends naturally evolve. On the other, a very large exit by investors from a particular company can prompt others to take an interest in founders pursuing similar projects. Some will profit from this; others, who enter too late into an already crowded market, will most likely lose out. This kind of risk always has to be factored in.”
His observations suggest that defense technologies are currently in the investor spotlight. Never before have they been such an attractive asset class for the venture-capital market in Europe, including Poland. Defense, however, is not for everyone: for formal reasons, many funds backed by EU capital are unable to invest in the sector. For them, broadly defined artificial intelligence offers an alternative.
“AI is an extremely wide field for investment – from solutions and tools that use artificial-intelligence algorithms, through IT infrastructure, to energy,” Mr. Bodio adds. “When it comes to financing AI companies, I believe that infrastructure and energy will attract growing interest from VC funds in the near future. New AI solutions will require more space and more fuel to operate.”
In the near term, R+ plans to seek out foreign companies developing defense and dual-use technologies. Artificial intelligence, too, remains firmly on the table.
…what is just hype, and what actually delivers returns
How the VC market has evolved is clearly illustrated by the case of Inovo.vc.
“We grew from a fund investing in fairly basic software products – such as software for hair salons or online language-learning tools – into an organization focused on financing technologically advanced projects. But investment is always about anticipating the direction in which the world is moving. In 2015, when we launched our first fund, most companies still lacked decent software. Today, businesses operate in an entirely different reality. Naturally, investors are therefore looking for entirely different kinds of projects,” says Michał Rokosz, managing partner at Inovo.vc.
He notes that Poland’s VC market has gone through several distinct phases. Not so long ago, many domestic funds saw opportunity in apps, SaaS (software as a service), gaming, online messengers, blockchain technology and crypto-assets. Today, the market is in the grip of AI fascination.
“While, for instance, crypto-assets were never particularly close to us, we are now keen to invest in AI projects. We focus especially on companies building infrastructure for AI-based solutions – data collection, processing and related areas. With the growing number of AI products, the development of infrastructure seems an indispensable element of the technology ecosystem’s further growth,” Mr. Rokosz adds.
The investor also sees a current boom in defense-related solutions – and, by extension, in the space industry.
“Funds’ behavior in defense is reactive. My sense is that few anticipated demand for military technologies on this scale. As a result, the VC market is lagging behind the rapid changes taking place in this field. The winners are those who were prepared early or were able to adapt their civilian solutions for defense applications,” Mr. Rokosz concludes.
Are we concerned about an AI bubble bursting? In short, no – not in a way that would alter our investment approach. Our portfolio companies are not selling “AI for AI’s sake”. They solve very specific customer problems far more effectively than was possible before the advent of artificial intelligence, and they do so in narrow, well-defined niches. Their solutions are embedded in clients’ real operating processes, generate measurable business value, and scale in a capital-efficient way – often with a lower burn rate than traditional software companies from a few years ago.
Even if public markets go through a valuation correction for “AI-labelled” companies, client-side processes will not reverse course – because these solutions work and are indispensable. AI technology is here to stay. Any bursting of the bubble would simply clear the market of projects with no real value.
- Investors are placing growing emphasis on solid business fundamentals, scalability and resilience to market shifts, in an effort to protect themselves against the risk of overinvestment and a potential bursting of the AI bubble. After all, the sums now at stake are larger than ever.
- Artificial intelligence has become a core, cross-cutting element of VC investment strategies rather than a standalone category. Today it strengthens projects in health care, finance, data analytics and energy, and increasingly determines their competitiveness. Looking ahead, AI components within individual industries are likely to be the main drivers of further growth. The technology will also make it easier to build products faster and at lower cost.
- Poland’s venture-capital market is evolving toward more technologically advanced projects, such as deeptech, defense and AI infrastructure. Even so, generalist funds – able to respond flexibly to shifting trends – still dominate. It is deeptech, however, that most often attracts so-called mega-rounds, meaning transactions of above-average value for the market. Companies such as Iceye and ElevenLabs are prime examples.
