An independent fund, imec.xpand, is benefiting from a partnership with Belgian research giant imec to find the right investments and more.

The first imec.xpand fund was kicked off in 2017 and attracted a loyal base of investors. They closed their second fund on 2 May 2024 – €300m to invest in “transformative semiconductor and nanotechnology innovations”.

In 2020, imec.xpand invested in Celestial AI, as one of the “first tickets in”, meaning it was one of the first investors. Celestial AI is a US company that’s developing optical interconnects in silicon, creating a platform that tackles the memory bandwidth problem. It can be integrated in a chip and applied to datacentres, but also to any other sector where the memory wall poses a problem.

Imec.xpand partners with Belgian research giant imec – and even shares the name. But it is an independent fund with a mission to make a financial return for institutional investors. It invests in deep tech and health tech, picking best-in-class no matter where in the world the startup is located. It works with imec to help minimise the technology risk, by finding gaps in the technological roadmap of a startup which can benefit from imec’s know-how and ecosystem of partners.

Another way imec helps is by advising the companies the fund invests in on process technology and supply chain, provided such expert advice is requested. “To find the best opportunities, you have to leverage the whole value chain, which is in the US, Asia and Europe,” says Jonathan Fajardo Cortes, principal at imec.xpand. “That’s why our fund has a global scope – especially when it comes to the semiconductor industry.”

Imec.xpand invests in deep tech, which is to some extent sector-agnostic, since semiconductors are everywhere. It invests in pure chip technologies, but also in other industries like mobility, energy and healthcare, where semiconductor and semiconductor-based innovations make a big difference in the specific application. The partnership with imec also allows imec.xpand to make early-stage bets with a high degree of confidence they are on the right path, without requiring startups to have revenues.

“If an investor asks you for recurring revenues at series A, they most likely don’t understand what deep tech entails. You have to believe in the technology, the size of the potential market and the path to it,” says Cortes.

“We want to see a high barrier to entry, defensible IP and a market that’s big enough to be worthwhile,” he adds. “It all has to do with timing of entry into the market. If you worked on a technology for 10 years, that makes it really hard for another company to catch up in just some months.”

Improving Europe’s position in deep tech

According to Cortes, one of the reasons Europe is falling behind is because of a lack of money to support European deep tech startups. “You sometimes see better technologies in Europe than in the US, but the US has much more money to support them. So ultimately, that gives them an edge,” he says.

Not only is a whole ecosystem needed from first investor to growth investor, but there needs to be a healthy exit market. Europe needs a big enough capital market to provide companies with an attractive valuation at the end of the funding cycle.

And Europe needs big corporates to acquire attractive valuations. Otherwise, mature startups will end up going to the US where they can make a much bigger return for their investors. The US has both the big companies that want to buy mature startups and an IPO market that attracts a lot of money. Imec.xpand invests globally not only to minimise risk, but also to create bridges to allow European companies to get more exposure to North American and Asian markets.

“In the US, you have multiple companies who will fight with each other to get a technology,” says Cortes. “In Europe, you have one or two who might be willing to pay a couple hundred million, and then that’s it. That’s not a very attractive proposition and it certainly doesn’t do much to develop the funding cycle.

“If you look into deep tech, series A and B investments require a good understanding of technology because there is still technological risk. At series C, you start to see more generalist investors, or growth investors. We saw a huge wave of funds getting set up in 2017 and 2018 – and their portfolio companies are now starting to enter the series B and series C stages.

“That’s where we see the biggest struggle in Europe. Because you see the typical generalist or software investor asking for returns at the level of a series A investment. That’s not going to happen. You have to educate investors, and it takes time.”

Another thing venture capitalists (VCs) typically provide to a company is know-how, which imec.xpand has in spades, thanks to imec, with more than 5,000 researchers who could get involved either directly or indirectly. At the very least, imec has a rich collection of expertise to provide advice here and there. 

Perhaps more importantly, imec has know-how in manufacturing and setting up the supply chain. Deep tech is often capital expenditure-intensive, so a good understanding of the potential supply chain helps more than most people think – and the earlier you get that help, the better.

“You see a lot of startups with a great product they need to scale up, but they don’t find out until late in the game that the technology cannot be mass-produced,” says Cortes. “Then they have to restart from zero, after having spent a lot of money.”

This expertise in manufacturing and global deep tech supply chains is what sets imec.xpand apart from most of the other specialised VC funds.