E311 | EUVC Awards | Clare Murray on building Blume Equity & investing in sustainable companies

0:00Welcome back to the European VC podcast, guys. I hope you're ready for a great episode because today we're talking to Claire Marre, co-founding managing partner of Bloom Equity. Bloom Equity is one of the finalists of the newcomer category at the European VC Awards this year. So we are super excited to be doing this episode with Claire where we're going to dive into Bloom Equity and exactly what it is that allowed them to rise to such brilliance that they are a finalist in the newcomer category. but also what has allowed them to close no less than$40 million in commitment from the EIF with a target fund size of$200 million.

0:41They've got offices in Amsterdam and London. The fund is Lux Domicile. They're targeting the growth stage or investing at the growth stage with Europe and the core regions being UK, Benelux, Nordics, Germany, and Ireland. They invest mathematically across Climatec, as you will hear in the podcast. They're quite thesis-driven. And notable investments include SensorFact, Aronis, Normative, Matt Martin Motados, a Swedish company attacking FMCG, Food Waste. That was a hard one. Hope you will enjoy this episode and that we will see you at SuperVenture for the European VC Awards. If you're listening in to this episode, do drop us a review, follow the pod, and subscribe at EUVC.

1:22and give a huge shout out to the sponsor of the newcomer award, Flow.io, which just published a new report with them on fundraising in the European market. And you should definitely go and check it out. It's on Flow.io slash raise. That is Flow with two Ws. Hope you will enjoy this episode. Take care. Here's a few words from our beloved sponsor. Welcome to the European VC podcast, sponsored by Flow, proud sponsor of the Newcomer of the Year Award at the European VC Awards. Combining technology and regulatory rails, Flow is enabling the private market. For the VC market, Flow is working with integrates every aspect of fund management.

2:09From creating investment management agreements to handling custody services and regulatory reporting. This unified platform streamlines the administrative workflow, enhancing communication with limited partners and simplifying payment processes. A standout feature is the Flow Certificate, a globally tradable instrument that boosts liquidity and facilitates secondary market transactions, reshaping fund structures with more flexibility. As Martijn, CEO of Flow, puts it, By modernizing fund structures and enhancing liquidity, we're empowering investors, VCs and innovators to grow significantly.

2:58United and determined we can serve as a model for other regions of the world. The nature of a problem requires a European response. Europe is a story of new beginnings. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Claire, welcome to the EUVC podcast. Nice to be here. Thanks for having me. As I just said, Claire, in the introduction, you managed to be one of the finalists in our newcomer category at the European VC Awards. Congrats. Thank you. We were really excited to be nominated and have our fingers and toes crossed for the final results when they're announced.

3:47Yeah. And we are, of course, going to talk in this episode a bit about why you are as amazing as you are, because we really want to highlight you for the ecosystem to understand exactly why we picked you guys to be one of the finalists in the newcomer category. But I think that conversation is best started just by getting to know you a bit better. So Claire, please tell us about your journey in venture up to today. Great. So Claire Murray, I am one of the co-founders of Bloom Equity. There are three of us. Bloom Equity is a growth equity climate tech fund. In terms of my background, I started off on the more traditional investing side at Goldman Sachs in New York.

4:32As you can tell from my accent, probably I'm American by background living in Amsterdam. am. So after Goldman joined BlackRock in New York and also worked with them in London, and while there, I had an opportunity to help build their sustainable investment platform across public and private markets, everything from ESG integration of their traditional strategies through to developing impact funds and, where appropriate, overlaying those with impact measurement management frameworks for institutional investors and government entities as well. And it was through that work, which was quite broad, that I narrowed my focus and area of interest, particularly on private markets and within that venture capital and growth equity, particularly.

5:21At the time, this was over 10 years ago, impact investing in private equity was certainly more nascent than it is today. And there were a few funds with very strong track records in this space. So, you know, this is pre a lot of the big firms doing platform extensions and raising impact funds at a billion dollar plus. And so I mapped the market and ultimately decided to join LeapRug Investments, which is a growth equity impact fund, been around for over 10 years. And so worked with them, was based with them in Australia, as well as in London. And it was while I was in London with them that I was connected to one of my ultimate co-founders of Bloom Equity, Michelle.

6:03And so Michelle and I and Eleanor joined forces to build Bloom. And the focus there and motivation was we want to provide not only capital, but also support to help these inherently impactful companies at scale that are tackling climate change and have real, real momentum behind them and need that support to get to the next level. And so we set up Bloom Equity as a profit with purpose firm to do just that. Could you just share a little bit about Michelle and Eleanor's background as well, just so we get a better understanding of the whole main team? Absolutely. And there's a team broader than us at this point.

6:51But in terms of the three co-founders, we have really complementary backgrounds bridging traditional investing and sustainability. So my background being more on the sustainable investing side, I've worked with companies, particularly private markets companies, on impact, on measurement, on sustainability strategies, et cetera. And then Michelle and Eleanor bring really deep investment expertise in tech-enabled companies. So Michelle was a partner and sat on the investment committee of MidEuropa, which is a European fund. She's Swedish by background, though based in London. And Eleanor has spent the first half of her career at McKinsey, so on the operational side and management consulting, and did a lot of work with large private equity firms on diligences across Europe and the U.S., and then spent the second half of her career, so another decade or so, at ECI Partners, which is a U.K.

7:51fund, and she focused on tech-enabled businesses there. So what was important to us as a co-founding team was, one, we were philosophically aligned in what we wanted to build and how we could do that. And then, two, that we brought together profit and purpose because what we wanted to do was create a firm where impact was integrated across the entire investment process. And we felt the best way to do that was with building a new firm where it was core to its DNA versus, you know, some firms which add as a checkbox at the end and retroactively try to fit into their investment processes. I think I actually just want to go to one of the core reasons for your breakout position amongst the newcomers, because obviously we had a ton of newcomer nominations.

8:43But one of our core criteria was that, as Chris put it, Chris Waite from Isomer Capital put it, that we were looking for someone who brought something new, a new brick to the wall of European venture. And you guys, except for, of course, being an all-female founding team, which is something you rarely see in European venture or just in venture generally, you're also plucking or filling the funding gap in climate tech in Europe, which is, of course, something both we have a funding gap in the growth stages across the board, but especially in climate. So I'd love to ask you if we could dive a bit deeper on your reading of this ecosystem and how you're plucking that gap.

9:35Yeah, it was something I recognized and was actually surprised about when I moved to London and started getting myself more involved in the venture growth ecosystem here compared to the U.S. What I found is there is a very robust venture ecosystem in the UK and more broadly in Europe, particularly related to climate. And these firms are supporting climate tech companies, scaling to, or not scaling, but getting to product market fit, getting that first real milestone. own. But where I recognize there was a funding gap was at this growth stage. And I think it's for a few reasons exasperated in Europe than in the US.

10:23And I can go into what those are. But ultimately, there was this gap between venture, early stage venture and later stage growth, where once companies hit profitability, it opens up the markets to them. There is a number of funds who are at that point able to write checks. But, you know, they're looking at checks of 50 million plus. And a lot of companies don't need a funding round of 100 million that early. And it actually hurts them longer term. And so that is why we set up Bloom Equity in Europe to plug that funding gap. And what we're seeing is there are other initiatives that are also addressing this.

11:06So there are other European funds that are starting to come in. And we welcome that. I mean, at the growth stage, it is about collaboration. So it's not like buyout where it's winner take all, where you can only have one control owner. So, you know, we welcome other funds coming into the space and particularly at scale. And you also now have some European initiatives. So the big one that was recently announced was the European Investment Bank's scale up initiative, which is 500 million to support innovative European technology companies continuing to grow. And I think that's great. And there can be more that the market does.

11:46But why is there such a funding gap at this stage? I can go into the reasons we see that. So first is overall, the funding ecosystem in Europe is just more nascent than it is in the US. So whereas the U.S. has starting to invest in venture back in the 80s, it feels more recent in Europe. And thus, the company is getting to a point of maturity to need growth capital is also earlier stage. So there just hasn't been the requirements, I'm generalizing, but as much for needing this growth stage capital. Also, I find European traditional investors tend to be more conservative. So already you see endowments, pension plans not allocating as much to private markets in Europe as they do to the U.S., where it's called the endowment model.

12:37It's about investing in private markets. And so what we find here is that, again, this focus on profitability is a milestone or criteria that companies need to hit to be able to really access large pools of capital. And there isn't that flexibility. So, you know, that's another reason. And then you overlay that with climate where the space is just more nascent. And so because of that, you now have companies that are reaching this next level of growth that have been supported by the venture ecosystem. And so we're really excited to be that next pool of capital and also a more general partner to help them on this journey.

13:18If we stay a bit on the topic of European conservatism or overly focused mindset around profitability, it's certainly something that we've seen across tech since the tech reset that investors have very much rallied towards companies that are profitable or show a very clear path to that. But I'd love to ask you, because I imagine that this was also an issue or something that was before the tech reset. Because in climate tech, you've always had the hardware component where you'd say many are not comfortable taking that risk unless there's already very good incoming clients. Am I right in saying that, that it was a gap that we had also pre-April 2022?

14:19Yes, it certainly has been exacerbated since April 2022, as you mentioned. But yes, this trend is visible for the past five plus years. Just to give a data point behind this. So Europe creates more startups than the U.S. and has consistently for the past five years every year. But the number of scale up businesses in the EU, particularly at the unicorn level, lags behind the U.S. And a big portion of that driver of that is the fact that these companies just don't have as much access to capital to get them to that next level of growth. And, you know, you're seeing you were already seeing that with companies thinking about going to the U.S.

15:06and getting funding from the U.S. and ultimately IPOing in the U.S. instead. And that's been exasperated again recently, given the IRA, the Inflation Reduction Act out of the U.S., which has incentives to both climate subsidies and tax credits to attract companies to the U.S. I mean, I think one thing, both from a European sovereignty perspective, but also in order to continue to build the European ecosystem and to be a leader within climate, we need now more than ever to be supporting European companies at all stages of their journey. How are you seeing it developing now? Are you seeing that this movement is definitely happening?

15:53And if I ask you from an investment perspective, how do you gauge the financing risk of the companies that you look into? Because when we have such a clear funding gap, that is one of the main issues when you're looking at a company, I imagine. Looks very promising. Will we actually be able to fund this all the way to where the real money is ready to come in? It's worth noting that SaaS business models are not going to solve the climate crisis. And so every fund is different. They're targeting different returns. that they've got a different strategy in terms of what they can invest in. And there's a role for all of them to get involved in the climate space.

16:39But what we do at Bloom is we look across, we call it tech enabled. So, you know, we will look at SaaS business models. For instance, we led normative series B round. It's a carbon accounting platform focusing particularly on scope three emissions. They've got very high quality data there. So work with large enterprise clients on their carbon accounting process. We also will invest in product-led or businesses with hardware in it. And so that is something where not all investors can, but we think being able to do that is quite interesting. And there's a number of companies with huge innovation in that space and a lot of growth.

17:21So we're really excited about that. What we can't do, and it's just because of what fund we've set up, is we're not infrastructure investors. So we couldn't invest in wind turbines. We're also not going to be the investor that is able to support a company building a pilot facility or a warehouse facility because we are just not able to continue to then invest at that size across all stages of their journey. And, you know, once we invest in a company, we want to be able to support them if there is a reason to continue to raise additional capital. So, you know, it depends what a fund is able to do.

18:02But we are certainly broader than a lot by including in our remit hardware and product led businesses. In terms of your broader question on what we look at and particularly to mitigate the risk, because we are at the growth stage, which, you know, it's a different portfolio construction than venture capital. Whereas with venture, it's a large diversified portfolio where, you know, you're hoping a couple shoot the lights out and, you know, there will be a higher loss ratio. So some companies just won't survive. And that's fine. That's why it's a large diversified portfolio. At growth, we're taking the approach that we're a hands-on investor with the company.

18:41So we have a more concentrated portfolio where we can we have the bandwidth and the ability to continue to work with these companies during our investment period. And because of that, we're we're focused on risk on the downside. And, you know, we are targeting market rate returns and think that the climate and impact goes hand in hand with that versus versus being more on the philanthropic concessionary return side. And so when we think about what our criteria are, is we need to see technology enablement. And the reason for that is it creates efficiencies and scale for a business, which from a growth perspective, we need to see.

19:22Then we also do look at unit economics. So companies certainly can be profitable when we invest in them. That's great. But more often, companies are not yet profitable. They're on that pathway to profitability. So we want to see is proven product market fit, proven tech. So no tech risk, no regulatory risk that creates binary outcomes for companies. And we then come in, make assumptions and assessments on how the company will continue to scale. And as the company scales, the unit economics then become profitable. And so that's what we like to see in our companies, you know, and what that trajectory is depends on the company.

20:07So, you know, a SaaS business model can reach that quicker than a product business, just given the scale of it. So, you know, it'll depend on what, but usually we say in three or so years from our investment, you know, we want to see the company be able to get to profitability if they so choose. often it's a trade-off and if it's worth going for growth through more country expansion, product expansion, et cetera, that's a decision that the company and the board will make at that time. But we want to see that there's a pathway to get there. And that is a thing that we look at when we're assessing the risk of the company.

20:44Just because you said the part about tech enablement and that you didn't want to see a technology risk in the companies that you go into. How do you think about the moonshots of climate? Because we have numerous of these, one of the very clear ones being, of course, nuclear. How do you do those at all or do you not? Do you stay out of it and say, well, that's not our profile. It's not what we're good at. We're good at scaling. So those that are still in tech development, but they're big enough now to be in round or be in growth, still not for us. So if a moonshot idea is at the point where they've gotten that product market fit, absolutely, that would be in their remit.

21:32But overall, those tend to be earlier stage companies in the deep tech space where that's not part of our remit. So on a personal level, we track that. It then has implications on other areas we're looking at, but we wouldn't invest in those just because from a portfolio construction perspective, as I talked about, that's a much higher risk, potentially higher reward, but just as likely or more likely, unfortunately, at times less likely. So we need to get the companies to the point of scale up where we can invest. And maybe on this, we could talk a little bit about your LP base. Even though the fund is still open, you aren't finally closed.

22:21Our listeners might remember that we have as a criteria for the newcomer award that you had first closed in 2023. So for that reason, obviously, many of the funds that are in this are not yet closed. I love to ask you, because oftentimes in models in climate, in fund models in climate, the LPs play a very important role because they don't just supply the capital to the fund, but they are also typically strategic co-investors or follow-on investors. Could you talk a bit about how you've put together your LP base? Yes, we're really pleased with the investor base we have built, very much aligned with us, and we very consciously built a relatively consolidated investor base.

23:11And that includes a lot of investors who can grow with us as we grow as a firm and also exactly to your point can participate alongside of us or following us in our portfolio companies in a more meaningful way. And that's a real area of interest for a lot of our investors. So in terms of the investor base we've built, there are some family offices, single and multifamily offices. And then it runs through on the institutional side, government entities. So European Investment Fund wrote one of the largest checks that they've written to a first-time fund to us out of their climate pool, which we were pleased about.

23:49That was announced last year through to foundations and pension plans as well. So AP4 has publicly announced their investment into us, which is a Swedish pension plan. And then all the way through to fund to funds. Our investor base is primarily European, given it's a European strategy and we're based in Europe and that's where our relationships are. Makes sense. And a couple of U.S. investors as well. And then in terms of the second part of your question on the relationship with them. So, yes, we do show co-invest to our investors. So they have seen co-invest. We've offered co-investment on the majority of investments we've made to date.

24:33and our investors, depending on their timelines and criteria, have participated alongside us in that and then also continue to follow the companies as we've also supported the companies in future races. So that's something actually when we think about selecting our investor base, the ability to write co-investments is a key one for us. And it also allows us to write a larger check ultimately. So a co-investment looks like it's through us, Obviously, it's with the end of the client, but, you know, worry about it then take a larger ownership percentage. And when an investor has areas of expertise, you know, they're able to share that with portfolio companies and with us.

25:13And so we facilitate and foster those conversations wherever possible. Oftentimes, climate investors are quite thesis driven. I'd love to ask you to hear a bit more on your thesis on the market and so on. because one thing is the funding gap that we just spoke about. That's, of course, the central piece. But I'd love to hear a bit more about technologies, vertical, so on. Absolutely. So, yes, when we invest into a company in a space, we would not invest in a competitor. So we're making a decision to support a specific company in that space that we think will be either the winner, if it's winner-take-all, or one of the winners.

25:56And usually these markets are large enough that it's the latter. When we invest there, when we source, there's a few ways we do so. So one is through our relationships and the brand we're building with Bloom that we are, as the name of the award implies, a newcomer. So, you know, we don't have the name brand that some of the big firms have that have been around for a decade plus. But we do see a lot of investments, both directly and then through the relationship with venture firms, which are a huge pool of deal flow for us. So, you know, we very actively screen their portfolios. We've identified which are the VC funds where we want to have relationships with and, you know, set up periodic calls or meetings to make sure that we're speaking to them about how their companies are progressing and being aware of any future funding grounds that are coming through.

26:53In terms of the thematic convictions, the research convictions, yes, we are very research oriented. So not only are we doing top-down, but bottoms-up, where we will pick a topic, do a deep dive on that topic as part of this deep dive form of view on how attractive we think the market is, and then also map the landscape. And we do this globally. So it's not just with European companies because ultimately we think an Asian company is going to be the winner in the space. We wouldn't invest in that one, but then we're not going to invest in maybe a European one. So we do that globally. We identify who we think the more interesting companies are, build relationships with them.

27:36And what's great about that is we certainly already have knowledge about a certain area, but we really have deepened that over this analysis period. And so when we go to companies, we can ask smart questions, which is obviously a way to get respect from management teams and show them that you can offer value and add value where appropriate. So we'll do that. We've recently done one on biodiversity and identified a few areas within the biodiversity value chain. You know, when we think about other companies we've invested into, SensorFact came about through a subsector deep dive into carbon accounting, where we, I particularly had a lot of experience with ESG measurement tools providers.

28:25While I was at BlackRock, there was a JV done with one, and this was ages ago. So, you know, the space has really progressed. But I've followed it since and where I felt there was the most, the highest ability for customers to pay for good data was within carbon. And I thought it was important for a company to be really a focused expert on that versus going a mile wide and an inch deep. And so we specifically focused within ESG measurement tools on carbon accounting. There was also regulation coming in in Europe and talked about potentially in the US where this space was just ripe for growth. And we, after market mapping, came across as one of the interesting companies, Normative.

29:11It's a Swedish company. Michelle, being Swedish, had heard of the company. She knew some of the earlier stage investors in the company, as did I. and then we built a relationship with the company and ultimately, as I mentioned, led their series B. So we do a lot of research on areas before we then ultimately invest into that. And sometimes we start with one company in a space, decide that's not the right company and then through a market mapping, identify another one, which we end up investing in instead. And that was actually an example with AeroNs, which is a Latvia-based company That's a robotics provider doing inspection and maintenance on wind turbines.

29:50You know, there we had done a deep dive on the technologies enabling the energy transition. And so looked across offshore, onshore, was actually looking at another company and then ultimately decided to invest into Aeroons as we built a relationship with them. You said something there that made me think, because you said that you do a global deep dive or you do a deep dive and that leads to a global market map. And then you said, if we then find an Asian winner, that we think, ah, these are probably better than the European counterpart. You then don't invest in the European one and you don't invest in the Asian one.