E447 | Niklas Adalberth (Klarna) & Douglas Sloan (Better Society Capital): Going From Klarna to Impact and Redefining Venture for Good

0:00What happens when a fintech unicorn founder realizes his dream only to find himself wondering if any of it truly matters? Seven years in, I realized my dream in life. I became financially independent by selling off some secondary stocks. And we became a unicorn when Sequoia invested into us. But back in his Las Vegas hotel room, Nicholas Adler had a moment of clarity that would change everything. Back in the hotel room, having all of these shopping bags from Gucci Prada and realizing that I didn't taste the difference between this super expensive wine and my bag in box at home and this apartment or room just felt empty and these shopping bags just looked at me as they had like a message that I was just so pathetic that I believed that this could buy me happiness.

0:46That moment led Nicholas to question not just his own success, but our entire economic model. So we have a society that is just totally focused on growth at any cost. Could there be a better way? Nicholas made a radical decision. So I decided to quit eventually after 11 years and instead devote my time and wealth on this norskian foundation which is a non-profit holding company his mission proved that making money and making impact can go hand in hand commercial success is clearly not the point it's just two seven years later the results speak for themselves and but in sweden today were the world leaders in impact startups have 38 times as many impact startups as the world average.

1:28And last year, 72 % of all VC capital was invested into impact. How did a moment of existential crisis transform into a movement changing how the world invests? Join us for the very first episode of our Impact Series, a collaboration between Better Society Capital, Impact supporters, and us at EUVC, as we sit down with Nicholas, the founder of Norsken Foundation. Welcome to the Impact Highlights Series, powered by EUVC, Impact VC and Impact Supporters. I'm August Soliv, your co-host, a previous Impact VC investor and the founder of the newsletter and podcast Impact Supporters. And I'm your co-host, Dougie Sloan.

2:08I'm an Impact LP at Better Society Capital and also co-founder of the Impact VC community. Today, we're talking to Nicholas Adelberth, the founder of Norskin and previously the founder of Klarna. I'm really excited for today's conversation to hear his perspective as an investor, as a business builder, and also as a deep thinker on both people and systemic change. Yeah, it was a super exciting conversation. I think I had three things that really stood out this time around. And those are really the reasons why I think you should listen in today. And that's, first of all, Niklas gives his best tips to grow a top-tier Impact VC fund.

2:41Second of all, Niklas shares his personal journey from starting Klarna into launching an Impact VC. and he actually even answers whether he would start planning again if he was standing with the chance to do it again today. Lastly, Niklas shares how Nord Stream is trying to prove that impact and returns go together. So I hope you want to listen in and we're super excited for the conversation. Here's a few words from our beloved sponsor. Impact VC is a global community of VCs accelerating impact within venture. Their purpose is to cultivate a community and resources to unlock venture capital's ability to tackle the world's most pressing challenges.

3:19The community is made up of over 900 VCs, including both pioneers and newcomers, including generalist VCs and impact specialists. Visit impactvc.co to join the community and explore their resources, including the VC Impact Playbook, the Founder Impact Playbook, and the Impact Investing for VCs online training, which is designed to help VCs integrate impact practices into their investment strategies. That's a lot of information to get in 30 seconds.

3:59This show is not investment advice, and the hosts of this episode may be invested in the funds and companies featured. And then I'm super excited because we have Nicholas with us here today. So thank you so much for joining us, Nicholas. Thank you. Great to be here. Yeah, so what we're going to talk about today is a little bit of your journey, Niklas, also talking about Norsk and what you've built and why you think that Impact VC part and Impact Entrepreneurship more broadly is important. So I think let's just jump a bit straight into it. Maybe my first question is to hear a little bit about your personal side and your journey into what you're doing today with Norskin and some of the experiences you've had, your life learnings and how you got to the Impact VC and Impact Entrepreneurship side.

4:46Sure, happy to. So I was lucky to co-found Klana when I was 23 years old. It was just a couple of months into business school. I had this idea that if I become financially independent, I will be the happiest guy alive. I mean, looking at all the marketing and commercials, people looked so happy, right? And we're very lucky with Klana. It was right when the e-commerce took off. This was in 2005 in Sweden. So when e-commerce took off, so did Klana. Another important thing that happened was that a couple of years in, Niklas Sendström sold his Skype for$2 billion. And overnight, the Swedish tech ecosystem realized that you can build a unicorn company out of the small place of Stockholm.

5:34So that was very important to me and I'm sure to the entire tech ecosystem of what was possible to do. Seven years in, I realized my dream in life. I became financially independent by selling off some secondary stocks. And we became a unicorn when Sequoia invested into us. And I decided to celebrate in Las Vegas on my way to a conference in San Francisco. It was a very short notice. I decided to go by myself, like playing poker, and was able then to go by business class for the first time. You know, you go to the left instead of to the right in the airplane, get a glass of champagne instead of being yelled at.

6:12I mean, really living the dream life, chicked into this big Panorama suite, the Encore in Las Vegas, and went out shopping like crazy and eat expensive seafood and expensive wine. But back in the hotel room, having all of these shopping bags from Gucci Prada and realizing that I didn't taste the difference between this super expensive wine and my bag in box at home and this apartment or room just felt empty. And these shopping bags just looked at me as I had like a message that I was so pathetic that I believed that this could buy me happiness. It was nothing changed in me. It was just quite the opposite.

6:53So I had some kind of existential crisis in that hotel room, realizing that even more money wouldn't make a single difference in my life. And so with this experience, I had to go to therapy. I was lucky enough to be clinically depressed or anything like that. But still, I realized I needed guidance in my life. What was next? and during these retreats and the therapy sessions i kind of realized or come to the realization that what i'd done with calana was not necessarily doing good for the world i mean one way create a lot of jobs right we enabled people to shop really quickly online buying stuff but the flip side of that you could also see it as are we putting people into debt pushing people to pay in installments, buying stuff they could not afford in the first place and maybe not a year later.

7:48And what about the overconsumption? More and more data coming out in Sweden and with Greta Thunberg reminding us that we need four planets to sustain the average consumption of a Swede. And in all of this, what is then my responsibility of this? Being born in one of the best places on earth, right? With free healthcare, free education, and with extreme luck of luck of succeeding with with clana with that perfect timing that we just talked about so sort of trying to like okay do i have a some kind of extraordinary responsibility with all of this extraordinary wealth i've been able to accumulate uh just out of luck and this model that we should just accumulate even more and more wealth and just pass that on to our our kids i I don't see the kids inheriting a lot of money becoming necessarily more happy.

8:39Maybe the opposite, actually. So why don't I do something with this? And the paradox, or not paradox, but the Delta as well, and the strange thing was that becoming a unicorn in Sweden, I was part of Front Page magazine. I received a prize from the prince's hand and was celebrated. celebrated. And the same thing with our other unicorn colleagues creating these addictive computer games or whatever. And you're seeing that. Is this what we celebrate in society? And if we continue to celebrate this kind of innovation, where will we then end up with as a society? So I decided to quit eventually after 11 years and instead devote my time and wealth on this Norskian Foundation, which is a non-profit holding company.

9:29You could see it as a weird idea to put the spotlight and capital on impact entrepreneurs instead. Pretty exciting journey you've been on. Maybe a reflection I'm having now is if you were 23, would you build Klada again? With all the insights I have now and understanding that more money doesn't necessarily make you more happy? No, probably not. But I mean, I don't regret anything in life. I think whatever experiences I learned took me where I am today and I have three lovely children. I don't want to undo that. So I guess no. And yes, depending on how you see it. Do you want to tell us a little bit more about Norskine and sort of what you do today?

10:10You gave us a couple of sneak peeks, maybe a bit more. When I started Norskine Foundation, I didn't know really what to do. I initially donated half of my wealth,$125 million. I knew from the effective altruism movement that you can save a life for about$4 ,500. So it's a lot of lives I could save with that endowment, right? So it needs to be more efficient than just donating it to an efficient charity organization, right? And that was, of course, quite narcissistic to believe that we could be more efficient than that. And I still don't know if that is true, but it at least creates a lot of meaning to operationally work with whatever we're doing.

10:49So when we started, it was initially two startups, foundation-owned, that we tried to build from scratch. That didn't work at all. One is still alive, but the other one is not alive, and it was supposed to solve corruption. So I think an early realization that it's very, very hard to build startups, right? And that was maybe just a one-hit wonder with Klana. But during this period, there was a little bit of buzz around Norskian, and I was approached by a few impact entrepreneurs that wanted to tackle the refugee crisis we had in Sweden going on at that time. And it became quite obvious for us that, okay, what about if we instead invest a couple of hundred dollars, a hundred thousand dollars into these companies with self-motivated entrepreneurs with an existing impactful idea.

11:41And that eventually grew into us raising external capital,$25 million fund that eventually then turned into$125 million fund and then turned into this$320 million Norsk and VC fund. And we have also incubated four more funds in different stages of a startup. So it's an accelerator, we have a business builder, we have two funds in Africa. And they're all based on the same principle that Norsken, you can see it as a collective of fantastic entrepreneurs and investors coming together that really unite on this mission to try to improve society with impactful business models. Apart from investing, we've done about close to 200 investments, have a close to$800 million under management.

12:29We also needed an office space. So I went around in Stockholm to try to find a beautiful space for 20 people and I came across this huge old tram repair station in downtown Stockholm that was just absolutely beautiful super high ceiling and fantastic ambience and we then came up with the idea that why don't we turn this into a space for all people working for impact and we subsidize the space so that you don't have to sit outside the city borders just because you work with a charity NGO or an impact company. And by doing that, maybe we can increase the status of doing good in society. And this has worked incredibly well.

13:10So in Sweden today, in our Norsk and House, it's 450 people sitting under the same roof, everyone working under the same mission. And this has created a lot of buzz from media and big corporates and politicians. When we have head of state visits in Sweden, they tend to come by and have an inspirational nook. And of course, that creates even more buzz. And that in turn creates even more buzz and leads into our funds. And in Sweden today, I have no clue how much it's thanks to Norsken, but in Sweden today, we're the world leaders in impact startups. We have 38 times as many impact startups as the world average.

13:49And last year, 72 % of all VC capital was invested into impact. But what is quite obvious, I mean, it doesn't really matter what we do in Sweden, right? This needs to go viral and needs to be all over the world. So we have expanded this into Barcelona. It's 10 ,000 square meters. It's over 1 ,000 entrepreneurs sitting in that beautiful space by the beach. We have another one in Kigali, Rwanda. It's 1 ,800 people. It's the biggest hub for entrepreneurship on the continent. And obviously, we have a wider definition of impact in these markets. So job creation is probably the most impactful thing you can do for the African economy and society.

14:31And then apart from this, we try to have other impactful initiatives as well. We have the Impact 100 list in which we rank the top 100 most impactful startups in the world, putting them on the NASDAQ or the NASDAQ billboard. We have the Impact Week. It's a week-long festival, so to say. We put the spotlight and capital on this movement. And one of the sub-events of this is something called Impact Return, in which we try to match Impact GPs with Impact NPs as a way to try to catalyze even more capital to these businesses. Because it's quite clear, no matter what Norskian does, we cannot solve the trillion dollar gap into what is needed to solve the SDGs, right?

15:16And whatever we do, we try to open source absolutely everything. I guess this is a benefit of having a non-profit as a holding company on Start that it's all about trying to make this movement as big as possible. And if we can inspire anyone else to open up a Norskan house or call it whatever or open up another impact VC, that is good for the world. That is good for Norskan and good for everyone. Just a little bit of background of what we're doing today. Obviously, we want to expand this ecosystem to more places across the world. So not much then, just a couple of things you're up to in the background, I suppose.

15:52Incredible journey, incredible breadth of activities. And there's a lot of threads that we'd love to pull on in the course of this conversation. One that jumps out to me from your stories so far is that you've seen success and failure, both within and outside of the impact world. A lot of what Norskin is now building and how it fits together is built on this idea that you can have commercial success and impact. together in certain models in certain places. And I wonder if you could unpack that a little bit in terms of how you think about the relationship between impact delivery and building businesses with impact at their heart and commercial success.

16:29That's a very good question. And I might give you a little bit too long answer. But I mean, in short, I think financial return and financial success can never be the point. It always has to be a tool to achieve a better society. And maybe taking one step further back is that today, as you know, we have a society that is entirely focused on this embedded growth obligation. I mean, as individuals, we all want to have a nicer car, another summer cabin or the first summer cabin or another house, whatever, more toys to our kids, higher pension fund payouts. So we're totally focused on increasing our own wealth.

17:13as companies we want to grow them as big and good as possible right to increase once again to increase the dividends from our pensions or whatever but also not to be out competed by whatever rivalry competition we have out there and as states we also are very interested in increasing gdp if we don't increase the gdp our neighbors will increase the gdp and we will lose out in a macro-political power dominance. So we have a society that's totally focused on growth at any cost. And this has been so great, right? We have discovered medicines. We have longer lifespans. We have reduced child mortality.

17:54We're taking a lot of people out of poverty. So it's a model that's been working quite well for the winners in this game. But we all also know that it's some losers in this game as well. If we're going to start out with nature, I think we're very close now to cross seven out of the nine planetary boundaries. It's, of course, a result of this infinite growth obligation. And that would be, for a fact, a thousand times bigger economy, a GDP, than we were 500 years ago. The next 30 years, we will use as much material and energy as we've done the last 10 ,000 years. this has an incredible negative impact in the long run on nature.

18:38And the planetary boundaries framework is just one way to illustrate that. I think if we look at us as individuals trying to optimize for having more stuff, more toys, more cars, it looks like a good thing initially, right? But we also know that in Sweden alone, 20 % of the population are now eating antidepressants or medicine for anxiety. So it's higher than ever before, even though we have more than ever. These kind of research have been done on asking people on their deathbed, what are they wishing? What are they saying? What are they regretting? I mean, I think no one is mentioning anything that has to do with the market.

19:20They're all mentioning that they should have another purpose or do focus more on love and relationships. I mean, this is clearly not the recipe necessarily if you ask these kind of people that should be having the most wisdom in the world, right? Being on the deathbed and be able to look back on their lives. So once again, commercial success is clearly not the point. It's just a tool. And if you can embed commercial success with impact being one-to-one correlated. So for each unit of revenue or each unit of profit, is also one unit of a better society or a better environment and so on, then it can actually work.

20:01But then, of course, you need to be very careful because looking at this as a metric initially, I'm sure like when Mark Zuckerberg created Facebook, he just wanted to connect people. He had nothing in mind that he would just polarize society and destroy democracy. Or the inventor of the combustion engine just wanted to solve the problem with horse defisication and the horses being in the cities, but ended up creating climate change. And you can also say this, for example, from nitrogen fertilizers, creating a huge growth in food to beat them, but also created a lot of negative externalities, such as dead zones in the ocean, all of this nitrogen destroying that.

20:48At least at Norskan, we are believers that in some areas, you could have this one-to-one connection with commercial success and impact. We have that as a non-negotiable. We have companies like Kling Systems, and that, for example, do lithium-ion battery recycling. You have Syra doing the same for the textile industry, recycling. And then in these kind of industries, it's very clear that it's mutual beneficial. But we have to be aware as well. So long answer to that question. Hope it helped. So there's some great examples of venture-style business models that are looking to make a positive difference in the world.

21:26And one of the things I'm really interested in and interested in your reflections on are the ways in which companies can put impact at the heart of how they are building their businesses and do so in a way that drives commercial success and impact delivery together. So things like attracting really strong talent to the company or attracting and retaining customers in different ways or navigating regulation in different ways. And I think you have some phenomenal examples of companies that are doing some of those things, particularly in the climate space in your portfolio at Norsk. And I'm interested in reflections you might have on those sorts of levers and whether and how they show up in some of those success stories and I guess role model companies that you're building in that portfolio.

22:07People now more than ever are looking for a purpose. They're realizing that just continue business as usual is not a recipe for happiness or fulfillment. and it's quite clear that you see these impact companies are attracting the absolute best. I can at least tell from my experience recruiting to Klarna, it attracted a lot of great people, but it's still nothing compared to the CVs we're getting into the Norskan ecosystem as well as our portfolio companies. So yes, that is very, very important, of course. And you also see policy shifts. You see big corporates doing pledges to go net zero. You see nation states doing pledges.

22:46You see cities doing pledges as well. And of course, this fuels a lot of need and demand for climate-friendly solutions and innovations. And this is where these impact startups are operating, having huge tailwinds from this big shift in policy. And I hope and I think that it's just a matter of time before you see negative externalities being taxed, which gives these companies an additional edge to be more competitive and have a higher growth than all other companies. One additional follow-up I think would be around with your work at Norskund and building up to the place that you are now, you've been in the impact space navigating some of these dynamics for nearly 10 years, something like that.

23:30And similarly, in our work at BSC and Impact VC, we've seen market sentiment and perceptions of the interaction between impact and returns change hugely in that time. And I'm interested in what your reflections are and whether you've seen that change too, given the inflection point we seem to have seen in deployment of capital towards climate solutions and raising of funds around impact and whether those perceptions now are different in your mind to the perceptions maybe 10 years ago. No, it's a very big difference. I mean, when we started in 2016, trying to raise the first fund, people just shook their head that you can never combine impact and financial return.

24:08So the first fund of$25 million, it was raised together with three other unicorn founders that were brave enough. And I would guess they didn't expect to get more than the capital back. But fast forward to the second fund we did for Nord Stream VC, the sentiments had shifted a lot in 2020. Even institutions started to realize that, hey, this is actually an area where you can have positive return. And now to our latest fund with North Can BC that was always subscribed and we had to say no to capital. I think, of course, a lot of this is built on the fact that we were very early on. We were very lucky with starting with a big endowment from the Klarna secondaries that were sold, making it a lot more easy.

24:54but today going back again to what we previously talked about the realization by more and more people and leaders that we are crossing the planetary boundaries not something we can continue on forever we need to change we need to have new solutions that make us thrive within the planetary boundaries instead maybe jumping on something we talked about earlier and it's still a little bit linked is sort of talking about some of these very successful impact startups in a lot of it is in climate a question is sort of is it as successful on the social side is one part of my question and then the other part is are there some areas of themes where you simply cannot do it you talked a little bit about the refugee crisis before right can that can you really build something successful there or should it just be in a profit area i think in our portfolio we get thousands and thousands of applications, right?

25:46From our accelerator to our business builder and so on. And I think about 70 % or maybe even more, maybe it's 80 % now, are within the climate tech space. And reason for that is that I think from a planet's perspective, a social perspective, we should probably be more diversified. But our strategy has been to be the top quartile financial return impact VCs so that we can inspire even more capital to go towards impact. And it happens right now that most entrepreneurs, most talent out there are focused on the CO2 issue and climate issue. And that's why we see this kind of portfolio composition. Does this mean that we cannot find business opportunities in the other areas, such as all our social issues?

26:36No, I think, I guess they just need to be higher up on our radar, on everyone's radar. and currently is very, very focused on the climate. But with that said, I'm also equally sure that you cannot find business models for everything, and that society needs to tackle a lot of these issues. So some days when I are a little bit more pessimistic and have worse self-esteem or whatever, or self-confidence, consciousness, I'm afraid that maybe we have crowded out charity capital. instead of going into charities, maybe going into, I don't know, climate tech. That could even be like less negative. But I hope that that's not the case.

27:16I hope people realize that we need the charities, we need the NGOs, we need the state, we need everyone actors coming together to tackle all of these problems. It's not enough just with finding business models to tackle the climate. And I guess LPs like pension funds, right? Would have the proof. Like if you can get a pension fund in as an LP, then you're kind of proving that the money wouldn't have been going to cherry on the wire side. Yes, we're not crowding out that capital, at least. No, that's true. Changing gear slightly, Nicholas, I'm interested in talking a bit about AI here, which is a big topic in VC more broadly at the moment and a big topic in impact VC as well.

27:53And it's clearly a transformative technology and set of technologies that have potential tremendous upside, but also potential tremendous downside. So what are the upsides you see from an impact perspective? What are some of the challenges you were thinking about? How are you navigating that as an Impact VC investor today? No, good question. I think regarding AI, I think most have been said out there. I mean, you have the obvious things that will improve. I'm sure we will find a lot more fantastic therapies, medical therapies. I'm sure we'll find a lot of new materials. Maybe climate modeling will significantly improve, of course.