The NatureBacked Podcast

How To Invest A Billion In Climate? With Giant Ventures

June 20, 2022 Single.Earth Season 1 Episode 17
The NatureBacked Podcast
How To Invest A Billion In Climate? With Giant Ventures
Show Notes Transcript Chapter Markers

A giant wave of purpose-driven founders, coupled with consumers raising interest in the environment, and the availability of climate-focused capital, should enable a rosy future for the climate tech sector,  said Madelene Larsson, an investor at Giant Ventures.

London-headquartered Giant Ventures has invested in some 20 companies and plans to invest a billion dollars over 2020s. It had just started to raise its second fund when we recorded the podcast in late May 2022.


A few key takeaways from Madelene Larsson:

Of course, it was a better environment to raise the fund before we saw the market pullback that we're currently seeing. We're not going to shy away from that. But we do hope there is fundamental support for purpose-led technology and climate tech. Right. So we are kind of progressing well with our fundraising.
I think this was sure increasing focus on the sector. And when investors start to focus on the sector, you also kind of automatically see more startups in the space, and, you know, people are coming up with new ideas because they see that the funding is there.
I think climate tech is quite a hot space at the moment. And there's for sure, you know, a lot of capital following that sector. So you see a fair amount of startups trying to greenify, if you will, are trying to be maybe more climate-friendly than they are.
I think there are some big opportunities to be had in-home electrification and kind of EV enablement. As I mentioned, I think consumers will be pushed to kind of going green, and they will be more affordable going green than it kind of has ever done before.
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Tarmo Virki  0:07 
Welcome to the NatureBacked podcast of Single.Earth. In this series, we are talking with investors about their vision of the new green world. My name is Tarmo Virki. And in this episode, I am talking with Madelene Larsson from Giant Ventures.
But first, a message from our sponsor.

Merit Valdsalu  0:24 
Hey there, I'm Merit. I'm the CEO and co-founder of Single. Earth. And we are building a nature-backed currency to empower you to fight against climate change and biodiversity loss. Sign up at Single Earth and be among the first to switch to a truly sustainable nature-based economy. And don't forget to join the discussion around climate change and biodiversity loss on our Discord channel. Enjoy the show.

Tarmo Virki  0:47  
Hello, Madelene. Nice to have you on the show.

Madelene Larsson  0:50  
Hi, it's great to be here. Thank you for having me.

Tarmo Virki  0:53  
You are coming from the Giant Ventures. Is it as big as the name sounds, or how was the company founded?

Madelene Larsson  1:02  
It's not yet as big, but we are very ambitious. So hopefully, at some point, we will become a giant, and how we see it is that we want to back the giants of tomorrow, which we see as our portfolio companies. Giant's mission is to back purpose-driven founders trying to solve the world's really biggest challenges using technology. And we champion entrepreneurs that are creating a more sustainable, equitable, resilient planet. And we do that by investing across three core themes. So climate, health, and what we call inclusive capitalist, where the climate is really our biggest bucket or our biggest theme, so to say. And the fund was formed by two former founders, Tommy Stadlen and Cameron McLain. So we're a very entrepreneurial place and are supported by an experienced Advisory Board and the global venture partner group. So, for example, the Unity founder, David Helgason, Lord John Browne, the BP CEO turned climate investor, and the former a former UK Foreign Secretary, David Miliband, just to name a few. 
At Giant, we believe that the largest companies of the decade, so the giants of tomorrow, will really be built by these entrepreneurs that are solving the biggest problems. And we firmly believe that you can deliver systemic change, and markets will see financial returns at the same time. You don't need to sacrifice one over the other.

Tarmo Virki  2:31  
How big are you? Or how long are you on the road of, you know, finding those giants, how many companies you've invested in? Or how big is the fund in total?

Madelene Larsson  2:39  
So we got started back in 2020. I guess we've been actively investing for about a year now. So we're coming towards the end of our first fund, and we're currently raising our second fund, but our overall goal is to deploy a billion dollars into purpose-led technology in the 2020s. And we kind of the on the path to do that.

Tarmo Virki  2:59  
Well, that's a lot, actually a billion. 

Madelene Larsson  3:02  ,
It is a lot. We're very ambitious. There are big problems to solve anything. We think we need technology to solve it. So we really see the opportunity. And we really think that, you know, these companies will make a significant change in the world.

Tarmo Virki  3:17  
You're raising the second fund. Now when we're recording it, it's late May in 2022. Is it a good time to raise a fund?

Madelene Larsson  3:29  
Excellent, excellent question. I think, you know, of course, it was a better environment to raise the fund before we saw kind of the market pullback that we're currently seeing, you know, we're not going to, we're not going to shy away from that. But we do hope there is fundamental support for purpose-led technology and climate tech. Right. So we are kind of progressing well with our fundraising. We have amazing support from current LPs; they're kind of doubling down into our new fund.

Tarmo Virki  3:59  
That's good to hear. I think that there are probably many companies who will be struggling, at least to some extent, going into this bear market, downturn, market crash, whatever you call it. I think the climate is something which, at least from the sense of it, should be resilient because the problem is not going away, depending on the business cycles or anything like that.

Madelene Larsson  4:29  
Yeah, so I think that's the, I think that's the hope. I think we will, you know, the climate tech as a sector will for sure see challenges, just as other sectors will. For example, there are some - in the software side of or climate sector for sure - some quite punchy revenue multiples out there, right. So, we will need to see those come down, and we will, you know, companies will need to deliver revenue. That's kind of the fundamental part of it. But you know, there's fundamental support for the sector. Right. I think there are a lot of corporates that make very punchy Net Zero targets, right? There's increasing regulatory pressure. And then, of course, due to the Ukraine war, we're seeing a big acceleration towards new energy that's needed. Right. I think there's a lot of innovation to come. But it will also have its challenges for sure.

Tarmo Virki  5:26  
You mentioned this energy topic in general: because Russia attacked Ukraine, energy prices have soared, and Europe has "suddenly" woken up and started to think that maybe Europe needs an energy independence plan. Do you see this already impacting the startup sector? Do you already see that - perhaps energy startups raising money on higher valuations, or maybe the kind of emergence of the new wave of the young startups in the energy sector?

Madelene Larsson  6:02  
I think this was sure increasing focus on the sector. And when investors start to focus on the sector, you also kind of automatically see more startups in the space, and, you know, people are coming up with new ideas because they see that the funding is there. So I think both, from an investor focus perspective and a national and political level.
Nations need to focus on their kind of energy independence and accelerate their renewable strategy. Right. And I think that's very supportive. But also, from a consumer perspective, energy has become very expensive, right? There's no better motivation for consumers to shift their behavior than cost. Right. So I think we're seeing many consumers trying to be more energy independent, maybe installing solar panels, for example, where the new technology is actually becoming on par with traditional energy.

Tarmo Virki  7:00  
You're a relatively new fund. How many companies do you have in your portfolio already?

Madelene Larsson  7:06  
So we have around 20. Today, I think it's around 19 or so.

Tarmo Virki  7:13  
You said that the climate is probably the most significant focus, or how do they go across the sectors?

Madelene Larsson  7:20  
Climate is over 50% of the fund. And then we have roughly kind of half and half split into two other themes. Within climate, we also invest in quite a broad range of sub-sectors, if you will, both on the software and hardware sides. So we invested in anything from, you know, a carbon marketplace that's connecting corporates to farmers to use regenerative ag to create carbon sinks in the soils to water resilience and water risk platforms, to a decentralized marketplace for climate data to fuel innovation to kind of, you know, electrification, and EV enablement and, and those kinds of topics. So we do; we were quite broad-based.

Tarmo Virki  8:08  
I've heard even broader-based explanations on the climate tech investments -- somebody was pitching the idea of a software company, which basically, not directly but indirectly decreases the need for travel as a climate tech startup. To me, it sounded a bit far-fetched to do it, to look a bit more green than they were, in essence.

Madelene Larsson  8:41  
I think you're right. I think climate tech is quite a hot space at the moment. And there's for sure, you know, a lot of capital following that sector. So you see a fair amount of startups trying to greenify, if you will, are trying to be maybe more climate-friendly than they are. So I think as investors you also need for that, you know, every buzz mental framework and investments...

Tarmo Virki  9:05  
I think Greenify would be a great startup consultancy.

Madelene Larsson  9:09  
In the green space, there are a lot of consultancy opportunities for sure, you know, with all the kinds of measurements and regulatory pressures.

Tarmo Virki  9:18  
What's your take on the big corporations' Net Zero targets? Are they something that will change the world? Or are they something which, you know, enable, maybe, let's say, capitalist-minded traders, to buy up credits and sell them in 2029 so everybody would be happy?

Madelene Larsson  9:43  
I think it's an interesting question. I think it's an interesting space. I think in, you know, in some ways, we need to help funnel money where money is maybe best served. And you know, if you take the voluntary carbon markets as an example, it's incredibly inefficient and quite broken in many ways. But still, you know, corporates are making big net-zero targets. And they will kind of need maybe some help before they can actually, you know, really solve the fundamental problems in their supply chains, etc. And it is good for money to be funneled to the right projects. Right. With emphasis, I think on the right projects. So I think that whole sector is going to see a big push towards stricter requirements on additionality and verification, just to really make kind of the efficiency of funds much higher in that space, because I think it's hard to be quite low, which is, which I think it's great. Right?

Tarmo Virki  10:48  
Absolutely. Then the other part of the equation is, of course, the essence of carbon offsets. Are they actually something which is used like - I did bad now I'm paying to the church, and the church will tell me I wasn't actually bad. Indulgence was the word I was looking for. Are they indulgences for the big corporations, or do you know how much of the good happens exactly? You're saying that the key factor is that the money is actually funneled to the good projects?

Madelene Larsson  11:24  
I think in reality, it depends. And, you know, you can have a similar argument around ESG frameworks. What is the outcome of some of these things being done? Does it actually have an impact? 
Or is it just kind of giving money to carbon offsets that, you know, maybe should not have been created in the first phase? Right? So I think there's, if you will, misuse in some of these sectors. But, you know, if they're done right, they still have a purpose.

Tarmo Virki  12:07  
Right? Exactly. Yeah, s you mentioned, the ESG, I do have an impression that the biggest beneficiaries of ESG are the consultancies selling their services to their big corporations.

Madelene Larsson  12:20  
Agreed. I very much agree with that. I sometimes think that it's, it's almost a bit scary how much capital is going to be funneled into the kind of admin and consultants that should be used to develop new technology that could actually change things on a scale.

Tarmo Virki  12:37  
Exactly. Going back a little bit to that Giant in a more detailed way out of those 19 or 20. Investments. Are they all Europe based, or are they UK-focused, or how's the geography?

Madelene Larsson  12:50  
So we are transatlantic; we focus on the US and Europe. So far, we are approximately 50-50 US-Euro. But we can also more selectively invest outside of those geographies. So, for example, Africa has quite a big inclusive thesis. Of course, that's the space that we will selectively look at, but predominantly, it's the US and Europe. And in reality, it probably becomes a US, UK, and the Nordics because that's where we are based. That's where we are from. I'm Swedish myself.

Tarmo Virki  13:27  
It does have an impact, of course, but at the same time, looking at the map of Europe, or the map of European startup hubs, UK and Nordics cover quite a lot of it already, punching above their weight compared to the rest of the continent. Of course, UK and continent, that's a long discussion we should not get involved in, right? 
What about the stage of investments? If you have a plan or a vision of investments of a billion over the ten years, then it's probably across stages, I would assume.

Madelene Larsson  14:05  
Yes, so we are multi-stage, but we split our pockets into a seed fund where we make investments in pre-seed, seed stage, and then we have an early growth fund, where we typically look at Series B onwards. So we almost skipped series A, a little bit we invest there from a very opportunistic way.

Tarmo Virki  14:26  
What's the logic there? Why are you skipping Series A?

Madelene Larsson  14:32  
I think, seriously, A can be quite challenging for some investors. It's hard to get the strategy to make sense because -- especially in this kind of booming market that we have seen -- at Series A, it often gets quite expensive, and the rounds are quite large, but it's not that derisked, right you don't have that much more data. In some cases nowadays, you don't even have a product. So if you focus on seed, it doesn't always make sense to do the A.

Tarmo Virki  15:04  
I understand. Of course, at the same time, if you have invested in seed and you see good progress, it probably makes sense to also be involved in the A round.

Madelene Larsson  15:16  
Yes, of course, we do follow on with our companies. And then, once we get to the B round, we then have that kind of the separate early growth fund that could also be invested in our winners. 

Tarmo Virki  15:28  
If you look at the kind of climate tech sector more widely today, where do you see the most significant opportunities now when we are in a bear market?

Madelene Larsson  15:40  
I think there are some big opportunities to be had in-home electrification and kind of EV enablement. As I mentioned, I think consumers will be pushed to kind of going green, and they will be more affordable going green than it kind of has ever done before. 
I think some of these sectors still have their challenges. The EV is projected to become huge and has huge potential to decarbonize the world, but things like range anxiety, for example, are still very much real among consumers. And, you know, lacking charging infrastructure or financing options is also very much real. But I think this is an area where we are seeing a lot of technology being built now. So I think it's an area where we can see some significant change taking place in more than the near term, rather than maybe some of them, you know, 10 to 50-year timelines that we look at, in maybe other types of Climate Technology.

Tarmo Virki  16:42  
And that's also the field where geopolitics probably has had the most direct impact on consumer decision-making.

Madelene Larsson  16:51  
Yes, for sure. But I think there's, you know, if you look at home electrification, the future of your house, I think, it's quite an interesting topic to look at is, you need to get inside how everything is gonna go together. If you have a heat pump, if you have an EV, if you have a home charger, if you have solar panels, there's still a lot that needs to happen for all of this to go together. And then, of course, there's a dependence on government subsidies in some of these sectors. You need to build the whole solution for the consumer and have the argument that it will be cheaper for them.

Tarmo Virki  17:28  
I recently interviewed somebody in this series who said that we are really excited about the heat pumps; nobody would think that investors would be excited about the heat pumps just a year ago.

Madelene Larsson  17:40  
Yes, for sure. No, I agree. He finds Heat pumps are great, right? I think we're seeing a lot of technology and also on the installer side, which is something that that you know, you don't always think about, but there's a lot of consumer demand, but who is actually going to install the heat pumps and solar panels, and the EV chargers? In some ways, I get a lacking skill level there. So there also needs to be a kind of an education where you need to find good installers that are reliable, that can do this in a good way.

Tarmo Virki  18:11  
Your house will not burn down and so on - the small classical challenges. 

Madelene Larsson  18:16  
Exactly, exactly. 

Tarmo Virki  18:19  
Going forward. Now, you know, from May 2022. Some of the grimmest forecasters are talking about the years of uncertainty, the slump only beginning, and so on. What's your view? You're at the beginning of the raising for the second fund. How do you kind of look at the impact of this macroeconomics for you guys going forward?

Madelene Larsson  18:52  
I focus quite a lot on early-stage now. Right. But my background is more in public markets. And also the IPO markets, which I did over several years. And, you know, my view is that it will get very challenging for some startups, right. Like, things have become quite crazy over the past couple of years. And we are, of course, starting to see down-rounds now, but I think we will see much more of it. And I think we will also see that pressure trickle down not only to the later stages but also towards the earlier stages. I think I still want to be optimistic, optimistic, right? Because, of course, that's my job as an investor. And of course, there is also a lot of capital that has been raised right, especially over the past six months or so, some very large funds. So I think the firepower is still there. I just think that investors will maybe be slightly more critical than they have been before. And as a startup, you will need to also deliver, maybe deliver faster than then some have had to do so far.

Tarmo Virki  20:00  
Is there anything positive we could wrap up? I mean, I think your mission, which we talked about in the beginning, sounded positive?

Madelene Larsson  20:15  
Yes, I don't mean to be negative.

Tarmo Virki  20:17  
just the world around us is a little bit more negative than it was in April when we were recording some episodes.

Madelene Larsson  20:23  
Of course. I would say that I am still pretty excited about the opportunities in climate tech. And I think there's some real positive momentum being built in that sector, specifically, which I think can really, you know, make us see taking more rosy approaches to the world going forward. But there are a couple of things currently happening in climate tech, which I think is really great. The first one is, of course, the availability of climate-dedicated capital, as I touched upon before, but also secondly, I think we're seeing a wave of the very best entrepreneurial talent who wants to be purpose-driven, they want to solve a real-world problem, and they want to spend their time in the right way. And I think we're seeing a huge wage wave of these founders, founding some really excellent companies. And I think that's gonna be really exciting just to continue to follow them. And then I think, thirdly, consumers are starting to care about climate tech. You know, consumers in the newer generations care more than the former generation, which will pressure on corporates to do better and do more. And then lastly, I think that the climate investment ecosystem is really evolving in very positive ways. There's a lot of climate groups being formed, which creates a really healthy debate around some of these topics, right, but also, you know, inspirations, and it's great forums for both climate founders, but also investors to meet with kind of like-minded peers and feel supported, which I think can create a real acceleration in climate tech. And, of course, there are also groups like, I'm part of the climate mosaic, for example, where we are targeting to support underrepresented founders, especially in climate tech, which I think is also hugely important. Because I mean, we need to remember that the climate is hard. It's really, really hard. So we will need very diverse minds and diverse backgrounds to really come together and solve this. But I am quite positive that a lot of change will be made. And I think we will see so much exciting innovation in climate going forward.

Tarmo Virki  22:41  
I absolutely agree with you on most of those points. I think the only one I would challenge a little bit is the one you were making about the consumer shift. Yes, over the last years, we've seen kind of youth becoming much more environmentally conscious and so on, but I think classically in the downturn, people's first worry, also for the young people, the first worry will be their salaries or getting food from the stores and so on. I think some of those choices will suffer; I would suggest, depending, of course, on the kind of depth of the downturn and so on.

Madelene Larsson  23:24  
I think you're right. But I still think that people choose climate higher up compared to cost than they maybe have done before. I think it's going to be more on par. And when we see cheaper climate solutions, I think there's a scenario where we could reach the sweet spot for consumers.

Tarmo Virki  23:42  
Absolutely. I think that's a good point to finish it off. Thanks, Madelene, for that for the chat today.

Madelene Larsson  23:50  
Excellent. And maybe if I could just take the opportunity to mention it before we go. Any Danish climate tech founders out there!? We are currently alive with a giant climate price where we want to back the most ambitious Danish entrepreneurs, and they can win up to 5 million Danish kroner. And we do this initiative together with a Danish sovereign green future fund. And we have a really exciting Council of judges, led by some of the most successful founders of Danish tech companies, like the founder of Playo, the founder of Ganni, the founder of Zendesk, so it's a really great opportunity if you're starting a climate startup in Denmark, so please do apply on giant price to decay.

Tarmo Virki  24:32  
And how do you define Danishness? Do you need to eat the Danish sandwiches or? 

Madelene Larsson  24:43  
You need to enjoy pickled herring to apply. No. Jokes aside. You don't need to be based out of Denmark, either based out of Denmark or a Danish founder.

Tarmo Virki  24:53  
Okay, good. Thanks. That's clear. Now everybody with a great climate tech startup, go and find yourself a Danish founder and apply for the prize.

Madelene Larsson  25:03  
Exactly. Looking forward to hearing from everyone.

Tarmo Virki  25:06  
Good stuff. Thanks so much. Bye. Join us again for the next episode. Thank you for listening. If you liked 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 nature backed podcast.

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