E657 | Jan Lozek, Future Energy Ventures (FEV): From Corporate Carve-Out to Climate Capital

0:00Hey everyone and welcome back to another episode of the EUVC podcast. I'm excited you're here because today we're sitting down with Jan Losek, the co-founder and managing director of Future Energy Ventures, also known as FEV. Jan is one of the architects behind FEV's carve-out of E.ON SE slash energy, and he led his fundraising analysis, his investment thesis across decarbonization, energy transition, and deep tech. Before we start the show, a quick note. If you're building or running a fund, you know it takes the right partners. At EUVC, we only work with sponsors we truly believe should be part of your tech stack.

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2:19Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Jan, welcome to the podcast. Hi, hi, Andreas. Nice to be with you. We're looking forward to the conversation. So, Jan, before we dive into everything and the origins of FB, maybe you could just tell me your own journey. With a few words, where do you come from? Why is venture where you want to spend your life? yeah good question so maybe i started university uh i'm a studied business i studied business economics i always wanted to do wanted to become an investor and businessman that was a little bit my my thinking when i was young and i had in in parallel the desire for for sustainability and any kind of topics with energy renewable energy which was already important at that time because when I was 18, we had this terrible situation that we suffered from unsustainable chemical production, steel production here in Europe.

3:23Woods were dying and there was a huge, I would say a huge sentiment in a society that we need to do something. And I felt with 18, that's also something where I can and should support. However, after university, I moved into tech. I was part of the so-called new market. By the way, I was raised in Berlin, one of the most exciting cities I'm talking more from today. And then I started my journey as a tech founder, co-founder, and I would say e-commerce space in that time. When the new market was coming down, I had to pivot like any entrepreneur has to do. And I pivoted my career into energy. And I started then with RWE as an investment manager.

4:06I was then in trading. I was responsible for the entire investment strategy of RWE to push it forward into the direction of renewables. And then in 2016, there was this amazing opportunity where I've jumped on building out a large venture capital fund owned by RWE in that time. 300 million euros commitment to explore and invest into what the new energy will be. But whatever it is. And we started then with the thesis. We doubled down with 50 investments on the thesis. We were quite successful. And from there, we moved and just here I am. Beautiful. And then tell me a bit about that, because now we're going to dive into some of the harder stuff, the origins of FEV.

4:48It's always interesting when you do a carve out of a corporate fund. So tell me a bit about the motivations to do FEV instead of staying completely inside Eon. When we started with FEV in 2016, the market was quite small with the investment market. The investment size of the market was$6 billion at that time. And the market was full with corporate players. All the ones from Europe, Eon, RWE, the various American investors, the oil and gas companies like VP, Shell, Chevron. Everyone had a venture team and we were all looking into what's new, what's coming and what's invested into. And over the time then in 2018, 2019, the market was growing hugely.

5:36And it became at least clear to me and to my team that if you want to really to make the difference in the market, you need somehow earlier or later go and being part of the investment market itself. And you can't operate such a business in-house from a corporate player. because of focus, because of different situations you have to cover when you work for a large corporation, which is not set up and focused on venture capital, which is set up and focused on creating larger infrastructure business. We have a podcast series dedicated to corporate venturing. And it is definitely clear that there are firms that are more successful at it than others.

6:18And it's oftentimes more about the parent company than it's the corporate venture firm specifically that decides whether it'll be a success. Tell me a bit about that carve out process, though, because there are obviously many that always think about this. Now we've built such a great name inside the firm. We really love doing this. We love it as a team. And then it comes to question, should we carve this out? Tell me a bit about what happened behind the closed doors back in the days. You know, life is not as straightforward. If you then look back, maybe the story becomes more straightforward than it really was in life.

6:56But in general, it was a momentum. I think one key push for us to moving out, not for us to decide, but on the EON side or on the investor side to support us to moving out, was the consolidation of the German energy business by a large transaction between RWE and EON in 2018, 2019. and that changed a little bit the perspective and it created also a new understanding of the new shareholder. So EON was acquiring Energy, which was the home of the fund, and EON, the new shareholder, was just looking into and trying to understand what does it mean, what's my role, what do I want it to do, and so on and so forth.

7:36There was so an opportunity to look back, to reflect, to take a white sheet of paper, write down what should be the best way forward from here. And there was an openness to discuss that at that time because of this more, I would say, market consolidation situation where we have been in as a fund. And on our side, we look back from the FF team side, we look back and look, wow, what happened? No, we have been starting in a market with 6 billion. Now the market is growing in direction to 100 billion US dollars spent into venture capital business per year globally. And what the journey and what would be the next big thing what we could do in order to stay relevant in the market.

8:24And we as a team, we identified becoming an independent manager will provide all the resources we need to grow our business and to stay decent and relevant in the market. And we felt like staying in a corporate umbrella will not provide the scale and opportunity for us as a team. So hence, we had this both sides. Someone wanted to discuss and understand how to move forward from here. And us as a team with a clear understanding we should move forward and we should become a real investment manager. And that was then discussed for us and back. It was decided in 2020. And then from there, we moved forward with creating the new fund doing fundraising.

9:12And here we are, final close of the fund will be in the next few weeks. How did you end up doing it? Did you end up buying out the old portfolio of EON? Yeah, so the structure is really clean. So today we are the fund manager of what we call the first fund. So the EON fund, the 50 investments we've made in the past, and we have a management contract with the group, which includes the relationship, what we do, and also kind of an incentive in order to be really successful with that portfolio. However, the fund is so-called closed, so we are not doing new investments from that fund. We are only doing full-on investments and managing that to exit.

9:52And our target is here in 28 to close it down and then we look back and we have been successful and we will do the next podcast then, I assume. So that's one structure. The new fund is just a capital market fund. We decided to move to use Luxembourg as a home for the fund in order to attract international investors, not only from Germany or close countries to the German jurisdiction, so to say. And the team remains the same 15 people, now professional investment manager. And we as partners in the fund, it's our company. We've invested our capital and investing alongside with other investors in the startups.

10:34we like to sponsor. And here we are. So there is a plain, really plain new fund where, by the way, EON is one of the larger shareholders. And there is the old captive fund, which is managed by us as an external advisor to the EON group. Yeah, which I think is the best way to do it. Amazing. Okay, so let me tell me, let me hear from you about your thesis and kind of where you play. What is your thesis on energy in the future? Simplifying it a bit, if you think what we are starting from the point how a future energy system will look like, and then you obviously have the core topics of you need more renewables, that's heating, cooling, energy, and so on and so forth.

11:20If you have a lot of renewables, you need to be more proactive, more real-time in managing your infrastructure, your grid, where the energies or the electrons are moving in order to solve challenges like huge demand and supply shifts from weather, from wind and sun and so on and so forth. And this thesis also includes using AI digital tools in order to inspect, to manage, to organize an energy infrastructure in a classical way. On the other hand, what we see as well is that cities becoming more and more owners of energy infrastructure, like buildings, industrial sites, and so on and so forth. And we invest here also in technologies which help really to decarbonize industrial sites, buildings, and so on and so forth.

12:06And if you think about cities, there's also this topic about e-mobility or e-transportation. And here, we also believe that's an important puzzle of the future energy system, how we see it. and that are the areas where we invest into series A and B stage companies. It's business innovation, technology innovation, but we are not an asset investors. We are not investing in new hardware technologies. We're really focusing on asset light structures here. We're investing into series A and B stage companies with one to two million euros of revenues. We support them with five to 10 million euros with our first check and then we double down on the best performing companies.

12:42But we really believe we are great and good and have a lot of experience in energy. And we can say we are decent investment managers. So our focus is really energy, looking at the energy perspective of all these three elements I've mentioned. Let's dive into each of them, because future energy, if we start there, where do you see us being in the European landscape right now? Where's the most important innovation happening? Many, when they talk about energy, are talking about sovereignty as well. I'd be curious to hear how you see that trend. Is it something that is really meaningful or is it just a bit of help in fundraising and in customer interest right now?

13:24But honestly, I think nothing has changed that much. Yeah, good question. So what we see right now in the European energy transition, that a lot of that new technologies we support in 2016, 17, 18, they are becoming really part of the energy system. So there's a lot of, I would say, financial reasoning for using tools, digital tools, artificial intelligence, or any tools to make the system work. Because in Europe, we have a problem, or a challenge. We have a challenge. The challenge is that we some days have 100 % or more than 100 % of the energy we need produced by wind and by solar assets and other energy assets.

14:07And so how to manage and organize that. And that's an actual problem. And what we see here is a couple of quite interesting developments. One is, for example, companies like, just naming one, Inspired. Now they are doing flexibility trading from battery systems. So grid systems are backed up with batteries. Then you have a large-scale battery. And then you ask yourself, how can I commercialize my battery in the energy markets? And then you find out you can trade this. You can take energy and you can give it back and you can take and give it back. So technologies which helps then to trade and organize that, it's a great tool.

14:44It's very important right now in Europe. The other topic, to have platforms which aggregating all this renewable, decentral energy resources and then bring it into the market. That are obviously topics which are quite hot right now in Europe. The entire topic about battery as such, also how to run, how to manage, how to organize, how to reuse batteries, it's quite a topic. And I would say there's a huge desire applying more and more AI into the grid systems in order to become more real-time. I think other topic is, it's maybe a bit more US, but it's also a European topic, is the topic of data centers and energy interconnect to the energy system.

15:24Here we look in companies which can really help us being more efficient with cooling, with using data centers as a flexibility backup for the energy system that are also hot topics. On the more city side, I would say... Can we stay on energy one second? If we start with the question of the sustainability of sustainable energy, so to say. You have many voices, especially in the U.S. these days, saying, well, what you need is something that's much more sustainable in the production of energy so that you don't have these eps and flows. And it doesn't matter that much if you have 150 % produced one day.

16:08If you're on the cold days, you're actually below what you need. Because what really is important is the integrity of the system. Is this a fair critique of wind and solar energy or is it rather that this is a limitation of our current technology stack, but it will be fixed as soon as we have developed better battery packages slash storage solutions, more interconnected grid systems, I guess, is also the problem. We can't move it from one place to another right now. What we see in Europe that we can cope with an immense amount of renewable electrons in the system. However, I fully acknowledge the discussion.

16:50And to me, in the very end, it's a question of economics. What will be the right energy system in the future? Will we use new fusion technologies? A bit early or a bit difficult to say, but there are arguments for it. Will we use carbon capture for gas in order to get the carbon outstored and then making more sustainable in sense of operating, not in sense of CO2 emissions, more sustainable technology usable for a sustainable energy system. So there are a lot of tools available, even batteries. If you think about batteries, how the prices are scaled down and efficiency moved up. And if you compare it, for example, to solar 100 years ago, 20 or 30, and today, I would assume there will be a lot of efficiency also in that area.

17:40So it's difficult for me to say how will it look like. What we already know is the current system can afford a huge amount of renewable electrons and we need the different tools and add-ons to the energy system to make it fully work. The only question which is out is what will it be? Will it be NOC? Will it be like this bridge technology with gas, with carbon capture? Will it be batteries or a mixture of everything? However, to me, that's not the question. The question is, the planet is changing. We have seen it last summer, this summer, the next summer. We will see it more and more and more. With the tools we have at hand, we can do much more.

18:25I think it's not the question. It's not yes or no, this one technology or that technology. We can, in any continent, can deploy much more renewable energy tools than we have today online. We can use much more batteries than we have today online. And so I would advocate for using the technologies we have at most as we can. With that, we will be busy in the next two, three, four, five years. And the market or the innovation market will find out what's the best technology to add on. So in other words, to you, it's definitely 100 % investable to be investing in the sustainable energy sources just as much as you would the old, so to say.

19:08And it is not only an argument of decarbonization. It's also an argument of financials. If you think about costs of solar energy or wind energy, it's definitely less costly than any nuclear power plant or any carbon-fired power plant. And it's not only a question of decarbonization, it's mainly also a question of economics or getting access to cheap energy. And I think that's the moving force right now. And what we see, especially in Europe, and how this is mainly influencing right now markets. Then let me ask you the question about, and you brought it up, the data senders, the need for more energy for AI.

19:48I'd love to ask you, you said something interesting, which was maybe it's more of a U.S. question than it's a Europe question. Can you expand a bit on why you put it like that? Yeah, we see the trend right now in the US, fully focused on data centers, a lot of projects. One of the largest technology companies are coming from the US. There's a lot of support of projects and things are moving forward. And then in Europe, I think there's still the discussion, What do we need our own technology giants? I see Europe right now really resetting their targets and ambitions with regard to what's our role in technology.

20:28Should we have our own Google, Facebook companies and support them? Or should we rely on Chinese and American technology in the future? And that's why I think it will also be in trend in Europe. And the people are driving forward projects. but in the US it's much clearer and there's a strong force already in that direction. And we see most of the startups in that space also in the US rather than in Europe. So in the US there is this dominant, especially in the tech circles, of course, but dominant narrative that you just need more energy and it is front and center, most important that we solve as a society today.

21:09Do you see, is what you're saying that you don't see that conversation happening as much in Europe? No, I would say the current narrative we discuss is more, it's more, it's a typical European thing. Now there's something happening and externally, and then we look into the mirror and asking us, oh, what happened? Then we start to think how we should move forward from here. So I think there's something, especially in Europe, we have a common understanding there will be, we need more and more energy and the renewable energy will also provide more use cases for energy because it's quite cheap, isn't it?

21:43And there will be a self, the energy use will grow and grow. And it's not only artificial intelligence in that sense, but I just wanted to mention that the focus of the discussion with regard to data centers is another one today in Europe than in the US. Then let's go to cities. What use cases do you see as the most promising right now? And which ones do you think are maybe a bit overhyped? What's quite, quite interesting in Europe right now, and we see, we also have looked into a In that space, it's the fleet management topic of EV trucks and EV buses. So we see, I think, a huge opportunity right now in Europe, because in Europe you are forced, if you run a transportation business, you are forced into using sustainable transportation modes like e-trucks and e-buses.

22:31It just becomes economic because of the regulations right now. And hence, if you have then fleets, you can use technology in order to manage that wisely in connection with the energy system. You can much better plan it, organize it and manage it for the better of the energy system and also for the transportation to optimize your costs for transportation. That's one big trend. What we also see is there's a lot of larger industrial companies. They are starting really to use renewable tools in order to become more efficient with energy, with cooling, with heating. So there are a couple of startups providing tools and technologies in order to help larger industrial companies to start decarbonizing their industrial parks.

23:23That's one topic. And that's also true for businesses. What still remains strong is the further equipment of buildings with heating and renewable energy infrastructure in order to decarbonize buildings, larger buildings, complex and smaller. So companies, especially heat pump companies in Germany, they're growing nicely this year because they're in a huge demand on that sector. Do you see any shifting interest in the decarbonization agenda over the last year? or is that more of a U.S. phenomenon? There's definitely a shift in interest and focus and what happened in the U.S. of resetting, so to say, ambition on that or potentially resetting the ambition here is also happening in Europe right now.

24:12There are a couple of, I would say, more balanced discussion and less streaming, more economic rationale in order to how to use decarbonization tools, when to use it and when not to use it, so to say, when it makes sense and when not. And we see in Europe, I would say it's not cold, but it's not a hot topic per se in Europe as in the US right now. How do you navigate this as an investor? Do you see that decarbonization opportunities are inherently just difficult right now because you can't exactly see the global path forward? If you look right now in the market, last data from the first half here, the data mainly tells us most of the capital is going into a later stage, into companies which are close to profitability or profitable.

25:03And there's less capital moving into early stage. And there's also less companies which are founded. It was coming down by 40 % or so. That's the estimate for this year, isn't it? So what does it mean for us as an investor? First of all, being even more stringent with thinking through about profitability and break-even passes of companies we wanted to invest into to really make sure that we have a clear, scalable case which comes into profitability and gets then money in later stage investment markets. And for our current portfolio, we believe that's quite interesting because we have a couple of really good options in our first fund where companies are already at progiven or contributing a decent EBITDA margin to investors.

25:52And here we see maybe more interest in future for that cases. But generally, I think on the earlier stage side, now we are allocating with our second fund a lot of competition, maybe pressure on pricing. but competition and pricing in a different sense, because there's 150 billion US dollars of capital committed into that asset class. There are less deals, so there will be more competition because everyone needs to allocate it right now, isn't it? And that's now the question to do you the right picks and be prepared to pay a bit more. Tell me a bit about some of the learnings from the portfolio companies you have in terms of operating through this very turbulent water.

26:34So generally, companies from our portfolio, which can't prove the real way into profitability or break even, they have difficulties to fund, to get full-on investments. And here, we as investors then need to discuss what does it mean? Do we want it to follow? Should we double down? Or should we stop investing in the very end? And here we have a couple of companies in our portfolio where we have to make these decisions as we speak, so to say. And on the other way, we see companies which are developed quite nicely and there's investor interest. There you have maybe a pricing discussion, but here we get inbound interest in funding the company or providing further capital to scale that type of business further.

27:19Can you share any learnings that are abstract enough for it to be applicable here or worthwhile sharing around how you make a decision or judge? Should we continue here? Because this is the magic of deep tech. It's really, it's not hard, often not hard to write a first check. It's to rewrite the second and the third and the fourth. Yeah. I'm happy to share a nice example. Termondo, yeah? I'm not sure if you know Termondo, one of the larger players in Germany. The company is selling heat pumps for residential homeowners, PV systems, energy tariffs, and so on and so forth. And we've just announced a couple of months ago the 50 million debt facility for providing leasing products to customers.

28:13And this is a clear proof that if you scale your company into the right area, you get to get your funding in the market. And you have these gross opportunities you can have. I think that's a really great example. We've invested into the company quite early when the company had less than 1 million years of revenues. And today the company is one of the market leaders here in Europe and does decent revenues and EBITDA margins. And then on the other side, it's always not helpful to mention the names. But there are a couple of situations where we discuss with our co-shareholders what to do or what are clear signs for us to fund further, isn't it?