You are listening to Redefining Energy. Your co hosts from Berlin Gerard Reid and
from London Laurent Segelan. Today on Redefining Energy, we're going to talk about
climate tech and Giad, we have a new music. Because when I hear
all the other podcasts they have a nice music, I say, why not
us, So we've chosen the music of the Persuaders, a TV series of
the early seventies with Roger Moore Anthony Curtis, which is basically US so to
all due trying to save the world while having a good time. But first
of all, from our partner. I. Quitted Capital is a sustainable investment
company headquartered in Hamburg, Germany. E quit a Capital investment realists such as
clean energy, sustainable infrastructure, energy efficiency and growth private equity on behalf of
its clients. So the climate tech what is climate tech? It's investment by
specialist venture capital companies who invest in a wide array of technologies which are supposed
or everybody hope to solve the energy transition, when I'd actually say the climate
crisis, because it's not just energy, it's also agriculture, deforestation as a
whole. It's a huge huge scope of problems that you have to deal with
when you talk about climber and by the way, that's just preventing it.
But also I think we're also going to have to move to dealing with climate
change in other words, flood protections, storm protection, all that type of
stuff. So it's i'll call it a huge growth market going forward, right
absolutely, and a lot of the solutions will be digital. So that's why
we have decided to go to Silicon Valley to meet one of the most amazing
investor in climate tech, and that's Caroline Funk. She's partner at Bluebird Capital,
investing at the intersection of climate tech and the digital enterprise transformation, and
she had a very long career supporting the anti transition, working for government agency,
LASH corporation, early stage venture. At some point she was a CFO
of Free Wires. Oh is she really Okay? Yeah, let's bring her
in the conversation. Caroline, welcome to the show. Great to be here.
Thank you. We're going to talk about climate tech and you're going to
explain me if it's still the right world at what's your definition of it?
Climate tech to me is not an industry. It's more a theme. It's
technologies that impact climate and that impact some verticals that we kind of think about
when we think about climate change. Some of these verticals, for example,
include energy, food, land use, transportation, built environment, carbon,
industrial, and our specific lens at Blue Bear is even broader. Anything that
enables accelerates de bottlenecks. The energy transition for us is in focus. We're
not impact first investors, but we fall into that climate tech theme, and
specifically we believe that there're going to be trillions of dollars invested in the energy
transition and they will be the biggest driver of change in our lifetime. So
that's our broader view on the topic. Okay, Karen, can I ask
you just when I listen to you there and I listen to the size of
the universe, it's join, amos. How do you keep track of that
and then make even decisions as to where to put your money? Right?
The last number I read that since twenty twenty one, there have been about
one hundred and twenty billion of total climate assets under management. And that's not
just venture capital or corporate VC, but that's growth and infrastructure private equity funds.
So that's kind of the whole universe. What we look at is companies
that are in the early growth stage in the intersection of two different macro trends
that we're super excited about. One is the energy transition as I mentioned it,
and the other one is the software, data capture, processing and application
area. We look at this intersection where software and data meets energy transition and
why have we chosen that lens because we are all worked in different sectors with
that lens over the past decade. Everybody at Bluebear has I understand the big
picture, but can you give me some example in your portfolio of investment you've
made and why did you choose to make those investments. We're currently investing out
of our third fund, and that off beginning of this year. We've been
around since twenty sixteen. So in Fund one, some of the themes that
we invested in were the operationalizing of wind and solar technologies. Companies like Ratromaps,
who provides the system of record for utility scale and large commercial and industrial
solar installations. Another one is a company called Shoreline. They do with something
similar for large wind projects, specifically in the offshore wind stage. So back
in those days we saw a lot of optimization on operationalizing of these wind and
solar assets. In fun two we move more into the battery and EV space.
For example, we invested in a Cure company that provides intelligence, safety
and maintenance tracking of battery systems and stationery and mobile systems, or Pani Energy,
which provides that similar thing for water plants. We also invested in last
Wall, a company that provides cybersecurity systems for critical infrastructure to make sure everything
that's out in the field there is managed and connected in a secure way.
Now we're investing out of our third fund and we're getting more into the operationalizing
of for example, electric vehicle charging infrastructure. We invested in Charger Help.
They help charging network owners and operators optimize and manage charging infrastructure because today about
twenty to thirty percent of the chargers are not actually working. Another company in
this fund is Scone out of the Netherlands, who provides software and a marketplace
for mobile clean power because we've got to take all these diesel generators out of
the market. Yeah, we love schoon did I have a special story Wispitople
that I've known for quite some time. I think it's a great company.
On average, your ticket size would be what five million, ten million?
Do you have a parlymit lower limit? So our ticket size on average,
the first check that we write is three to six million, and then we
reserve two dollars for every dollar we invest in as a follow on. Because
our strategy is a high concentration, high conviction strategy, we're only looking to
make fifteen to seventeen investments out of each fund. We want to be close
with these founders. We want to help these companies grow and not play the
large numbers game investing, praying and praying as a lot of folks say,
into dozens and dozens of companies and hope that a few of them make it.
Carolyn, I'm really interested in You have this huge funnel of companies that
you're looking at, and then you need to take that funnel and come down
to small number of companies. How do you do that? We look at
about one hundred and fifty two hundred companies each quarter, and that's a lot.
We filter out a lot because of our specific view on the market.
That we invest in asset light technologies because we believe there are others that are
better equipped to invest in the asset heavy like private equity investors, more infrastructure
and type investors for the venture scale, we believe that software and data are
going to provide the biggest returns. That's one part of the funnel filtering out
hardware. Then when we're looking at the specific sectors, we're only looking at
companies that already have revenue. So if it's a pilot, hopefully it's already
product sale that we can see customers are actually buying what they need. And
then we use our network to really understand if there is a broader need for
what the company is offering or for the technology innovation. So during our diligence
process, we reach out to our network and our LPs which have a strong
foothold in the energy private equity industry, and have these conversations. So of
course we can't do that with all the two hundred companies we see per quarter,
but because we've all worked in the energy industry before, we pretty much
already know what could be a fit. And then, yeah, we only
make about four to six investments each year, so it's a very narrow tip
of the iceberg. I'm not going to flatter you, but having you and
the type of scrutiny you put in your investment is a key foundation in my
opinion of the success. And I hear that the generic business model of VC
would be Okay, one company or two out of a portfolio of twenty make
it through within five years. But I guess you have a better percentage of
success than one in twenty. Yeah. Our goal is that all of our
companies are going to get to an exit, not each of them is going
to be a huge IPO. That's also not what we're underwriting because that it's
also not what we have seen in the history of the energy and climate markets.
We just don't have these proof points. So I'm sometimes scratching my heads
when general is invest in companies in a space with a huge valuation and then
just not understanding what the history of the exits and the market is. So
our focus really is to make each of the companies in our portfolio success.
We've shown some of that with some early exits. But also one goal for
investors is main and key goals not to lose any money, and we have
shown a terrific track record on that of course as well. I like what
you said there. You talked about valuations, and I really would like to
talk about what's going on in the market present, because one thing that certainly
I've seen over the last twelve months, maybe fifteen months, is that you
had a lot of investors who did in turn rounds because what they wanted to
do was delay down rounds, if i'd like to say, in other words,
valuations were too high. And now what you're seeing this year is there's
quite a lot of difficulties in the whole climate tech market. So I don't
know if you're seeing the same thing, but maybe you could comment on that.
There are a few trends that we're seeing currently. There has been quite
fewer numbers of investments made. I read some numbers that it's forty percent less
in the first half of this year than in twenty twenty two. So it's
harder to raise money and less people are raising money, and the way that
the market reacts to that is, of course valuations are going down. We
are fortunate and also have been pretty scrutinous on ourselves in the past two years
when valuations were high, really still finding the deals and finding the founders in
different geographies, for example and the Netherlands, in Germany where things were not
as inflated as for example, in Silicon Valley. We see there is a
lot of ry powder, so money is there, but people are waiting and
trying to see how the market is going to correct. We're continuously making investments.
We've made four investments this year so far. We think that they're really
good proof points within the industry and the industry growth that we want to take
advantage of. And the big thing and the big driver are what we see
in the exit markets, so follow on investors. We usually invest in seed,
series A and sometimes Series B stage. Following investors in serious C and
later rounds have been much slower because there haven't been as much many exits that
we've seen. It's not just about IPOs. Everybody has talked about the IPO
window being closed, but also acquisitions have been fewer, and so that's why
things are a little bit slower this year. I'm still very bullish on how
things will develop because there's so much dry powder in the space and people want
to make investments, and it's just going to take a little bit longer.
But it is still happening. Caroline, I know it's almost the end of
twenty three and we always want to look at the future. But let me
tell you, as a key observer of what's going on, I've seen some
sparks listed which are an absolute disgrace. That was a quick, easy money.
But I'm sure the reasonable people, and I think you're part of them,
have indirectly suffered from this frenzy of evaluation for company who were like really
worthless or am I just bubbling here? The people that have suffered most from
it are some of the founders. Yes, there have been a few winners,
but the founder psychology it has been really difficult because you see these big
names, you see these big exits, and you feel, as a founder,
I have to get myself and that puts a lot of pressure on you.
And we know that starting a business is hard in and of itself.
And now you're a climate tech founder that sees some of these backs in twenty
twenty one and sees the average number of deals and deal sizes and exercise,
and that average number is just very much skewed towards those few very big deals,
and you're just starting to doubt yourself. So what we're really looking for
our founders that are also very grounded and that are industry experts, that are
trying to automize the job they might have been doing before there were consultants and
doing environmental risk assessment, and now they're automating those people that have been building
wind and solar plans in their past and really understand that this is not the
space where you build the next Google or Amazon. This is a space that
is a little slower, and that is a little harder and requires a lot
of industry expertise. We're not here to move fast and break things. We're
here to move the needle slowly, one ticke at a time. Darling,
I go back to how you started the whole conversation, which was you're saying,
this is the greatest opportunity of our lifetime in terms of growth opportunity,
and there's going to be huge businesses created. But you're sort of criticizing yourself
here when you say that, So how do you match that the investment opportunity
in and of itself that we're going through this energy transition in the transportation sector
and the electricity sector and the building sector. That's a huge opportunity and there
will be winners, there will be the ten x and one hundred x,
multiple winners, but are there going to be the one thousand, x and
whatever beyond type of winners. I don't know. In general, as an
investment opportunity, I stand by my word, this is the biggest opportunity of
our lifetime because we have to go through this massive change. And listen,
I think myself in the ROME would grief fully with you that this sector is
incredible in terms of the growth opportunity, etcetera, etcetera. And we've already
seen this in terms of you know, the Tesla's, the byds and all
these great solar companies that have been created, and most of them have been
very capital intensive. What I think is very interesting about you you're doing is
you're not going capital intensive, so you're going at this digital area, which
we think is incredibly critical to the energy transition. But the point I want
to ask you really is you're trying to digitalize a very very conservative energy industry
and I'm talking about a wider energy, agriculture, carbon emitting industry. It's
difficult, is it not? How do you see it? It totally is
difficult, but it is happening, and we're seeing the optimization in the market
that have been driven by software and data and we've used for example, manufacturing
internal combustion engines. Yeah, we've used industrial optimization software over years. Now
we're translating this to battery manufacturing. We've used software and data and consulting to
optimize oil and gas sourcing, handling, refining, and now we're doing this
with wind and solar. What we're seeing on these steep degradation curves in pricing
of wind solar battery assets, there's a lot of software and data driving that,
and that's what I'm super excited about because it is happening. So when
Luberg Capital was created almost eight years ago, and again that's a bit of
contrafactual, but what investment have you not made you wish you had made?
And what about investment you made? Is our crap? That's you know,
that was that call. Sometimes I think we could have made more exceptions and
investing in some hardware companies. Our focus really is on the software side.
For example, I am an advisor and not an investor in a company called
Liminal. They create ultrasound systems to optimize battery manufacturing. I wish we'd be
an investor here. I'm an advisor, so I still have some upside in
the company, things that I wish we wouldn't have invested in. It would
have been great if we had invested in more cybersecurity startups in general, to
understand the space better. It's a tough space to navigate, and if you
just do one or two investments in the space, it takes a lot of
time to stay on top of things that are happening in the market. We
have two investments in the space today with a company called Mission Secure and another
one called Last Wall, But just staying informed about what's going on there is
really taking time and is hard. And in a parallel way, what type
of investment you're doing now that you would not have done, say five years
ago. What are the new themes you're really excited about now? A few
things that we haven't made an investment yet but we're tracking right now. That
are different is we're taking a much deeper look into the hydrogen space. We
see that there is always hardware investment first and then software investment comes later,
so hydrogen is just starting to become more prolific. We're taking a closer look
into nuclear that five years ago wouldn't have been on the table because there was
not that much innovation coming to the market. Actually, another space is the
electrification of everything in buildings, and that's actually a space that largely driven by
regulation, which we don't like to take the regulatory risk, but we see
that in North America and in Europe there's such firm regulation in place trying to
electrify the energy, heating and everything that's going on in a building that we
think now the time is right to do that. Can I ask you just
about something else, which is just I mean, you're investing internationally. Can
you talk about the differences between investing in maybe Asia, Europe and the US,
and also how you see that going forward in terms of innovation. Where
is the innovation in this area taking place? Our focus really is investing in
North America and Europe. I'm originally from Germany, I'm in the Bay Area.
More of our team has also experienced working in the UK, and we're
all located in the US at this point. So I think one general benefit
that we bring to folks is that we can help, for example, European
companies enter the US market, much like we're doing with Scone and a Cure
who mentioned before. But overall investment in Europe in the space has been taking
up much more and much faster, partially through the regulation that is happening,
and just also more stability and predictability in what's going to happen on the regulatory
side, compared to the US, where a lot of climate tech discussion is
still very much politicized. So we've been looking more into European companies. We're
making about a third of our investments in Europe and the rest or North America.
We don't invest in Asia. We just don't have that knowledge. Honestly,
it's a different world. But generally, what I'm seeing in the market
and also reading the numbers, is that global venture capital in Asia has been
decreasing a little bit, whereas in Europe it's been increasing, and the America
is still the same at about fifty percent. I think that's an interesting trend
that kind of plays into our cards. I'm in the Bay Area, it's
still the top market of investing. Our portfolio is not so much concentrated in
the Bay Area, but for me, it's just great because everybody travels through
here and wants to meet investors, and no matter where you're from in the
world, so you can meet me in a Bay Area to have a coffee
and have a chat. Caroline, where'd you see blueber Capita in five years?
You have grown? Do new funds and how do you see it going.
I see that we will continue with our strategy, which I love because
investing in early growth companies is a space where we can provide a tremendous amount
of help. It's where I worked before and startups that are at seed series
a stage. So far, we've been on that interval that we start a
new fund every three years. I think we will continue doing that, and
then I hope we will continue to start some side activities. For example,
we have a partner of organization Deep Green Solar. They invest in rooftop solar
and areas that are maybe a little bit more of the beaten track. I
hope that we do more of that for examples, and storage that may be
law and us. We can combine forces and invest in more storage opportunities and
that we yeah help these founders tackle those markets. I am very cautious on
what's going on in the climate change world. I think in five years will
have a lot of clarity of what temperature increases we will see towards the end
of the century. Because we're not meeting our goals. So I think that
we will have to invest much more in the climate adaptation space and that this
is a space where hopefully we'll have our next conversation on with gol I.
It was great to have you on the show. It was great to have
this panorhamma of climate tech investing. So on one hand, a lot of
optimism, but also keep your feet on the ground and understand the thesis of
this company that are going to grow a job. And I'm looking forward to
talking about climate adaption next year with you. Very important. No, it
was great having you. Thank you very much. Thank you for having me
both. It's all run. But you think when I'm going to be very
direct in the industry of you have plastic bags and air mess bags, and
I can tell you Blue Black Capital that's Hermes Bag, it's Royalty. No,
really, they don't do the normal VC strategy, what they call spraying
and praying. Their investment are highly concentrated. They add value to the management
and I would trust any startup who was blue Bear in their cap table.
Actually, I like the way you polish, which is a lot of venture
capitals. What they do is just spray money, and they don't really bring
value to their investors or to the companies they invest in. But if you
have a much more focused approach, which is what Caroline does at brings value
to everybody. So I really really like it, like what they're doing and
again not saying, okay, if one of our twenty investment works will do
fine, and probably that used to work back ten years ago. Now you
need to be extremely selective. A team they analyze hundreds of opportunities per year
at some point, she said, like two hundreds every quarter and she makes
what four to six investment. The work they are doing is amazing. Yeah,
And then don't forget what you don't see is the work they do that
behind the scenes, which is you're actually helping these businesses scale as opposed to
I know many venture capitalists and what their job is is to just go from
one board meeting to another. So that's not bringing value to the company you're
investing in, right, So I really do like that selective approach. Obviously,
in the climate area, it's really important because what we wanted to be
able to do is get the critical technologies that we need to get to market
quickly. If I look back at my experience in the climate, whether it's
solo win the batteries. Sometimes it takes a long while to get these technologies
to market because you have a lot of resistance from incumblents. I would say,
you know, so they need help, and I like that approach.
We thank Caroline for coming on the show, and we thank our partner,
our fever partner, Aquila Capital. Guys, you're so great. We thank
you so much for your support along the years. Thank you Lars and the
rest of the team. We love you. For once, I haven't cursed,
so I hope you're happy. Okay, Yard, all right, talk
to you in two weeks time. Take care, my friend. Thank you
for listening to Redefining Energy. Don't forget to rate the show and subscribe on
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