E394 | Hampus Jakobsson (Pale Blue Dot) & Michael Smith (Regeneration VC): Climate Tech in a Trump Era & Europe’s role in the global agenda

0:00Welcome back everyone to the European VC podcast. Today I have with me three good friends, Hampus from PaleBlueDot, Michael from RegenerationVC, and of course also Toby from Planet A. We are going to talk all about Trump and climate in this era of Trump. We actually end up talking a lot more about the state of the European market and what we can do from here, why it's important to look to the East as well as to the West, why the European landscape is actually quite well positioned for a better future, and how the narrative is the main thing that's going to be changed given this new election of Trump, rather than anything substantial in the climate space.

0:37So everyone, I hope you enjoyed this episode of Smart Decided Making It. These guys are incredible.

0:59This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Toby, Michael, Hampus, welcome to the European VC podcast. I was about to say for all of you once more, but Toby, it's your first time. We've only had two of your colleagues on before. So great to finally have you on. Thank you for having me. So maybe before we dive directly into it, there are still people that might not know exactly who the three of you are. So just maybe describe your vantage point a little bit. I just heard, full disclaimer, I just heard that Denmark, in all of the world, Denmark is the country that scores the highest adversity to Mr.

1:39Trump. I'm actually not one of those guys. I'm not that anti. I will get into that a little bit throughout this conversation. And I think it's dangerous disclosure here on this podcast. but that happens. Let's go to probably what I would think is the second most adverse country to Mr. Trump, Sweden. So as a basic, I think that Pilbara dot, super early stage firm, we usually are the first investors in. We are happy to invest in two people in a shed that are walking towards a direction we like. So that's us invest in what we view long-term as climate. So kind of planetarily aligned. And I mean, part of this conversation is definitely that we are struggling with and have been discussing the term climate tech for quite a while.

2:23I mean, I said it on stage in September at the drop and saying that we don't really view ourselves as a climate tech fund and we're asking a lot of questions about it. And I think that if I would say one comment about Trump, I would say my headache with Trump is not necessarily the politics. My headache is that I think that now we live in a new sphere world, which is like essentially the narratives own more than reality. And now very, very particular parties in a lot of different countries are allowed to essentially prototype and split test ideas live and just like run with it and see where they get the votes.

2:56And you don't have to have any ideology or anything anymore. And I think that worries me more than actually the actual agenda that the party sets. Interesting and beautiful and tons of things we could dive into there. But this is not a podcast about that necessarily. So I'll refrain from comedy. Michael, maybe you'll go now and say a bit where you come from. Yeah, so I get to be the American on a Trump discussion podcast. So I'll bring some insights to bear there from the U.S. side. I actually reside in the Netherlands now. So we're a European North American fund, Regeneration VC. We focus early stage, so call it seed series A of initial entry points into enabling technologies, hardware and software of consumer value chains.

3:47So we're looking at apparel, packaging, food, electronics, beauty. How do we make those industries more in line with environmental commitments and planetary boundary thinking? I'm looking forward to the discussion today and big fans of all of these fine gentlemen. Thank you, Michael. Toby, tell us about yourself. I'd like to say the same thing. Actually, I'm big fans of the other two and their funds. So what can I add that is maybe different from what those two are doing? Planet A, also German-based, Green Tech Fund, early stage hardware as well as software. We often come in when Hampus is already in or aligned with him.

4:29I haven't done so with Michael, but that's in the planning. we have maybe one differentiator because we have our own science team on board calculating life cycle assessments. So we want to quantify the environmental impact. And once there's scalable impact environmental wise and a scalable business model, that's our sweet spot. And that's where we come in then. So apart from that, pretty much aligned with the things that the other two said. So, gentlemen, when I decided that I wanted to do an episode on this topic, it's obviously both on the back of a ton of people asking me, so what do you think is the implications for Europe and especially a lot of people reaching out when it came to climate?

5:12I mean, I've got to try and kind of divide this conversation into different subtopics to make it a bit more accessible for us. But if we just do a very quick reactions, like overall, are you seeing this impacting the election of Trump and the direction that we're all expecting the U.S. to take when it comes to the climate agenda? Are you expecting this to have severe impacts or is it actually not as bad as people think? I think it's going to have impact in the fact that I think we're going to go back to Freedom Fries level of nomenclature where we can't talk about climate change. For those that you missed, like remember the Iraqi war when France didn't lie as with the US and in Pentagon, they couldn't serve French fries, but they had to serve Freedom Fries.

6:03I think that's the level we're going to be at. I think like they're no longer going to be called greenhouse gases in the US. Like we can't talk about carbon capture. it's the all the agenda is going to be like how we like compete with China. If China is going to make a big agenda, which I think they are, then US will make it because they need AI sovereignty. So I think it's going to be a lot of like communication and narratives. But I think that it's not going to be that big of a divergence from the core agenda. So my guess is 60 % is going to be the same, but there's going to be a lot of fluff around it.

6:35Yeah, so I'll jump in on kind of a U.S. context. I would agree with Hampus that there's going to be recoding of words, recategorization, a move from, I think, our industry to normalize, again, in the U.S. context of whether it's climate or whatever it is, that it's just profitable and good business and things like that. I think you're seeing a lot of VCs in our category talk that way. I think one thing's clear, you can expect change and uncertainty, instability from the U.S. standpoint for the next four years. It's going to be very hard to predict. The crew that you're seeing come in that may or may not be confirmed through Senate will be a different group that'll be with this administration towards the next three, four years.

7:26I think, again, sadly, the U.S. is proving it's not a reliable partner in terms of long-term collaborative agreements and critical things like the climate crisis that require global cooperation to really enable and handle things. So it is choppy and it creates a lot of uncertainty for what we've been pushing for. I think a lot of us have been pushing for and those are the facts. It's not to say that there won't be good business to do. It's not to say there won't be great investments and things like that, but global cooperation is changing to a much more de-global focus for the immediate term. Not to repeat too much, and maybe just to add on the point of uncertainty, I think how much impact it's going to have, we will still see.

8:11I think there's definitely going to be some impact, but what they are going to do exactly under Trump is not 100 % clear, I think, at the moment. so I agree with the uncertainty also going forward but I also agree that not everything is at stake so I believe that a couple of things you know unwinding everything that has been there or rewinding everything that has been pushed forward by Biden will not happen so I think parts of the IRA even have interest in states of the US that are very Trump pro. So I believe that there's things going to stay the same, but things are going to change. And a taste of that we have heard already, be it wind energy or alikes, that Trump obviously will focus on either stopping, hindering, or supporting oil and gas.

9:09So those kind of things, that's something we can deal with already now, I guess. But other than that, I think it still has to prove out what is going to happen exactly. And I think on that, I think what, like for people who are not in the already renamed labels, I mean, IRA is the Inflation Reduction Act. It is not a climate act. And the majority of it should go to red states for creating jobs. I mean, CBAM in the US will join the Freedom Fries and things and be called the Foreign Polluter Free Act or something. It's, I think we're going to see a lot of these things that are, I think maybe we talk less about greenhouse gas emissions, and we're going to talk about more in like New York's air quality index.

9:50I think a lot of these things are just going to be renamed and created and recreated. And at the same time, if you look, I mean, look out the window and look at the news, I mean, AI needs an enormous amount of base load power. So there's going to be enormous investments in nuclear, there's going to be enormous investments in grid, there's going to be enormous investments in battery tech. all these are needed if any if the u.s is at all serious about what they're talking about in their agenda so i think that it's it's like you know climate isn't i would say a majority of the companies today being funded in what we all call climate tech or called climate tech years ago has like to more than 80 degree a business goal which is not a climate goal when they started the company like they of course they want to you know remove emissions but that's not why the customers are buying.

10:37Hebs, I'd love to double click on what you just said in the end at this point that the portfolio companies are not leading, so to say, with the climate agenda or with the impact agenda, but they're leading with the value add agenda. So to say, whatever is the value proposition that they're selling to customers, it is not first and foremost climate or impact. It's first and foremost that they're solving a business critical problem. Could the three of you maybe talk a bit about the reactions from your portfolio when they're looking into this and the role that US VCs have had in this situation in terms of guiding them or trying to provide some type of understanding?

11:18And maybe, Michael, we start with you there, because I imagine that many would turn to you as a US investor. A great point just made by Hampus, which is you always want to make sure you're investing in a real business and that you're solving a real problem. And this is part of our America bias. I would say it's like hard coded into us. We can't just invest into philanthropic missions that's been baked into how we think. So we always look for commercial proof points. We're investing with big corporates and they're taking off take. They're customers of things that we see. So, you know, whereas Hambus can come in really early with the guys in the shed, we really want to see a little bit more like proof point and make sure that they've gotten something to market.

12:04I will say, you know, it was dubbed the Inflation Reduction Act. And had the Biden administration made a real play to focus on inflation, ironically, that was the, you know, deciding factor of where Americans predominantly voted from. And yes, a lot of that was the IRA was very thoughtfully structured to address red states and jobs in red states. That said, you know, the new Department of Governmental Efficiency, we're going to hear a lot of that. And this word efficiency, get ready for a lot of that word. that you've got this gentleman, Vivek Ramam, Swami, right? I would never say his name right, who's really gone on an attack on the IRA and how much of that he's going to, you know, really go after is to be determined, especially attacking these kind of 11th hour grants that the Biden administration has been making.

13:04There is about 40 billion right now in conditional commitments that is sitting out. So you have like$2 billion at Redwood. You've got almost$5 billion at Invenergy. You've got almost$6.5 billion plus at Rivian. Stellantis and Samsung have a$7.5 billion deal that are hanging right now in the difference. And the loans program is a really brilliant and well-constructed structure, but it's a bureaucratic process. It takes a long time. And there will be some things that potentially get lost in the middle. And I think you'll also see a lot of lawsuits related to this, which is unfortunate. Let's say you've got the agreement from the DOE on this, and then this new administration comes and tries to rescind, and you're caught in betwixt and between billions of dollars spinning around.

13:56You're going to see some pain in here and some potential losers. So it's concerning. and also to Hampus' point, and we can get into this more later, there are areas that are definitely advantaged and could be in the wake of getting some of the monies that's being recoded or reallocated from the Inflation Reduction Act into areas like nuclear or other geothermal drilling. Drill baby drill could also mean other things than just oil and gas. So it's a really, really complicated time. We don't know yet what to expect. We can have some good instincts, but again, expect uncertainty and a lot of challenge from what we had been planning for.

14:44I think those are facts. But in that end, I think that a very big thing about where we're going into is exactly that. It is the fact that we go into a period where we do not know. We don't know what's going to happen. We don't know what regulations can be around. We don't know who to trust. We don't know exactly where we get financing from. And I think that means businesses have to be way more short term in the way they operate. And VCs, like if somebody says we like, you know, two or three years ago, I think people could say, we all know that long haul trucking has to be turned electric. It needs to be the arc of justice is going to bend towards that.

15:22I think now there is no arc like we don't know six months, 12 months, 18 months. I think everybody will have to ask, hey, will this make something work better now? Very short term. And I think that's sometimes it's good. I think sometimes that efficiency would be great because like we're pushing towards, you know, more urgent agendas, maybe. But then sometimes it's going to be ridiculous because that means that it's very hard to do long term planning for anybody. So I think that I think that if you run a business that needs a like a sunny, friendly neighborhood that you know that you can keep your door unlocked metaphorically.

15:53No, we're not that we're going into the dark forest right now, like we're going into a period where you don't know who to trust and you can't shout in space because other alienations can kill you. The three of you, when you have looked at the European climate space, startup space, in the light of this new turn of events, so to say, what's your reaction? Are you seeing that, because you've alluded to it a bit, Hampras, you've said that we really need to realign to a new time, a new period where you cannot just built for the long-term future and you cannot use the same words anymore. It's not enough to just be solving climate impact problems, but you need to solve real business problems.

16:43I guess there's in there also a critique that we have had startups that have been building with that other mindset. And we've also had investors that have been investing with that other mindset. Can you talk a bit to where you think we stand? Because it's obviously very passionate for all of us that Northwalt has just turned sour. We have the airplane situation as well, where you have government funding that's trailing or backing out. Where are we in the European climate space when you look at the companies that have been funded already, the investors that have been been back to go out and back other companies i mean i i can come into one thing which i think is like i think geopolitically i find super fascinating which like you know when people are saying the u.s like the u.s leads in innovation and venture and europe leads in regulation and like the the classical mocking and we all think it's really entertaining and we all like you know look at the people who are drinking and they got a like a cap in their knows.

17:46There's one power we're not talking about, which is heavily regulated and moving really fast with that, and that is the Chinese economy. And I think that people really fail to see that China the last 10 years went from thinking that their big focus areas were textile furnitures and home appliances, which they now own a lot of, right? They moved to the China Nu-3, which are solar cells, batteries, and actual vehicles. And China now produces 80 % of all the solar cells, 60 % of all the lithium ion batteries, 60 % of all the electric vehicles. China has made it super, super, super clear that those are not the only agendas.

18:26The other agendas are grid, hydrogen, and carbon capture and storage. And I mean, these are agendas that if they were presented in Europe, we would all be like, oh, heavy-handed European government is like, you know, plowing money in this and illegalizing that and this but like if you're looking at what's happening now is that i think you know chinese manufacturers on evs are the biggest ones like and if you go back like 10 years ago china was not even on the map as an ev producer right so i think that there are a lot of europeans who i think should look more and ask more is there stuff we can copy from how china has implemented things or is china always evil in the like current like very americanized news for agenda we're in.

19:09So I think it's really fascinating to see these geopolitical things also being an inspiration. It's a super interesting point. And I definitely want to hear from Toby in the German context. I think there's a big question mark right now in Europe, like what is Europe's role as an economy? Like where is the future of Europe? And in terms of this discussion, it's an area I would say of extreme edge where Europe has been investing in innovation, has some of the best breakthroughs in, call it climate tech or whatever we want to recode towards, real leadership in Germany and throughout the continent and in the UK certainly has government entities set up to advance technology, has sovereign funds, has programs.

19:58Are they perfect? Could you say, are they big enough, this, that, and the other? They have been set up to graduate technologies and to make success. And what you just highlighted about China is spot on, right? Like I think last month, half the cars in the world sold were Chinese EVs. And they're crushing and they control now a materials chain of where these raw materials are coming from through to the end product. And they're very hard to compete with. That was not done on highly profitable short-term thinking. That was done on multi-decade planning, strategy. The U.S. outsourced production to effectively China became the world's factory.

20:38And they were very smart about how they're doing things, right? And the last 15 years, China's put in$231 billion into EV subsidies. Last year alone, China put in$809 million for cattle. And they did it strategically, right? They gave different cities, different car companies contracts. They did it with procurement. And so what I hope for Europe is not to follow the U.S.'s de-global playbook to say, uh-oh, how do we get more national? How do we only do it for ourselves? But to use the edge of the different markets, of the different nuances, but to work collaboratively. If Europe can stay that course and learn more from the China playbook, there's no reason why this can't be a future part of the European agenda when the U.S.

21:24is clearly going to fall out and start competing heavily with itself and everyone else. There is a place and space for it. Unfortunately, I'm going to pass it over to you, Toby, now. In a German context right now that we're seeing, certainly with what's happening in France, the move is to be more nationalistic. nationalistic, what do you see? I'm curious, and what do you see unfolding for some of these topics? Yeah, in the end, I don't know. It's circumstances that are not absolutely favorable, that's for sure. And when we talk about insecurity coming from the US, I think that's also something that we are witnessing in Europe.

22:04Then again, I think you can always complain about situations and how they are, I think if we try to see the positive side, this can also be a wake-up call. And this is what I felt was going through our VC branch that people were saying, okay, let's rather look at what do we have to do now? What can we do with it? So looking ahead, I think this also has a lot of opportunities and we should try to strengthen them. And this is, of course, geopolitically a risky situation and there's a lot of defense talk going on and what do we have to do there? So talking about Europe being stronger, that also has a factor in it, I think.

22:44But also looking at the green tech chances and opportunities, it is what both of you already said, right? But this is something that we anyways knew from the start. You cannot rely on regulation fully with a business model that will probably hunt you down sooner or later. It's nice if this is happening and supporting it, but it has to be a business that functions. So green premiums are not going to be paid, especially not now. People are looking at their wallet and, you know, you have to have solutions that really make a difference, but are economically feasible and make sense. And then they happen to be sustainable.

23:21So I hate to say it, but this is something you have to deal with. And this is if you look at it, it's also OK. I think for a certain type of period, there might be a green premium for transition time, not too long. but other than that this is not what you should rely on and it's not going to happen this is something that we can deal with right this is what we know now and then developing solutions as both of you said that makes sense and that help transition something into the right direction and there we have a lot of points in europe i think and this is not only germany this is not only france but this is actually hampers the nordics are far ahead in many aspects so i think this is rather something that encourages me that this is going to happen.

24:06And of course, the first reaction maybe to the first question we discussed today was with us, okay, looking at our portfolio, who's going to be affected? What is going to be the impact of what's happening? Is there going to be an impact? And after some discussion with the portcos, we were actually, and Dave were actually calming us down like, no, not for now. I mean, not being blue-eyed and naive, But no, there's nothing that we see immediately stopping us from doing business. Of course, there might be something coming up due to that insecurity and then maybe some actions being taken by the U.S.

24:38government. But apart from that, also there, you will have opportunities if you have a good business and something to offer that makes sense for the people to use. And I cannot tell you, this is going to be the sector in which we are going to be top. But I can also think that now maybe for US investors, I mean, Michael, you and Regeneration VC, you are already with a global mandate and you are already active in Europe. But maybe there are some US investors that are also now looking more to Europe, thinking like, oh, that's good stuff they are building there. And not by maybe, you know, taking it all over the ocean and the Atlantic to the US, but also, you know, being active in Europe more than they were before.

25:26That's also something. So I try to focus on going on with the things that we were doing, maybe even strengthening them. I agree you should be open towards China and maybe get ideas of what they were doing well. Same counts for the US, but not rely on either or to make your business work. I think we have to find ways of creating something that is not only usable in Europe, of course, but that can also compete on a global level with the other two. But it's also interesting to think about, like, I think the biggest weakness Europe has is actually that we're comprised of a lot of different member states.

26:08And whenever somebody says, let's go and build a new car factory, battery factory, whatever it is, and if it's going to be, you know, pan-European conversation, then, you know, France wants in France and, you know, Germany wants in Germany, Sweden wants in, like, and I think that's what I think that US, of course, has partly with states, but it's smaller effects. And China has even less because, you know, the way they can act. And I think that, I mean, think about last week when wind was low in Germany, electricity prices in Denmark and Norway surged, and Norway got super pissed off at Germany, which is for being negative to nuclear power.

26:42And I think the thing is, we have to stop with the provincial mindset of which country is doing what. I think that if you look at, I would much rather that Europe actually said, we actually need a massive ultra-high voltage power grid and actually combine our grids much better. If you look at US right now has zero ultra high voltage grids due to NIMBY-ness and like you know we can't build these anywhere again I'm going to give the last Chinese stat like in 1980s China had 18 separate power grids 2024 China has now 38 UHV grids that operate like essentially two separate zones north and south and it's like because they just said you know let's act as one and I think that's the thing I think we need to figure out how Europe or any region for that sake on the planet can like figure out a way to clear this fog of war, because right now we're in a fog of war.

27:32Like we don't know anything's going to happen. I think to clear it out and say, we need to unite on a couple of things. We need to unite on base load. We need to like renewables, grid, like, you know, and I think if we start doing those together, and I think that's why I think, you know, I love the fact of making sure that like our startups are international, have different kind of ECs from different kinds of countries. I think that's one of the ways we can contribute. Making sure that when we invest in a company, like we actually try to combine as many countries as possible a lot of times, because you actually are getting a lot of those benefits.

28:00So I think we have to work together to actually clear that fog of war so we can collaborate further ahead and not just have to think super short-mindedness on everything. 100 % agree, Hampus. This is what I meant with it's a wake-up call because we're not doing it right now. And this is what's hindering the potential to really unfold. So I have to enter the Draghi report and I have to enter a stimulus or some sort of constructive 500 billion plus plan for the EU, what does that look like genuinely? Is it like a dual-use thing between defense and environment or future industries? What's the potential of that, right?