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Tom Savage from Mountside Ventures sat down with Terhi Vapola to chat about Greencode, her fundraising experiences and green transition.
Take a look at the full VC Spotlight interview below!
The quickfire round…
Where are you based?
We are HQ’d in Finland, but are a pan-European team with boots on the ground in Germany and Stockholm, due to our DACH and Nordic focus.
And how big is the team?
We are a seven-person team.
What size is the fund?
We are looking to raise a €60m — €100 fund. We are currently at €50m, having recently compelted out second close — so we are still fundraising.
What geographies do you focus on?
We focus across across all of Europe, with an opportunistic perspective in Israel. This geographically-wide focus is due to our tight sector focus.
However, given our past-experiences, we know the hot spots for our sector focus are within the Nordics and DACH region.
So, what is your sector focus?
We focus on the ‘Green Transition’.
This has a large overlap with Climate Tech funds, but we are even more narrowly focused, as we are only interested in solutions that can have an impact within this decade.
An IPCC report found that we are already on borrowed time. We need to cut our CO2 emissions by 48% and GHG emissions in general by 43% by the end of this decade. So we need to look at solutions that will actually help us to make this happen in time. This is our perspective on what investments are within the “Green Transition” focus.
What stage do you typically invest in, and what is your average ticket size?
We focus at the early-stage, particularly Seed and Series A.
We are looking to build up a portfolio of 20 companies with initial ticket sizes up to €2m, with the opportunity for follow-up investment.
A deeper dive…
Before we get into fundraising, and your investment focus. Can you tell me a little bit about yourself and the rest of the team at Greencode?
Our team is highly experienced in ClimateTech.
I founded and headed-up Helen Ventures, which focused on investing in digital energy technology.
Ines worked as the Managing Partner of Future Energy Ventures. A €250m AUM fund focusing on digitalising the energy transition.
Kaisa is an environmental scientist from Cambridge University and established Neste Corporation’s renewable fuels business building it up to €3bn annual revenues. She also sits on the board of several large Fortune 10 companies.
We also have two Venture Partners, Karin, a sustainability SaaS founder and Manuel, an e-mobility founder.
Fundraising from LPs
So far you have had the first close of your fund, at €40m, with the remaining €20m — €60m yet to be committed. Can you give us an insight into your fundraising experience?
As experienced investors, we knew that setting up a fund is currently the hardest it has ever been, and so, from the beginning, we knew it was going to be very difficult. However, we also knew that even during the worst times, the best funds still received funding. It’s similar to a startup raising from VCs. During hard periods, VCs become more cautious. This is the same for LPs, and so in order to be part of their portfolio, you need to stand out and be unique.
Our plan to tackle the difficult timing was to create such a stellar offering that we would be considered one of the best funds, and therefore, the LPs would want to allocate money to us.
From the VC side, this is down to the people and their track record. We have a unique team with strong experience, as investors & founders, but also crucial industry experience within large corporations. This is extremely important within the ClimateTech space and is a large part of our value proposition.
We have an experienced team that has the capabilities and experience to address the growing opportunity from an impact, but also finance perspective, providing a good basis for fundraising.
And what type of institutions did you raise from?
We have a good variety of LPs who have backed us with expertise in our investment area. This ranges from institutional LPs such as Banks, Insurance companies, Pension Funds, Foundations and Family Offices, as well as exited founders whom we previously supported.
We discussed earlier how syndication can benefit startups with each VC providing a different value-add. We looked to do the same and establish a balanced LP base with a broad set of expertise.
Earlier, when I asked about the fund’s raise amount, you answered with a range of €60m — €100. What are you looking for before you know it’s time to close the fund and start officially deploying?
Before we started the fundraise, we modelled out different fund sizes and the likely scenarios. Therefore, we know that we can execute our strategy with any sized fund, and so are flexible when it comes to the total raise amount — which is a good position to be in.
We have not officially decided when we will close fundraising, but taking a pragmatic view, we are looking to see out our current conversations and see how we get on with next year’s allocations. On the other hand, we know that the time spent on fundraising takes away from the time we can spend on dealflow and investing the money. We will aim to balance these two narratives when deciding when to close our fundraise.
We are happy with how things have turned out for this fundraise. We knew it would be hard work, and it has been. We also greatly appreciate the time and effort of those who have chosen to support us, whether that is financially on this first close, or sharing due diligence & references with other LPs. This support is invaluable for us. It’s been a massive effort all around, and we are very happy with where we have got to so far.
Deploying capital
Have you made any investments so far, and why did you have conviction in this opportunity?
So far, we have only invested in Supercritical, a carbon removal marketplace. Lightspeed Venture Partners led the round, and we joined as the specialist ClimateTech fund.
We had conviction in SuperCritical because it was founded by serial entrepreneurs with great experience and high ambitions, which they were working extremely hard towards.
You just mentioned that you joined Supercritical’s round as a specialist, can you explain this a bit more?
This investment is a great example of our thesis. Whilst we do have the capability to lead with Greencode and have the experience of leading on rounds, partnering with a generalist where we can add a lot of value by providing technical know-how or subject matter expertise within ClimateTech is a big focus area of ours.
The most important thing with syndication is bringing together different perspectives and value-add to the company. Therefore, we can be flexible and are happy to lead, co-lead or be part of a syndicate.
Can you give us a bit more insight into your investment focus areas?
Our investment thesis is “The Green Transition”. But from a sector focus what does this look like? We are particularly interested in the areas which require the largest CO2 emissions reduction. That is: Green energy, Green mobility, Green Industries, and Green cities.
Green Energy
We are seeing a lot of renewable energy coming into the mix, which creates a lot of volatility in the network due to varying supply and demand. What solutions are necessary to effectively manage this flexibility in supply and demand? We are also interested in building up our energy capacity, so how do we produce more with what we already have?
Green Mobility
Our focus centers on enabling free and sustainable movement. We examine all aspects related to mobility, including electric vehicle (EV) charging networks, supply chain dynamics, and logistics. Will EV charging networks develop into horizontal networks or remain vertically integrated? Can multiple players operate at different layers of the infrastructure? Regarding supply chain and logistics, we are exploring the impact of nearshoring on supply chains and assessing the carbon footprint of a company’s logistics.
Green Industries
Big industry needs the most decarbonisation. How do you look at their processes? Big data, digital twins, and IOT can play a role in improving efficiencies and reducing the use of scarce materials. This brings efficiencies to the globe, to the business model and to the bottom line. So you can not only do good but do better from a business sense too.
Green Cities
In the context of the built environment, we focus on living buildings and infrastructure. Our areas of interest include energy efficiency, resource efficiency, the principles of the circular economy, and biodiversity. These elements are key to making buildings more sustainable.
Great! Thanks for going through that. You mentioned earlier about wanting to invest in opportunities that can have an impact within this decade. Can you tell us a bit more about that?
My team and I have been working within ClimateTech for a long time, this new focus on climate we think of as CleanTech 2.0. Cleantech 1.0 was difficult not because people didn’t invest in the right things, many times they did. They underestimated the time that it takes them to go to market, with care. So many of the funds didn’t return as well as they should have, due to the growth timeframe that they were looking at. Taking that perspective, one thing we want to focus on during due diligence is the timing issue, so we don’t repeat the mistakes of CleanTech 1.0.
Therefore, we look at investment opportunities that are having or could have an impact now or within this decade.
When you are looking at investments and these four sectors that you just touched on, what are you looking for from a return perspective over the next decade?
We are interested in the way the tech can be scaled. If you need to build civil works & factories to scale, this takes time and is capital intensive. Therefore, we focus on companies utilising technology within more digitally-oriented areas, especially if the underlying industry is conservative and slow.
We also look at your Go-to-Market strategy and how you plan to navigate the corporates within the space. They are likely to be your customers, so are you building a painkiller or a vitamin for them? Is the product or service that you created directly providing value to the customers within the space, and are they willing to prioritise your innovation above other required expenses?
When you find a business within your sector focus that can have an impact within the next decade, what are you looking for when assessing whether to invest or not?
Once we have found the players who are in the right spot, we go back to being quite similar to what other VCs look at.
We look at:
The team and their ability to execute their plans to build traction: Are they serial entrepreneurs with the ability to really go beyond the normal and get things done?
Technical strength and their ability to build a strong solution.
Interesting and differentiated Go-to-Market strategy with customer access: How do they plan to achieve their growth? Do they have a strong network that can help to drive revenue opportunities, for example.
Traction: Even though we are investing at the early stage, we are quite careful to ensure that there is real traction. People may fall in love with their product/idea, but do they have somebody willing to pay for it?
Looking to the future…
What are you looking forward to with Greencode VC?
I am personally looking forward to working with the start-ups. I really enjoy working with a founder and getting a chance to spar with them, challenging their thought process and helping them to navigate any difficulties that they may be facing.
As a VC, we get to see positive and negative patterns that the founder may be in, or we have a good insight into the industry’s perspective. It’s important to raise our voices when we see potential mistakes or difficulties on the horizon, given our previous experiences. We can help the founders learn from our past mistakes without them having to make them, saving them a lot of time.
What are three key sectors that really excite you at the moment?
Satellite technology. There is a lot of potential within ClimateTech for this. Can we use AI to provide insights, beyond just having images, which could be used to solve wider issues? For example, can we find more sustainable areas to gather resources from?
Biodiversity. This is an area we are asked about a lot in our discussions with CEOs of the large corporations. Our planet and planetary boundaries are at their limit, and CO2 emissions are just one aspect. Underlying issues such as biodiversity play a major role, so we are eager to see how startups can solve these questions.
E-mobilty. This is one of the fastest-growing markets right now, and we are excited to see the opportunities in this space.
In the market, be on the wave of something. It’s about being in a good company and building up, while the market itself is also growing. This creates a positive cycle that comes with that growth.
Finally, a prediction for 2024.
This is going to be the best time to invest.
Many companies have postponed fundraising due to the current environment. Eventually, they will need to fundraise; individuals with strong sector expertise will then have the opportunity to cherry-pick the best companies with solid fundamentals.
Beyond this, “The Green Transition” market is just beginning, so there will be a lot of opportunities to build great companies in this space. We, as VCs, are in a great position to support these companies and so I am very bullish about next year.
That’s a great prediction. I hope it’s right, and I look forward to keeping track of the companies you invest in. Terhi, it’s been a pleasure to chat with you. All the best.