E400 | Petr Mikovec, Inven Capital: Structuring a CVC with CEZ Group and the European Investment Bank

0:28Welcome back everyone to the European VC podcast. large energy conglomerate in the Czech Republic. They have a very special structure. They're different from a normal CVC in that they have with them EIB as one of their LPs in each of their structures. We're diving into a conversation here where we're talking a lot about how they're thinking about their value-add as a corporate investor, how they think about partnering with the rest of the venture and tech ecosystem. And we're talking about Sun and their portfolio company, which was acquired by Shell Global, of course, the big, large conglomerate or corporation in oil and gas that we all know, which, of course, is also competitive to Chess.

1:06So a good example here how they, as an individual investor, can really deviate from just serving in-vent only, but being a real good financial investor that helps optimize for everyone around the table and the cap table. So hope you enjoyed this episode as much as I did making it. They're finally down. Tear down this wall. It's more than just an ally. This is a union of values. 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. Peter and Jaber, welcome to the European VC podcast. Hello. Hello. So, Peter, let me introduce you just by reading a bit at you your bio, and you can then add the context and correct whatever things I got wrong.

2:03Are you all right with that? Go ahead. So, Peter Mikovich, you're the Managing Director and Chairman of the Board of Invent Capital. You are a CVC, which is also why we have Yabba with us here, of course. And you have a bit of a special structure which we'll dive into today because you have 500 million euros under management where some of that money comes from the CE set group and some of it comes from the EIB and I won't mention the numbers here because I'll let you say those and then we can talk about that. You're headquartered in Prague, you're Series A focused and you're investing primarily in Europe and Israel focusing on climate tech.

2:45You have some notable investments behind you and some of them are Sonnen, Taro, HomeTree, and Drives. Do I pronounce that correctly? That's the first question to you. Yeah, Drives, exactly. Beautiful. Did I get it somewhat correct? You got it correct. I think, but there's more to it. Let's discuss. This was just characteristics of our fund, but it will be more exciting going forward, I hope. And maybe you could, because I alluded to it there, you have a structure where you have money from CE set group and then you have money from the EIB. And this is not the typical structure that you see when we're talking to CBCs because normally the sole LP, or most often there's a sole LP, which is the corporate.

3:29Could you talk a bit about that maybe? Sure, sure. So actually we are a daughter company of Chess, CZ. And so that's why it's very similar to any other corporate venture. But we are set up as a SIGGF fund, fund of qualified investors. So below the dollar company called Invent Capital, there are sub-funds. And one of the sub-funds is open for Chess Capital, money from Chess. Another sub-fund is open for other institutional investors' money. And that's what we did with European Investment Bank. So there's Chess, there is Invent, and below sub-funds. And we have a co-investment agreement between these sub-funds.

4:12So every euro we invest from one, it's co-invested from the other one. And we have invited the European Investment Bank to be the next investor to Chess. And that's how we are set up. Yeah. How did you manage that? Where can I start? So at the beginning, we knew we need to build a corporate venture which will gain trust from the market out there, from the founders of the startups in climate tech and other VCs, right? And sometimes I have to say that corporate ventures have a little bit like a difficult starting point from this perspective. Because there's always some big strategy. There's always a question mark who is taking a decision and how fast can they deploy money.

5:07Is it actually really venture or is it like some type of still M &A initiative which starts with investment, etc. So we were thinking, how can we send a clear message to the outside world that this is actually really business, financial driven, within some strategic framework, oriented fund? So we were thinking how to do that. And this idea came to our mind. Why don't we build a structure using Sikaf structure, which is nothing really new out there, which can actually create such a fund which can bring in new investors and show that this is really real business. And why did you go for the EIB rather than someone else?

6:02EIB is a partner of Chess Group. So there's a relationship. They are big. They are actually providing a lot of venture debt, lots of investments in Europe. Obviously, they are European too. So there were a lot of topics which aligned us. And so it was a very natural choice to talk to them and try to do that. What complexities has it brought? And yeah, but please also join in here on the questions that you think are most important to draw out for corporates that might be thinking about building programs. but I'm curious that we have the clear value proposition or signal to the to the founders that this is a fund that's in the game just as any other VC so you're very much you know showcasing a specific side of you there but I'd be curious to understand from the mother company what were the the pros and the cons that you were weighing when you were doing this look actually a mother really like this.

7:10So if I step back a little bit, obviously in our case, Armada is the most conservative corporation in Central Europe. Chess is operating nuclear power plants, right? So risk is something which you want to mitigate there, right? And that's a good thing to do in their case, right? For all of us. Now, if you want to enter the venture you know business it's different you embrace risk actually so the biggest biggest challenge was actually how can such mother deliver a baby which is actually totally different culture-wise and still combine the best from both worlds and create something which really creates value to many out there right so because of the mother being so conservative they actually are very happy So we've brought in someone else into the game, which brought as well prestige to this fund and the board of chess who took a decision at the beginning that they want to have venture arm, which is lots of risk, right?

8:16That there is this validation point that their decision was good if someone else joins the table. So from this perspective, it was only positive and our mother really liked it too. I think it's super interesting, Peter, right? Because, and I don't know, you know, European culture is so different amongst the countries. But a lot that I see here in the Nordic is that the corporates, they kind of want their entities for themselves, right? They're super focused on, you know, this is us, this is competition. So maybe one question for you in the chess group, were there a specific person in there that promoted the corporate venturing side or how did it come about, the whole thought about, you know, creating a corporate venturing unit?

9:16Very good question because that's so important. because if you think about it, the one thing you want to really avoid when you set up such a corporate venture arm is not to be eaten by your beloved mother for breakfast next morning you set it up. There could be this moment, let's hooray, let's go adventure, right? Why not? Others start doing it too, but it won't survive or it won't deliver on the goals, right? So it was very important. So if I step back to 2012 when actually the strategy of chess was updated, we have been putting together, and I've been there actually, which is important maybe a thing too to say.

9:54I've been with chess before in that, for 10 years even. I was running corporate development and strategy too. And we were building this three horizon strategy within chess group, right? With chess group, which is horizon number one, you operate your existing assets as much as you can to maximize the value, maximize the cash. Second horizon, build maybe some other businesses which might diversify you a little bit from your core business you have. And on the third horizon, you build real options. Something you don't know how big it can get, how important it can get, but it's worth being there and open up for upside.

10:35And that's where we put Invent actually. So Invent was part of the overall three horizon strategy, trying to kind of answer big questions for Chess Group by being very active on the ground, on the market, which was all about how is the electromobility going to evolve, right, going forward? How is the decentralized generation, PV panels, batteries, et cetera, going to evolve? How are the hydrogen industry going to evolve? All these big questions, how does CO2 build the impacting business models, et cetera, et cetera, of corporations? So all these big questions. So there was a big consensus, actually, at the end of the day by the whole board, obviously, which enabled such deal to happen.

11:22But again, we needed to have very, very intimate debate, the future daughter being in bed and the mother about really how we're going to play it forward, right? So we don't get eaten, as I said. So there were three deals to summarize. I'm making a little bit simplistic, but deal number one was that the daughter said to the mother, to the board of chairs, hey, we will cannibalize you. We'll be doing things you don't like. Get over it because it will happen anyway with someone else. Right? So you can either, you know, try to avoid what's going on out there when it comes to disruption or be part of this journey.

12:03It will happen anyway. Deal number one. Deal number two, we need to take a decision here because we have different cultures, right? You have to be conservative, but we need to embrace risk. So how can the conservative culture take decisions involving lots of risk, right? So it's okay. And the third deal was we need to have a motivation package because it's all about a team, professional professionals and masters, right? Who we need to hire and carried interest became a part of the package. So all in all, we are combining the best from both worlds and the board of chess was involved and the middle management of chess was involved too.

12:44It was a baby of all the people, including the people from HR who were helping us to draft the compensation package, which is different from the traditional compensation packages of the traditional utilities. So all have been involved. It took a year and here we are. We really deliver the baby, which finds the right distance from the mother, combining the best from both worlds. That's impressive. Peter, could you talk a little bit about the governance structure? So the decision-making process, is that all with Inven? Or do you have something that refers up to the mother? When it comes to decision-making, it's us.

13:26It's the board of invent taking decisions. And when we take these decisions, we have two members of a supervisory, at the supervisory board of invent from CHES who are there with us. They cannot block. They don't have any veto. And that's okay because we have decided to do it this way from day one. There is an interesting debate happening there. But eventually, it's the board of invent taking decisions. And again, it was pre-agreed because there's a risk attached to it. So why don't we stay a little bit like a side and try to do our best? It's always like any other. So we, as a team of professionals, we have actually a consensus-driven model here.

14:09So we go out there and that's where already it starts, the selection process, right? You pitch yourself in a maybe different way, you know, try to express your values. You are bringing an opportunity to the invent team. You write one pager, you gain the interest of the investment professionals here. Then you go, if they said yes, you go, you meet them personally, you go on the site of the startup and you do one-to-one, one-to-end interviews and all the work. Then you write a deal alert and you go to the investment committee, which is the board of Invent with two members from CHESS who are sitting there listening to our dialogue and we take final decision.

14:49And then once we signed the term sheet, in six to eight weeks, we have wired the money and we have never changed our mind. That's really nice to hear. Maybe one thing, and please do say no if that is going into too much detail, right? So the structure of Invent Capital, does that also have a co-investment vehicle? Does the team also, you and your colleagues, do you also invest? So that's one thing we're not able to negotiate. We wanted to, but that was not possible. So because from the perspective of Chess Group, we are the daughter company. And so from the perspective, they own us 100 % as a fund of qualified investors.

15:31So we don't have this one, this type of motivation here. But we do have carried interest. And we have a big interest, again, aligned with the outside world that we want to maximize the shareholder value of the startup we invest in. I think it's a super strong model, right? Also, as you have to present to the outside world, right? How you behave in the ecosystem, right? And I think maybe that could lead into a little bit of a dialogue around, you know, what is the philosophy and what is the strategy, right? We have this kind of free hands, right, as I explained. However, it has to be happening in the region, which is of interest of CHES, Group and European Investment Bank.

16:17It's Europe, but not only Europe. As you heard, it could be UK and Israel too. And the topic has to be climate-related topic. At the beginning, the first 250 million out of 500 were more devoted towards the smart energy, the climate technologies related to energy business, right? So you see in our portfolio firms like Tado, which is a small thermostat, but now combined with the tariffs, time of use tariffs, able to manage your heat pump, solar panel and charge your electric vehicle. It was Zonen, where we experienced the largest climate exit in 2019 to Roaldot Shell at that time. And you know Zonen.

17:07So battery combined with PV panel, the story was about actually connecting all those batteries, providing uncellular services. So again, very energy during topics, right? Drives is a rather big company, a software company, which is able to manage any type of charging infrastructure out there. So very related to energy, electricity, et cetera. Now, with the second 250 million, same concept, same combination of EIB money and just money, we have broadened our scope to decarbonization. So whenever we can support a startup out there, which is helping to decarbonize our world, this topic will be taken as a serious topic to invest in.

17:53And you may have seen in our portfolio, for instance, Taranis, which is actually an agriculture tech company, flying drones over fields, helping farmers to increase the yields while keeping CO2 on the ground and et cetera, et cetera. AI-driven type of business. So we are looking at the recycling too, right? And all these type of opportunities. So we are broadening our scope and this has to be actually happening in Europe for EU countries when we invest with EIB and it can be Israel, UK, but topic is decarbonization slash climate tech. You have a sentence in the script that we shared beforehand, where you said, embrace the art of conducting VC business through systemic coaching while perfecting the know-how of doing it.

18:47I'd love to unpack that sentence. So first, let me, many of our core audiences will say, ah, systemic coaching. There's something that Andres is interested in there because we're doing a lot of deep work retreats where we're bringing founders and VCs, you know, into the mountains and work with a coach. I want to join this. I want to join this. Yeah, it's incredible work. But I'd love to ask you then, you know, how do you see this? How do you do it? Is it the approach of bringing coaches in or do it yourself? Yeah, sure. So at the beginning of this journey, dream job again, meeting so many beautiful people.

19:27I know the story. Around the world who wants to do something really meaningful and supporting them. Look, someone told me it's a people's business, Peter. It's a people's business. And I said, yes, of course. I didn't know how much people's business this actually is. So when you think about it, we are investing in the babies of the founders, the startups they've created. The big purpose is baby and they have a relationship with it. So you may better approach your investment conversation with them with the empathy, having this in mind too, because you rely on them anyway and you need to maybe add value rather than distressed them somehow.

20:15But it's not only about the founders, but about their boardrooms too. There are people sitting at the board too. And they have their investment committees too. And they have different cultures in these funds too. And they are there to support the founder's dream, right? Now, so you better understand the context of those guys too. And by the way, when we invest, we try to pick people we can really live with through difficult moments when it comes to co-investors. It's not all about the founders. And by the way, founders are picking us too. It's a two-way street. And I always advise them to pick those guys you really trust and they can add value, not just money, et cetera.

20:57Now, the systemic coaching comes in that if you really want to identify these founders, these opportunities when you invest in these people you better understand yourself in the first place who are you, where you're coming from what are the hidden loyalties and patterns driving your decisions why you feel stressed in this or that situation and happy in this and that because it's all part of the whole story so what we practically do we have been investing in ourselves with an inventory and investing in systemic coaches, using systemic coaches to really get through one-to-one and team coaching sessions to really connect with ourselves so we can then approach with empathy the outside world.

21:47And that's what we do. And we are offering our coaches to our founders too because guess what's happening? Sometimes it's a very delicate moment. When we invest, it's A or B round. It's typically a moment where the founder or CEO is experiencing a situation where he or she needs to decide whether he or she is right for the next phase of the company, actually. Because we are not talking 20 people anymore. We are talking hundreds of people. We are not talking 5 million revenues in euro. We are talking 200 plus revenues, what we need to get to. And that's, we're not talking, you know, home market where you test your product and build your product market fit and your business model.

22:32We are talking, we go regionally, we go European-wise, we go globally, right? And that's maybe too much. And that's the moment, ideally, the founder, you know, need to let go his baby. And, you know, those who have babies, I got 17 years old boy, you know, and 15 years old girl. And it's tough to let them go. And I know it's so important for them. So I step aside and let go because they're much better for them. I'm there for them. So it's a similar concept. People's business, there are people running the show, founders, investors, employees, all that stuff. We better be connected on the people's level so we can figure out the right solutions for very difficult moments.

23:17They're going to be facing and they are facing out there. And we co-invested together in Forto at my time at Maersk, right? And that's how we know each other. So I'm happy that I'm still sitting here with you today, right? When I invested for Maersk, I focused a lot on the HR due diligence side of things, right? Do you incorporate these things when you do your investment proposal? Does it have a specific section? Or how do you go about it when you take your investment decisions? Yes. So we do run specific character research, so to say, with the goal to add of the teams to add value actually to those guys.

24:00It always ends up positively. It always ends up with the understanding who is good for what within the founder's team. And that's one way we add value. So this is part of our investment decision process. But at the same time, we are trained in coaching, but we are not coaches. Some of them actually already have even a license. But we are spending, coming back to the art of conducting venture business, right? We are spending, I would say 65, 70 % of time is the soft area. and the remaining is the data, right? Which we do too. And we have a lot of documents, a lot of research done. But at the end of the day, to take decision, there's even this question, how you feel about this.

24:49So we do that. It's a very important part of our due diligence and we have a very deep discussions about this within our team of professionals. And again, we are trained to have these type of discussions too because we have tested it on ourselves and we are in the process of personal development to anyway. How do you, you mentioned the boards there and I'd love to ask you how you think about the way VCs show up on boards, where do you, you know, where do you see that we can improve because, and I asked this question because the one other person that I know that is very much into systemic coaching and at the same time operating at a very high level as a VC is Fred destined and and what he speaks about you know very often is is the board dynamics and how we show up as as investors there or fiduciary uh shareholders there what do you see out there where do you see that we can improve if you say the like the fatal mistakes you're seeing being done or the the core challenges you're working on in the boards that you're on got you so the key word is alignment, building alignment.

26:03There's so many times misalignment, which is kind of logic too. And to build alignment and trust within the board is all about transparency. So one of the things I ask every board member I'm with is when we have this moment to actually talk about their motivation when it comes to and the restrictions they have as a fund. Some funds need to end at some moment. Some funds need to, you know, they ask by the LPs to bring some cash home, right? Because they are raising funds, all this stuff. So first point is not to blame anybody, but to have very honest discussion who is where, who is patient, who is not, and kind of why.

26:49So that's the first point. And then once we understand this, we can accommodate people, right? There are secondaries. We can do a lot of things in the next rounds, but it's good to know who is ready to support the company and under what conditions in the next phase and who is actually on do that because of a very strict ICU or very complicated situation at their time. And this is actually a very important thing. The second thing we do when it comes to business is part of our know-how and we actually like everybody to follow this if they think it's a good idea. When we do due diligence, actually, we actually run a strategic workshop with the existing investors, board members, the new ones we bring in as a lead, if you are a lead, the management and the founders.

27:38So we are looking at the company from the new perspective. There's always love all around because there's new money coming in soon, right? And it's a moment where you can really take the company to the next level. And that's the moment you can actually really try to align what's best for the company. And that's the second thing. The alignment always has to be about what's best for the company because it's always then linked to the share or the value of all, right? So really investing throughout the diligence, not on how can I mitigate risks and make my whatever risk department happy. It's all about how can I create value already with asking the right questions, maybe not having all the answers, right?

28:19And aligning everybody so we don't go three steps forward and two steps back. So we can really five steps forward to the next level. And that's kind of the goal of the workshop. And we are getting very positive reactions and positive things when we do that. We did it with Forto, too, actually, when we were investing. I even brought some of our advisors because it was a very technical area, right? Freight for running. And McKinsey was involved there and to help us to even provide some data points. So that's kind of what we do. We try to create value. And that's why our mantra is we help startups.

28:57I think all of us VCs should have mantra, we empower or help startups. And every day we can ask ourselves a question at the end of the day when we go home to play with our kids. Hey, how have we helped actually? What is the value we have created? Yeah, alignment, trust and strategic workshops to get all these alignment around the business might be actually very helpful. And there are other things. You know, sometimes, you know, it's always so good to shut up and let, you know, don't talk too much at the board, you know, and make some people. I saw you in action in photo, right? So, and that was very impressive.

29:38You were an extremely good board member and I can also see the relationship you have built, right? So I can see that you have continued to co-invest with the Heileman Brothers that is now running INU, right? So I can also see you're building your relationship out into the ecosystem. Maybe you could talk a little bit about how do you integrate yourself into the ecosystem and what do you do to be seen as a valuable co-investor? Yes. So I will tell you something about how we work with ANU too and very practically. But coming back, how we maybe differentiate a little bit. First of all, we want to help the whole industry and sharing whatever we see and hear and what we think is important, we try to do.

30:31At the same time, we want to lead by example too. And maybe that's the way we differentiate a little bit. So when we pitch at EcoSummit, and maybe you saw us there too, we bring the whole Invent team on the stage, not just one guy pitching there, right? So we are embracing the spirit of team and we build pyramids with our bodies to tell the story that there has to be fundamentally right assumption behind your business. There has to be a big dream and vision and trust. Our pyramid was pretty big. And if we wouldn't trust each other because, you know, we would fall, this would fall apart. So we are telling stories through these type of, the different type of pitching, right?

31:14So, and take a risk. which is very, very important. We ask everybody to pitch us your company, pitch us your dream, right? Pitch us your story. So we wanted to, you know, as well take a risk and pitch our story through this. We did Haka dance. It's on a video somewhere. You might like it. It's amazing. I'm always surprised what we did, you know? And we were celebrating Zonen deal and we were so happy that Christoph Osterman and Thorsten, you know, were able to sell this company and build this company and be a part of the story. So we are celebrating so this is how we are bringing to the society, sharing even the research we do and then maybe pitching the way so we really take a risk and practically risk of losing the face, right?