E638 | Matti Rönkkö, Kiilto Ventures: Family Capital, Industrial Know-How & Sustainable Built World

0:00Welcome back to the UBC Podcast, my friends. Jabe, this is another CVC episode. So maybe you would ask our in-house CVC expert, tell us a bit about why you think we should have Mati on the podcast today. What I'm super excited about today, especially with Mati, is that now we're having a person on the show that has scale-up experience, fund experience, turned CVC, right? What's not to love? so I'm super excited with having Matzy here also representing a sector that we have not had on the show before so I'm eager to hear more from Matzy learn from him and see where will it take us

0:49Tear down this wall It's more than just an ally This is a union of values

1:03This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. So Matzi, you know, let's know a little bit more about you. Cool. Hey, first of all, thanks for having me, guys. Yeah. So my name is Matti Rönke. From Finland, originally and back in Finland, now living again. Currently serve as the managing director of Guild Adventures. and we're a venture arm of Finnish family-owned business called Kielto, which operates in the chemical industry with more than 100 years of history. Been here for two and a half years soon and been building up the ventures you need from day one.

1:41One correction to your intro related to my experience. So I don't have direct fund experience. I do have scale-up and growth experience and then being a rocket, but I've managed to fund itself. Could you, so from the base of what you do at Kiltu, could you explain, you know, what is Kiltu Ventures today and what is it that you do? So Kielto Ventures is the venture unit of Kielto, as mentioned already. So what we do is we invest into sustainable built environment startups. Any early stage company operating in a built environment that has the potential to create positive impact on planet or people or ideally both.

2:19And we are happy to do software. We're happy to do materials. We're happy to do hardware as well. Our main focus is in the Nordics and Baltics, but we can invest European rights. and maybe what's fairly unique on our approach apart from the focus is that because Kilda is a family-owned business, I would say we're not your traditional CVC in a way. So we don't have, you know, a non-typical VC like funny terms or force strategy collaboration. And we don't have a fund. So we're actually investing one family's money, the Kilda's owner's money. The investment stages I mentioned very early. So, you know, first to third round, so kind of angel or friends and family, friends, family and fools round to seed as a first ticket and then follow-ons.

3:09So I guess that's in a nutshell now. Yeah, 17 portfolio companies today. Matzi also, so now you're explaining everything about the direct investments that you do. Do you have other activities under Kiltow Ventures of what I've been called, you know, corporate venturing? Do you do accelerators, fund investments, corporate climbing? Yeah. So we do some fund investments as well. I haven't been super active on it lately, but done one or two in the last couple of years. So we have to keep a lid of doing that. And we actually currently, which is kind of part of the investment funnel in the end, also have been piloting an accelerator program.

3:52Did the first pilot last spring and also already invested to one of their graduates and going to be rerunning the program again this autumn. In terms of venture planning, not really something that we do, but that's kind of where we stand now. And if we do have founders listening in with respect to your accelerator, right, where do they go to sign up for the next accelerator? later? Well, at the moment, it's still on kind of a silent mode in a way. So we've been handpicking the companies from our own deal flow. The best way is just send us their deck via our website, killaventure.com, or reach out to any of us directly.

4:33All of our team's information is publicly available. I opened the podcast saying, this is the CVC podcast, blah, blah, blah. and then you say, well, we're actually operating out of the family office of the family behind. And then I thought, to what extent do you consider yourself a CVC? To what extent do you consider yourself a VC? And to what extent do you consider yourself a family office? There's obviously lots of things we get from the mother company, kind of, if we think from the CVC angle. So obviously, we get a lot of know-how in the industry. So Kielto, the money company, has a huge amount of customers and a huge amount of know-how in the build world.

5:14And obviously, lots of experts in-house from different parts of the build world. So we get a lot of expertise from that side. We obviously get the capital as well. And then thirdly, obviously, the focus that we have, which is sustainable build environment. So I guess that's the CVC part. What is the VC part is more on how we invest. so as I already mentioned we don't have any there's no nothing in terms of collaboration is tied with our investments for example so we don't have any you know force by strategy collaboration as event or no funny terms and we're also very quick in decision making and operate with similar kind of targets that a VC so I guess that's the VC part and then the family office part I guess, comes from being, I guess, fairly patient when you have a history of four generations in the background and more than 100 years of history, you can be sure that we're not the investor who's going to be the first one to panic if things don't go accordingly.

6:22So we're kind of trying to find this, I guess, the best of both sides or three sides in this matter. And I think that's one of the things that I have learned as well doing this, that you You kind of need to pick because it's really hard to be a full-on CVC and then get access to the really top-of-the-top deal flow and so on. So you kind of need to pick and choose what you want to be. Imagine maybe just to hold it a little bit and say, you know, you mentioned that you use what you get as a CVC, is the expertise and the money. could you spend just a few words on the expertise and how you collaborate with Guilto?

7:06Yeah, so in terms of our collaboration, first of all, obviously, we have quite a lot of people in house that we can use to, we can work with to validate things in terms of market problems, in terms of if you look at the material case, we actually have a lab and almost 100 chemists in house so we can send the materials over and run tests with them and so on. We also get insights from the mother company on terms of what are the challenges in the market. Then obviously what we try to do with the portfolio then is that we try to facilitate intros to the potential companies, which is obviously interesting for the mother company as well, if they can bring into their customers interesting startups that solve some of their problems.

7:49So those are some of the things that we do with the mother company. but of course we're not the strategic investor it's not automatic in a way so we facilitate that but the companies that we're investing into need to do a good enough job and be exciting enough so the money company also gets excited so this is again what I said that you can't get everything in a way no and I think that's super true right one thing that I would also so when you talk to the experts and so forth many VCs are thesis driven investors and you need to find the areas you want to invest in. How much time do you spend with the core company in shaping your investment thesis?

8:31I think in the start, it was done a fair amount to do research and discovery around the high-level problems in the industry and so on, but it's not something we do super actively. Our other partner, who is a chemist by background, has been operating in the industry. He is more running the kind of looking into verticals and interesting things that are happening in a market and so on. And obviously speaking with the mother company of that. But we don't really kind of shape the thesis in a way, in a big way with the mother company. Back to your background and also some of the things that I find super interesting, right?

9:09I have known Rocket Incident for quite some time, right? I'm also turning 50 next year. I lost my hair and it's turning gray, right? And maybe that is from negotiation with some of the rocket internet investors, right? Tough negotiators and so forth. But with that learning, also with your standard scale-up experience, how have you used them in shaping the key to ventures today and the platform you stand on? Yeah, good question. I need to highlight that there's not much hair in this podcast if I look at it. no it's not uh yeah do our very best let's not let's not maybe open that kind of end i guess it's a podcast and not a video it's not a you know we do have videos oh no people can see how active we are i i would say i've had the luxury to work at at rocket internet i mean let me add let me add some flavor to what i just said there are few firms that have been as instrumental to growing venture and building a strong foundation for venture in Germany.

10:17Rocket Internet, of course, everyone also knows because when you make big waves, well, you make big waves. And that is just the part of being in venture and in the arena. And of course, I said what I said explicitly. I made explicit for those that don't know the story and why Yepper said it the way he did. But I do think it's like Rocket Internet. we all owe a lot. And I think it's important to say that especially German Venture would not be where German Venture is today if it wasn't for the Sandware brothers. And do let me highlight, I've done two investments with Rocket Internet at my time at Maersk and they have both great outcomes.

10:58So I'm a super happy co-investor. I couldn't agree more. I mean, if you go around Berlin and you start looking at what's happening there still today and you think of the effect that Rocket Internet alumni has on the ecosystem and the brothers, obviously. You can't deny that. And I think they also highlighted the importance of execution and in a way built the speed around how ventures are built in Europe. But all things aside, I've obviously had the luxury to work with them and with some amazing people, like really, really smart people, really hardworking. and I think the thing that you learn from there is that the kind of the can-do mentality where it's kind of like you're not really thinking about that you know what is the maybe small should we go to the next market or should we go international it's built in DNA that of course you do it so you go big from day one and I think you're one of all from that but like I think in everything you know you need to spark in understanding what are the things that you want to replicate and whatever things maybe you want to do differently.

12:07And if I kind of think my steps after Rocket, then I joined Nosto, a founder-led company out of Finland. And I think there, and also after that, I really learned the importance of building a strong culture within a company, within the team. I'm not saying at Rocket, we didn't have that, but obviously because people change more and so on, it's much tougher. I think that's that really like I don't want to restart it myself but kind of you know combining those two I guess it's a is a good experience and then I think like you know having seen the kind of ups and downs also started a company after that that that we couldn't scale I think that really helps me today in how I and our whole team works with the entrepreneurs we're really approaching this Guild of Ventures as more of a startup.

12:58It sounds super lame when I say that, right? But like, you know, in the end, it's like, it's a completely new unit at Guild of, and it's a new way of doing this. Also family-backed, so you can't kind of, and you shouldn't copy things that maybe bigger players do and so on. So we're really doing a lot of discovery, trying to understand what are the market problems, and kind of then we just don't build the solutions, but we find the solutions that others have built. So I guess it's a combination of that super fast, focused, and potentially scalable execution, strong culture, and then kind of the startup type of learnings overall on building this up.

13:41So, yeah. I'm interested in learning about when we talk culture, right, and with your background. And for me, Rocket is very execution driven. How have you leveraged that in building your team, right? What instruments are you using? Also, is it your team? Is that people coming from VC or where are they coming from? Yeah, we actually have quite a diverse background in a team, which I've always thought is quite interesting. So obviously myself, I have the background from operating, scaling, running startups. our other partner Christopher he's a he's a chemist by background uh which is like quite rare in this space I mean having the founder background in Europe and in BC is quite rare as well I guess compared to US but like being a chemist it was even more rare and I think it's really important to have that super detailed industry knowledge having been part of actually build products build factories uh launch products working with the big players on that field you know we have recently brought in not recently last autumn we brought in someone with uh consulting background who's been working then with uh later stage investments which we think is a great addition because she can really help uh then especially when we think of for example material company like she's been working with the first of a kind faceted investments and so on but obviously been trying to bring in bring in lots of the kind of the young talent from from university and so on to support that.

15:10So I think it's more about, I guess, the startup way of thinking in building this is that you're essentially looking for the right people. You need to have, obviously, the things that are missing from the team currently, but maybe you're not looking so much into which university they went to and which of the big four consulting companies they work for. Sustainability and built environment, right? So you focus on solutions around these topics. What specific challenges and opportunity areas are you targeting in this space? Yeah, I guess firstly, like build environment is a massive topic. I mean, it seems like quite a niche.

15:57A couple of years before joining, I looked into opportunities within build environment because I identified that that's one of the things where you can actually drive the biggest impact then and made me realize how massive it is in many ways. There's a couple of things, like these are super high level, we can dive deeper, but kind of like generally the climate and biodiversity in the build world is a huge problem. Cities are expanding, we're building new buildings and new cities constantly, so the problem is not going to go away. circularity is another topic which touches the same same thing so construction actually consumes huge amount of the world's materials and and circularity is what I don't want to say non-existent but a huge problem within the industry for for obvious reasons indoor health which I think even for us in the Nordics is is a is a is a known topic but even bigger topic in in many other areas of the world.

17:01And then inefficiencies in construction would cause huge amount of monetary losses and delays, but also no one likes to have those diesel machines running any longer than what is needed. Those topics are massive. And I always like to play around with the idea is that if we tank kind of cement production alone in terms of emissions, if cement production was a country, it would be the third largest air emitter in the world. So if that's the magnitude of problems you can solve, it's hard for me to see a more exciting challenge to focus on. Could you add some of your portfolio companies to these areas so we get a better understanding of what you have done in the space?

17:44Absolutely. So we have a couple of different material companies, for example. So one of our later investments, a Swedish company called Recola, they are producing construction materials out of cardboard waste. so basically you could have your oat milk carton reused in your walls and they are replacing gypsum walls for example already fully operational and selling the products today that can have on obviously depends on building on our average building it have multiple percentage impact on embodied carbon levels for example if we think of then for example the energy efficiency of buildings which falls within the same scope we have we have a couple of solutions there one is company called nobody engineering which is kind of like a one way to describe it it's like a google chromecast for buildings so even with aged bms solutions by connecting them you can use a any type of energy optimization software we recently invested into a company in denmark called SMB and they are solving the emission reporting and cutting down the energy use on construction sites, which is then a big part of inefficient constructions.

19:00So those are just a few things to mention from the portfolio. One of the things you mentioned earlier also with respect to your team and so forth, right, is some of these first-of-a-kind investments, right? This startup you also mentioned, it seems quite heavy in production when you go about this. How does that look for your portfolio? How much is related to products and how much is related to services? And what challenges do you face when you do these different kind of investments? Well, I think in the end, it's the companies that face the challenges. is not so much us. And I think from Kildos back, I come from a software background.

19:43So I personally found these material companies like extremely exciting and also extremely difficult. So currently, if I think about portfolio, I'm just trying to count here in my head, like I would say one third roughly is kind of pure materials and rest is kind of some type of IT hardware or software. Like I said, And I don't think it's that big of a challenge for us, but obviously, you know, the right kind of money for this material companies, you know, that's obviously a challenge. And obviously for someone like us, we need to be prepared to back them up a long term. But I think then again, for those type of companies on, when we talked about the kind of the CVC side of things on how we can support them, we can probably support them then from the mother company a bit more than the software companies.

20:36So in that sense, we're probably also a good investor for them. Some data from the Nordic CVC industry, right? And we have, I have a close connection to a professor at Copenhagen Business School. His study shows that 42 % of the Nordic CVCs like to co-invest with one another. Right. Right. Also, so the question to you would be, you know, when you go into some of these more, can we call them CapEx heavy investments, do you then like to co-invest with other CVCs or how do you go about that risk when you invest? In all companies we go into, we love to co-invest. And I think personally, from founder perspective as well, having the right combo of investors who can bring the right kind of expertise is great.

21:27I personally like combos where it's more maybe a generalist investor and then us then I think you can really get the best of both sides I don't think that's necessarily because we come in so early even to the material companies at that point is not so vital that there's another CVC or player like that I guess just in general kind of in those cases you want to make sure that there's someone else there who has the firepower and hopefully kind of deeper pockets than you have yourself to back the company up because they might need the additional cash at some point. But yeah, no specific kind of CVC collaboration, but generally like most of the deals we do is co-investing with someone else or a group of VCs.

22:16Also, Matthew, when we look at also the collaboration over towards the mother company, right? Are there any of your portfolio companies that are so close to the mothership, as I call it, that you also offer offtake agreements and the likes in those collaborations? Yes, yes, there are. So that's maybe more on the, obviously, more on the material side, goes without saying. And is that a key differentiator for you when you do the investment? Is that something you test beforehand? Or is that something that is an extra added benefit that might be something into the future? It's definitely extra added benefit.

23:01Like I said, we don't do the strategic part in a way. Make certain things more difficult maybe. But I think, again, if you try to tackle both parts, it's very tricky. And then I'd like to say that when the collaboration starts to happen, then you're going to be really sure that you made the right bet. If the mother company gets excited about them, even though they don't kind of need to get excited about them, then, you know, even better. And maybe it's good to highlight that obviously what we try to do is, and maybe this comes also from my background of, if I think of my career, like it's almost going to go a little bit backwards in terms of digitalization in a way, like coming from the e-commerce stack where everything is measurable and digitized and so on, than going to fintech where all of a sudden you move to excels and black screen and then you go to construction which is you know i don't want to say top of the cigarette card and calculations because it's not like you know things take more time that's that's what i'm what i'm saying so i think what we also try to do is that we obviously look at hundreds and hundreds of companies within the space every year so even if we don't invest uh be that because the company is too late stage or whatever it is, if we think the innovation is exciting, we obviously put them in touch with the mother company.

24:22So we've actually had results from companies we didn't invest to actually partnering with the mother company. Yeah. No, and I think an interesting discussion is always, you know, as an investor, what do you contribute with to the startup and the founders, right? We hear all the VCs claim to be active investors. That's a broad definition of what you do when you invest. And now Andreas is smiling a little bit because he knows the question. So I think for me, a lot of the things that a corporate can bring is asset, brand, customer, data, expertise. But I also find it very difficult to promise anything.

25:04when you pitch yourself towards the startup community what is it then that the startups can expect from you when they get your money and get Matty on board yeah that's a really good point and I think every startup here is the kind of where entrepreneurs first and investors second pitch from all the investors first of all we are quite active as investors so as we do the kind of regular VC work so to say so make intros to other investors we take board roles you name it we have a fairly good network of from the industry partly by our own work because that's where we operate and we do our own discovery and so on but obviously through the mother company so you know we we have the capability of facilitate or we can facilitate those intros then obviously because we are a industry specific investors we do already obviously have really good insights into what's happening in the market we're quite good at gathering kind of market insights without sharing company details but gathering things on pricing levels and things like that so we do that quite actively yeah I guess then the different backgrounds from the team that we have we try to always find the right person who can help with the with the right thing in a way.

26:26But in terms of promising, it's always also down to how the company does. I know I'm, you know, Finnish people are good salespeople. So maybe I'm not selling as well, but like, of course, we drew whatever it takes for the company to become successful. But I think what you learn also being on the other side of the table, it requires also activity from the founders and from the team. And what I'm also trying to teach the portfolio startups is that how do they learn to manage their investors and how do they learn to manage their corporate relations and making most of it? I mean, you guys probably know this yourself, having been in the industry, that I think the best founders and best CEOs, they actually manage the investor base.

27:11A lot of the time that I spent in CVC, right, was trying to figure out how I could best harvest the knowledge from the mothership and combine that with the startups. Because I was super biased coming from the VC industry and into CVC. But I think that collaboration between the mothership and the startups, how to basically bridge that is super interesting because that is where the extraordinary profits come from. Do you have the secret sauce for that? Have you found areas where it's more easy to harvest that? No, I don't think I have the secret sauce. I think it's something that's improving every day.

27:59There's multiple reasons for that. People in the main organization better understanding what ventures does. Us finding more and more exciting companies that we invest into, better communication, better collaboration. I think it's a lot also about finding the people from the organization who are excited about the startup. So I think it's also like these are the discussions that shouldn't be had only in a boardroom or director level. What we try to encourage within the ventures team is to engage with the whole organization. So we have, for example, seen that we have very good collaboration across the modern company.

28:40But we have, for example, seen that maybe even though Kildur is headquartered in Finland, we have very good collaboration with some of the country offices and they are very excited about, for example, in Sweden, we've been getting multiple company intros where someone from the team has seen something exciting in the market and sending that over to us. But to answer your questions, no, I guess in this type of podcast, you say, yes, this is our formula and you know here's a slide and this is how you do it and you know then but no we haven't mastered it but we have found uh little things here and there that help being kind of family owned and family also being operational and them having a massive buy-in in the ventures part i think in a way facilitates that as well because everyone in the organization understands that this is part of the business and we're all in the same boat, so to say.

29:34I'd love to ask you a question around, because you've spoken a lot about the specialist VC model, so to say, and how you leverage, of course, your mothership. I'd love to ask you a bit about how you think about generalists in your space. I would love that more generalist VCs would invest in the building environment. I think there's massive opportunities there in terms of impact. There's also really exciting opportunities in terms of leapfrogging. Now with AI, for example, if we think of tool sets of AEC and so on. But there's obviously an understandable concerns because of how the industry operates and being fairly slow and project-driven and so on and so on.

30:25but I would love for more journalist investors to invest and what we try to do a lot is also provide the support then in validating those things more in depth to get journalist investors excited about the space and if I think of the last two investors we did this summer for example both of them have fairly journalist investors who have invested together with us so I hope it happens more we need we need capital in the build world to build the innovation. And then I think first and foremost, we need AAA talent who wants to build companies within this space. And as we all know, those normally go hand in hand.

31:09And the co-investors you mingle with these days in the space, is that the 2150s of the world? Who are they? Quite openly, anyone really. I mean, like not just the build. Of course, we work actively with all the Zagwas and Compases and Pilaps and PT1s who are all great and know the space extremely well. But also very much, I think there's quite a lot of impact and kind of deep tech investors who are more and more interested in the space. We just announced an investment this week actually to an Estonian company where we invested together with Norshent, for example. Like I said, we're trying to work more and more with the journalists as well.

31:57I'd love to ask you a question that is always on my mind when I think about anything climate right now, which is of course everything that's happening in the world. How have you seen it impact the sector? How has it impacted your portfolio companies? And has it in any way changed how you think about the space? No, it hasn't changed how I think about the space and hasn't changed on how we at Guild Adventures think about the space. I think, again, getting back to the 100 years of history, it's not an organization where we change our mind overnight because of what someone says, no matter who they are in terms of their position.

32:41I think what it has caused, and especially talking about materials, is that in a way like, and I'm not saying this is positive or negative. I think in a way it has made, for sure myself and many of the companies realize that in the end, what you need to build is superior products that are on the same price levels that the current solutions are. If we think of building materials, for example, right? You know, you can't build the worst product to replace concrete that cost 10 times the amount. And that sounds like a no-brainer, but in the startup world, maybe it hasn't been. And I think there's more pressure on companies to really show that, hey, we actually have a better product and we can deliver, if not now in the future, at the same cost that the current products do.