EUVC #216 Agate Freimane, Norrsken VC

0:00Today we're happy to welcome Agate, founding partner of Norskin, one of Europe's leading impact venture capital funds, born out of Norskin Foundation, which hosts events, operates co-working spaces, and runs accelerator programs across the Nordics, Iberia, and Eastern Africa. Their fund is dedicated to investing in early-stage startups, focusing primarily in climate tech, and they've led the investment into almost 50 companies. Highlights include Northvolt, Ayn Ride, 1 ,5, and Matt Smart. If you're listening in and love our show, drop us a review, follow the pod, and subscribe at eu.bc. This would have been a challenge.

0:37Tear down this wall. It's more than just an ally. This is a union of values. United and determined, we can serve as a model for other regions of the world. The nature of a problem requires a European response. Europe is a story of new beginnings. New beginnings. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Hi, everybody, and welcome to the European VC Podcast. I am David, also known as the LP Syndicate Lead, and I am joined by my dear co-founder, Andreas, also known as the LP Hype Man. Let's start things off with how you got into venture.

1:25Care to share that story with us? My journey into venture started six years ago when together with my three other partners, we started to work on the 1.0 version of Norsk NVC. And before that, I had a finance and startup operator background. Started my career by spending the first six years at Morgan Stanley. But to be honest, I've always knew that that's not going to be my place. I've always had the startup somewhere in my DNA. So it was just a matter of time for me to jump ship. And actually, when I was ready to leave Morgan Stanley for a while, I was about to start something of my own, but sort of in the process of dating potential co-founders, I met two other amazing founders who were just about to start BrickFest.

2:12And I was so blown away by the vision. I thought that my background matched exactly what they were about to do. So instead, I decided to join them as the first employee and super grateful for that experience. it's been really, really formative for me as a VC because I've really seen the VC process from the other side of the spectrum. And that has really breeded the strong sense of founder empathy. I have made a personal pact with myself to never ask a lazy question to a founder. I truly, truly think that there is such thing as this stage appropriate question or there are questions that, hey, do your homework.

2:52If this is, I understand if it's a small market and, you know, there are nuances to it. But if it's a straightforward market, do your own market sizing exercises. You know, don't waste the founder's time asking questions that you know answers to. But anyway, after my startup journey, after living in London and New York, my husband and I decided that, hey, why don't we give it a go and move to Stockholm? And that was probably one of my most serendipitous moments of micro year, because I quickly landed in the Stockholm startup ecosystem and heard about this weird thing called Norsken that one of the co-founders of Klarna was just starting up.

3:30And the vision of Norsken is to build globally the most ambitious ecosystem for supporting impact tech entrepreneurs because we really think it's down to them to fix our world, fix our planet. And of course, no ecosystem can exist without capital. So I came on board to really figure out what the investment arm and what the VC structure within Norsken could look like. And that was now six years ago. And since then, we've raised three funds, invested in over 40 companies and have few unicorns under our belt and hopefully more to come. So now I'd love to hear you share a pivotal moment in your life and describe how it has shaped you as an investor.

4:11Well, what has shaped me as a person and as a venture investor is just that I have moved around a lot in my life. I'm born and raised in Latvia, but was lucky enough to get a scholarship and study in the UK. So started my career there. And throughout my life, I have moved so many times, which basically means that, you know, I've had to restart my life over and over again. And the good thing coming out of that is that it's given me this really strong sense of self-confidence that I'm going to be fine literally anywhere in the world. I mean, you could literally drop me anywhere in the world tomorrow, and I know that I'm going to be fine.

4:46I'm going to find my way. But how that has contributed to my kind of VC track has been that I think generally I'm good at building relationships. I have met people from different walks of life, different backgrounds. And I think that's given me an edge to somehow find that common thread, how to connect with anyone. And I really enjoy it. And that's the favorite part of my day-to-day job is connecting with founders. And as you know, there's no such thing as one type of founder. They come in all shapes and forms. And I find that super, super fascinating. So, but professionally, it's really hard to define kind of one pivotal moment.

5:31But, you know, surprise, surprise, I have made, you know, my fair share of mistakes in my VC career. And even though they're the most obvious ones, until you get to experience them on your own skin, it's just theory. You kind of have to feel them on your own skin to truly, truly integrate that. It's actually really funny. When we started up, one of our kind of advisors to us at Norskin VC, he's a true VC veteran, 20 years of VC experience behind him. Don't want to say his name because I don't know if he's comfortable me sharing this in public. But when we got started, literally the quote was, he's like, yeah, you guys have to invest 20 million euros and then you'll start to know what you're doing.

6:15But the critical mass is 20 million euros for an early stage investor. And then, you know, we're way past that mark. But I 100 % understand what he means because that's the critical mass of mistakes that you make on the entry, enough of the critical mass of the mistakes that you make on the follow on rounds. So yeah, I really, really agree that the critical mass is 20 million that you have to invest in yourself as a VC investor. I mean, first one, the most obvious one that everyone will tell you over and over again, it's team. But again, it really takes it experiencing on your own skin when you know when you really fall in love with everything else but the team.

6:57But you just think that, you know, this is such a ripe opportunity. The market size is huge. Look at the traction. You know, this is flying off the shelves. You know, it could be an AI running this company. But it's really, really never in the case. You know, good never cuts it. And at some point, the growth is going to start to plateau and, you know, there are going to be hiccups on the way. So when it comes to team, never, ever compromise on the team. And then other mistakes, like, for instance, for example, not taking as naively the notion of, hey, you have an awesome growing free community that's not monetized today.

7:32There is engaged community. Yes, there'll be plenty of ways how to monetize that. I mean, of course, we have these examples on the podium, the likes of Slack, etc., Twitter, Facebook, etc., where we look at them and then we think that, hey, we're going to be able to do the same here. It's so far and in between. And if I'm ever going to invest in kind of a freemium to premium model ever again, then the early traction just has to be off the charts. You know, it's even great is not going to cut for you to really believe that you're going to be able to drive the freemium to premium journey.

8:17So now let's go to the take a stand section where we will ask you to comment on a quote given by another guest of ours. Every VC fund is an impact fund. I knew you were going to ask that. I get this question all the time. I think I don't remember the last panel that I have been on that I didn't get the question from generalists challenging me on, you know, is there kind of a gap in the market today for an impact investor? Because today, of course, more and more generalists kind of recognize that some of the most valuable companies of our decade are going to be impact companies for very obvious reasons.

8:53Because, you know, of course, the bigger the problem, the bigger the opportunity. And at the moment, you know, it's hard to find more obvious opportunities than those tackling climate change or some of the social issues that we have. but to answer your question no i don't think that every every vc fund is an impact fund i truly hope that that could be the case but i'm also a realist i know that that's never going to be the case and the way i kind of think about this question is that you know there are generalists that will generally invest across a lot of different kind of verticals you'll have your fintech vertical your healthcare vertical, et cetera, et cetera.

9:34And the same is now happening with impact that as a generalist, I think you're really behind the trends. If you haven't added your impact or climate vertical by now, every generalist out there should have that vertical. But we as an impact fund will always, always have an edge in investing in impact companies because that's what we look at day in, day out. It's simply the difference between being a generalist fund and being a specialist fund. And I think specialist funds will always have some kind of an edge in the market. And that's really how we're trying to position ourselves in the universe.

10:07It's interesting, you know, when we started to raise our very first fund and we went to some of the traditional LPs, one of the most common reasons that we got turned down was the answer that we just don't know if the impact investable universe is big enough to sustain a fund of your side. Fast forward to today, again, one of the most common reasons if someone turns us down, they're saying that your impact focus is really, really broad. I mean, our focus is that we're going to invest across all of the United SDG goals, energy, food systems, healthcare, et cetera, et cetera. And today, sort of the LPs have flipped the question saying that, you know, you're so broad, we prefer to go more vertical, vertical focused.

10:56So it's just fascinating that in six years you can go from, hey, your universe is too small to, hey, we think you're too broad kind of in your focus. But to kind of answer your question more concretely, you know, yes, you're right. Impact is broad. Even if you narrow it down to climate tech, you know, that's still really, really broad because that can be energy, that can be food tech, that can be transparency and accountability within sustainability. topic. So it's really, really broad. But still, we think that the scope is narrow enough for one impact investor to claim to be a specialist in all of those segments.

11:43So I'd love to hear your take, because you kind of hinted into this already, hear your take on how the LP landscape has evolved over the last couple of years. And And with your experience at Norsk and you can actually share that as well. But not only how it has evolved generally in Europe, but how it has evolved for impact investors in Europe. From the very beginning, when we set out to build Norsk and VC, we really had two underlying missions. One, we felt that we drive impact with every single investment that we do. That's going to generate a lot of positive impact. but two we also want to change kind of the capital markets or how the typical asset allocators think and i have to say that in six years since we started we've we've come a long way and and one of our goals was we want to drive more capital to impact because there's just huge funding gap some of the data says that today in order to address UN SDGs we need 16 times more capital flowing to impact companies as a business.

12:47How are we going to bridge that gap? And we think that we can bridge that gap by showing that there is really no contradiction between investing in impact in companies that have a clearly measurable net positive impact and at the same time have the potential of generating top tier returns. And how the LP landscape has evolved. So six years ago, when we set out to raise our first fund with the kind of promise that we're going to invest in impact unicorns, companies that can have a positive impact on the lives of 1 billion people, but companies that can also be valued at 1 billion. And, you know, the comments that we got from the traditional LP base was, yeah, cute idea.

13:32You know, sounds great. Good luck. Not for us. Come back when you're raising your fund to three. So in the end of the day, our very first fund ended up being purely unicorn founders. So they were the ones who sort of believed that you can do something that hasn't been proven before. But fast forward to today, LP base has matured a lot. We see that a lot of traditional sophisticated LPs for the first time ever are actively creating impact allocations. and so hence today I think it's probably a really good time to be an impact investor. In the last 12 to 18 months, we have seen an amazing, amazing impact funds come on the market.

14:19So I think that the pre-seed, seed series A kind of universe is starting to look really, really good in Europe. Where we're still lacking is growth and it's actually growth that LPs want Because in my experience, kind of the sophisticated, conservative LPs, they will invest in growth before they invest in early stage venture. So I don't know if I can make one shout out today. That's basically we need more impact growth investors. And honestly, I think that there has never been a better fundraising environment for that specific strategy. And we've seen that on our hands. I can't talk too much about it.

14:58As you know, there are strict fund regulations, but let's say over the past year, despite challenging macroeconomic environment and many generalists struggling to raise, I don't think impact funds have been struggling to raise. There has been a really, really good product market fit between impact managers and sort of the LP community. You're saying something that has me having to ask a question. And we're seeing definitely that opportunity funds have fallen out of favor, both for VCs and especially are probably driven by LP appetite. But what you're hinting at there is making it very difficult not to ask you, how are you guys thinking about opportunity funds?

15:47Yeah, to be honest, I see why opportunity funds make sense. At the same time, there are just so many natural conflicts of interest with opportunity funds. And I'm probably leaning towards the spectrum. I think there is definitely room for impact growth investors in the market. But I think, you know, keep it clean, have it as a separate entity, separate fund, no crossovers. because yeah I think as the market you know the traditional setup where you have your you know feeder fund and then the opportunity fund just so many conflicts of interest what happens to the companies that you don't back from your opportunity fund what signal does that send especially now in the market downturn also are you really getting the best deal for your opportunity fund or are you kind of trying to save some of your seed fund opportunities.

16:44I think it's, you know, when everything's perfect in the markets, it works. But I think when the waters get a little bit rough, there's so many conflicts of interest with that setup. And you're thinking the same thing in terms of multi-stage. You wouldn't want to take Norskine to a 300, 400, 500 million per fund size. and then say, well, we start out at seed in an early stage, but we definitely also continue. Our sweet spot is investing in seed series A, and we really believe in follow-on investments. So our current portfolio construction is roughly 40-60 between initial tickets and follow-ons.

17:30So if you really want to double down on your companies, you can definitely support a bigger fund size. a true multi-stage where you're investing in pre-seed, seed, all the way to C, that starts to get tougher. And I think you anyway end up having dedicated teams for each one of those strategies. And then it kind of begs the question if you should still keep it all under the same wrap, under the same umbrella, or would you just be better off? You can still do it under the same franchise, but maybe better strategies to keep them separate. I have to ask you, and I'm shifting a bit, topics and coming back to topics, you know, because, and you said it yourself, right?

18:17Challenging macro environment, let's put it like that, but you are very optimistic for the impact space, right? And that's something we're not really hearing from most of our colleagues, friends, you know, et cetera, et cetera. It's a really challenging environment right now. So I'd love to ask you to deep dive a bit more on why do you think that's the case? Why do you think there is this resilient LP appetite in a space that, as you said yourself, six years ago, there wasn't really, right? And I'm quoting you here. I'd love to have your reflections on that because, how to put it, I don't see yet a clear winner in Europe for the impact space.

19:04There's a couple of players, but there's not one brand in Europe that you can recognize. This is the go-to firm for early stage relations or whatever. So if there is an opportunity, it's super interesting for us also to understand it and assess it for our audience as well. You're absolutely right that there isn't kind of the clear winner in the impact space today. I think, I don't know if I would point out one that's come far in Europe is generation investment management. But let's say not necessarily VC, now dipping toes in growth. So a little bit of a different kind of beast. So maybe not relevant.

19:41No, but you're absolutely, absolutely right that there is no one clear winner in terms of kind of a fund that fund franchise or whatever you want to call that is you can truly say that, you know, they've now proven it all. the proof points that you have that impact as a strategy makes sense is that you're starting to have at least the first impact unicorns emerge in europe companies that that that have impact at the very very core i mean from swedish ecosystem and also some that we back like north vault in right etc so you're starting to have the proof in the pudding in the success in the underlying startup success stories but where kind of so yeah if there are no clear winners in terms of funds where is that LP demand coming from I think it's a really good question and we really think that that demand that demand is sort of this mounting social corporate pressure I don't think that you could find a board room among leading companies, asset managers that are not today discussing what are we doing in ESG, what are we doing in impact.

20:55And of course, I know I'm very glass half full kind of person when it comes to these topics, because one, I've seen that in six years the market has changed you know overnight but two also it's just this anecdotal feedback that we're getting from all segments across the market and when I say that there is LP demand you know if you would look at percentage of portfolio allocated to impact it's still tiny I mean I've seen different kind of market different kind of stats but it's anywhere from one to three percent a day that's dedicated to active impact strategies so that's obviously nothing so so then maybe but why it's still significant it's because it's gone from zero to one or from zero to that three percent and that's huge huge shift yeah and uh and and so for the first time and and i'm i'm 100 confident that there will be winners emerging in the impact space and and the impact as a strategy will cement itself i have i have to ask you a tiny bit provocative question before we change topic which is how much how much because you you raise a relevant point right if we go into the boardrooms of these big big corporates throughout europe right it is a topic and my question is how much do you think it is driven by esg reporting slash article mind like topics versus true desire to lead and drive impact it's a mix of both and again you can And, you know, of course, there is a ton that still could be improved about how we approach the whole exercise of ESG and impact.

22:43You know, it's way far from perfect. But at least one thing that the regulatory framework and the pressure today has succeeded in doing is at least putting it on the agenda. And you can't really ignore it when it is on the agenda. But it's definitely still far, far from perfect. If the interest and impact is genuine by some of these large stakeholders, no, I don't think that every single, I don't think that the interest is always genuine. But I think, but that's fine, because as long as that moves us into the right direction, and as long as it puts pressure on the stakeholders to do better, that's fine.

23:26And I think in any organization, you'll have, yeah, you probably will have people that don't care about these topics at all. But as long as you start to have that loud minority that demands that, and that can be the loud minority can be investors on your, you know, your shareholders, there can be a loud minority within your shareholders, there can also be a very loud minority among your employees who say like, hey, we as a company need to do better. And if we don't, I'm going to move on somewhere else. So to be honest, yeah, I think today it's down to the loud minority to drive that shift. But I think the loud minority is doing pretty well in terms of getting us moving.

24:09I want to ask you one final question before we end here. And it's bringing us a bit back to where we were earlier. But you talked about being specialized in impact versus not being. Being in impact is many different things, right? Some of it is mobility. Some of it is construction work. Some of it is future food. It's very, very wide, right? And if you look at the tech that's needed and the business models that are being employed, it's definitely very different models. So how do you think about being specialized within impact? Because it's one thing that you're solving a problem that will have a positive impact.

24:54but it's not really a business model just as SaaS was, right? Which is why VCs ended up being so good at funding SaaS businesses because they understood SaaS 100%. They were the best ones at that. So for that reason, that's what we were good at. But impact is more of a problem area than it's a vertical in a way. What would be your take on that? No, I think it's a really, really good question. And it's like a smart way of framing it. I think you're absolutely right. It's more of what joins, what's common for all of the impact strategies is that we're addressing the same problem, but we could be addressing that problem with, as you mentioned, with different technology, different business models, etc., etc.

25:38So are you really, really an expert? I think that's a really good point. So not going to outright disagree with that. But what I have seen firsthand is that in the end of the day, it's the common thread that drives all of the underlying demand. And what I mean by that, you know, let's take, for instance, the whole global movement towards net zero. It doesn't matter whether you are a B2B SaaS accounting, carbon accounting company, or if you are a green cement company. What creates the demand for that product is exactly the same. And the other thing that's common for impact industry as a whole and why I think impact investors have an edge is that a lot of these markets don't really exist.

26:33If you look at carbon offsets, you know, we've just seen the very, very beginning of where that market's going to go over the next 10 years. you have so so i think what still gives you an edge as an impact investor is that you're so at the heartbeat of the problem and you're every single day listening to different kind of stakeholder groups in that ecosystem that it gives you an edge to predict what is going to be the next big thing what are going to be the next big markets so yeah so i agree with you maybe you don't have the edge in terms of being an inside-out B2B SaaS investor. But I think you really have an edge in terms of predicting what are the markets that are going to really, really take off in the next 10 years.

27:18Because you just understand the underlying drivers of that so, so well. Yeah. That's a very interesting way to consider it. And I actually buy that argument more than the way I've been thinking about it myself because I have been struggling a bit with the impact investors that are not at the same time vertically specialized within the spaces in which you find the solutions. But I think that you are right in saying that there's definitely a large part of VC which is about understanding the problem thoroughly enough and knowing where to bet. And given that the problem space is as big as it is, it's probably more important to be specialized in that right now than it is on the value add side of being able to well then understand the technology and know the trajectory and how you take it from technology readiness level three to two and blah, blah, blah.

28:20I think that's probably the right way to think about it, that what matters is whether you're you're a specialist and dedicated in finding the right problems to back the solutions of than necessarily knowing a lot about how to then bring those solutions about. That's in the end, not the work of the VC. No, exactly. And it's also about, you know, in the end of the day, kind of, you know, I can't even think of an example where one solution in isolation can make it. You know, you always need the ecosystem that kind of feeds each solution. And it's also to the point where, you know, today we invest in a lot of companies.

29:04We're on the cap tables of, let's say, you know, most of our companies have the usual suspect generalists on their cap tables. So, you know, we look at the same opportunities. We have the same bar in terms of investments that we're after. But still, the number one reason that sometimes I hear from our generalist friends that they don't pursue an investment that we think is super, super interesting is the TAM is not there. And I sort of think that, yes, the TAM today is not there. I mean, to give you an example, energy storage. It's the biggest push of a decade to switch to renewable energy. We need to fix the grid.

29:43We need energy storage. Yes, it's not there today. But if you truly understand what's driving that market and all the different stakeholders that will be needed to enable this transition, you know that the market is going to be big enough in five to 10 years. And you'll still have a business that you can build along those years.

30:13now i'd like you to give us a shout out to co-investor angel lp for being awesome and of course share with us the story behind that awesomeness i really really want to give a shout out to our very very first lps that were three unicorn founders that basically gave us the carte blanche, you know, go see what you can do, see if it works. And that was Carl Mann, co-founder of Mojang behind Minecraft. Sebastian Knutsen, founder of King behind Candy Crush and Philip DeSander behind Daniel Wellington. Without them, we wouldn't be here today. So huge shout out for giving us the chance to prove that this can work.