EUVC #255: Investing in Deep Tech & The need for a new playbook with Ted Persson of EQT & Klementina Österberg from GU Ventures

0:00Are you tired of only knowing what European VCs sound like? Yawn no more. Leap over to EU.VC where the episodes come alive. Now with every new episode featured in full video, high def, pristine lighting, emotions up close, and men and women who pick their boogers, don't settle for eavesdropping on Europe's best investors. Join the peak show instead at EU.VC. Hi everyone and welcome to the EU.VC podcast. I am David and I'm joined by Andreas as usual. Today we're welcoming both Clementina and Ted. Ted is a partner at EQT Ventures, a 1.1 billion multi-stage venture fund with offices spread across Europe and the US.

0:41EQT Ventures are investing out of Fund 3 with a total of 2.3 billion euros in AUM and an established portfolio of more than 120 companies. Notable investments include Boltz, Einride, Nothing, Anaphim, Candela. On the other side of our virtual roundtable, we have Clementina. Clementina is CEO at GeoVentures, an early seed investor and incubator in Gothenburg, Sweden. GeoVentures is fully owned by the Swedish state and is an evergreen investment vehicle. GeoVentures invests in deep tech companies formed out of the research at universities. They're investing up to 200k euros and have established over 165 companies, of which 82 are in their portfolio today.

1:23And notable investments, including Bica, Ytech, Surgical Science. All of these examples are listed on the Stockholm Stock Exchange and Nasdaq today. And we've reeled in Clementine and Ted for this episode as a warm-up for our participation at the Go West conference in Gothenburg, Sweden. Go West is proving to be a real force in deep tech, punching above its weight this year, just as Gothenburg and Sweden is, with an incredibly cool investor day lined up, counting speakers like Stefan Helgesen, the founder of Creandum, a climate panel with WorldFund, Norsken, and Planet A. a Deep Tech panel with Speed Invest, Fantech, EQT, and the NATO Innovation Fund, as well as an LP panel with leading pension funds, corporates from the region, as well as, of course, the well-known EIF.

2:07As said, just like the region, truly attracting the best of the best. So don't miss it if you're in Deep Tech. And finally, if you're listening in and you love our show, you know what to do, drop us a review, follow the pod, and subscribe at EU.VC.

2:26Tear down this wall. It's more than just an alliance. 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. 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. So Clementina and Ted, let's just start everything off by letting our audience get to know you. And we always do that by asking you your story. Today we are a bit bigger than normal because we are two people from two different funds with two different stories.

3:17So for that reason, I will ask you to not go as deep as we normally do. which everyone knows is typically a 10-minute conversation about your journey into venture. Clementina, please take it away. Thanks. Happy to be here. Well, who am I? I worked for G-Ventures for more than 22 years. It's one of the best jobs you could ever have. I have a background within the automotive industry, where I worked with both Volvo Cars as well as Dynia Chrysler. but then I was very interested in entrepreneurship in my early days so I actually started two companies when I was still in school and then I joined after the automotive industry I'm where I really had great time but I still wanted to be more entrepreneurial and then I joined the McKinsey team when they established Venture Cup in the 1997-1998 where you know you remember that It was called the new economy.

4:17We met Johan Stell von Holstein at Ica Media Lab and Jonas Birgersson at Framfab. Cool new entrepreneurs making their way into the industry. And that was a great time where I learned a lot. And then afterwards, I was headhunted to G-Ventures in 2001. And I loved it ever since. people are often very interested in how come you stayed for so long but I mean who wouldn't if you can work with companies like you mentioned before surgical science was the first one then I was actually in the beginning very interested in investing in high tech which took us a while but I mean we hit it off very well and then we sold it to Volvo Penta so there's lots of great companies that I've been you know engaged in so I can't quit I can't quit I love that.

5:09That's a good reason to keep going. Ted, tell us your story. It's a bit concerning when you're saying that you can't quit. Everyone should have a choice to quit at all times because otherwise it's moving into illegal territory. If you need help, I'll text you my phone number later. Joke aside, my name is... We all need help. Yeah, my name is Ted. I've been at ICT now for nine years. So I was part of the team setting up the venture side of the firm. Back then we were, I don't know, like EQT as a whole, maybe 150, 200, something like that people. And now we're close to 2 ,000 people. So we've been on kind of our startup journey on our own.

5:50Now on the venture side, we're 45. So 45 out of 2 ,000. We're still kind of like the kids stable within the firm. Before joining AQT, I had, I don't know, 15-whatever-year journey in various facets of tech. I've been part of startup journeys, funding companies, both as a self-taught developer, as a product designer. I've been funding and running digital consultancies, like the ones you mentioned, Clementina, that basically were the startups around 1999, 2000, 2001. done some of those. But I think I identify as a I feel like a builder somehow even though I'm not building kind of on a detail level anymore but sort of working together with some of the smartest people in the world who are building.

6:42That's why we can't quit, Ted. I was going to ask that. You also shared the feeling that you cannot quit. Can I quit? It would be very sad if I would quit. It is super fun. Technically, I probably could. I don't want to try. Because what if it works? I'm sure you have a pretty aggressive bad lever clause in there. Yeah, I mean, I guess that depends on how I would quit. I don't think I would. Hopefully not quit to trigger a bad lever clause. Stealing some staplers. It's worth it. Some staplers, they just stare you right in the eye And you're like, oh, you're coming home, baby. They're so beautiful.

7:29But I mean, to be frank, I mean, we have so many great entrepreneurs. And it's not that they really, really need our help, but it's a great collaboration, right? And Ted, that's why we love it, because we work with great people and also great teams, the ones that you mentioned, and also my team. I mean, I've been so honored to work with those people. For instance, Sofia, that's also joined us and worked with Govest. That's why we work here and we can't quit. And that's why I can't quit UEC because Andreas will then follow me around the world trying to pester me. But that's another conversation for another day.

8:08Now let's dive into what really matters today, which is investing in deep tech with a particular focus on university spinouts. More loyal listeners will know that both Andreas and myself have a soft spot for this topic. So we're really happy about having you two here with us, Clementina and Ted, because obviously universities are an important source of deep tech innovations. And Clementina, let's start with you, as it seems you've managed to get it right at Juventures and Gothenburg Universities. By the way, being ranked top 10 for university-based incubators and helped develop more than, if I have my numbers correctly, 140 innovative growth companies.

8:42So tell me a bit more about how you work at Juventures and specifically the topic of helping deep tech startups spin out of the university and get across that infamous valley of death that we'd love to talk about. Thanks, David. I would love to. And to start with, we are the ones that are first investing. So when we meet our ID providers, as we call them, there are usually researchers that have been working with a special task for many, many years. And of course, they are really deep into that. And it's just great to think about and sit and dream together. What can we do with this? And which application should we try first?

9:24So we go from there, from ideas to companies. And it's really important to manage expectations in that level. and also write business plans that we think that we can manage. We need to usually get somebody in as soon as possible to work with the ideas. So what we do start with is a blank sheet. We don't have an entrepreneur in the beginning. The researchers are normally best at the technology. So what we do is that we focus on starting the business together with a board. We want to form a board where we have different competences and in the beginning, try to raise a bit of a capital so we can actually employ that entrepreneur.

10:09So we don't usually do company investments where we meet an entrepreneur to begin with and that's who we invest in. We actually often recruit the entrepreneur. We have, of course, a few examples on that side as well, where we have met entrepreneurs and we invested in their ideas. And then we connected them with research because we thought that these ideas could actually benefit a lot if they met and worked together with researchers in that field. It's been a while since I've been invested directly into startups. So for that reason, I don't want to be the one leading this one. But Ted, I want to ask you, in general, when you've looked at or when you look at your portfolio, the companies that make it all the way to where EQT Ventures starts coming in, how many of them do you see coming as incepted out of a university with the background of having both hired executives versus whether it's founder driven right from the start and only?

11:06How do you think about what Clementina said on the board level, that you start by setting the board and all those things? Because to me, you know, and I can say what I think, right? Because to me, it's a bit where I see oftentimes the difference between coming out of a university and being built from outside of a university, that you don't have that type of breeding ground and that's for the better or the worse, right? So Ted, I'm curious to hear your take on this overall and what you've seen. Yeah, I would say, I mean, from our perspective, more and more. But I don't necessarily think that that is because more and more companies are being spun out of academia.

11:47I think it's just like us discovering it kind of. So in the early days of Equity Ventures, when we were investing out of our first fund, I think we were new to investing. And when you're new to something, you look around and you find a few role models. And then you start imitating, basically, and saying, this is how we want to do things. And of course, infusing our experiences from being founders ourselves. But where we ended up with the first one was in the early days of the first one was basically a kind of clear cut software investor, just like all the others in Europe and in the US. Then I think we've been on this journey realizing more and more that that's not really where the interesting stuff happens.

12:24we kind of rediscovered EQT more and more, which of course has been an industrial investor from the start. So realizing how much competence and knowledge and experience is inside our walls and working closer to them and using that as a springboard out into kind of sourcing companies outside of the typical kind of two guys that used to be in a garage. And I think looking at it now, I think companies that started in universities or have some type of angle coming out of universities is a very big chunk of what we're doing. We recently reorganized our whole team and added a fourth sector team on top of B2B, B2C, and FinTech that we call sustainable industrials, which is basically looking for these companies coming out of academia.

13:16Then I think a lot of very cool things. I think there are a lot of watch outs and challenges and stuff like that as well. But more and more. I love that we got this point in here because so much of the, how should I put it, the literature base that we have on startup and entrepreneur world would say that it should be two guys in a garage. And it shouldn't be, don't go into the universities. You should search for dropouts, not for researchers. And that type of bro mentality that there's been. But I think that what's becoming exceedingly clear is that if you're looking for the future innovations of this world, it's going to be deep tech.

13:57And there you're going to be working with spin outs of universities or companies even. So I think it's an important point. And I think it's very interesting to hear from your side that you're saying, well, we're actually seeing this growing quite significantly as a source of deal flow for us. Actually, it sounds great that you see it that way, but I have to admit that, I mean, we've been working with great VCs all along and many of our teams consist of many researchers still, but it doesn't have to be maybe the CEO. Maybe it doesn't have to be everyone in the management team. And actually many VCs have invested in researcher-driven entrepreneurs, entrepreneurs that have quit their research and started to work in the companies.

14:46That's fine too. We just have been looking for a more diverse team in that perspective. We think that it's much better if you do have a commercially driven person that has like, Ted, you were into that, that you have a industrial background maybe, because if you want to make it in the big world, if you want to make it in the big industry, you have to have contacts. You have to have knowledge of the culture. You have to know how to negotiate that business. And even if you're a researcher, you can do that, of course, but you don't have probably all the same skills that we can recruit to the teams.

15:23No, I agree. It's interesting to think about. I mean, you're looking for, like how to say, simple answers. Of course, it's a podcast. We have to wrap this up at one point. But it's like... Not really. We'll just go on. That's why it's a podcast Just do like an infinite live stream. But I think it's just like being a founder, a successful founder, it's very rare. And it's very special, remarkable people that make it. And I think if you apply sort of some type of archetype thinking and also become stereotypical in a way, I think if a person comes out of business or out of tech or out of design or sort of out of domain expertise, there are certain sort of things to look out for and certain ways to construct kind of like a high performing team around that person.

16:24And the same is true for people out of academia. There are certain sort of, I think, special watchouts we're looking for when we're sourcing companies spinning out of academia. and thinking about how to spend the team. And I think, I mean, you have to be good at so many things being a founder, but having the commercial side, being founder-focused, being able to articulate what you're doing, being able to rally employees, investors, media around you, almost being both a founder and a politician at the same time. And if you put down that list of all those prerequisites, There are not a lot of people in the world that fits those criteria, but they exist.

17:06And that's what's so cool. Clementino, I wanted to kind of build on this and ask you something. I've personally, and I'm sure you've all seen it as well, I've personally seen my fair share of university TTOs slash incubators slash accelerators, whatever they position themselves as, of actually sometimes doing more harm than good. And I think it actually comes from a place of, you know, they're still learning themselves and like their early ecosystems and the team is still actually internally still being set up and building up the expertise. But the downside of that is that I have seen my fair share of investors like Ted being kind of scared off because of what was done before.

17:47And I'm sure that's not the case at Gothenburg, but I'm sure you've learned a lot in the process and you've revamped and changed some things that you were doing in line with. making sure that at the end of the day, you're not hindering the prospects of future financing for these companies. I'd love to have you share a bit. I don't know if you want to share failures, but at least share the learnings and what you've built on over time. I can share both actually, but you're right. I mean, I think that we have different data that we've been looking at. For instance, I know that I have colleagues from the UK, from Manchester.

18:22Manchester University, for example, they own the researchers IP. So it's a totally different situation where you have lots of money and the researchers comes to the university, TTO, and you put in a lot of money and you create a team. I'm not that familiar with it, but it works totally different in Sweden because the researcher owns that IP himself or herself. So then it means that we are sort of interested in how can we help this person? How can we invest in a great team, in a great IP so that, of course, we can get new and much more patient capital coming in? So in that perspective, I know that many TTOs have like sort of a sweat equity deal.

19:09Maybe they share profits with the researchers. That's what they do in the US. For we invest capital, it's a valuation. We get the percentage, the ownership that we can get for that money. Some others that have sort of a different way of looking at this, we use the sweat equity because they don't have that much cash in the beginning. or maybe they're risk avert in a way and they don't want to put in too much cash before they can see if this is going to fail. So anyway, just to be frank, everything is tested and everything is possible in this business. But what we don't want to see in the end is that the early investors, either it's universities or business angels that mess up the cap table, that actually are maybe two big owners compared to key personnel and of course the founders in that way as well.

20:04But we need to also have an ecosystem where early investors can invest in the beginning and then when bigger VCs comes in, how we can clean the cap table. And we'll be doing that for many reasons as well. The business angels want their money back. And when we progress and when we expand, we don't want to have 40 business angels as owners either. So it's a sort of a two-way street. You have to look at it from the VC's perspective, as well as the founders and all the other investors that were in the early stage. I don't know, Ted, what do you think about that way of looking at it? Deep tech investing, or like academia spin-outs, they kind of sell out of favor.

20:47It's like back in the day, I mean, that is where the tech industry is coming from. from the beginning. That's how Silicon Valley was born. But then I guess investors discovered the internet. And in the beginning, it was diverse and there was no playbook. But then it was more and more and more and more streamlined. And there was some, where do I see that? It was connected to Biden's package in the US just before the IRA was born. There was a graph that I saw, which was during the year where we had the most investments going into tech, we had the lowest rate of foundational research happening at the same time.

21:25And then I think we had the geopolitical shifts in the world. I think a big part is driven by that we're reaching the end of Moore's law. We kind of have to find new hunting grounds. And then all of a sudden, it became kind of trendy again, in a way. And I think it's both out of necessity, and then we started seeing some great first role models. What's interesting, There's a blog called The Reaction Wheel, and there was an article about VC investing in, I think, the 80s or the 90s or something like that. And it looked super cool. It resembles a bit what we're talking about right now. So right now, there's this term that is floating around like post-internet companies, like companies that are driving innovation in fields that could become as big and impactful as the internet.

22:12if you look at these investing in the 80s and 90s that was pre-internet yeah pre-internet post-internet it's the same yeah it's the same it's kind of like you have sort of you have a lot of it was a segment diagram and then for the listeners here i'm trying to show with my hands but the segment diagram of very diverse multiple different sort of sub-sectors and then all of a sudden the internet took it over and everyone invested into apps and then then e-commerce and and then mobile, and then blah, blah. And now you see sort of new interesting stuff breaking out since synthetic biology. And it's actually super funny, Tep, because I'm coming right into this recording just from an interview or a roundtable that was on venture debt and revenue-based financing, which it's so obvious that now that we know the playbook for SaaS as well as we do and for all the e-commerce and very predictive or predictable starter paths, it's clear that the way of financing this type of business is to an increasing extent, not equity financing.

23:21And for that reason, it's also natural that you will see VCs going to the more hard tech or deep tech angle, because that's also where you actually can justify taking equity at a later round as well. Because of course, in the beginning, you can always warrant it. But at Series A, you're starting to look with the SaaS business like something that you would just finance with debt. Well, I think we came to the same conclusion. In a way, software investing is proven. I mean, there's no risk in, how to say, There's no risk in the investment model or in the financing model. We all know where an A-RUN, a B-RUN, a C-RUN, and so forth is.

24:04But in this new world, we kind of don't. So we're working on some type of attempt on our side. That's kind of like a community-led approach we call the climate break, which will come out later this year, next year or something. Yes, it's coming out together with Contrarian. Yeah, exactly. So I met Rokas through Kauffman and basically trained to do a study around the new journeys. We realized it's not one journey. It's probably right now it's seven, six or seven journeys. And just trying to create some type of grid or framework or manual that will evolve over time, hopefully. But it's interesting.

24:39I think it's almost exactly a year ago that we put out an episode with Rukas from Contrarian and Christian from 2150, where we spoke about the need for a new venture model or playbook for this type of ventures. And I'm so happy when I saw the climate break work being done by Ruckus and you, I thought, ah, so they're really at it now. That's really good. Probably came out of that. The spark was we were in a bus with this Kaufman thing. And we were the only two ones, I think, that had not submitted our thought leadership projects. And then we said, how should we do this? And then let's do it together.

25:20And then poof, it became like bigger and bigger and bigger. And we still have not submitted it, though. That's really impressive. We're looking forward to that. If we could just go back, if you kind of summarized it very good. We have had a digital era. During that period, actually, we have done lots of investment within, let's say, life sciences like biotech and pharma, as well as really deep tech companies within energy and different solutions. But anyhow, I could say that during these years, we have raised much more money in the deep tech ones, the pharma ones, the energy ones, because, of course, they're like more like hardware.

26:02They need more cash. And the competition hasn't actually been that tough in that area. It's really easy to say, can you cure this cancer field? Can you cure this other field? Like, for instance, we're developing a vaccine for Alzheimer's. I mean, who doesn't want to invest in that, right? And all these ideas, we have made, let's say, 10 or 20 times our investments in the beginning compared to the other ones. And of course, if you're an early stage investor, you can't count that on that we're going to make the same multiples like you guys in the long run with bigger investments. So in the beginning, of course, we're going to find our ways, but we need also to do great investments and to change the world.

26:50You need to do hardware. You need to do pharma. You need to do all those fields as well. And the digital is always in the business model. Almost always. Almost always.

27:04You know what, Clementina? I think the narrative was so nice. We're in the post-in-and-era. Everything is like moving towards this. And then all of a sudden, AI just like coming in. Exactly. Back to software. This biotech pharma stuff. Back to software. Now we all have to invest all our money into AI. Just kidding. I think it's super exciting, of course. Holy shit, what we have around the corner within that field, which will impact all of these things that we're talking about right now. And I guess that's the hum part about investing. You want to have a diverse portfolio. even though you need to focus.

27:43You want to find stuff that kind of are co-active. Probably this is most to you, Ted, because normally you'd always say that deep tech is capital intensive. And for that reason, it's more difficult. And venture doesn't really like it for that reason. And that's been the critique or what's been keeping people. So then what's so funny is that you've kind of gotten now, I'm seeing more and more often the opposite argument being made, which is with a SaaS model, you end up building these companies with terrible unit economics that you're just pouring cash and cash and cash into. And we don't want to do that anymore.

28:27We actually think that deep tech is where you can make some real strides in the beginning. And then because you've got an actual product and the model for building something industrial, we all know and you will get profitable sooner and more reliably once you've gotten over the tech risk, right? I'd love to ask you, is that how you think about it as well? Or get that there's, of course, truth to both sides? I'd love to hear how you think about the long-term capital requirements for deep tech companies and whether you see them as clearly bigger or clearly smaller, or it is just case by case and you need to look at each case.