Transition Ventures transitions to a new world

0:00Mike Butcher:Hello and welcome to Path Founders with me, Mike Butcher, where we like to unpack the code, the capital and the consequences of the startup ecosystem. David Helgason has spent two decades helping developers build virtual worlds as the founding CEO of Unity. Now he does transition across Atlantic VC based out of London. The firm's LPs include founders behind companies such as Spotify, Klarna and Supercell, and its portfolio ranges from refurbished e-bikes and wildfire drones to photonics computing, small modular nuclear reactors and a copper mining startup using microbes to squeeze more metal from existing ones.

0:47Mike Butcher:As you can tell, it's quite diverse and it's often been associated with climate technology. Now, he's looking to back founders building in the physical world, aside from the virtual world. So to join us now is David. Thanks very much for joining us on Path Founders. Thanks for having me, mate. Now, David, you have been known as looking at very interesting deep tech companies. Before we get into the announcement that you're making this week, just tell us a little bit about the background to transition. Sure. So let's see, you know, I founded Unity many years ago. It's like a lifetime at this point.

1:33You know, we're proud of the work we did there. The company is still going. I remained on the board until recently, actually. But when I stepped out of my operating role like 11 years ago, I sort of went on a bit of a journey investing in startups, spending time with founders, which had kind of been my passion already, but now I had time for it and a little bit of capital along the way. So I became a very prolific angel investor, initially in things I knew something about like games, tools, software tools and stuff like that. But then I'm so lucky that I have a brother who started a synthetic biology company kind of roughly at the same time when I was getting out of Unity.

2:06And so I kind of followed him into kind of this kind of deep tech synthetic biology rabbit hole. And down there, I found like incredible founders, really cool scientists coming up with like new kind of, you know, processes to replace a lot of the old industrial, nasty, dirty, polluting and climate change inducing industrial system. And so I was like, okay, here's, here's a mission. I'll invest in these guys. I'll work with them. I'll learn from them. I'll teach them what I know. And that's going to be good. So I did a bunch of that. along the way I also became an investor in a bunch of venture funds so I got a kind of a you could say like a sort of a view of this stuff from multiple sides as an entrepreneur friend of founders as an angel investor and as an LP into venture funds and I sort of came to conclude that you know there was a space to build like a really dedicated passionate kind of first principles led venture fund out of Europe And I'm so blessed that I have another brother, cool family, who was coming from a very strong start of a career venture, Ari Helgeson, who was at Index Ventures before.

3:18And he had sort of seen some of the same opportunities, you know, these kind of new processes, like old industrial system kind of creaking and like not really doing what it needs to do. and we had this feeling that it wasn't as clear back then maybe but that the sort of old enterprise SaaS let's just improve a bunch of digital processes in big companies a little bit here and there was kind of going to come to an end at some point and the next wave was going to be about rewriting the old industrial system so yeah I started building five years ago I put a bit of my own money on the line but then we were lucky to find some great both institutional investors and founders of some great companies to come on the journey with us, put together a great team in London and started investing.

4:07Mike Butcher:Do you want to just bring us up to date to where you are now and then we'll get into the news? Sure. So we invested in the first fund over three years or two and a half years or whatever. And then raising that was a misery, by the way. The Ukraine war had started. It's just really hard for people to think about anything but war when there's a war going on, apparently, understandably, by the way, and it's important. But all these kind of interlinked crisis of climate, sustainability, pollution, energy, grids, all these interlinked crises are not going away. They're getting worse. Lacks of resources.

4:50Mining is a problem. Everything is a problem. And the cool thing is there's processes to fix these things. So it was hard to get done, but we got it done. Then we, as venture funds do, by the way, venture funds are, I found out, default debt for many fund generations because many funds will not raise again for various reasons. But we pulled off a second fundraise. So we're announcing now that we raised the second fund. It's kind of news at 11. and a venture fund keeps doing its work, but we're proud of it. And I think, you know, it speaks to there's a while climate is kind of out of the headlines as a topic, you know, the underlying companies that are like, you know, using resources better, you know, compute with less power, you know, more efficient distribution of power and all these things that we mentioned already.

5:41Mike Butcher:Yeah. So it's those needs are not going away. Right. Yeah. So, yeah, you're very it's very true. I certainly as a journalist, I've covered the climate space for a while. And a lot of the time it was just the climate was the overarching word. But then it really became about energy and cost savings. And I think that seems to be how it's being reframed to some extent. But let's talk about this news that you have. You've just closed your second fund at over$150 million. That's bringing assets under management to$300 million. now tell us about how you're going to be changing the thesis or if you're going to be changing the thesis I know that you're also very interested in the physical AI so tell us a bit about more where you're going to go next with this second fund sure so uh when we're getting started we're like you know what what is what's the good framing here and and and you know there's a sustainable development goals but they're kind of political in nature there's like pure carbon stuff which which is important, but I think it kind of makes you myopic to all the other problems that are like interlinked.

6:47So we settled on a pretty big and very thoughtful framework, scientific framework called the planetary boundaries by the Stockholm Brazilian Center, which quantifies nine systems that we sort of have to live inside of more or less in order for this thing to work. And obviously, most of these systems are under immense pressure right now. And they also sort of tell us, they basically tell us where we can't go, right? So if we can't go there, then we have to figure out stuff inside of these boundaries. So that doesn't change. We actually stayed in that framework. But yeah, like, you know, the first fund we did invest in a carbon removal company.

7:22I thought it was the best one. It, you know, went out of business, tragically. Which one was that? It was running tight. Incredible. I could talk about it for a long time. I still have PTSD over it and how it failed and all kinds of, you know, it is always like, you know, there's always like five different reasons why things fail in the end. But, you know, brilliant founder, brilliant tech and so on. We unfortunately won't be doing more of those right now. However, you know, there's a massive boom and, you know, kind of AI inspired, AI powered, advanced manufacturing, you know, we're finally getting to build factories that are extremely efficient, extremely automatable and so on.

8:01So, of course, we're investing in those topics because we think there's no way to overcome the climate crisis without without those mining minerals. We've invested in some really interesting companies that can extract the metals we need, the rare earths, etc. for all these new processes we're building. And of course, data centers and everything around them is very exciting as well.

8:28Mike Butcher:Well, that's quite a wide thesis, isn't it? Do you think 150 is going to be able to cover all of those things or are you going very early into deep tech style investing or what? Yeah, it's sort of, you know, a little bit of pre-seed, mostly seed, series A. No, it won't cover all the companies, but we're also just looking for the best founders, you know, companies that can grow really, really large. Because, you know, the sad thing is that while in theory all the technologies to solve all these crises exist, it's, you know, it's going to be companies built by amazing founders that scale really, really large that will matter.

9:05And so only a few of these problems will really get solved. And we just have to find, you know, the people that are solving them and making great companies out of it.

9:14Mike Butcher:So yeah, that's, it's a fairly small team, you know, for investors. So we're like really looking at, you know, just, just, you know, 25 companies or so over a few years. You're based out of London, but you also characterize yourself as cross Atlantic. Is that about flipping countries to the US or how does it work for you? Well, no. So, you know, Ari, my brother who came from Index Ventures, right, he saw and lived this playbook for a long time. Index was obviously the fund, the only fund that like the whole time kept investing across the Atlantic, other people have come and gone. And there's a great discipline to that, you know, really having eyes on both sides of the Atlantic, seeing what's best, you know, not just investing in the best local company, but the best one, hopefully.

10:03It turns out that a lot of these companies need to cross the Atlantic in various ways early on, both directions for money, talent for customers. Europe is obviously still decarbonizing and still actually caring about a lot of these problems that are maybe being ignored some other places and so um you know we find that like companies can come here for customers um and we have good like like work on both sides we're really well connected and uh and can help

10:34Mike Butcher:and have helped some of our companies really a lot okay um and perhaps you could unpack a bit more about maybe how you're going to approach ai is it going to be more application-led are you interested in the model side are you interested in more like the actual application of it inside industrials manufacturing etc yes um so yeah like you know we've jokingly you know it's always you can always come up with some stupid kind of taglines like molecules to models was one of the stupid taglines we came up with recently right so it's you know thinking about you know how these things connect right and so um you know So every company, I don't think anyone invests in companies these days that don't have some kind of strong AI component.

11:25And we barely do. So it's using AI to discover molecules and do certain things, using AI to optimize the bacterial strains that can then optimize the mining. There's a lot of optimization problems. And then of course, a company like Olix, which is just addressing the biggest product category market of all time, like the raw AI compute.

11:53Mike Butcher:And tell us a little bit about the kinds of founders you're interested in. Sure.

12:01We'll have different flavors between the partners, but I just fall in love with founders that have a lot of technical depth and sort of insane ambition under a layer of like calm. That's my type.

12:18Mike Butcher:But no, it's all kinds of people, frankly. Companies can be created by such different people and they can be successful in some different ways. I don't think there's any one model that works. I was an extremely gentle leader. I never pushed. I rarely screamed and so on. but you can find people that are like the opposite that also are successful.

12:42Mike Butcher:You were obviously CEO of Unity involved in that for a long time. What's your impression about how that it's clearly been an issue that let me start again. You were the CEO of Unity for a long time and the virtual world took off really in games largely, didn't it? And we saw that Mark Zuckerberg killed off the metaverse, spent billions of dollars in the metaverse and has largely killed it off. Apple's, you know, vision glasses didn't really take off. What are your thoughts about where that kind of whole sector of technology went and it is today? I said somewhere along the way that virtual reality had been the greatest disappointment of my life because when I saw the Oculus headset the first time, like Brendan Eribe brought it to our office in Copenhagen back in, I don't know, before they did the Kickstarter anyway.

13:42And, you know, it was incredible. It was a really janky piece of hardware, but it was just incredible to have this, you know, experience of being somewhere else. And, yeah, I was excited about it. We had great hopes for it. We have found use cases all over, like, you know, industrial use cases and designers and architects and i mean it's not a failure right it's it's it's it's wonderful and the technology now is really good um but yeah no i mean you know at all times it was competing with these guys right these guys are very hard to compete with um yeah and i think that's at some point people realized yeah you know you can keep developing this and it will and you know these things are not going away but we can apply the same skill sets i mean like making games is hard, making 3D is hard, making virtual is hard.

14:28We can apply the same skill sets to AI, to rewriting the old industrial system. And I think that's a much better use for time.

14:35Mike Butcher:Well, very interesting to see you take this transition fund into its next phase. And it'll be very interesting to see what you invest in next, because you're investing in quite a wide variety of things. And, you know, we'll be certainly tracking your progress at PathFounders. But for now, David Helgeson of Transition VC, thanks very much for joining PathFounders. Thanks, mate. Do you well.