Pathfounders Interview: Pierre Festal on Kembara's billion euro growth fund

0:00Pierre Festal:Hello and welcome to Path Founders from Mike Butcher. And now those of you who are watching this on YouTube will note that I'm in a hotel room. Well, that's because I'm in Cairo for a couple of tech conferences. So I'm taking my podcast studio on the road. But that doesn't mean things end there. The news this week in the VC world was that a new VC fund had launched. but i'll get that to that in a second europe invests billions into early stage startups but um but you know where did it where did it go what happens when a company reaches a later stage a lot of european startups fail at series b because the pockets are just not deep enough on this side of the atlantic and that's kind of ridiculous if you think about it like european uh growth capital will turn a lot of European university spin-outs into pretty sizable businesses, especially given Europe's industrial base.

1:03Pierre Festal:But some new later stage funds are gradually appearing to fill this gap and the latest is Spain-based Mundi Ventures and it's launched the Kembara Venture Capital Fund which just completed a 750 million euro first closed with an eventual aim to hit a hard cap of a billion euros. So these are the new kids on the block that are going to help Europe scale up its deep tech and later stage companies. So joining me now is Pierre Festale, a 20 years plus deep tech VC who was previously a partner at Promus Ventures. He's invested in startups like Fernride which was autonomous logistics recently acquired by Quantum Systems, and Robco, which is in Modulo Robotics.

1:52Pierre Festal:Pierre, thanks for joining us on PathFounders. Thank you, Mike. Good morning, and thanks for having me on your podcast. I'm very excited to talk about Cambara. Fantastic. Let's sort of get into it a little bit. So Mundi Ventures was founded by CEO Xavier Santiso and former Atomico partner and senior Lilium executive Yann de Vries who was you know obviously very much part of that Lilium journey so you've and you've got and you've joined as well so tell us a little bit about the team before we get into the fund tell us a bit about the team sure absolutely so as you as you rightly pointed out Javier who's the CEO of Mooney Ventures teamed up with Yann about two years ago to launch Canbarra, really, you know, kind of almost seeing the future and seeing the need for scale up capital in the deep tech sector, particularly in Europe.

2:58So, you know, they got started and got the initial institutional investors interested, particularly the European Investment Fund, who's acting as an anchor investor in Canbarra. and then built the team around them and I've assembled one of the most senior teams of deep tech investors in Europe so on top of Javier and Jan as founders of Cambara you have Rob Trezona who is one of the most senior climate tech investors in Europe. We used to run Kiko Ventures and the clean tech side of the IP group and has invested in a lot of great companies in Europe, including Sirius Power, which is a fuel cell company listed under London Stock Exchange.

3:53You've got Siraj Khalik, who's a very seasoned founder, one of the early engineers at Google, who then started one of the earlier AI companies called the Climate Corporation back in the 2000s, which he sold to Monsanto for a billion dollars and moved on to the other side and started investing and spent about 10 years running the deep tech practice at Atomico and has invested across robotics and quantum companies and is very, very strong on the AI and future of compute thesis that we have at Canberra. And finally, myself, I've been in the venture ecosystem in Europe for over 20 years and really the last 15 years invested in deep tech.

4:48over the last five and a half years, I deepened my thesis into deep tech in Europe. And that's where I really saw the need for growth capital as deep tech companies emerge throughout Europe and really experiencing this firsthand with companies in the space sector, for example, like the exploration company out of Munich or, as you mentioned, Robco on the robotics side, also in Munich. Great.

5:17Pierre Festal:Well, that's quite a deep bench of experience. Now, let's get into the kind of problem that you guys think you can solve. There's quite a staggering statistic out there, which is only 3 % of European deep tech companies successfully raise a Series B or a Series C round, despite Europe producing 28 % of global deep tech innovations. So this is obviously a big open goal that you guys are trying to shoot for. Tell us a little bit about that problem and how you see Canbara fitting into that problem space. Absolutely. I think, as you rightly pointed out, there is a very acute need for scale capital in Europe.

6:01There is no short supply of talent and companies and early stage capital in deep tech in Europe. As you also mentioned, Europe excels academically, has a very high density of industrial coverage, very strong companies, very deep industrial and scientific heritage, and also a very significant density of talent. On the capital side of things, the early stage side of things is actually pretty well covered across the continent, whether it's in the UK or Germany or France and other countries. And there are a lot of either private funds or government supported funds. So funding the first few years and the first few millions of the life of a deep tech startup at Pre-Seed, Seed and even Series A has been solved to a large extent in Europe.

7:05Now, they're going to get stuff when these companies are looking to take the business to the next level and start scaling either commercially or on the manufacturing side and require tens of millions, if not hundreds of millions of capital. In this part of the market, there's hardly anyone in Europe who today is equipped to write 20 million plus lead checks into those Series B and Series C companies. And that's really what we are addressing at Cambara. On top of that, you could argue there's a bunch of journalist funds which have significant fund sizes and can write large checks. those funds are relatively ill-equipped to make those investments today.

7:58They have been investing primarily in software companies over the last 15 years, which are very different beasts. So the approach to risk, the risk appetite, and the ability to underwrite deep tech companies is not really there, and the coverage as a result is not systematic. And so at Cambara, we not only have the team that has the experience, the ability to underwrite those investments, but also we are building a full stack of expertise and skills to continue supporting these companies, particularly around areas like, you know, obviously talent, but also and very importantly, capital formation.

8:45Deep tech companies are not being financed and should not be financed the same way a traditional software business is being financed. You know, those are very capital efficient businesses. On the other hand, you know, deep tech companies can be quite capital intensive and also require different types of capital than the traditional, you know, venture equity that we are used to. So really optimizing for the capital structure, particularly as these companies move into manufacturing, commercialization and scaling, are building in some cases factories and asset bases that will require financing. They can resort to other types of financing.

9:35And, you know, optimizing the capital structure is very, very important for these companies. And tapping into these different pools of capital is critical and is also for the equity investors like ourselves a way to juice the returns. So it's really like a whole toolbox that we need to deploy for these companies that is quite specific, that is not something that, you know, typical journalist investor is used to. And that is absolutely critical to the success of these deep tech ventures.

10:12Pierre Festal:Right. I see. So there's clearly something going on that makes this fund a good idea at this time from your perspective. What are those elements? I mean, why was it previous to 2026 and maybe 25 that made that not such a big deal? I mean, what's changed? I mean, you think that deep tech is venture scale, presumably. What does that mean? And are there other things going on in the background? I suppose geopolitical events, maybe the Europe's push to sovereignty. What are the kind of big trends you see that make this fund a good idea at this time? Absolutely. I mean, we're sitting at the convergence of quite a few trends here.

11:00As you pointed out, at the very high macro level, there is a geopolitical environment that has changed dramatically over the last few years. And as a result, there is a realization at the European level that it needs to secure, to control its destiny and secure its sovereignty and autonomy in critical sectors of the economy and technologies, whether it's space, defense, robotics, AI, quantum, energy. You know, those will require massive investments and cannot be outsourced to non-European investors. So that's the fundamental trend that we are tapping into. This is translating into capital flowing into deep tech.

11:53And deep tech as an investment destination has grown from accounting for about 10 % of the market 10 years ago to about 30 % today. So really a very significant chunk of the market. On top of that, there is a maturing ecosystem. Deep tech is today where software and fintech in Europe was about 10 to 15 years ago. So there is a lot of maturing that's happened over the last few years. A lot of companies got seeded and started. And now these companies are graduating to the next stage and the next level and are requiring significant amounts of capital as a result. And that's, again, the opportunity we are tapping into.

12:38And finally, I think for the LPs and the investors, you have to ask yourself the question, where are the returns going to be coming from over the next 10 years? Are they going to be coming from the same place they have come from over the last 10 to 15 years, software, fintech, consumer, or are they going in a different direction? And I think deep tech is demonstrating that it can create very significant value and generate very large outcomes, as demonstrated by SpaceX and Tesla and Palantir and some of these companies. And so the view here is that we can recreate this in Europe and the market is maturing.

13:25There are thousands of early stage deep tech companies. Hundreds of these will graduate to Series B and later stages over the next few years. And many of these companies will end up being very valuable. And that's the pool of opportunities we are tapping into at Kembar. Right.

13:48Pierre Festal:Well, I'm speaking to you in a week when there's been a huge route on the markets around software on software as a service on floated companies. agentic AI and Tropic is coming out with agents and platforms that are absolutely killing some of the valuations of these floated companies like Workday and others. Do you think there's something interesting going on as SaaS has sudden problems because of the incursion of AI platforms and foundational models and on the flip side a much, much higher moat created by deep tech. Yeah, absolutely, Mike. I think you hit it on the nail. And you see a lot of reports coming out with what's happening in public markets on the software side, these companies getting absolutely destroyed.

14:44I think the realization of the investment community that those margins are getting competing away in the age of AI, that the modes which some people thought were existing or somewhat defensible, particularly around distribution and scale, are actually not very, very strong. And also the speed at which things are moving in the software stack with new models being released every other week or so, and companies being made and undone almost overnight. I think it's a very anxious, you know, kind of time to be a software investor today, both in public markets and also private markets on the venture side, because you really don't know what the next, you know, kind of 12 to 18 months are going to look like.

15:41On the other hand, deep tech companies, particularly the ones which are building hardware capabilities or the combination of hardware and software that require a lot of R &D, a lot of integration, engaging with customers very early on, running pilots, and really a very difficult go-to market. But once you've been over that hump and you've proven that you can scale the technology, you can industrialize a process and sell to customers and demonstrate attractive, unique economics, I mean, the mode there is very, very significant. You know, I do not see SpaceX being disrupted anytime soon. And I think you can say that for a lot of deep tech companies across various sectors, whether it's space or robotics or quantum, it's much, much harder to displace these companies.

16:33So initially, I think a lot of people were looking at deep tech and seeing like primarily the capital intensity as a moat and also something that's very, very difficult to bridge from a capital formation standpoint. But I think now realizing that actually those hardware and exquisite systems that these companies have built and developed and selling and also the install base is a mode that's very, very hard to displace and the engine of value creation for these companies.

17:06Pierre Festal:Right. Yeah, that's that's extremely good point. But of course, there's there are examples of where this hasn't worked out. And I think it's very familiar in Europe with Lilium, which raised over a billion dollars, went public. It was supposed to be drone taxis, very autonomous flying cars, almost not certainly flying with a very new technology. And it still failed. So, you know, that's the area you're entering into. So what do you think you can do to mitigate those potential downsides? Yeah, I mean, look, absolutely. It remains a very risky endeavor and not all companies will succeed. Specifically, you know, on Lilium, and that speaks to a point I was making earlier.

17:58I think the issue that Lilium has run into was really one of capital formation, going public via a SPAC in the SPAC craze of 2021 before it was really ready for prime time. And once you are a public company, I mean, the rules of engagement change. And if you are caught wrong-footed in terms of your execution, for example, because things, when you're trying to solve hard problems, it takes time, and things tend to get delays and execution is not linear. And so in the case of Lilium, trying to navigate difficult execution environments as a public company that requires capital in a down market was really, really challenging.

18:49So if you ask my partner, Jan, who was actually on the corporate development side and very involved on the capital formation side at Lilium, he will tell you that if he had to do it again, And he would do it very, very differently. But that's exactly the type of expertise and experience we are leveraging at Kemba R. Because we've seen that movie and we failed and we've tried different things, we know exactly what works and we know what doesn't work. And that's really advice and support we can provide to our portfolio companies. And I think I can tell you, I've been working with deep tech founders for many, many years.

19:26They really appreciate this insight because it's insight that's not very common and that's in pretty short supply. So if you can bring that very differentiated value proposition to the portfolio companies, that makes you a very, very competitive product and very competitive firm.

19:47Pierre Festal:And that's really what we believe at Canbar. Right. I see. And I mean, that's very optimistic. The other side of the coin, though, of course, is that the industrial base of Europe can be a bit of a laggard in terms of adoption of new technologies, its openness to new players in the market. Is the idea here to work in a more synergistic way with some of the big industrial bases and corporations of Europe or maybe to create a wedge and, you know, create much more sort of competition at scale? Yeah, I mean, we'll engage with corporate customers, the enterprise world. Absolutely. We are definitely not a CVC, so we're not scouting and investing in innovation for corporates.

20:41At the same time, we have very large LPs, whether they are strategic or financial, we're very interested in this and can also help open doors and get that innovation out into the world. And then ultimately, those startups will find their way and we are here to support them. A good example is Robco out of Munich, which is building modular robotics. And Robco's vision is really to make robotics, which has historically been a very difficult endeavor for companies who want to adopt industrial robotics. You have to go through systems integrators. These are projects that can take a lot of time and require a lot of money to be deployed and which traditionally has not been accessible to kind of smaller customers and even mid-sized thousands of employees, multi-billion kind of manufacturing enterprises.

21:43And Robco is really trying to democratize access to this. And the reception and the traction they have seen in the market as a result has been tremendous. And so I think Robco is a case in point demonstrating that if you bring the right value proposition at the right price point to those industrial customers, which are reputed difficult and conservative and do not easily embrace innovation. And mind you, Robco started selling into Germany, which on top of that has that reputation. In our experience, certainly in Robco's experience, customers are biting and they are buying. And I think that then you can build from that point on to go and conquer the world.

22:41And so, you know, in some cases, in some industries, it's very difficult to move and to get adoption. And again, I think we are tapping in our experience to potentially avoid those sectors. but in other industries you know you drive a wedge you sell an exquisite system that solves a problem that brings real value to the customer and and you get there yeah so that sounds kind of exciting

23:16Pierre Festal:and if you can actually potentially uh create some things which gives them put some heat on some of the the laggards in industry um finally um you mentioned like munich for instance um and And there's a lot of talk in the US about the amount of innovation that's coming out of areas like El Segundo near Los Angeles, which is closer to SpaceX. And do you think that there's a kind of a cluster or maybe one or more clusters in Europe that you're going to be keeping your eyes on? You mentioned Munich, for instance, a lot of VCs and investors and also entrepreneurs are talking about Munich as being kind of Europe's El Segundo potentially.

24:00Pierre Festal:But where else do you see those kinds of things? I guess there's Eindhoven in Quantum, for instance, in the Netherlands, and there's the Oxford, Cambridge, London cluster, but not so much known for hard tech or but certainly deep tech for sure. What kinds of clusters are you looking at and which ones will you be paying attention to? Absolutely. And I think you already mentioned quite a few, but Munich, definitely. We think it's one of the stronger ecosystems in continental Europe, very strong in robotics, aerospace, energy, anything related to manufacturing and industrial. And now defense as well, with quite a few very exciting companies, whether it's quantum systems and others.

24:45The Paris cluster, very strong in AI, quantum technologies, energy as well. Grenoble, historically with ST-Micro, being very strong in semiconductors and photonics. Eindhoven, so southern Holland and northern Belgium with IMEC, very strong in what we call the future of compute, whether it's semiconductor capital equipment with ASML, but also photonics. know, AI compute and chips is very, very strong. Scandinavia, traditionally quite strong in climate energy, but also some good space companies coming out of hubs like Helsinki, a lot of interesting manufacturing companies coming out of Stockholm as well.

25:37Also, you know, with the very strong AI base that they have there, Norway has been traditionally strong in anything related to energy. And also, there's a nice robotics cluster, you know, Spain, Barcelona, in particular, is strong across, you know, kind of biotech, compute semiconductors. So we're seeing a lot of exciting stuff coming out of, you know, traditional innovation ecosystems in Europe, but also from some kind of off the beaten path locations, whether in Southeastern Europe, with some interesting robotics companies coming out of Slovenia and Croatia, also the south of France in space in Toulouse and Bordeaux.

26:25It's really a very interesting set of clusters which have emerged over the last few years. And we are obviously keeping our fingers in all of these clusters and building bridges and very strong relationships. So very excited to be engaging with the founders and the companies coming out of those places.

26:49Pierre Festal:Well, it's actually very exciting to see a new fund appear. And also, as you say, there's so much potential in Europe to dive deep into some of these deep tech companies. But we're going to have to leave that for there now. We'll have to leave it there. for now um yeah uh pf festelle partner with uh the new deep tech fund kemba uh cambara ventures uh thanks very much for joining us on path founders thank you mike thank you for having me today and uh enjoy carol