Hi, this is Victoria. Welcome back to another great episode of the chemical show. This is part two of our special series with Rob Vandermy of Capricorn Partners. If you miss part one, which was published last week, go back and listen to get the full context of the conversation. Um, and in the second part of the series, we're going to continue this discussion that I had with Rob diving into the dynamics of corporate investment.
The critical role of innovation and the role that venture capital plays in that. We talk about partnering. We talk about business development. We talk about the importance of leadership and a whole lot more. So Rob shares his insights from both the corporate world and the venture capital world, and giving that perspective that I think you're going to find valuable. I know I did.
So stay tuned for some more valuable insights from my conversation with Rob Vandermeier right here on The Chemical Show.
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And in my observation, and certainly the companies that, that we've already talked about that Capricorn is, um, invested in and has made And so when I look at, um, technology companies, there's this whole aspect of partnering. Um, and frankly, a lot of partnering with potentially go to market partners as well as end use partners. So I think about Avantium and I know they've had a longstanding relationship with Carlsberg beer, right? To to. Pull through the product.
Um, how do you guys get involved in that partnering aspect? And is that where, where you're looking at what the rest of the, um, I was going to say symposium not the right word, but the rest of the, the syndicate is, are you getting engaged in there? And is that part of your decision criteria? Is that something that you help with?
Part of our decision criteria. Are these possible you,
Okay. Hmm.
Do they make sense, you know, uh, but, but also, um, we often make those connections.
You know, and, and that's because, in a starter people are, you know, they, they, they have a hundred things at the same time to do, you know, and, and it ranges from, uh, we, we need paper for the printer to, to, we need to find the strategic partner, you know, it's, it's, so we, we try to help them on that also to pace that, because you don't have to do everything at the same time, don't get involved in five partnerships, you know, that's, that's, that's, uh, Um, but also think about who's the
first, who's the second. Um, and then what type of partnership do we talk about now? Is it a developmental partnership? it's like, okay, who develops what IP, who owns background foreground, who gets to the go to market. Um, or is it about technology proof? Like, Hey, can you help us or application proof? It's those types of things you got to think about. And, and really then, then look at it.
Like if you take Econic, they, they, um, you know, I'm going to produce, uh, material at Monument Chemicals. which is great, and
Yeah. Excellent.
Getting really close, uh, but they have this partnership with Unilever on the surfactant side, you know, which gives you a lot of credibility in the future to go to the ethoxylators and say, Hey, one of your biggest customers is, is, is, you know, they know these molecules. So, so it's this proof getting on, on, whereas Monument is on the polio side. So it's, it's the propoxylation step where we insert the waste CO2. So these are two things that don't bite each other.
But you have to think about that, that you work with partners that are also not, not even indirectly competing with each other. And, and some startups to say if I'll go to talk to everyone and then let's see how they work, but in an early stage partnership, it's really, you want to have a good exchange of information and really learn and understand. And, and if you talk with too many at the same time, that's not going to work.
So it's these types of things that, that we, we try to help the portfolio companies on and not saying what they do, but really think it through.
Hmm.
You know, and, and then, yeah, they, they still make the decision,
Right. Because at this point you're an investor and a board member, but you're not the decision maker on these things. Yeah, it's uh,
Which sometimes is like, okay.
Well
But again, there's the, the good thing is that there are also other people in the board. So you get different perspectives and that's very, very healthy. Now, if you have financials investors in the boards, they give you a very different perspective. You've got other venture capital companies with a different experience set. That's, that's really a healthy perspective.
And that's kind of also the big difference with when you innovate in a corporate, because in a corporate, you don't have that diversity of thought. Yeah. There's there because it's all the same corporate think.
Right.
That's why I think corporates are not so suitable for this type of early stage work and investment.
Well, if these ideas don't appear to move the needle in the early stage, right? So, in a corporate environment, whether you're shell, others, you're looking for technologies that actually add a zero or. Or something to your bottom line and so it has to be scalable and I just don't think they have the patience to get to that point of scalability.
There's systems that are designed to be robust from a financial perspective, a, um, uh, managing in, uh, innovation are not really geared towards new and novel innovation. They're geared towards improvements because these new and novel innovations, by their very nature have to start really small. And it takes a lot of patients to get to that point.
Yeah, but at the same time, I think it's also, it's, it's the patience is an element. It's also the lack of long term vision and a reward for the long term vision. Now, if, if you think about it, CEOs today, they get rewarded by stock buybacks.
Yeah.
Which in my mind, you should fire any CEO that buys back stock because he's basically telling the investors, I have no clue what to do with your money.
Yeah. Corporate Finance 101. Right.
That to me, and don't forget in the past, it was not allowed for companies to buy back stocks. um, so, um, for a good reason. Um, but, but go back to innovation. That's a different topic. If, if, if companies don't innovate themselves. They have to mentally prepare that they have to do merger and acquisitions in addition to organic growth. Now, and then it's a question, when do you do that? Some companies have a philosophy to say, Oh, we operate businesses. We're very good at that.
And where needed, we acquire, which is a very valid strategy. Yeah. There's, there's no right or wrong. But, but if corporates don't innovate, You know, what's their long term future. And if, if, if, if you take Shell, how did Shell got into the business of molecules for detergents, because they had some paraffin feedstock left that they had no clue what to do with, right. And they got into that business.
And then, you know, from the paraffins later on, they developed an alcohol business and needed to sell ethoxylates to, to get rid of all the alcohol and to get rid of the EO as so. Um, but if you don't innovate in that area, you'll never get to that next phase. And, and the patients for long term innovation, if we go back to shell at a shell GTL process, It took a long time, but, but without that, they could never have built Pearl in Qatar.
And without Pearl in Qatar, they would never have had the concession for the LNG deal. Now, so, so technology also creates a long term strategic competitive advantage and on the timeline of a company it's not that long. On the timeline of management and executive rotation. It is way too long.
And I think that's a key issue that that, know, if you think about the chemicals executives today, don't take a look at the website of chemical companies, how much diversity is truly in the executive system. Yeah.
Not much.
How many of the people there truly came in through innovation into the executive team? hardly anyone. You don't get rewarded for innovation. You get rewarded for avoiding risk. You get rewarding for, for asset management squeeze, you get rewarding for, you know, for optimization for efficiency, et cetera, But, but far less for having a strategic vision and, and almost zero for, for doing innovative things. So the startup system is essential for the chemicals industry to innovate.
You know, and if you think about the, the transition that the chemical industry is going to make with, with feedstocks and applications and different products, different products that need to be developed.
Mm hmm.
For, for the battery industry, for the electrolysis industry, uh, for the materials industry, the consumer demand, uh, light weighting of cars, light weighting of airplanes, all that kind of stuff that that's largely coming from the startup community, but then the corporates have a huge opportunity to scale that, you know, but, but their hesitation to step in is, is like, Oh, it's, it's not finished yet. It's not proven yet.
Yeah. And, and, oh, it's, it's, and of course, there's the not invented here syndrome, you know, um, but at the same time, the opportunity that they have today is enormous.
Hmm.
You know, and, and if, if, if I take industrial biotechnology as an example, where can make certain molecules now way easier through microbes. And you can then disconnect your supply chain from the thermal cracker part. You can kind of cherry pick in the value chain. Which molecules do you want to do? No. And that's, that, that realization is starting to come. A couple of companies are early adopters, a couple of companies will, will lag forever.
Right. And it seems to me, um, we already talked about kind of the biosurfactant. So I see a lot of the partnerships and I see this as, uh, one product area where I think we're going to start seeing, we're already seeing the corporate stepping in and partnering to bring it down to bring it to fruition and bring it to market.
And that that'll probably accelerate, but it also sounds like there's some lessons that we can learn from, uh, the life sciences and pharmaceuticals to your point who actively seek out product innovation, uh, elsewhere and know how to bring it into their system to build it to commercial scale.
Yeah. And I think at the buyer's effect, it's actually one of the shortest value chains in the chemicals industry. Now, if you think about a bio surfactant, it's, it's making it in a formulation and it goes into a consumer product.
Yeah.
Now that that's, that's one of the shortest value change you find in, in, in the industry. There's some in polymers, but, but even in polymers, you go through making the polymer, compounding it, extruding it. following, shaping, whatever. So yeah, but, but buyer's effectiveness is one where consumers also have a direct impact and understanding.
Yes.
So that one is, is I think, a good area to start and accelerate. And the other reason is buyer surfactants is largely formulation, you know, a lot of the buyers in, in the surfactant market, uh, it, it it's more about the, uh, the functional role of the molecule than what it looks like now. So, so it's far less a, a specification product. It's really about trying and testing. I remember in, in detergents, you have these 20 washing cloths and you know, you just
Which one works? Yeah.
And that's, I think a very good area to innovate quickly. Where you both have small scale and large scale customers to try now. But, but if you want to try something new in polyethylene, well, you know, the, the large polyethylene units, you know, that's a different thing. So you've got to think about, and that's for us also an investability question, are there small scale entry points? And if I take Trillium as an example, uh, uh, Trillium makes bio acrylonitrile.
Acrylonitrile facilities are all under 200, 000 tons a year because it's difficult to make, it's dangerous to make, and you need a lot of propylene to make it.
Okay.
You make it where the propylene is. Um, at the same time, the market is, is a little bit fragmented. There is about 35 global supply units. And over a thousand customers and the acrylic fiber people, they buy acrylonitrile in large volumes, but the carbon fiber people buy a little bit now.
So, so our rational to go into this bio acrylonitrile is like, you know, Airbus, BMW, Mercedes, carbon fiber in cars, carbon fiber in bikes, carbon fiber in all kinds of other, uh, composites will continue to grow fast. Now, people would like to get bio carbon fiber by renewable carbon fiber bio based, but to make carbon fiber through lignin or other routes, you make a different type of carbon fiber and you have to go through the whole qualification.
Now, but if you then make a drop in molecule, because in Trillium, the last, the last step we do is, is almost identical to the last step that INEOS does in their process. so the molecule we make and, and all the by products are, are 99. 999 percent the same. So you get a drop in molecule, which means you don't have to go through the requalification at Airbus or BMW to get the carbon fiber approved. Carbon fiber plants are spread across the U. S., you know, and they're 2000 tons, 5000 tons.
So you can build facilities. Biobased acrylonitrile, you don't have to be connected to the thermal cracker. You eliminate them, the transport of a dangerous material, you know, which is another aspect of impact and making impact is not just looking at the greenhouse gases or the resource efficiency. It's also safety. Safety of production or safety of transport. You know, and transportation of chemicals like an acrylonitrile remains.
So anything you can do to shorten that distance, reduce the exposure for us is an important impact. And so at Capricorn, we always, we always said before ESG was there, it's about the people and the planet. The earth has to be a better place with this company than without this company.
I like
that. And today we call that ESG investing, impact investing, article nine, et cetera. You know,
Yeah. Well, I think it's, I think it's the right, uh, idea and approach and it's certainly working for you guys. So we've, we've talked about a lot of things so far. Um, and I know one of the things you've said is, a great idea is really the fundamental great idea, great markets, et cetera. What's the role of leadership in this? When you think about leadership at these companies, um, what's critical in terms of that and driving success. What do you guys look for?
uh, uh, It's different in the different phases. You know, when, when you go through say technology proof technology scale up, it's, it's a very different leadership profile when you're going to build a demonstration plan. Or when you get into the market and, and, uh, I don't believe in the, in the super CEO type thing. And I know in the U S that that's always the, the CEO has to be the, the, the magical superhero for everything. Uh, we look more at the teams.
You know, and, and a good leader is, is a good team enabler and, and a good composer of the teams. You know, so, so it's, it's more like a, like an orchestra and the conductor doesn't play any instrument. Well, sometimes, but, but he or she gets to understand how it works together and, and how to improve it. Like, yeah, that part needs stronger, but it's also determining when do you need that? If you're not getting into manufacturing or supply to a customer yet.
You don't need a lot of supply chain knowledge in your team. Now, you also got to think about what kind of skills and attributes do you need in the team permanently and what can go temporarily. And also, so it's, it's that type of thing. And then, and then it's about growing the leadership. Some CEOs can, can grow with the business and they stay in a long time. Some CEOs are good for a certain phase.
Uh, we have in, in two of our portfolio companies, we have founders with a very technical orientation and background. So at some point in time, they move more to, to the chief scientist or the chief engineer or the chief technology role. Uh, and, and then other people get in to get the business to the next phase. And part of our role is sometimes to, to drive that or, or, you know, and bring that message and convince people that this is the best way to do
Yeah. Shifting leadership is not easy, particularly for somebody that's a founder who doesn't. logically may recognize that different skills are needed as the company changes and evolves. Um, but emotionally it's hard to let go.
Yeah. And, and then, so I've been on both sides, right? That emotional side is, is an aspect that, that we really try to care about, it's a process and sometimes it is done well. Sometimes it's not done well. I mean, boards makes mistakes on that too.
Well, absolutely. Right. We, we see that all across the industry at public and private companies. Right.
Yep. It's, it's, and that's also part of, of, uh, also in the boards, you have to be critical also to watch yourself. Yeah. And there's VCs, you have to be able to have some self reflection on these things and that, that not everything you say is the magical formula for everything. So, um, yeah, that's a part too, you have to be critical about.
yeah, yeah, yeah. When you're successful, it's hard to sometimes check your ego at the door and
Yeah.
move forward. So let's so final question here, Rob, and maybe it's the final question. We'll see where it is. Um, you know, when I think about next steps or investors and investment funds, where, where are you guys going? How do people get involved with VC and how do you guys find your money and take your money forward?
So, so we get money from different sources, you know, there's, uh, governments typically have economic development funds. Yeah. That are there to promote the startup industry ecosystems. So, so they tend to invest in funds like ours, right? Because then later on they can have co investment opportunities. Um, we get investors from the insurance industry. Insurance has a very long term view about risk.
And they realize climate change transit, food transition, energy transition are all big risks to, to the world. So they, they tend to invest and they have lots of money to invest. Um, family offices. You know, there's, there's some really, uh, there's some really visionary family offices that don't look at returns at the short term, but also at the longer term.
Um, uh, there's all kinds of funds, you know, there's funds, there's lots of large, say money management companies, asset management companies that then invest in funds like ours.
Okay.
Because for like the private equity industry, it's important to have this kind of deal flow now. So, so there is the people who invest in private equity. Can also invest in us because otherwise their companies don't have to deal flow.
Got it.
So it's really, it's, it's, it's quite a far fetched, uh, ecosystem. The, the thing with venture capital is it's, it's like, it's the, the end of the tail, you know, so, so when the tail wags venture capital gets like this, you know.
Yeah.
and, and so when interest rates ride or rise, there's less money in venture.
Got it.
And even though in the total money market, it's a small shift for venture capital, it's a big shift. So, so that's, that's, that's one. Um, yeah, so, so that's where we find our money with, with these kind of propositions. And then, of course, in, in, in the world of, of, of, say, cleantech and chemistry, there's corporates. And corporates can invest in our funds too. Um, we avoid, To having too many corporates in a FUD because you don't want competition and it's also, uh, it's not your FUD.
Okay? We don't work for one corporate because we want to spread the risk over different market segments, different sectors, different areas. But most chemical corporates are so broad that they could invest in a fund like ours. do it. Some have their own corporate venture capital, which is sometimes good and bad. You know, there's, there's corporate venture capital firms. They have a good view on the market and the technologies. But in a lot of cases, they don't have a fund, they have a budget.
Oh, interesting.
And corporate budgets change every year.
Yeah.
So when, when we co invest with corporate, we consider that a risk because when there is a next funding round, you never know whether the budget is there or not. You know, and, and it's, it's, it's, and some say, oh yeah, we have a long-term budget. Like, okay, can you decide about that? Or do you have to go to your head office to decide about that?
And when they say, oh, we, we always get approval from head office, like, yeah, so, so you don't have control, you know, because if you are the CEO of, of a 10 or $20 billion, you know, multinational chemicals, corporate. And your fund says we need to invest another 3 million in this round and you have to go to the CEO of the 20 billion corporate that 3 million is a nuisance, right? And, and like, I, yeah, we cut costs everywhere. Everybody's on travel restrictions. You're not going to get it.
And boom. so for us, that's often very difficult because when we invest in a company, say we invest two or 3 million, we plan to invest 10 to 12 million in a company. And in the fund, we reserve that money for that investment. You know, and, and, and if you don't have that long term view, and it's also, we cannot always predict when does the company need money. When it goes well, you may want to accelerate. So the next funding round comes faster. When it doesn't go well, it takes more time.
You need to do an intermediate route, you know, and, and what we see with the corporates that they, they have, you know, they struggle with that. And it's not the people in the corporate venture fund, but it's really the corporate mentality around it.
So when you're organizing a fund, um, people are, your investors are giving money, but it's also a commitment. It's not all the money's not all in one drop where you get a big bucket to spend.
No, we, we, we have what we do, there's a call off. So we have a capital call. So when somebody commits 10 million in our fund, right, it's, it typically starts 10 percent as, as a first call.
Got it.
And then we call the money as needed. But, at the moment we start to get access, we start to repay.
Got it.
Yeah, so, so in a lot of times, uh, you call 70, 80 percent of the capital and then you start to repay. So, so it's never 10 million in one go
Is that typical for most of the venture capital funds? Is that how they all work?
Yeah, but it's, it is a, it is a hard commitment. You know, when you go into default, you're in big trouble. Um, at the, at the same time, from a cash perspective, you know, to a large corporate, it's nothing, you know, because any corporate of 20 billion at any point in time has this money on their cash balance. So, but the problem that we sometimes, that we have to explain is an investment in a fund is a balance sheet item. You know, it's not an expense.
But in a lot of cases, you know, corporates put this under like an R& D expense.
Yeah.
It's not an expense. It's a balance sheet item. And if you go to your treasury department that manages your money, you know, it's, it's, it's probably a different view, you know? But these are very different.
It's complex. I, uh, it's, it's, and I can see where the challenge is, right? Because the reality is, um, If you're sitting inside a corporate, you don't really think about where the money's coming from. You just have a line item, uh, and, and then understanding how to navigate that is not always the easiest. And frankly, you know, nobody gets trained this way. You just learn it along the way, right?
It's on the job training. Yeah, there's no school for this. But that's interesting, we offer to corporates, When they invest in our fund, we, we offer corporates, uh, if they invest enough, of course, a certain secondment option. Uh, and, and they can send people to us three months, six months, they join our team, they get to learn the routine. We, we also have corporates where we go to their innovation department and explain venture capital. And, and when does it make sense?
We, we look at sharing deal flow, like And because a lot of the deal flow we see may not be suited for venture capital, they might be very well suited for one of our corporate investors as a partnership, as a technology scouting, as a, you know, in, in all kinds of shapes or forms. So. We always tell corporates that when you invest in us, you get a window on the world that you don't have. Now you get a, you have this blind wall, you get an additional window on the world there.
And that can be quite interesting for them because it's kind of filtered deal flow because if, because we don't take 20 corporates in our thoughts, we have a few, and we really want to understand from them, What do you think your business is 10, 20 years from now, we look like? You know, I also get corporate sometimes when, when we talk about our portfolio companies.
They're like, well, we're, we're, we're not interested to invest because, uh, this portfolio company doesn't fit with our current business. I'm like, yeah, it should not fit with your current business.
That's the point.
Yeah. It should fit. It's, it's an option for future business. Now, and that's also the point that when you think about corporate developments and developments of new molecules, new materials or new product lines in a company, it doesn't get from 0 to 5 years to 200 million. Now, that takes time. And that's the part that surprised me most.
You know, and, and, and getting into venture, I, I always thought that the chemicals industry has this, this vision, you know, and that people in the business really understand that it takes that time, but, but as an executive in the chemicals world, you don't get that time.
You don't
You don't get rewarded for a new product as you develop now, 20 years from now.
No.
But, but it's essential, I think, for, for, for the company or the industry to continue to build that portfolio.
Yeah. We need to continue to make it happen. Um, I think the industry went through a period that felt like a very lack of innovation, um, maybe in the nineties and two thousands. And it's good to see that we're back at it. Uh, because it's needed, it's needed for the future and to change our future.
If you look at the pharmaceutical industry, they really understand that and, and they kind of made it their business model. And I think the chemicals industry, you don't have to go all the way, you know, but, but a little bit more open attitude, you know, and, and, you know, investing in funds like ours and, and, and others, uh, is, is really can help you to, to kind of open up and, and understand the different views in the world.
You know, and, and I think it's, it's often that you see certain, certain companies or businesses are kind of so rigid on, on what they think their business is. And at the same time, it's like, well, you know, you might be surprised in the future.
Absolutely. Well, well, Rob, I was, I was going to call you, uh, you know, ask you about being a shark in a shark tank, but it sounds like you guys have the TV show shark tank in the Netherlands.
We have that too.
Okay. So, so, so your comp you're half shark tank and a half matchmaker. Um, it's a little bit of what it sounds like.
you know, we're, we're a friendly shark, you know,
Yeah.
That's more of what it is. It's also different. Some venture capital worlds, like if you go to software, it's, it's as far different competing model and far different deal flow and different pace of development. I can see in the software world or, or you have to be first to market. You have to be big. You have to, you know, but in the chemicals and energy world, you don't have to be first, you know, uh, you, but, but you have to be good.
Yeah. And, and, and you cannot come with, with half finished product. So, um, there's now, there's some, some good developments in the bio based products industry where there are some hybrids coming and that really helped to introduce these, these things. Yeah. But, but if you, if you build the plant, you cannot build a plant that works almost.
Right. Yeah. It either does or it doesn't.
And that makes our, our business different. So,
Well,
yeah, the shark, the shark model, we're, we're, we, I don't know. I'm thinking. We're a bit more of a cooperative fish.
All right.
probably more like the dolphins now.
There we go. That works. That works. Well, Rob, this has been great. Thank you. Uh, thanks for making this happen and having enjoyed diving into the world of venture capital and clean tech and startups and, and getting more insight there. So that's been great. So thank you for joining us today.
All right. Thanks, Victoria, for having me. You build up a great show over the years with this. Really, I, I enjoy listening to, to the different, uh, um, the different chapters of it all the time.
Yeah. Thank you. I appreciate that. It has been a great journey and I'm glad you've been there. So thanks everyone for listening. Keep listening, keep following, keep sharing, and we will talk with you again soon. Well, thanks guys for listening. I hope you were able to listen to both part one and part two of my interview with Rob.
So many great insights that he has shared about the role of venture capital, the role that they play in terms of risk management, in terms of helping these companies and these innovators scale and grow and develop their business. Lots of great insights there on leadership and more hope you listen to it. If send me some feedback and we'll be back again with another great episode next week. Cheers.