Revaia 2024 Predictions
We asked our Revaia team to share their thoughts and predictions about 2024 in terms of the important trends to expect and how the months ahead might unfold.
Here are the major trends that we think will shape 2024.
GenAI: Tangible impact and regulatory debates
This was easily the major tech story of 2023. Within weeks of the release of ChatGPT by Open AI, it seemed that everyone was scrambling to understand the implications of this technology, from founders to investors to governments.
So it’s hardly surprising that we think this will continue the top trend for 2024. The real questions are how and why.
This conversation starts with continued debate over the EU AI Act. Though negotiators reached an agreement on the broad strokes of this legislation, many of the most critical details about how to regulate elements like language learning models while also balancing copyright protection and personal data. The stakes couldn’t be higher, so we expect the fight to shape these rules to be fierce.
Striking the right balance is essential so that European companies can emerge as leaders in this field and Europe doesn’t get tagged for being anti-innovation. Beyond Europe, the variety of regulations being considered (or not considered) around the world runs the risk of massively complicating the development of GenAI companies.
Transparency, governance and energy consumption will be key for developing trust around GenAI in 2024. The most promising solution to these concerns may be the development of open-source AI. This is an area where France and Europe have a chance to lead. The $500m round raised by Germany’s Alepha Alpha and the $415m round raised by France’s Mistral AI demonstrate the attractiveness of the open model to investors.
In the fight over rules, we shouldn’t lose sight of the tremendous potential of this technology. Expect to see GenAI-powered applications drive bottom-line improvements for startups who will need fewer resources to do more with customer services, sales, and marketing. For independents and small businesses, GenAI should help to automate many of the most tedious administrative tasks. It will also start to unlock new market opportunities for existing companies.
At the same time, enterprise adoption of GenAI will be slower. They are less open to risk, and most likely will focus on the flaws and limitations, such as problems with hallucinations, and challenges around data sharing. In addition, GenAI engines remain general when these companies want platforms that are more focused on a topic or vertical.
As we enter 2024, Revaia has not made a specific GenAI investment, though it’s an opportunity we’re watching closely. Even so, looking across our current portfolio companies we can see the drive to embrace this powerful tool with a goal of refining use cases.
Sovereignty: A bigger priority
The growing impact of breakthrough technologies has put the topic of national and European sovereignty high on the political and economic agenda. We expect this topic will get even more attention in 2024 because it cuts across so many critical areas: cybersecurity, healthcare, re-industrialization, defense, and space.
France is a good example of how this broad concern has translated into direct policy that in turn is creating big opportunities for startups and investors. Two years ago, the country announced the France 2030 program to spend €54bn on innovation projects and startups that furthered goals in many of these areas. That means billions of euros for nuclear innovation, hydrogen, new types of mobility, quantum computing, and helping deep tech startups industrialize their products by financing new factories.
We would highlight one important aspect: Countries will need to support the development of cybersecurity responses to deal with new threats. As bullish as we are on GenAI, for instance, there is a risk that it becomes a catalyst for disinformation. The world needs security solutions to address the huge challenge of authentification and identification. Expect to see a new wave of startups mounting a counterattack to this issue in 2024.
ESG: More accountability and transparency
The EU's Corporate Sustainability Reporting Directive (CSRD) has gone into effect since January 1, 2024 and will require detailed reports on ESG. France took the early lead on CSRD by being one of the first countries to translate this EU regulation into local regulation. While companies have had a long time to prepare, this additional transparency and accountability are poised to have big impacts.
We believe strongly in the perennial benefits of ESG. It’s an opportunity to define Europe as a place that cares about creating jobs that are positive for society and that are sustainable. But in recent years, people have seen the amount of money going into ESG strategies without having clarity about the results.
As the first ESG data emerges from these new regulations in 2024, this will be a chance to take the measure of these efforts. And once the information is disclosed, companies will be held accountable and demonstrate how they will improve.
So 2024 will likely be a pivotal year for the ESG movement. We expect Europe to rise to the challenge and set an example for how innovation and regulation can co-exist to create better outcomes.
Climate: An important turning point
While climate is certainly part of ESG, it deserves its own mention. In 2023, we saw heightened concern over climate change – but also signs of action.
In October, California adopted a mandatory climate emissions disclosure rule that will require companies that have revenues of $1b+ to annually report their complete GHG emissions t(Scopes 1,2 and 3), and for US companies doing business in California that have revenues of $500m+ to prepare and make publicly available a climate-related financial risk report. Given the size of California’s economy, this move will have a global impact.
Then in December, nations at COP28 approved a roadmap for transitioning away from fossil fuels. In France, the government is already investing billions of euros to accelerate the transition to net zero emissions with the program France 2030.
Taken together, these actions are a sign of the growing momentum to fight climate change as 2024 begins. On the heels of these decisions, decarbonization will become one of the most important areas of need and opportunity this year for entrepreneurs and investors.
For Revaia, decarbonization has already been a major investment theme. Last year saw such big growth for companies such as Deepki which has developed a property management platform that helps building owners reduce their carbon footprint.
So 2024 will see an acceleration of startups and investment in this sector.
Startups: Investing and exits will return
European startups had another rough funding year in 2023. According to Dealroom, European startups raised $58bn last year, down from $92bn in 2022, though still above the $44.2bn invested in 2019.
It will be tempting to dismiss 2020 and 2021 as outliers, but the impact of the investment frenzy still has long-term implications as startups who raised during this period struggle to close a new round and VCs manage their portfolios.
And yet, we see the investment clouds parting in 2024. Economies are holding strong and as inflation worries recede, central banks are hinting at lowered interest rates in this coming year. U.S. stock indexes finished the year strong, providing another sign of general optimism.
So we think Europe will see more companies raising more rounds in 2024. According to Bpifrance’s Funds of Funds, French VCs alone are sitting on €14bn of dry powder. And late-stage and private equity investors that hit the pause button the past two years will gradually return. They will be attracted by the strong performance of the very best startups as well as the ongoing opportunities that come with re-balancing their portfolios.
The M&A market will also improve. According to Dealroom, the value of tech M&A last year rose to $276bn from $262bn in 2022. But the number of deals spiked to 6,827 in 2023 from 3,629. That suggests that the average valuation of each deal fell to €40.42m in 2023 from €72.19m, a sign that many companies and VCs had little choice when it came to these exits.
We think those M&A numbers will be healthier in 2024 as companies make deals for both strategic and opportunistic reasons as companies in strong positions drive consolidation.
That said, exits also remain an area where there is much work to be done in Europe. The region still needs more buyout funds, secondary markets, and cornerstone investors who can help create liquidity and eventually guide the very best companies to IPOs on European stock exchanges.
LPs: Institutional investors make their return
As has been noted elsewhere, the last 2 years have been challenging ones for anyone raising funds. Institutional investors were still taking a wait-and-see attitude during the first half of 2023. But we detected a clear shift over the last six months.
Looking again at just France, there was a flurry of fund closings over Q4. Despite some lingering uncertainty, institutional investors see the opportunities created around the subjects we discussed above: sovereignty, decarbonization, and GenAI. Amid the slowdown over the last two years, the most resilient companies continued to rise above, marking themselves as clear winners and strong investment targets amid a flight to quality. Also, Europe remains under-invested compared to the U.S. and China, and investors are recognizing this gap as ripe for strong returns.
We think the fund closing momentum will continue and accelerate in 2024.
The world experienced some difficult moments in 2023 in terms of geopolitics, the economy, and the climate. It’s certainly understandable that anyone would be anxious as the calendar turns. But we see many of these trends discussed here moving in positive directions. That has reinforced our optimism about the year ahead. In a complex world, we remain steadfast in our belief that technology has a key role to play in solving the major challenges of our time. Helping the very best companies achieve their mission to build a healthier and more sustainable economy of the future remains our north star.