“Hard tech” isn’t as hard as investors fear, says Honda Xcelerator Ventures

Cutting edge hardware innovation — hard tech — is commonly considered a difficult area to invest in. It is seen as requiring large amounts of capital expenditure and a long development cycle. But this idea is out of date, says Julien Fredonie, head of Europe and Africa for Honda Xcelerator Ventures (HXV), the CVC unit of Japanese carmaker Honda.

“ I think there are some misconceptions on this specific field of venture development and investment,” Fredonie tells GCV on the CVC Unplugged podcast.

“Of course, if you think about space quantum fusion, very extreme cases, development cycles are very long. I think a lot of findings in some recent reports showed that the time to market, the time to return as an investment [for hard-tech], were very similar to other investment categories, and more traditional startups,” he says.

HXV’s European portfolio includes hard-tech companies like battery recycling startup Tozero, biogas energy generation company Reverion and sustainable aviation fuel producer Ineratec, the latter of which has for the past year been developing a power-to-liquid synthetic e-fuel manufacturing plant.

Exciting geographies

Fredonie says Europe is well placed for hard tech innovation, with its concentration of high-quality research institutes and engineering companies.

“ One of the specifics of Europe is actually this high decentralisation of the talents, therefore of the great startups. You have amazing startups doing amazing things, even in small villages sometimes,” he says

“I think Europe is very, very strong, very well equipped. A lot of great founders. The companies here attract attention now from VCs and CVCs from all around the world.”

There are still some challenges, Fredonie admits. “How to scale sometimes, how to think global from the very start. That sometimes can be a challenge. But in general, I think Europe is very well equipped to work on some of the big problems around energy transition, ageing population health, et cetera.”

Similarly, says Fredonie, Africa is an exciting and dynamic region partly due to its own widely distributed talent base, adding that even with something like the AI boom, Africa was ahead of the game, with AI M&A activity having taken place as far back as 2021.

“It’s a lot of very different ecosystems with very different hubs and languages. It’s a very complex ecosystem to navigate,” he says.

“Historically it has been a lot of business model innovation, entrepreneurs trying to fix value chains, which were somehow broken, and creating very interesting businesses around that.”

Narrowing funding gap

There is also reason to be optimistic about the narrowing of the notorious funding gap in deeptech – the fallow area between early-stage VC and growth-stage capital where startups tend to struggle.

“What we see in the latest reports is that CVCs in 2024 have started to come a bit later, so the average involvement was around the series B, whereas a couple of years ago, they were going more in the late seed and series A.”