E637 | Anders Kjær, PSV Hafnium: Building Denmark’s First Deep Tech Fund & the New Nordic Innovation Advantage

0:00Welcome back everyone to the European VC podcast. Today I have a dear Dane with me. So apologies to everyone who's going to be listening to our terrible Danish accents today. Are you ready for it, Anders? Are you ready to give everyone a great experience of our Danish dialect? Thank you, Andreas. I couldn't be more ready with my Danish accent here. I love it. Everyone is already cringing. Before we start the show, a quick note. If you're building or running a fund, you know it takes the right partners. At EVC, we only work with sponsors we truly believe should be part of your tech stack. Please do take a moment to hear about them.

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2:23this show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. So, Anas, maybe you could get us all started by just introducing yourself and the PSV team. Yeah, happy to. First of all, thank you for listening in out there on this, hopefully, nice talk on deep tech. Myself and my co-partners have, for the past four years, actually been on the journey of trying both to communicate with the market, LPs and startups about the potential in deep tech. And that is essentially what we are. And we succeeded in the fall last year of 24 in establishing what for us is Denmark's first deep tech focused venture fund.

3:05We can come back to focus and strategy and all that later, but basically we are right now a 55 million euro deep tech fund. We are four partners, the fund. So basically four years ago, we were four individuals who one way or another had been working with deep tech investments, either as a CVC or as a VC or private equity, venture builder, researcher, all been wandering around and saw in one way or another the potential in deep tech. And luckily, we hooked up with PSV, which today is a venture house here at the Danish Technical University. We can also come back to that strong platform. But together, we envisioned that Denmark and Mnemortics specifically, which is our geographical focus, needed a deep tech early stage venture fund.

3:54So that is actually the reason that we started, that we found each other, deep tech partners who believed in the potential and had the experience. And then together with, in our view, a completely strong platform with what is recognized as being the European leading engineering and technology university, which of course for us as a deep tech fund, PSV Hafnium, is unique in our eyes. Yeah, we're going to talk a bunch about both the new Nordics and Denmark and the old Nordics, so to say, whether it's still worthwhile talking just about the old Nordics or you should always talk about the new Nordics, which is a concept that everyone in the Nordics is starting to use as they want to grow their firms.

4:41First thing I want to ask you is, because you said at this point with growing out of DTU, and being part of that technical university ecosystem. There's a lot of funds that start like this. There's a lot of funds that have it as core to their thesis and their own understanding of themselves. But oftentimes they end up not doing that many investments originating from that ecosystem. So far for you, what does that look like deal flow-wise and also actual investments coming through? That's a very good question. And actually also both a question you should focus on in an understanding whether that's actually the purpose of it, because the purpose is not to invest in the DGU ecosystem.

5:28We are a completely independent fund. That has actually been also the vision from our co-founders from PSV slash DGU that this should not be a fund for the DGU ecosystem. We are an independent fund with the European Investment Fund as of now as the largest investment fund. The potential for us is the full Nordics. So that's the geographic focus. There's no allocation specified to a location or a research institute or a geographical origin. So what is the purpose then, you can say? Why then the platform? Well, first of all, DGU is ranked in several rankings when you have this ratio of a number of publications, scientific publications as of how many spin-outs you then create, did you actually rank on par with Oxford and the likes?

6:16And that also gives us access, not only to, we would say, sort of semi-exclusive access to deal throw, because we also have PSV with us, LP in our fund, so the interests are aligned. But more the merrier, you can say, we have very direct access to many experts. When you do deep tech investments, it's about knowing also the principles and methodology about doing research because we can't solve all those bigger challenges if you understand the methodology behind science and research. And we need the people to do that. And we also need the experts to assess the people in which we invest. So even though we believe we are a very strong team as partners, we actually, besides four partners, we're also two venture partners.

6:55So where many funds maybe be the opposite triangle, we've flipped it around saying we're very heavy on the experience level. But that being said, we don't know everything and can't be expected to do so and shouldn't. And here DTU and our platform comes into play. So whenever we do the diligence or whenever we sort of, you can say, try and help the founders on their technology development, which is what we do, we take technology risk. This comes in not only handy, but very beneficial at value adding to the startups. So that's more the purpose, not to have a bet on that we should invest in only DTU.

7:32Actually, we've invested, we just made our first investment in Finland, to be disclosed, which company? New Nordics. New Nordics, yes. Not Scandinavia. New Nordics, yes. And yeah, so we actually haven't invested in a de-geospecific company as of yet, actually. Can I ask you, Anders, where are you seeing the value and are you seeing it come to fruition when it comes to, one thing is the diligence part, but also the value add part to existing portfolio? Are you able to make interesting connections into the research university or less so? I would say for sure. We don't meet through. First of all, we think it's the outreach part of it.

8:17It's us who's, of course, responsible for both sourcing and making the investments and working with the portfolio companies. So it's us reaching out to the ecosystem or community of experts. But for us, it's actually, I think, just like you've been saying in classic venture for many years, entrepreneurs tend to want to give back. That's actually also, in my opinion, in our opinion, what the research community want to do. They want to help, even though we could think otherwise, but we don't see that as the point. And yes, we don't only just work with getting access to experts. We've actually put several technical experts in balls of the company, which we work with.

9:01And then, of course, we try to balance that it's not just going to be about the research and science, that it's the whole idea about understanding to invest in the scientific-based technologies with scientific-specific talents, but understanding that we are not investing in technology for the technology's purpose, but we want to build commercial companies. So the whole transformation and also understanding how do we validate technology development, which is also about engineering, also about scaling manufacturing at some point. That's just as crucial for us in the journey when working and developing our portfolio companies.

9:33You're focused on the new Nordics, the Nordics. How much are you expecting to come from Denmark? Where have you seen it so far, both in terms of steel flow and so on? And I, of course, ask this question because you're all four partners based in Copenhagen. Am I right? Yeah. Yes. So in that way, you oftentimes see that when you have a bit of a wider geographic scope, you also have partners in multiple areas. However, in the New Nordics, it's not that rare that you have investment teams all in one capital, typically because they originate from having had a geo-focused strategy that was only one country.

10:15And now they've then expanded because they can see they get quality deal flow from across and they want to grow as a firm and so on. But oftentimes they still have quite a geographically constrained team composition, so to say. Could you tell me a bit about where you're seeing the strengths, the weaknesses, whether you feel that you're as competitive as you want to be in a place like Finland or not kind of the pros and cons of this and how you're thinking about it as a firm trying to reach out? First of all, the whole, what do we expect to see our deal for from one question and then the other one, how we've organized ourselves.

10:52If we start with the latter, which you had a little focus on, I think it's very needed consideration to do when you organize your team. And we've been very conscious on that. And also because we have, this is a fun one. We have an ambition in becoming a true pan-Nordic investor, but you also have to start a place. And we are based out of Copenhagen, out of Denmark, and our first four investments, which we did along the way in establishing the fund, has been in Denmark. And yes, we've done our first investment in Finland, but we also know about one thing, the proximity, being close. This is early stage.

11:28There is a crucial part about working and being close with your portfolio companies. And that is both not only Denmark, but Nordic's rather small geography as if you zoom out and look at Europe or whatever part of the world, it is a fairly small geography, right? Jotland is as far away from Copenhagen as the southern Sweden. And the southern Norway as well. So I think there's no issue for us, and that's at least our conclusion, to both serve and be close to our portfolio companies in this geography, being the Nordics. The other part is also when we invest in outside Denmark with this, the coming years is also understanding that, well, we are coming out of Denmark.

12:12Well, entering new markets is also being humble and understanding where are the most crucial research hubs, where are the most crucial spin outs coming from, where are the potential best deal from when it comes to deep tech. but also recognizing that we are not the first and only investor wanting to, and for good, to invest in deep tech. So I can also hello a little bit that the first investment we've done in Finland has not been alone. So it's been with other local funds. And that's how we see this. And I guess that could be a question about also a little bit, why would you do that? But if you look into the capital chain of investing in deep tech, it requires some capital, right?

12:50So I'll say there are many reflections on our team conversation. I can also say that going forward, when we will be hiring new people, it will most likely be with an international flavor. On the deal flow side, we don't have, again, a specific allocation to where should deal flow come from. There are no LPs requirements on that we should invest X amount in Sweden or Norway and so forth. But any expectations? Like it's one thing to have it in your LPA. It's another thing to... Yes, so we're just a very good question. And there are expectations that since we are based out of the front one and based out of Denmark, we've already made it five or six are in Denmark, you will probably see that there will be a high weight of Danish companies, which I believe is also natural.

13:40This is where we are rich in. I'm not saying that we should define any specific hub in the Nordics, but Copenhagen is a really strong hub and Denmark is a really strong hub for the potential of DeepTek. And I'm sure we're coming back to why the Nordics and maybe also Denmark are. Yeah, and I was actually about to go to that because I wanted to ask you kind of when you look at the Nordics, how do you see it? Do you see that there are strong clusters around specific verticals or types of technology within the different hubs within Stockholm and Copenhagen? Or do you see that it's actually within DeepTek?

14:18it's very hard to predict that this vertical is interesting in this specific area. These days, there are many uncertainties and things are moving fast. You wake up one day and you thought it would start differently, but that's how it is. And it can also go fast with deep tech. But if you look at the history of deep tech and also just give a little bit of flavor, we started four years ago without putting the first lines on our strategy, raising this deep tech fund. Just try and recalibrate your mindset to that's pre-war in Ukraine. It's pre-geopolitical tensions. It's in the times, good times, 21 of skyrocketing valuation in classic tech and so forth.

14:59Fast forward today, 30 % of European venture capital is going into deep tech. So of course it's been a positive evolution for deep tech, but it's all based on scientific research and potential technologies. There is an origin, and that's not just something you produce. And in the Nordics and also in Denmark, we have several strongholds. And we really think that we have a strong ecosystem for deep tech innovation. If you look into what does it require to have a thriving innovation ecosystem, one is an established industry and a touchy research institutions. The latter I just mentioned, among others, with the GeoRack being the number one in energy ranks and other when it comes to engineering technology.

15:41You have Karolinska as well, the Royal Institute in Sweden, Alton in Finland, and more on several lists. So high research institutions are for sure present. And I said right in our name, Nils Bohr, coming out of Copenhagen University and so forth, we really have the research hub in the Nordics and has been known for so many years. I worked previously in Nordics in my career, the former diabetes giant, today more obesity-focused and known for. We've always been saying in Europe that we are good at building high quality research and products, but less so commercializing. So we have this in our history and legacy, also in the Nordics, especially with top quality research.

16:22So the talent for building top GR &D teams for sure are present. That's one of our, I can say, main hypothesis in investing early and believing in building towards USA and so forth and creating these deep tech opportunities. The other one is the industry strongholds. I don't know, I'm not expert in the business development across Nordics, but if you look at more countries than less in the Nordics, they are all small markets individually, but together form a strong market. We have a very strong common culture. We understand each other and have a history. And we all, but since we are individual small markets, we've all been raised in creating global companies and building business, doing business outside the Nordics.

17:06And that's a strong foundation for all the companies we see today. In Denmark and Sweden, at least, I'm not sure so much about Norway and Finland, but at least in Denmark and Sweden, you are more built out of big businesses than smallest me's. And that is the list that you can go on, right? Whether it's life science and the Nordisk, Leopharma, Coloplast and so forth. Whether it's being energy with the renewables, particularly Vestas and Örsted and more. and that just gives the opportunity to create new domains. Within life science, we can use all those biological knowledge and legacy to build biosolutions, to green solutions of tomorrow.

17:47That's one of the leading points we have in Nordics. I think in Denmark, you're the first to coin the term biosolutions. We are perfectionists in working with fermentation technologies and scaling manufacturing. We are countries of industries, right? If you take the energy part, we're again strong on renewable. That's created a lot of talent for maybe building the next big bets, whether it's being hydrogen and so far, right? So we have strong top tier institutions in research and strong industry strongholds, which are today thriving, right? We're also in a little bubble, right? These days, it feels like being a little bubble in the Nordics, especially in Denmark, maybe.

18:28But that is actually for a reason. We have stamina and we have the power to actually create innovation and we do it with top quality. And that is also worth noticing. It requires a lot on the quality side and not only developing but building deep tech companies because it is rather complex. I'd love to ask you on exactly the point of crossing the chasm in the deep tech space, because especially when you're research-driven and close to a research institution, I'm sure it's something that you have been very close to throughout your career. And I'm sure you engage with a lot of people in the PSV ecosystem, meaning not just PSV-Hafnium, but also all the researchers that come in and out of the innovation house.

19:17I'm sure that you're seeing so many in these super early stages, might even be too early for you. or just researchers not having the mindset that you need to see yet. I'd love to ask you, how are you thinking about this? Where are you seeing that deep tech is becoming more investable because of the change in founder profiles and the founder mindset? Because I think at least from when I think back five, six years ago, when I was active in deep tech here in Denmark, what I was seeing was a lot of the time what you were disqualifying things on was not the strength of the patent and the opportunity, but really that there's no way we can back this founder and we don't believe in bringing in an external CEO to bring this from the ground up.

20:06Or that search might be too difficult. So I'm not saying it's not necessarily possible to do the latter because it definitely is, but it can be very difficult to find the entrepreneurial talent that will take the opportunity from the ground up. Again, very good question, very relevant in the sense that one thing is talking about technology and potential market opportunities, but at the end of the day, it needs to be executed. Again, back to the team. First of all, I want to say that that's one of the great things about working with venture as an investor, also specifically in early stage and in deep tech.

20:38Like it's truly not only inspiring, but also admirable how these scientists and researchers and engineers, what they actually possess and what they can actually produce. I can't refer to the source, but I'm pretty sure that if you look into classic general unicorns, regardless of what category you're in, majority have a PhD. We are looking specifically for tech skewed teams. and the biggest milestone for us, I think, the focus point for graduating these companies into seed and series A stages are building top-tier R &D teams. And that entails, of course, for us to understand what makes these personality traits and technology profiles, what makes them tick?

21:26What are they motivated by? And just as an example, right, When you develop technology, validate and de-risk the technology and build products, you're on a journey towards demonstrating a technology and a product, meaning you have at some point to freeze the design of your solution. And that can be difficult if you are really, your purpose in life is doing innovation and research. But it's also to say we're still in, we can't just say we don't do innovation anymore because that's the whole promise about what we're building. So balancing the whole, what is actually the benefits and what can you contribute with as a scientist, as a researcher, is very clear.

22:04And it is so much needed to building these deep tech companies. We couldn't do it without. But of course, that's also what you're alluding to, Andreas. We would need to see more, and it would be so great to see more entrepreneurial talent flowing into deep tech. And one of our focus points, besides knowing what makes scientists and engineers tick or what motivates them, that takes also focus on the balanced team skill set. So ensuring that we also have those who have the experience with and understanding in, back to the example, freezing the design, going to demonstration, going to market. So we're not only building technology and building continuous innovation.

22:44We need to get to market. In my past eight years, I believe I've seen more and more research profiles of background who have become entrepreneurs or sciencepreneurs, if you want to use that term, more and more understand what it needs to take to build ventures. But of course, if you go 10 years back, only 10 % of global venture capital went to deep tech. Five years ago or three years ago, it was 20%. I think, what was it? Was it Hello Tomorrow? And the recent report says that 28 % or 30%, if we round up, a percent of all venture capital in Europe goes to deep tech now. And that requires we have the talent, right?

23:23So we need to see a recommendation. If you had to ask for a recommendation to whatever policymakers or strengthen these ecosystems and the potential of deep tech is we need to see more entrepreneurs going into deep tech venturing, for sure. But that's both technical profiles and commercial profiles. When you meet a team, Anas, how do you gauge this? How do you gauge whether there is the sufficient entrepreneurial drive and sufficient business dev understanding within the team? Is this even a fair question? Yes, I think it's a fair question. What I'm wondering is that we can put some terms with my team generic, but at the end of the day, it's for us.

24:06In our team, we've worked with several companies. Personally, I've invested in more than, I would say, 15 companies that would clearly define as deep tech. So you can then multiply by a founder team of two to three. And then that's the number of founders with technical profiles I've worked with. And for sure, understanding completely what makes them trick because it is a certain profile. I'm a former banker myself. So you would probably put the classic color of blue on me and say that I like numbers and all that. But of course, that's what we need to understand that what kind of people are actually building deep tech ventures in the early stages and what does it take to keep them motivated?

24:46Because this is also a long and tough journey. And this is very different from doing research when you build deep tech ventures. So yes, we need to understand that. But I think it's too general to put traits or characteristics on them. But I'd rather say our focus is then to ensure that we are not only investing in those characteristics. What is then the gap? and does the team understand that? So we use a fairly amount of time in both in our, I would say, pre-analysis phase or pre-term sheet phase, but in particularly also in the diligence, but actually also post-investment in working in what we would term as team dynamics.

25:22Continuously also be aware of and making the awareness with these teams that do they know what they know and what they don't know and what is needed. So that's how to go about it. There's no cookie cutter in on just saying, okay, just check, check, check, then good. You really need to work. This is about working with people, right? So that's what we do, work with them. You work closely, I guess, with the rest of the PSV team. So to those that don't know, there's a more generalist, more digitally focused team that's called just PSV. I guess it's just a pure name. So we have a sister fund in the PSV Venture House called PSV Tech.

26:01PSV Tech. What is your learning from that close encounter with a sister team and also from other generalists when they are meeting deep tech? Where do you see the role for generalist funds to be? Where do you see that generalist funds really need to seek out a deep tech co-emaster when they're? So maybe just a big disclaimer, right? I'm not part of PCV Tech as such. Of course, I have a long lasting and great collaboration with the team and have also personally invested in tech here myself. I don't know if we bet on that the whole venture capital chain also should consist of generalists, but we would very much both welcome and we hope to see the generalists chip in.

26:42because, again, building a deep tech journey, especially in the early stages, it's really another understanding of and other metrics and another, again, roadmap that you need to work with and build for to succeed. So success looks differently. But both sooner than later, having those complementary skill sets, also an investor base, is for sure beneficial also for the startup. But I can set a stage on whether or when that is the most beneficial. What I have seen, at least, or what we do see, is that more and more generalists want to work with deep tech. And I would rather also then say, maybe ask generalist funds, what have their considerations been in?