Nucleus Capital - announcing our investment 👀

0:00Hello, everyone, and welcome to another European VC podcast. As usual, you know who I am. I'm David, known as the LP Syndicate Lead and joined by Andrea as my co-founder, the LP Hype Man. As David just said, you know, I am the one responsible for hyping things up between the two of us. So allow me to enthusiastically introduce this episode. We are today talking to an exceptional team because we're talking to Max and Isabella from Nucleus Capital. And if you are, which you likely are a reader of our newsletter, you will know we have been paying close attention to Nucleus since they started with Nucleus One.

0:37Unfortunately, and I do truly mean this, we came short of doing anything with them because that was just about the time we were starting ourselves at EUVC. But now it's time for fun too, which is really, really exciting for Nucleus, but also exciting for us because we can bring the team on the pod today. It looks like we will have a very impressive line of angel investors who are participating on this journey. So it's going to be super exciting. But David, now let me hand over the reins to you so you can give us the usual EVC intro to an episode. The usual intro. Today we have Max and Isabella with us.

1:09Max and Isabella are both GPs at Nucleus Capital, a pre-seed and seed venture fund in Germany, Berlin, with the mission to be the first capital and driven founders tackling challenges to planetary health. Nucleus is investing out of Nucleus 1 with a total of 7 million AUM and an established portfolio of 24 companies. Notable investments include the likes of Planet A Foods, Repath, Yuri. Nucleus focuses on programming biology, food tech and industry decarbonization in Europe and selected hubs in the US. If you're listening in, love our show, drop us a review, follow the pod and subscribe at eu.vc.

1:50Tear 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. All right, Max and Isabella, let us start this thing off by asking you to just share us the founding story of Nucleus. Thank you so much for having us. It's a true pleasure to be on the show. We're both big fans and have been since you guys started, which, as David alluded to, kind of coincidentally aligned with when we started.

2:42So we're really happy that this is happening and that we're doing things together in the future. And yeah, I would love to start by shedding a little bit of light on the origin story of Nucleus, which dates back to roughly September 2020, right in the middle of COVID, without much opportunity cost and a deep desire to be entrepreneurial. I decided to leave my then great employer Atlantic Food Labs and start an angel syndicate very much with a similar idea to yours in terms of democratizing access to the asset class. Unfortunately, at the time, I was a little bit naive without knowing the drawbacks of specifically German regulation.

3:35And so the entire idea to basically start a massively scalable syndicate got halted fairly fast, but it did enable us to effectively bootstrap our way into a baby venture capital fund. And the key differentiator or the key insight that we had back then is specifically for companies within our sectors. It makes total sense to bring people onto the cap table with very distinctive functional expertise. This could be in science, this could be in scaling, scientific ventures, in go-to-market, in branding, etc. And this is basically what we originally did with the syndicate. So basically pool people with that expertise into a deal.

4:23And that started with a lot of hustle, sometimes with small checks as 2 ,500 euros, and then And eventually ended with us doing about 13 investments in seven or eight months. And that was, in retrospect, a perfect way to demonstrate our ability to source deals, access deals, win that allocation. And that served as a great kind of entrance, if you will, for more sophisticated LPs to then judge our abilities and eventually build out what is Nucleus 1 today. And I remember fondly one of our first conversations, Max, where you said something along the lines, I can't imagine what has happened and why it has happened.

5:08But for some reason, many institutional LPs have really taken a liking to us. And for some reason, fundraising for Nucleus 1 turned out to be incredibly good. But I do think that it is a testament to the power of running a syndicate effectively as a way to demonstrate your track record. Also, because you then went on to build Nucleus with a very strong community mindset or angle to it, which is, of course, why we're so excited about this as well. and why we've been perfect partners right from the beginning. So I'd love to ask you to reflect a little bit on that as well and especially also maybe let's start with the point around bootstrapping a fund and the learnings from that.

5:55Yeah, most definitely. So I think today the community aspect of Nucleus is one of our key USPs, if you will, to founders, but also to some degree towards our APs. We have productized the idea of co-investing with functional experts, and that obviously had its origin or the DNA in the original Angel Syndicate. But we've carried this forward into Nucleus 1, and it's also something that we're still continuing to do with Nucleus 2, where we pool smaller checks of functional experts, for example, scientific advisors, professors, people from industry, or simply experts in our domains, under a special purpose vehicle, which is a community pool for Nucleus 2, to enable them to invest in the fund, but then also to expect them to support our portfolio where it really matters.

6:51And I think that specifically in the fundraise of Nucleus One has helped us to raise a lot of money with small checks and demonstrated to more sophisticated APs that we are able to raise money at all. It doesn't matter how much it is, but it definitely helped. And so if I look back to the first fundraise, it obviously wasn't, It was the best time, but it was also a difficult time because, as you remember, during COVID, you weren't able to meet many people in person. And as we all know, if you're selling a narrative and if you're selling a story without a track record, it's very important to kind of leave a personal impression.

7:29So I'd say on that end, it was a little bit more difficult than it might have been. But on the other side, we were in the hype of the market. And I think while I appreciate your comment on quality, et cetera, I think it's fair to say that a big part in us setting this up was also just luck, right time, right place, because a lot of money at that stage was just invested into venture in general. And I think the people were a little bit more bullish than they are today. And so if you'd ask me whether we would be able to do the same thing today, I think most likely, but it will not be as quick. And Isabella, I want to bring you into this and I want to ask you how you came about to make the decision, the very big decision to leave McKinsey and embark on the journey of building Nucleus.

8:22Yeah, yeah, super happy to share. I mean, my background is in engineering. So my studies were in engineering. I always had a very strong passion for technology. But I also like this concept of bringing technology and business together and creating true value. And so I started out at McKinsey working in the digital practice where I mainly supported on digital business building. So you set up startup-like concepts for corporates. You discuss with corporates how to drive innovation internally, how to really bring innovation in accelerator programs and things like CBC programs. I slowly moved from general digital more into digital manufacturing and decarbonization and manufacturing.

9:06And I realized that while corporates have this tremendous potential to truly have an impact on how we change climate change at the moment or the trajectory of it, I also realized that innovation within corporates is quite limited and oftentimes gets killed before it can really see the light. And during that time, I was already starting to have a lot of conversations with Max on angel investments, especially in the sustainability elements and also in the bio elements. And I realized that founders really like super audacious, mission driven founders, they need to go out and bring this new ideas, this true innovation into life and then build it up.

9:52And then at some point they might find ways of partnering with corporates who then have the capital and who then have the expertise. But so this concept formed in my mind that I really want to be part of this innovation part and really spark the ideas. And I mean, Max and I, we de-risked the entire endeavor by starting as angel investors together in Max Syndicate and having very long discussions around what we believe in, what kind of founders we want to back. And that, after, I think, nine months of having these discussions led to having discussions around Nucleus One and then, again, trying to problem solve it, see whether we're very aligned.

10:33and then the decision was very clear. And I mean, I don't look back at all. It wasn't as straightforward. So Isabella is completely right in the terms of like, you know, we retrospectively de-risked our business relationship. It's maybe also important to notice that, you know, we've known each other for like 18 years. So we're really good friends. We went to school together back in Munich, not the same school, but neighboring schools. And so we always knew that there was like a very trusted relationship between the two of us. And we always, you know, discussed like professional elements of our career and like important steps in life.

11:04And so for me, it was very evident that Isabella was basically the first choice whenever I wanted to do something in an entrepreneurial sense. But it wasn't that easy, right? So yes, we did invest and yes, we learned and we talked a lot, but Isabella actually rejected it the first time around. It was not like, you know, cold shoulder. It was not like, yeah, sure, I'm going to do it. But it took a little bit of convincing and I think, I mean, it's totally, you know, it's a tough decision to make. Right. And I think in the end, neither of us regrets that decision. And I think it's perfect. And I always knew we were going to be the perfect team.

11:40And I couldn't be more happy today that she made that decision and eventually let me convince her to join me on this crazy ride. And, you know, now we're building it together. And I think we couldn't be more complementary to each other. And that's just a great feeling. Also to be able to pick with whom you work. Right. I think that is like one of the biggest freedoms of entrepreneurship. And now, Max, you just wiggled the carrot in front of me, so I have to try and eat it, right? Bella, I'd love to ask you, right? What was going through your mind and what was the inner battle, right? What was leading it and what ended up kind of scaling the balance?

12:16Yeah, you know, I mean, I had this in my mind, I had this very clear path already laid out and I've worked very hard to where I was at McKinsey. And then Max came along and he had this distracting ideas of building a company from scratch. And I was already on my path. And I really had, like, I've established my network. I've just established, like, people knew what I was standing for and what I really liked doing. And they pulled me onto the right projects that I enjoyed. And so Max came along with this distracting idea. So I said, like, no, look, I already have everything figured out that I really want to do.

12:51and I said no and then like for for several weeks I had this nagging feeling inside that I made like the worst decision I could have possibly made I felt I felt really bad and it got worse over time and so at some point I said look Max we need to meet again and we need to have another conversation and we discussed again the strategy around Nucleus 1 and Max was telling about his vision and And at some point, I just said, like, look, we need to have another discussion around this because I think I really can't miss this opportunity of building this together. And guys, I cannot tell you more how lucky I was in that moment and how good it felt because obviously afterwards I had to start speaking to other people.

13:34But dating is really hard, right? And finding the right co-founder is, I think, one of the toughest things that you can do. and you know i had a company straight out of university uh basically my first kind of real job and back then i i went through a co-founder breakup and so i learned very early on what it means if you don't have the same values or the same vision and i didn't want to go through that again and so the you know the trust-based relationship really helped you and since we are strolling down the memory lane i'll ask you guys to share with us a pivotal moment in your in your firm's developments and described how it has shaped you forward, but also today as investors.

14:13Probably one of those crucible moments was two weeks before the first closing of Nucleus One. We had very actively warehoused five investments that were directly tied also in a legal obligation to the first close. So basically, we somehow convinced some crazy founders to take our money without taking our money that was contingent on us actually fundraising. In some cases, for example, with Planet A Foods, it was a very small round, like 360K pre-seed round, and we were leading it, and we had the biggest check, but that check was contingent on us raising the fund. In the end, it really worked out, and today Planet A Foods is a really, really well-run and executed company, has raised a significant Series A, and we're super happy with the development.

15:06and we're still part of the board. But that was certainly a moment where we said, okay, we have these five warehouse deals. They're contingent on us raising the fund. And then two weeks before that closing, 30 % of the commitments all of a sudden dropped away. And we had to reach a legal minimum to actually then execute upon those deals. And so that was a couple of sleepless nights. It definitely taught me a lot about empathy for founders when they're fundraising. And it taught me the simple truth that unless, and I mean, this is like a very common sense thing and everybody talks about it, but unless the money is really in the bank, commitment doesn't mean anything.

15:47And so somehow I managed to pull up together those 30 % of the fundraise, largely also thanks to the community investors and so some of the smaller checks. And that was basically one of the moments where I had just convinced my future co-founder to leave her career. promised to founders that we would fund them. And then suddenly it didn't look that great. So it did teach me a lot. And in the end, I think it just made me a little bit more calm when it comes to those stressful moments. Over time, of course, you always have some inflection points, right? There's not just this one pivotal moment, but there are several inflection points and also cool elements part of our journey.

16:32So seeing talent applying to Nucleus and saying, hey, we heard of you and we've always wanted to work for you and like we i mean we don't have a lot of budget right we're not a lot like doing a lot of marketing out there we're just trying to be really good at what we do and then trying to support founders as much as we can and we have people who are very excited about what we do and that's really rewarding it's a really rewarding feeling i can imagine i love that so i don't want to i don't want to kind of delay this anymore i I want to give you guys a chance to give us a quick pitch of Nucleus.

17:06We tried our best, but I'm certain you guys can do it better. Give us a quick rundown. What is Nucleus? Why does the world need Nucleus? And why are you positioned differently? Nucleus Capital is a dedicated first check investor in purpose-driven entrepreneurs who are solving some of the systemic challenges that the world is currently facing. And those challenges are largely tied to the systems of production. So you can think of food production, you can think of manufacturing and how those two sectors specifically are related in terms of related to climate change and in terms of climate mitigation.

17:43Particularly, we're very much focused on programming biology, which for us is a wrapper to kind of combine a approach that's called synthetic biology with a newly developed sector, if you will, which is called tech bio. and it's important to highlight that it's not traditional biotech as in pharma, but it's really the reverse in terms of tech bio, which is like software-driven models that leverage biological data sets. And for us, this is a key enabling technology for, let's say, food applications or decarbonization applications. For example, net zero manufacturing or cell-cultured meat as some of the more prolific examples.

18:28It is important to highlight that we try to support entrepreneurs very strongly with a dedicated network that is targeted and tailored towards the three sectors, which is comprised of our community, which all of those community members are investors in the fund. So there's incentive alignment and it's a strong mix of seasoned entrepreneurs, scientists and also functional experts. And lastly, I think if you look at what Atomico actually released a research paper in the end of 2022, I think, in the context of Slush, if I'm not mistaken, where they highlighted and where they did some research on what are the factors that founders, specifically at the pre-seed and the seed stage, look for when they pick investors.

19:21And I think the four most important factors were, of course, personal fit and vision alignment with the partners. But then it was really sector expertise and access to a relevant network. And I think those are exactly the three things that we bring to the cap table besides diversity in our DNA. And quite simply, a very deep understanding of the sectors that we invest in. And I think every conversation with the founder for us doesn't begin by, you know, state the problem or why it's important. But we really like understand these like meta level and environmental things and can dive straight into the technicalities.

20:01And, you know, if you always come prepared, I think that just changes things from the moment founders meet us all the way through our diligent process. And then also in terms of supporting. I just want to say to our audience, I have been looking so much forward and we will have to wait a bit as well because we all know that legal rules in anywhere pretty much prohibits us from sharing your deck while you're fundraising. So for that reason, we can't do it now. But I cannot wait to kind of lift the covers a little bit on Nucleus' deck, because it's one of the best presentations I've seen on diving into or explaining why we have these megatrends, why they're real, the technologies that are exciting to keep an eye on.

20:56And you can dive deeper by following the research that underpins it. I think it's a huge testament to you. And we see a bunch of tech slide. I really love how that, just by being pitched by you, makes me smarter and allows me to take a journey to get smarter in this sector. That is not typical. That's not something you see normally. And of course, that is for me as an LP or potential LP, a harbinger of what's to come, right? Because I I can see, okay, if you're this thoughtful around that, the LP newsletter is probably going to be pretty interesting as well. And the updates that I'm going to get in between those is also going to be interesting.

21:41And whenever I have a question, I know I can take it to you. So in that sense, I think that that's just something that I want to double click on here and say that, first of all, give you the compliment, but also say to our audience who are LPs, 100 % take a look at that type of thing when you look at decks. if you're just a new angel investing into funds. And if you're an aspiring manager or emerging manager, building your deck, working for your deck, try and take it on with that view or give it to whoever in your network who knows nothing about your sector and ask them how smart did you get by reading my deck?

22:19Did you know anything or did you get to learn anything new apart from how amazing I am? Because then I think that you're going to, you're going to be on a good path in terms of building a relationship to future angel piece that want to want to mess with you for the you know the insights and for the co-invests thank you very much for the flowers i appreciate it we have to admit i think we are now on version 270 of the deck and it's been a process that started sometime in august last year Yeah. For any emerging manager out there, I think it's also quite evident to share that the positioning and the strategy and the exact breakdown of the sectors is something that develops over time.

23:05I don't think you just sit down and basically jot it on the whiteboard and that's it. I think as with every company, there is hurdles to take and it flows and sometimes it doesn't flow. And it was a process. And I think we're quite content with the way that we are now approaching this and that we're also positioning nuclear. because let's be honest, I think if you want to launch a new venture capital fund, which in many ways is comparable to starting a startup, of course, the key is differentiation and positioning, right? And for us, it was always important to be known for being sector experts and really being able to help those companies between Precid and Series A, which is where we effectively contribute the best.

23:48And I think we have so far done an okay job at that. and hopefully we will continue to do so. And I mean, when you're looking at pitch decks from startups, you also expect a certain degree of quality, right? Like if there's no information on why this company is truly unique and why their business model is really thought through, then also you don't really want to dive into that pitch deck all too much because you can already instantly see that there's not a lot of food for thought in that. And I think why shouldn't emerging managers think about it differently, right? They should also put in the effort and demonstrate that there's a lot of thinking behind it.

24:27I want to take Andreas' comment and make it specific for everyone listening to this episode. Because, you know, as we just heard you guys share with us, you're really focused on kind of, you know, solutions that are helping us rethink, you know, systems of production. Right. And I love, I have this little quote that was written by one of you during the prep of this. I love a bit that says, and then just context again. We name these three sectors, programming biology, food technology, and decarbonization technology. And I love something that you write where you say these three sectors are less heterogeneous than you might think because SynBio can be seen as an enabling layer.

25:06So I'd love to ask you to kind of deep dive a bit into that. You know, I'm not an expert in this area. And obviously, this is an interesting kind of rationale for me to kind of understand and think of. But I also think it's a good testament of what Andreas was just saying as, you know, if I am an angel or potential LP, you know, just understanding this space that in itself is incredibly valuable. But it also helps me understand, OK, what actual change are you guys hoping to deliver right in the world and also what will drive returns from this fund? It might make sense to kind of zoom out one level further and look back at, you know, 2020 and 2021 when a lot of like very holistic climate funds were raised.

25:45You know, there's absolutely no criticism in doing that. And we love all the folks that we, you know, co-invest with. And I think the challenge at hand is big enough so that we need a lot of people to support it. But specifically from an LP perspective or also from a how do we best deliver returns as a manager, we fundamentally believe in sector specialization. And we believe in the fact that if one of us, either one of us, spends 12, 14 hours a day in a given topic, it is very hard not to eventually become really good at it. And this is not only just understanding topics, but also building very strategic relationships to people, companies, scale-up partners, other ecosystem players that eventually will support those companies.

26:35And basically, by definition, any generalist fund or also any holistic climate fund has too many industries to focus on to be really good at that. And I think this is a key differentiator for us. We really like to be very deliberate about the sectors we focus on. And with that, we have less heterogeneous, and between these, like our three sectors are less heterogeneous, precisely because we have this enabling layer of synthetic biology, which could be described as effectively programming microbes. So many like small organisms like yeast or bacteria to produce certain things. And that can be proteins, that can be any kind of molecule, which eventually make up, you know, food or materials or you name it.

27:25To give you a very concrete example, if you think about our three sectors in a Venn diagram, the ideal nucleus deal intersects with two, potentially even three. It's a little bit of a definition question, but to give you a precise example, in industry decarbonization, we've invested in a company that's called Ukaneo. And Ucaneo is effectively a direct air capture solution that uses an enzyme and a biomembrane to filter out CO2 directly from ambient air. So instead of having these huge fans that are very energy intensive and also release some toxic solvents, you have a bio-based approach. And the outcome is obviously that you can use this approach to decarbonize heavy emitting industries.

28:06For example, materials, right? Thinking about bio-based materials like textiles, nylon, leathers, but also fuels. Like there are so many materials in our world are actually based on fossil fuels and finding ways of using biology to create similar properties, hopefully the same performance qualities and then also hopefully at the cost competitive positioning you can really take out the carbon out of the equation and you know this effectively makes us better to select but also to support these specific kind of companies and i would say if you're a holistic climate fund and you know you have food you have shipping aviation mobility you name it, there is not that much overlap in analyzing or supporting these kind of companies.