Green Tech Startups: VC Insights & ESG Scaling Strategies from DACH

Maybe before we do that, could you tell us just a tiny bit about who you are and what you do and what high enough is before we get into what you really did with green techs there.

We do what we call compliance. So leveraging all the European regulation and what kind of interesting business models coming out of that. We traditionally, as a team, we have a deep expertise in everything, which is data, big data. You know, obviously now with AI, things are moving quite quickly and really shaping the industry. We do cyber, also a little bit with a defense angle.

And then we do something what we call new work. New work is basically, you know, technologies who reshape the workspace, like, you know, remote working, collaborative tools, but also HR developments, because our thesis is that people, they just, you know, are looking for a sense in work, you know, probably a little bit different than 20 or 30 or 40 years ago. And so a lot of companies are also focusing on education and on, you know, other HR related topics.

So these are our five main investment themes.

So green tech obviously is very important to us. And therefore, we just would like to have a good view on the market. And to be very frank, it's also kind of a marketing tool because we really want to tell the market, hey, we are there. We are interested in that space and we think there's a lot of interesting investments to do in this space.

I think it also becomes clearer and clearer what are really the trends and the investment topics software investors could be interested in. When I basically, you know, two years ago, we had nine sectors and they were called recycling, reporting, deep tech, digital twin battery. So it basically was more like a mapping around specific solutions, specific technologies. But I think now, you know, the more the ecosystem evolving, it is clear that it's not so much about specific technologies.

It's more about there is different areas, people trying to find solutions, you know, whether it's with technology, whether it's with, you know, other business models. And so I think the surprising or kind of the new methodology is more looking at from a user perspective rather from a technology perspective because we see real usage of these technologies.

of your data center. They don't know. They simply don't know. So, and when you don't have kind of the tools to measure impact, How, you know, can you achieve corporate sustainability? How can you really kind of achieve energy transition and circular economy? So I think what's happening right now is, you know, there's an underlying layer of measurements of technologies developed, you know, then obviously.

And then on top of that, you know, once they really understand the problem, new technologies emerge to solve these problems. So I wouldn't really make a bet, you know, what of these four areas are growing the fastest. Put it like this. When you look at market volume, you know, obviously energy transition is a huge market. You know, it's a multi-billion euro market and it's huge investment model.

When it comes about carbon measurement, you know, these are kind of software, you know, which are used. But so when you look at, I wouldn't call that as big as a market as carbon as energy transition. So I think when it comes to volume, you know, obviously there's a difference. But what's going to be most active and picking up? Hard to say.

And when you really go under the cover, you understand, well, you know, it's basically a very smart application of an AI technology, you know, of an AI model in order to come up with answers, which are probably very nice to have, but probably not very kind of sustainable when it comes to a clear differentiator. So I think the market, especially when it comes to software investment, is changing dramatically right now.

And obviously, that impacts screen tech software because, you know, it's so much easier on the one side to visualize. To get answers, to gather data, to really try to make sense out of what you're gathering, what you're trying to achieve. But on the other side, it's also a little bit tricky because you really have to think very hard, you know, what is really the value add you're offering to customers, you know, to the landscape, which goes beyond AI, because AI at the end of the day,

I think it's more a tool. It's not a solution per se. So I think it's getting a little bit more complex when you think, you know, what's really the value proposition you want to invest. And that's true for green tech, you know, as well as for a lot of other kind of sectors.

It will become a standard, you know, in developing software. It will be a standard when you request information, when you create a user interface, a look and feel interface. And I'm pretty sure that in two or three years, um, The pitches won't have AI in the headline, but it will be deeply interwoven into any solutions startups offer.

In the case of Deepkey, that's really an investment we are very proud of because, you know, we don't call it startup anymore. It's a real scale-up. They are now the European-wide leader when it comes to measuring the carbon footprint in the building industry or the management of buildings. And that requires not only the ability to know how to measure a carbon footprint, how to display, how to organize it, but it also requires an in-depth knowledge of the industry.

And typically, horizontal platforms simply don't do that. Because that's not what they are built for. They are general purpose platforms. And people probably would use it as a tool to build their own solution. But they really don't address a very, very specific industry. Actually, I've rarely seen that. So, you know, there is a premium for industry knowledge, sector knowledge. And you can build true market leaders when you have that knowledge.

They have created a tool around that. And now, obviously, they publicly communicate about it. I think it's quite massive. And I think it's also a trusted number. You know, often, as said, you know, ask AWS what's their carbon footprint, you know, how much a gigabyte of data request really admits in carbon and CO2. It's pretty hard and pretty tough for them to say. At least at Deepkey, that was a focus early on.

So I think it's this mindset and really, you know, wanting to change something and really building technology solutions around that. So that's a very positive thing. You know, obviously, it's all across Europe. But somehow I have a feeling there's a special touch, you know, to the Dach market when it comes to this thing. In terms of scaling climate innovation, and I think we are also going to talk about that a little bit further down the road.

At the end of the day, it's great to reduce carbon footprint. It's great to create a circular economy. It's great, you know, that corporates get, you know, more responsible and take care, you know, a few things probably they haven't done like 50 years ago. But at the end of the day, it really is after all its business, right? It's how to make money. And I think that's the biggest challenge, you know, and probably even in Germany, like people tend to think about the solution per se.

Rather than is it really something which is sustainable but not sustainable in terms of ecology but economy because at the end of the day, you know, all the solutions have to make money, have to create a return. Otherwise, it's not sustainable. It's simply a lie to think that you can do stuff, you know, just for doing stuff. It needs to be economically viable, and I think that's the biggest challenge.

For certain companies, that probably creates opportunities. But at the end of the day, well, we all know it. We do have a bureaucracy problem, and that doesn't stop in green tech.

It's pretty, it's pretty, what I put it like this, having a little bit also in Switzerland at a few conferences where they present solutions, it seems like Swiss people, they really do a lot when it comes to hardware related solutions. Munich is an engineering spot. We all know it, you know, has a great infrastructure, and a big kind of non-software place are played out in Munich as well. Berlin, it's clearly software centric. But is there a specific hub? You know, really never happened.

You know, also when I look at my personal, you know, local investment, it's completely random. Great teams are all over the place, which, by the way, is the beauty about the DACH region. Ask the French. Ask the French. It's pretty clear.

This is by the way, also why like when we do investments, people, you know, submit investment proposals in written form, like really plain English, you know, not kind of paste and copy of some PowerPoint slides, because the very moment you really have to bring down something written, you have to think, you know, and by the way, best example is that green tech mapping, which was called climate tech mapping two years ago. Now, really, we had to think, you know, how the market is evolving,

are there new categories? Do we have new classifications? So so that it really is it's an exercise which kind of disciplines you and really makes you look, you know, very carefully in what you're really looking for, what are really kind of the major trends and what what really makes a difference and of what possibly could do a difference.

You know, and then obviously it's a great tool because then you have a very concentrated period in really getting it right, you know, not forgetting everything.

Pieces, you know, trying to have a full coverage, you know, probably, you know, obviously, you know, on our mapping, there isn't any, you know, 100% of possible greentech companies in the DACH region, but at least, you know, it kind of disciplines you what's really important, what could be potential winners or what are kind of people, our companies who are really setting trends. So I think it's very useful, especially when you work in a team and when you want to start a conversation.

And then when you want to basically discuss business plans and really also, you know, what kind of direction you should look at. Yeah, we really like it. And as said, to be very frank, I pointed that out at the beginning of that podcast. It's also, you know, making us known a little bit more in the market. And, you know, just a little bit, a little explanation mark, hey, we are there and we are interested in this space.

And, you know, we've seen that with Deepkey, we've seen that, you know, with a few others of our investments, where basically really companies have chosen a vertical, became very good in it, and then become the market leader. And in the case of Trace for Good, obviously, you know, just to give a very brief explanation, what they do, basically, they track the supply chain in the textile industry.

So basically, when you want to buy a T-shirt, you probably want to know, you know, from the very beginning, you know, what happened, you know, from the raw materials, you know, where it was done, et cetera, et cetera. It's a little bit, actually, it is a supply chain issue. And supply chain is a big issue, you know, obviously, now a little bit watered down with the latest twists in the US. But I think at the end of the day, that's a key question to be answered.

And being good, you know, in a very specific niche and a very good vertical, this is a key thing. And then for us, it's a very early investment. We thought it's a great team, two young ladies who have a lot of experience in the space. And obviously, it's a French company. So textile, fashion, that's probably a French thing as well. So I think they are also very good positioned when it comes to that.

But when we look at a company, it really must be ROI driven. It really must be part of a value chain. It really must solve a true economic problem and if that economic problem also solves an impact problem, even better. I just give an example. I did an investment just a couple of weeks ago in a Germany-based company south of Frankfurt called Xelera. With a little bit in a twinkle in an eye, I say they are a Nidvidia competitor. But actually, they really are.

Basically, what they do, they do kind of a compiler for a chip, for an FPGA chip. FPGA chips are programmable chips, which help basically to dramatically increase the capacity of data centers. So basically, since there's so much traffic now hitting data centers with all this AI traffic, data centers are desperately looking for solutions, how to mitigate this traffic, offload traffic, still keep security. And Xelera is helping data centers doing that.

So it's a really ROI case because basically data center traffic consumption goes down by 50, 60 percent by using that technology. But in addition, obviously, you know, when traffic for the same, you know, traffic hidden in a data center goes down by 50 percent, the CPE usage, you're suddenly saving 50, 60 percent of energy, you know, in a data center. So it has a huge impact as well. So would I call Xolera an impact investment? Probably not.

It's more like a semiconductor investment, but it has a huge impact. It has a clear ROI case and this is why we also call it an impact investment.

What's the mistake you see most often, not necessarily only in greentech founders but pitches you get and how do you fix them is it that they spray and pray and send their uh pitch deck everywhere and it it's not necessarily a fit with most of the investors

You know, people, you know, basically have kind of this theoretical idea that something needs to be solved and then they develop a product or kind of a solution around it and then in reality nobody needs it because it simply is only a theoretical problem, not a real-life problem.

So I think, you know, obviously the key thing is when it really comes to kind of starting your startup or really get industry expertise and really try to solve a problem which exists and which creates ROI, which really, at least in B2B investing, which really, you know, as simple as that, you put out a piece of paper, you can go to a customer and you say, look, when you take my product, when you take my solution, you can save X in cost or you can get, you know, so much more nimble or you

can gain so much more customers. And that really requires an in-depth knowledge of an industry and the workflows within that industry. And I think that's just my advice, you know, to a green tech founder, but also to any technology founder. First of all, try to sort that out. And then when it comes to pitching, you know.

I think that's a classical thing. You can do spray and pray, but what are the chances that, you know, you are the one who's picked out of that inbox, you know, deal flow we are getting every day? I think carefully think, you know, what could be a good investor for you. And when you've identified people you think are a good fit, try to find people who know them and try to get a personal introduction of some sort.

So I think we've never not taken a call with a company when we got a personal introduction, unless it would be completely out of our scope. So I think that's a golden rule. Don't rely on. Obviously, you have to do your test copy. You really have to be knowledge about the market. But the next step is really, even in the world of AI, technology, Zoom and everything, try to get the first personal contact, the first personal touch. And that takes you very long.

Almost exactly to the day. That's pretty interesting. thing um you talked about like you mostly run series a rule of thumb is like a hundred million revenue um i a few a few months ago i talked to an investor and i asked him yeah you're looking for startups like one million us dollars or one million euros revenue and he said if i get the chance i always take two euros um so um at this stage they're getting really serious with their startup what traction metrics or early points

of proof are most persuasive to you when you evaluate such a company okay

And as a series A investor, you probably want to take one risk, which is a scaling risk. And all the other three risks should have been more or less validated. You know, obviously, the team, you don't know. So obviously there are a few things where you can, you know, other than obviously the personal interaction with the team, which is super important, there are a few things you can get an idea whether it's a really good team.

For example, it's the simplest stuff, cap tables, like people who are already 70% diluted in a seed investment. They're probably not great guys because they kind of didn't understand. A seed round. Um, um, and, and, and then obviously, you know, when you've spent already 5 million to getting to your first hundred thousand in, in revenue, that's probably not a stellar performance. So, you know, you get that, but then the team is very important.

And then obviously a market and product goes a little bit along, you know, when you have a critical mass of customers, there probably is a market because people are buying and, you know, when people are buying and aren't churning, then you probably have a product because it's working and people seem to be happy. So, and I think as a Series A investor, you want to have these three things validated. And that can be like, also depends on the product.

That can be, maybe you have a company who does a product which really instantly gets like huge contracts and then you have a few couple of big brands. I'm using that and then it's already a series A and then you have probably a kind of a more like a small ticket B2B play, you know, which even resembles to a certain extent to B2C play. And then you want to have a thousand customers. You want to have like two years of solid KPIs and you really want to see the growth curve.

So I think it's where kind of you position yourself. And then, so that's a series A to me, that's a series A. And when it comes to pre-series A, I think. You know, out of the three risks, probably one of the risks isn't really sorted out 100%. So you're willing to say, well, the guys, probably they have a product, they have a few customers, they've kind of got a good job in product development. But you clearly sense they really haven't found their go to market yet.

Probably they have to do a little few twists. you know 80 percent seems to be okay but they have still you know like they need a year or 18 months to really go very solidly but really then is use you know kind of makes sense to put in four five six or seven or eight or ten million and really deploy it for scaling the company i think that's the difference between kind of a extremely early pre-series a pre-series a and kind of a solid Series A, where you really want to deploy money for getting,

by the way, also very important, what's the difference between a Series A and a Series B? I think a Series A should take you with the money you raise, you know, from a CEO-led sales model to kind of a broader scalable model. So basically, it's a transition, you know, from transitioning from a founders-led team to a team which is mainly driven by the second layer where you have hired a VP sales, where you're probably hired a VP product, and everything isn't relying on founders anymore.

Other, I don't know, due.

That's my personal guess.

It really also probably helps you reducing cost in any sort, especially when it comes to carbon pricing, et cetera, et cetera. But being a default layer, so kind of being absolutely required to run a business. Well, maybe I have too little of an imagination, but for the moment being, no, no. Everything which I'm seeing, even on that mapping, wouldn't let me that it's going to be a default player, like a cloud infrastructure, that's not going to happen. Maybe in five to 10 years. I don't know.

But from what I see now, I'd be skeptical.

And the very moment something has a price, you can do marginal trade-offs. And I think that's a wonderful thing. And, you know, hopefully, will it ever work? Let's see, over the next 10 years, but at least from a concept, that's brilliant. Because, you know, the very moment you give, you oblige people to think in margin gains, you know, technology really, really gets rolling.

First low hanging fruits are fixed and then you know the more the price increase you know more tough problems get solved and and there's and and then also it's kind of to a certain extent you can plan with it probably you couldn't you can't really plan for the exact price but you can plan with a long-term trend and that's always a very good thing when you can plan.

About 10% of our fund will deploy in kind of seed opportunities in partnership with Anka Venture, you know, just to have a foot. Into great teams and great performing seed startups at a very early stage. Also, what they bring on the table, like when they found it, they had this vision early on. So, and at least in France, but now also starting in Germany, they do have a name in impact investing, early stage seed impact investment. They do have quite some knowledge.

And it's always great, you know, to have knowledge in the team.

And I think now, especially when it comes to software, when it comes to AI, but when it also comes to kind of pre-tech solution, which basically requires the analysis of huge amounts of data. You need to have the underlying infrastructure and people really, really need to go into this direction. This is also a reason why we did our investment in Xelera, where we are looking in other sectors.

I think the sad news one more time is when it comes to infrastructure, It's mainly a Silicon Valley Israel play, but there are always a few hidden gems in Europe as well, and we are actively looking.

And of course, there's a place where you can pitch as well. And you'll be back for our premium subscribers for a few more Q&As. Thank you very much.