Startups creating new materials, including for food industries, can have a significant climate impact, making them interesting targets for the Nordic investment firm Inventure, partner Tuomas Kosonen said in an interview on the sidelines of the TechChill startup conference in Riga in late April 2022.
Inventure is a Helsinki-headquartered seed-stage investor, known for its investments in companies like Wolt and Swappie.
A few key takeaways from Tuomas Kosonen:
We are not an impact investor. We are a pure financial investor, but in the past years, all ESG-related topics have raised their meaning, coming from all also from the portfolio and from LPs. We have to be very aware of all these topics.
That's something that is like super important on the agenda of pension funds, insurance companies, and public money. And, of course, it is super nice to see what kind of impact money can make. So if the big money or institutional investors would not care for it, most of the investors, at least, wouldn't put that much effort into that one. But actually, you might not even qualify for the money, like the LP commitment, if you're not part of that.
Especially what we have done in the past is on new materials, so like, plastic replacement, or like carbon nanotubes. That's something that has a huge environmental impact. So that's something we are now looking for in the coming two years.
Food-related companies will have a direct impact line quite fast, much faster, some material technologies. And then the food, I guess, is superheated as well. Yes, and we have looked at meat replacement companies; unfortunately not invested single one of them yet. There have been some quite interesting ones.
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Tarmo Virki 0:07
Welcome to the NatureBacked podcast of Single.Earth. In this podcast, we are talking with investors about their vision of the new green world. My name is Tarmo Virki, and in this episode, I'm talking with Tuomas Kosonen from Inventure, enjoy the show!
Tarmo Virki 0:23
Hello Tuomas, Thanks for joining us here at Naturebacked. Today we are in Techchill in Riga and talking about the Inventure. Tell us in a few words how do you pitch Inventure?
Tuomas Kosonen 0:38
Thanks. Great to be here talking about an important topic overall. But firstly: Inventure, what we are all about. So Inventure is a seed-stage investor based in Helsinki and Stockholm, investing actively around Nordics and Baltics. So geographical reach, quite a diverse portfolio, and more generalist. We're investing from our fourth fund, which is a 150 million euro fund, launched at the beginning of this year, 2022. And already done a few investments this year. So the market is very vibrant. And like we are one of the most active and leading investors in this region.
Tarmo Virki 1:18
How important are all kinds of climate or environment-related topics in your portfolio?
Tuomas Kosonen 1:27
That's, of course, one topic that is driving our thesis as well. So we are not an impact investor. We are a pure financial investor, but in the past years, all ESG-related topics have raised their meaning coming from all also from the portfolio and from LPs. And that's something that we see in like, how to compete in the market. So we have to be very aware of all these topics and how they actually like how which kind of impact companies can do society overall. Not just like monetary, but also other important KPIs if those would be measured, so we are following them now more and more actively.
Tarmo Virki 2:15
Impact investing on its own is a rather interesting term, but do you think that impact investing and 'real' investing are becoming closer and closer?
Tuomas Kosonen 2:25
Yes, they are getting closer, of course. If you think like the old school impact investments, you didn't have, let's say, the monetary goals as well, like, heavily driving like evolution and like the traction and the execution. So, of course, that's quite old-fashioned in that sense. So I think, now it's getting more and more so like, you can actually like having both of them involved, and having those as your metrics and KPIs. And it's not like they are not overruling or like closing each other away. But rather having both So like most successful companies normally like tend to have like all the topics somehow covered.
Tarmo Virki 3:08
Exactly. I don't know too many successful startups which sell guns or destroy nature, right? It's not like not part of the DNA.
Tuomas Kosonen 3:17
Yeah, that's coming very strongly. We have institutional LPs where mainly our money comes from, and that's something which is like super important on the agenda of pension funds, insurance companies, and public money. And, of course, it is super nice to see what kind of impact money can make. So if like the big money or institutional investors would not care for it, most of the investors, at least, wouldn't put that much effort into that one. But actually, you might not even qualify for the money, like the LP commitment, if you're not part of that.
Tarmo Virki 3:57
I hear quite often that the climate tech sector is horribly hot. Some people even say that there is more money in that sector than that attractive startups.
Tuomas Kosonen 4:08
Yes. Of course, you're gonna think about what climate tech is? It's so broad. It's probably the first generation like electric cars and windmills, and solar panels. So like, I think that's easy to see what climate tech is in that sense, but now I think most of the companies have the climate or environmental issue somehow part of their like strategy. So if it's not like they make an impact on that side, at least they are following whats their footprint in the market.
Tarmo Virki 4:46
You say Inventure is a generalist, but could you maybe throw some examples of the kind of environmental-related investments Inventure has done lately or over the years?
Tuomas Kosonen 4:57
Yes, maybe the best example would be a company called Swappie, which sells refurbished phones, electronics. And that's easy to understand if it said like fully company's doing well, it has like grown we'll two-three times year by year. So monetary-wise, doing well and raised a lot of money. And that's easy to see what kind of impact they do: prolonging the life cycles, people are actually making proud of themselves when they are buying something from Swappie rather than having the Apple package; they might have a similar phone inside, which is the swabbing package.
Tarmo Virki 5:34
As a typical iPhone owner, I have two of them on the table between us, with one used as a recording device. There was this joke at the time when Nokia must have been launching the navigation service, and there were a lot of laughs that with the iPhone at the time, you could use only the navigation function. The joke was that how do the iPhone users actually navigate? What's the solution? "They go and buy another one."
Tuomas Kosonen 6:07
Of course, now you can do that one as well when you have like an option to buy different lifecycle iPhones and different price levels. I mean, it's possible. I still manage with one.
Tarmo Virki 6:22
I mean, one for recording, and so on.
Tuomas Kosonen 6:24
Then some other examples. So like there are, of course, some of like new technologies on the material side, what we have been doing. Now the iPhone is ringing.
Tarmo Virki 6:36
Tuomas Kosonen 6:39
A good example is a company called Material Exchange; they are building a marketplace for fashion where they can buy the raw materials that they need. It started with leather, for shoes, mainly. Now we're expanding that to a huge variety of different materials coming from that one. And then, of course, the sustainability and environmental issues are super important for the consumers, the manufacturers, and raw metal producers by that point as well. So like they are solving part of that issue, having the access and the knowledge for the buyer purchases, having the sourcing, what kind of materials they should buy, unlike having the whole track tracked where the actual materials are coming from. So that's another one.
Tarmo Virki 7:27
With Swappie, the challenge for me has always been understanding, where's the startup in Swappie? Why do you define it as a startup? Or do you actually?
Tuomas Kosonen 7:36
yeah, of course, it started, every company startup at some stage.
Tarmo Virki 7:41
For me it has to have that kind of technology or scalability part of it to be a startup.
Tuomas Kosonen 7:45
of course, I like what they do differently compared to all the others - they have their own process; how do they source the phones. So they have a six-minute process, which is unique, developed by them, they have their own software or own tools, and like, and then if the phone qualifies throughout their process, in that six minutes, they're going to give the warranty and like take responsibility. And that's something most of the competitors don't have in-house, they have outsourced that to third parties, and it's quite hard actually take that kind of visibility and responsibility and transparency over products if you don't own that yourself. That's the startup aspect. It's actually quite complicated what they do on it. They have put a lot of effort into that side.
Tarmo Virki 8:34
We were talking earlier a little bit about how impact investing has become part of every kind of investing. How do you see this trend continuing further?
Tuomas Kosonen 8:54
I think like, there will be in like different metrics that the funds will be selling to LPs. I know, like, the pure impact funds, they might not, like have those strong monetary goals, but still, when you think about like a from an investor, LP perspective, they have to get the money back with some returns. That's the only thing that is driving the market.
If you want to be pure, do pure impact, and it's more like ... a charity.
And when they are different, what you do like tokenizing part of the nature or the carbon emissions, which now have value, actually going to show other means not just like everyday attraction, how you make money. It's a long-term commitment, actually. And the more like, results might take a bit longer to achieve, but they will be there in the end if you can somehow like, see where the world is going and like what is like the people will put the most value in the future. I'd like that. Thank you! We'll be driving the market. But definitely, when you think about the investments overall, it's always like getting some returns.
Tarmo Virki 10:08
The interesting point you mentioned about the kind of potential length of the process, some of our recent visitors have been telling me that the challenge is for old VC funds is their 10-year investment cycle, or life cycle, that if you go to climate tech in the year or climate-related technology startup in the year for your fund, you're basically already too late.
Tuomas Kosonen 10:36
Quite often. That's true, exactly. That's a challenge. It's not just like environmental or like impact-driven investments, it's always with all the investment is always like we are forced to execute fast and get the results to prove I understand your question there. So like, if the results cannot be seen within like, in less than ten years, it's a difficult actually then to show, like, then we just have to find like the next home for that kind of companies who actually are valuing and looking for that one as well. So like, it's not like we have to execute and get all the value out of that investment. But it's more like that, that finally the part of the ecosystem, which values, and is looking for that kind of like a result. So
Tarmo Virki 11:20
if you look into 2022 - you just raised the big fund and made the first few investments. I would guess that looking into the year ahead; your main focus will be on working on the new investments from that fund?
Tuomas Kosonen 11:38
We have a large portfolio from the previous funds. So that will take, of course, some of everybody's time with like, the outcome of those funds, what was expected. But definitely, that's like No One for the next few years; our focus will be building the next portfolio.
So we are a seed-stage investor, doing tickets between 300,000 to 3 million. That limits what type of companies we're looking for - quite an early stage. And, of course, we have this lifecycle mentality overall, it has an impact on what we can do and will do but like, be in the first 18 months, 24 months after the lifecycle of the funds. So definitely, we're going to be making more binary investments.
And like, and especially like what we have done in the past is on new materials, so like, plastic replacement, or like carbon nanotubes, so like, but different approaches. So that's something that we which has a huge environmental impact. So that's something we are now looking for in the coming two years. We're where to find them, and like now would be the time time to invest there.
Tarmo Virki 11:59
In Finland we are seeing some exciting material projects. Right, your home base.
Tuomas Kosonen 12:13
Yeah, we are. A company called Sulatec, for example, they're just doing a plastic replacement, mainly from wood. And like the look and feel are exactly the same. That's good. A good example is that one.
There are lots of food-related companies. We have invested company called Stockeld Dreamery, a Swedish company that is doing plant-based cheese. So nothing coming from animals was used for that one. The food-related companies will have a direct impact line quite fast, much faster, some material technologies. And then the food, I guess, is superheated as well. Part of the environmental investment.
Tarmo Virki 13:41
On plant-based food, I have to tell the story. I live in a small village on the island of Saaremaa, and at the closest grocery store I noticed last week, that they now have plant-based cheese in their offering. It's a really tiny shop and really for the countryside people. I was quite amazed how it kind of gets distributed these days.
Tuomas Kosonen 14:09
Yes, and we'll have looked at meat replacement companies; unfortunately not invested single one of them yet. There have been some quite interesting ones going, like stem cells. Even when you have a part of the animal still used, you do it in a lab. I know that plenty of companies are doing that kind of stuff. I think there will be interesting opportunities.
Tarmo Virki 14:30
Absolutely. Looking forward to 2022, Thanks, Tuomas. Thank you. Join us again for the next episode. Thank you for listening. If you like the show, please give us a good rating and leave the feedback in your podcast player so others will find it too. We will be back next week. Turn on to the Naturebacked podcast.
Transcribed by https://otter.ai