EUVC #232 Johannes Weber, Ananda Ventures

0:00Hi, everyone, and welcome to the European VC podcast. I'm David and I'm joined by my co-founder Andreas. Today, we're welcoming Johannes with us. Johannes is a serial entrepreneur and a pioneer in the field of Impact VC in Europe. With his team in Munich, Berlin and London, he manages over 200 million euros and invests in technology-based companies in areas such as climate, health and education, what they so call the impact unicorns. Johannes has been interested in the interface between entrepreneurship and personal mastery for many years. And we'll deep dive into that, I think, a bit, Johannes.

0:33And he's also enthusiastic about bringing and passing on his knowledge to companies he finances. In a nutshell, Ananda Impact Ventures are investing out of Fund 4, as I said, with a total of 200 million euros AUM and an established portfolio of 35 companies. Notable investments include Nature Metrics, Aurora Tech, and One Day. At Ananda Impact Ventures, Johannes focuses on tech bio, education and climate in Europe and led investments into companies like Closed Loop Medicine, One Day and Oticon. If you're listening in, love our show, drop us a review, follow the pod and subscribe at eu.vc.

1:24United 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. 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. All right, Johannes, let's get right into this and ask you to tell us your story about coming into venture. Yeah, well, thank you for having me, David Andreas, first and foremost. And also, congratulations on the new jingle. I'm all fired up. Speaking after Angela Merkel is a bit difficult as a German.

2:09A lot of pressure, man. Yeah, I'll try my best. So, yeah, so my journey into venture, how did that come? Well, I actually never intended to be a VC. When I started to be a VC, I hadn't even heard that much about venture capital, I have to say. But I was a hustler-turned-entrepreneur-turned-investor. And in my mid-20s, I had exited one of the companies I'd built. I'd made enough money not having to work for a while. And I wasn't really happy. So my wife handed me this book on a different kind of entrepreneurship. It was all about case studies of entrepreneurs that made the world a better place.

2:50And I was like really deeply impressed with these kind of entrepreneurs and their mission and their intrinsic motivation. And I just wanted to help. And I didn't have any singular driver in my life, which would have, you know, maybe facilitated to build my own business at that time. But what everybody was missing was, you know, capital, the right kind of capital to support these companies, which we maybe today call impact businesses. And that's why I, together with my co-founder Florian, kicked off what has become an end of ventures today. And today, impact investing has become, I would say, a full investment style.

3:27So we've been there from the very beginning. And to our audience that know us, they are probably waiting for David and me to put out a spiteful comment about mixing impact and returns and how does that work and doesn't returns always come first. Everyone, we promise we will ask these questions, but we will ask them later. Thank you for that. That's very kind. Yes, we're always at your service. I actually have a question to that. is any specific case of entrepreneurship that stuck with you from reading that book that your wife kindly offered you that led you down the route of VC? I was very inspired by a lot of things, but one thing that really struck me was a company or actually more of a foundation I think it's more of a foundation that was created to help people on the autism spectrum, um especially people that well that are Asperger autists and I was just deeply impressed with that organization trying to see you know this mental condition this neurodiverse condition more of us as a superpower than um you know something that has to be compensated and they trained them to be um software testers and I thought that was just really really impressive um because you know you look at a at a thing from a very different angle.

5:01And I thought maybe this doesn't have to be a charity. Maybe this could be run as a business. And one of the first companies we ended up investing into from fund one is a company called Oticon. And we ended up co-creating it in the very beginning. And it has become quite sizable. So some good stuff has come out of this out of this book. Do you remember the name of the book? Because then we will put it in the show notes so that everyone can see it on EU. Yeah. So it's actually two books. One of them is called How to Change the World, you know, like very in your face title. I can't remember whom it is.

5:45And there's a nice German version by Wolfgang Hafenmeyer called Die Zukunftsmacher for the German audience that inspired me. But this is 15, 20 years ago. So I'm pretty sure there are some more updated versions on these kind of stories, because at the time, these stories were still very charity like. Right. And today you can create a unicorn from an impact idea. So lots of things have changed there. Can I ask you just because I have always loved Porter's work and he started talking about creating shared value at a point. I'd love to ask you if that's something that you've dived into and whether it's something you apply in your fund.

6:30Can you go a little bit deeper on how he explains that? The whole setup is that the way that we in the future will create large businesses is not by only maximizing for shareholder value or stakeholder value, but there's actually both multiple bottom lines, but it's also the opportunity space lies in. And then in these spaces where you actually solve for multiple things at one time. As an example, he uses fair trade because fair trade is better for everyone in the end. From my question, you can see that I wasn't so familiar with Porter having talked about that. You know, we all studied his five forces, I think, at one point, but it's a long time ago.

7:12Yeah, I think in that sense, we discuss these things a lot. We have been discussing these things a lot. I believe that it's possible to create a company that can be very, very impactful and be financially very successful without necessarily having to have a trade-off between the two. So I really like it when the impact is inherently built into the business model, into the DNA, and the impact scales in lockstep with turnover, right? So it doesn't become a a trade-off model. And if Porter kind of supported that thesis, then this is something we discuss a lot. Johannes, you will enjoy the article version of this episode because it'll go out on EU.vc and I'll make sure to plug in the Porter framework for creating shared value.

8:08Thank you. Yeah, it's chasing me. It's always good to have a dude like Porter on your side of the ring, right? That's very true. And with that word play, I will take this into asking you to share with us a pivotal moment in your life and how it shaped you today as an investor, because it has something to do with rings as well. Wow. Yeah, there have been quite some pivotal moments, old enough to have a few in my life. I think one of the things that have really changed is when I started off as an entrepreneur, I really, as I said, I was a hustler. I really tried hard to, you know, satisfy clients, but also make money.

8:43and I didn't really care so much about my behavior or my mindset towards things. And I've always been kind of a fighting sportsman, but boxing taught me so much. Nowadays, I'm boxing in a Hungarian cellar gym and I ran into this former world champion. And she's actually the kindest person I've probably ever met in my life. And the more I got to hang out with professional boxers, I found the more professional they are, the more fights they had in their lives, the kinder they were. And I just I'm really intrigued by this value. So I went to my team and I said, look, guys, that's now quite a while back.

9:25Why don't we talk more openly about, you know, business and kindness? Because I think that's something very special about us, how we do our VC deals, how we treat our portfolio and so on. and most people on the team were like yeah johannes we agree but let's not be so vocal about it you know because we might be considered as weak partners because you know um you know you can't talk so openly about kindness and i just didn't want that business success and kindness would contradict each other and you know that's why i you know i just made it part of our pitch and we we flew to london together with my uh with an associate and we wanted to back two entrepreneurs I think many people wanted to back in the city and we took them into a restaurant and I started my my pitch of kindness, you know, so, you know, as a VC nowadays, you also have to pitch.

10:14Right. So I told them why kindness is the core value and why we believe, you know, we should build a relationship on the basis of this value. and my associate was like the more I talked you know diving deeper and deeper into a chair feeling like Johannes like you completely lost this you know it's just going in the wrong direction you're boring the hell out of these people they don't you know it's just not not what you should be talking about and after I'd finished there was a bit of a break it was too long to feel comfortable and then one of the founders started to roll up their their sleeves on their arm and there was a tattoo on his forearm and it's in Sanskrit and I asked him, you know, what does that mean?

10:57And he says, well, it means kindness and it's the core value in my life and I couldn't agree more with you. So I could, it was just really surprising for me that, you know, if you're authentic in what you do, in many cases, life just rewards you for it. And now we're, we dare to be a little bit more vocal about it. I think we need a lot more kindness in many avenues of our life. So I'm happy to hear you tout the horn of kindness on the podcast. Thank you for that, Johannes. I will, though, force you to be a little less kind, because now I'll ask you to take a stance on a quote from Sabina Vissander from Creandum.

11:40Take a start.

11:50So as teased, I will now ask you to take a stance on Sabina V. Sanders' quote, which is... I think VCs add way less value than they think they do. They're less pivotal to the businesses they're advising. Yeah, so I hope I can do that in a kind way. I completely agree. so I think that there's so much talk about you know value creation I hear myself pitch to founders and there's still so much about all the great value creation we bring to the table and then you say you know what do you say as we see it's capital of course it's capital but then it's network that's probably the second thing you say in there and there's two three other bullets and I think the truth is that most of us will max out on our network within six months and if we're excellent we might max out after 12 months but that's probably the truth and then you're already working with secondary contacts so not it's not the people on speed dial that you have that would make the company a better place you know and at the same time i think there's um a lot of vcs that don't understand that the founder might understand the market and the company so much better than them but they still try you know to understand it better and you know, kind of lead, lead the company into a certain direction.

13:13And I think that can become a real burden on the company. So we really look for entrepreneurs that are, you know, that are smarter than us, and that are better than we are. Because, you know, once we overcome this kind of ego battle with ourselves, as we cease, I think there's real room to be very helpful. And so, in the end, I, I also not agree with this because I think you can be helpful, but not maybe in the things you think you're so unbelievably helpful with. And one thing where I believe we can be super helpful with is a thing called founder's health. So there's lots of statistics that show that about 50, 60 % of founders suffer from a negative mental condition in the first couple of years of founding a company so if we make founders mental and physical health a priority i think then the whole ride can become so much more enjoyable together and the other thing we can do is you know we can help founders to stay focused so i run my board meetings actually on the basis of simple questions what are the three things you're focused on you know and then they get the same question the next time and usually if we lose focus then we go back into being focused on what's really important.

14:30And I think that's something you can do as a board member, as a VC. And then it's more about just being a good and trustful person to talk to. So just last week, one of the CEOs of our portfolio company reached out to me. It's not a company I'm personally on the board with. It's my partner. And he said, look, I've just taken over this CEO role and I have a family, growing a small family, and there's this new job. And how do I manage these two things? I have three kids myself and I've built businesses during that time when my kids were really little. So I'm not a trained coach, but I gave him some life advice and he sent a text message to my partner just this morning and he said, well, that was really good.

15:14And that made me really, really happy. So I believe there's stuff we can do as VCs that help the founders, but it's maybe not the stuff we think we're so unbelievably good at.

15:29I like that example, Johannes. It speaks to your core values as well. So that's cool to have it within there as well. But let's shift topics a bit. And as Andreas teased in the beginning, any loyal listener of ours knows that whilst we are extremely committed to driving change, whether that is the reason why we actually are involved in VC or why we've done work in specific sectors that we have in the past or even why we are partners of projects like the Uplinks Innovative Funds for our Future initiative, we are also very critical about the ability to communicate that to your LP base and whether or not impact and financial returns can go hand in hand, should go hand in hand and how to navigate that.

16:16And the interesting part of our dear guest today, Johannes, is that they're actually quite involved in the development or the co-development of the impact carry model in VC with EIF. And I think I'll leave it at that, Johannes, and ask you to just expand a bit on that. Give us the context that we need to know the story there. Yeah. Okay. Happy to. So that's back in 2014 and we were just starting our second fund and for the first time onboarding real institutional investors. and that was also the time when the EIF started their social impact accelerator program where we were heavily involved in discussing what would be the right way for the EIF to go about impact investing and at the time there were a few ways to measure impact quite academic quite over the top and not really applicable for founders and the VC founder model.

17:14And we all thought, how will we be able to differentiate ourselves as impact funds in the future in a way that not everybody 10 years from now, if this works, what we're trying to do here, will call themselves an impact fund with no strings attached. And back in the days, we thought, okay, so we need to make impact measurable and we need to make it measurable in a very quantitative way. And if we are so, you know, sincere about creating impact out there, if we really want to do this, then there should be a consequence if we don't achieve the impact because our LPs want to invest into an impact fund.

17:58So there has to be some kind of a financial and maybe legal implication if you don't fulfill on what you promised on the impact side. And of course, you also promised some stuff on the financial side, so things have to go hand in hand here. So at the time, we sat down with Uli Gravenwater and Cyril Guifes, and we discussed how could we create an impact carry model. And we went into many different ways, But what we came up with is that we should ideally start with a theory of change with a company and say, what does the company, which activities and inputs, what outputs and outcomes does a company, what does it want to achieve?

18:44And then we need to set KPIs towards that mission. And we need to put target values behind these KPIs. And we can't do that ourselves. It has to be the largest investors in the fund that signed this off to give it some credibility. And we had a lot of discussion whether or not you should be able to compare companies to each other. So is it, you know, what's better helping a person with autism or hearing impairment or, you know, saving the world from forest fires? And we ended up saying in different words, but it's a bit like playing God, right? So it's not possible. It should be like personal development.

19:21So you set yourself a goal and you benchmark yourself against that particular goal. And I think that's a very healthy thing. And that's what we do here. So we benchmark every company against its own impact goals. And in the end, we create an average across the portfolio, which is then called the portfolio social impact multiple. And if that multiple drops below 80 % of what we wanted to achieve initially, then that affects the carry. So in an extreme case, if we 5x our fund, but we do poorly on impact, then we will not see any carry. So that's the logic and that's the consequence and the model has evolved.

20:02And I think by now it's used by more than 80 funds in Europe. That's the latest number by EIF last month and not sure about the world, but probably many more in the world. and there are different ways of doing it. And I know that not everybody's a fan of doing it, but I'm just, you know, before Ananda, I owned an ESG investing pioneer company. And now, and at the time, you know, we're pioneers in sustainable investing, which is now ESG. And, you know, just imagine everybody could call themselves a sustainable fund without having to measure any ESG. That would also be very, very bad. So impact goes way beyond ESG.

20:43I think that's also important to say. Yeah, but that's what we ended up with. Can I ask you, because you mentioned the number 80 there. I was surprised when I saw the number 80 because that was more than I had expected. But I'm also surprised when I hear a VC reaching out and saying that we're doing a carry sharing or an impact carry model. And they then claim that they're one of the very few that do that. I've also been like, there's more than just a few, but the number 80 surprised me a little bit. So I don't know if you've got any reflections on that, Johannes. Do you think 80 is much or 80 is too few?

21:19I think it's a lot. I think it's great. So we've been super transparent about the impact carry model. I think it's great that people link their performance to impact as well and their carry. I think that's really helpful. And I was also surprised, but the EIF portfolio has grown quite significantly. Maybe we can put a link to their portfolio into the show notes. Yeah, for sure. And I think in the end of the day, there should be many more funds doing that. If you look at the emerging impact fund of funds, you know, if they only have 80 funds to choose from in Europe, I'm not sure if that's, you know, big enough of a target audience to create a very strong fund.

22:04so they might end up investing into Article 9 funds. And the latest number I've seen is I think there's about 850 SFDR9 funds out there in Europe. And that's the number that shocked me because there's not so many impact funds out there to my knowledge. So who else is an SFDR9 fund? And I think I've even seen ETF funds being SFDR9. And I'm a bit struggling with that because I was hoping to have Article 9 to be somehow a benchmark for being an impact fund, but that seems to be gone. So I kind of like it that there is at least that impact carry model thing in place. There's two things in what you originally said that I think are interesting.

22:46One is the idiosyncrasies of the model itself. And another one is the impact of the model. And by impact, I don't mean impact. I mean, the outcomes or the consequences of having that model. So, for example, you gave a 5X where you don't get money as a GP. So, if we focus on the former, you know, one of the biggest, and you just named another issue or parallel topic, which is the SFDR 9, Article 9 Funds. Something I hear a lot, it's mostly within the context of SFDR Article 9 Funds, to be honest, but I guess it's somewhat relevant to discuss here as well, is how for early stage venture, it's incredibly hard to do in the sense of it's incredibly hard to have this quantitative approach sometimes because companies pivot so much like they change over three months or doing something completely different.

23:42So like, as you said, it's not about comparing saving a person's life versus extending someone's life. It's about your goal versus what you achieve. And so it's so liquid and so fluid that it's really hard to measure. And I'd love to hear your comments with regards to that, both in terms of impact model, that is the impact carry model, that is the focus. And if you have anything relating to SFDR, I'd love to hear that as well. So I'm not so sure if it's so hard to do. First of all, there's great examples of funds that do it out there, and I think they're willing to share. We're definitely open to be very transparent.

24:18The model needs to allow for some flexibility. As you said, you know, early stage companies pivot. So what we do in the beginning, our goal is eventually to create five KPIs around the company's impact mission. But we might start with just two, two that we are very sure about. And those two might even be what we call scaling indicators. So, you know, things that kind of reflect turnover, because as I said, initially, all the companies we invest into, ideally, their impact grows in lockstep with turnover. So very basic example, the autism consulting company we've been talking about, how many autistic or how many consultants on the autism spectrum do we employ?

25:00Or a satellite company that protects the world from forced fires, how many acres, hectares of land are protected by the company? But in a way, it reflects turnover. Then if you become more knowledgeable, you know, within the company, within two or three years, we can choose to add another two or three indicators. And we do that again together with our advisory committee. And we're also able to drop indicators when we feel that they're no longer helpful or that they cause the company to spin. So, for example, we've had a situation where a company, on the one hand, was focusing on the depth of their impact.

25:41So, how deep do I influence a certain person's life? And at the same time, they needed to focus on how many people do we reach? And that can create some drama, right? Because they need to be good at both. So, at one point, you need to drop one of those impact KPIs, ideally according with the company's general mission. you're not creating a problem here right and one thing i think that you you're alluding to is what happens if the company is not impactful anymore if they pivot into something completely different which is probably even potentially even harmful for this particular case we and i know many other impact funds have a mission alignment clause in in our contracts and then we're able to to put our shares and obviously have a good discussion on the on the board before we do that and that's a clause that's been widely accepted by co-investors from the largest vc funds and pe funds out there out there in the world so it seems to work and not scare anybody could you deep dive a bit into that and explaining it yeah it doesn't go much deeper but in the end you you you define the company's mission so what do they want to what do they want to achieve um also in impact terms it becomes part of the of the articles and if the company then deviates from that then you know you start obviously in an ideal world you you already feel before that's happening but if it's going in that direction then you can have a good discussion so let's say you're invested invested into you know physical health care and because there's no money in affordable health care the company pivots into plastic surgery, right?

27:26That would be a good example. And then before that happens, you probably have had a few good conversations on the board. But if the founders then keep saying, you know, we have to be the best plastic surgery out there in the world, then at least, you know, not judging plastic surgery, because it really depends on what it's used for. But definitely, you want to have a discussion if it's still aligned with what Ananda wants. And if it's not, then there has to be a chance that we get out of the company and are able to sell our shares. Because in the end of the day, It's not doing what we intended the company to do.

27:57We cannot influence it enough to go in a different direction. And it would also be a huge reputational problem if we stayed invested. So it's usually accepted. I want to throw a curveball here. But, you know, as we know, the devil lies in the details, right? And everything in real life is gray. It's not black and white. And your example is somewhat interesting, the plastic surgery example, in the sense that plastic surgery can be used for purely aesthetic reasons, right? Which the impact of that is minimal, I'd guess. Maybe from a mental health or something like that, there could be an angle there.

28:35But it can also be used for, I don't know, people who've suffered. It could be reconstructive, right? Yeah, exactly. Suffered from an accident, something like that, right? And kind of detaching ourselves from that example, but keeping it as the backdrop, you know, within the context of this clause, could that put you in a tough situation where you actually have to make calls where because of your impact carry model, you might have to consider selling an asset that from a pure financial standpoint could actually deliver returns for LPs. And I'm asking you to conceptualize it, right? By design. And how something like that can be managed within the firm, of course, but also, and maybe more importantly for you as a GP with your LPs, right?

29:17You know, people have asked me this question in several ways ever since we started. So it's an obviously important question. You can ask the question a different way. How do you make sure that a purchaser of your successful impact company doesn't turn it into something evil, right? So it goes into the same or similar direction. In theory, this makes a lot of sense, that question. In practice, as you said, the world is much more shades of gray that you don't get these placative Theranos stories, you know, that everybody loves to write about. I think if a company kind of loses its mission, it's a slow drift.

30:01And it's sometimes it takes a little bit to grasp it. And it's usually also not in the interest of the founder. And there have to be different dynamics within the company. Usually they are interconnected with some kind of a negative financial performance. That's what we've seen. So if you kind of lose your impact mission, then you kind of lose the general mission of the company and you're trading the DNA. And then it kind of becomes a bit of a less attractive investment, sometimes also on financial terms. And the impact carry clause is like the very last thing you would pull. And we haven't done that, right?