“You’ve seen, certainly, that the energy sector has become a very big concern. People have started to realise that energy impacts several fronts…”

This comment is from Nicolas Milerioux, head of VC at Encevo, who goes on to name some of those fronts: household energy bills, shifts towards electric mobility, new manufacturing processes. “If you buy a good at the shop next door, there’s a chance that somewhere in the value chain, there’s been energy consumed.”

Together with this awareness of energy, of course, come the actions being taken to change where that energy comes from. Luxembourg’s contributions to this movement--the energy transition--include to regulate energy grids, the energy performance certificate, and waste and biomass into hydrogen.

Encevo is part of a group that includes Enovos, Creos and Teseos, respectively an energy supplier, grid operator and energy-related services provider. As such, its corporate venture capital department--set up in 2016 with the arrival of Milerioux to the company--has a three-part goal: to get a view of what’s happening in the energy market, to share that intelligence with the group and to make investments in startups.

Regarding those startup investments, Milerioux sums up the mission in the following words: “Our main aim is to find what I call the ‘enabler to the energy transition’.”

To that end, the company looks at about 800 startups a year, says the VC head, who estimates that they have considered as many as 8,000 since 2016. Total investments made: five.

“The very essence of being a corporate VC is not to make the largest volume of investments,” he says. “But to make every investment matter.”

What do you look for in a portfolio company?

The short answer to this question, as stated above, is that the company be an “enabler of the energy transition”, a category that includes technologies deployable now as well as those meant for future contexts. “The core industry is shifting,” Milerioux explains. “It’s shifting towards greener energy, but will introduce new concepts like hydrogen and other technologies. And we need to learn, we need to develop, capabilities in those spheres.”

“The way we used to work is still relevant today… but we need to progressively transform,” he adds, citing areas like digitalisation, machines, software and methods of optimising dialogue with customers.

As for more practical attributes, Encevo seeks startups that are still in their first fundraising phase (series A), and which have both a functioning first version of a product and a first set of customers. “I don’t need more than that, I don’t need less than that,” says Milerioux.

“You need to see the potential of the rock to become a diamond one day,” he says, describing his process of finding the right mix of high-potential but not-yet-mature. “The rougher the rock, the cheaper it is as an investor,” he adds.

The founding team also needs to have a few qualities: a vision, a passion for the job and a willingness to learn with additional people on board. “We’re not perfect, we’re not experts in everything,” says the VC head. “But usually it’s a win-win: we learn from them--because they’re sometimes ahead of us on certain topics--and there are things that we know better than they do.”

Portfolio companies could come from anywhere in Europe, though not beyond. “We want to have close relationships to our startups,” comments Milerioux, explaining that flight times to Asia or the US are prohibitive in that regard. Within Europe, however, Encevo sees no borders since European markets tend to have similar regulations, limitations and technological interfaces.

What are your biggest challenges this year?

Milerioux names two big challenges that the VC industry is currently facing: visibility and fundraising.

“By essence, we’ve never been--and will never be--visible on the market,” he says, speaking about the VC community in general.

On the fundraising side, the challenge is for startups to get enough money in the currently turbulent climate, and for VC firms to find new investments. “Activity has slowed down,” Milerioux observes, speaking to the latter point. “Even if climate tech is trending, the volume of deals… has hugely decreased.”

For Encevo, another hurdle is that their strategy is always to co-invest. “Sometimes we’re interested in investing in a company, but we need others to join the party,” says the VP head. The cards don’t always line up, he says, which can present a big challenge.

What about opportunities?

Milerioux’s answer to this question hits largely on the energy transition currently underway. “The energy sector will massively transform in the next decade,” he comments.

“Climate tech is starting to really rise now,” he continues. He locates Encevo’s VC activity as mostly in the climate tech space, particularly the energy, transport and manufacturing elements (and not the circular economy element). With such imperatives as the European Commission’s climate target plan (of significant emission reductions by 2030) there should be additional money available for new tech in the sector, while there is also a swell of public interest in energy, predating--but also fuelled by--the Ukraine war.

In Milerioux’s description, climate tech is an area that is ramping up and not yet conquered. As he sums up: Europe offers hundreds of millions of potential customers, the market isn’t yet mature and saturated, and there’s money available. “I think that’s an opportunity to all investors: there’s not any unicorn in that space.”

“Yet,” he adds.

What would you want the general public to know about VC?

“Everywhere we need innovation, we need VC to finance it,” says Milerioux, arguing for the importance of the private sector in helping the public sector realise new technologies.

“VC is a really good complement to public money, to foster innovation in an ecosystem,” he comments, not only to kick ideas off the ground but also to see them through to maturity. He likens the relationship between VC and private equity to crops in a field: “If we [venture capitalists] are not growing new crops, you [private equity firms] won’t be there to harvest them.” In this analogy, he adds, the general public only sees the crops when they are a meter high. Venture capitalists are therefore looking ahead some five years, anticipating, for Milerioux, the needs of society.

Three portfolio companies to highlight?

—DataThings (Luxembourg), whose mission is to use intelligent software to extract insights from raw data. “They’re extremely good at making complex problems simple, and managing large volumes of data in a way that looks like it’s something you can do on the corner of a table,” says Milerioux. The company has grown quickly since the investment in 2020, from under five people to almost 20.

—Ewattch (France), which develops IoT technologies for use in smart buildings. “It’s a platform that enables small industrial companies to better understand their energy consumptions… we’ve deployed a number of kits with them, together with human intelligence, and the customers are really, really happy with it,” says Milerioux.

—Energiency (France), whose artificial intelligence tool seeks to help operators on industrial sites save energy and reduce emissions. “If you understand [your energy consumption] better, you can source more green energy,” says Milerioux. “If you source more green energy, it’s better for the planet--and it’s better for the cost.”

Any exits yet?

“We’re in the process of our first exit, with a very good story behind it.”