David Helgason, Co-founder at Transition Ventures: Raising $150m Fund II

0:00David Helgason:Hello and welcome back to the Scaling Europe show. I'm Seb Johnson. Today I'm joined by David. David is the co-founder of Transition VC. He's got some very exciting news today. And before investing, he was builder, operator, CEO of Unity. Unity is now doing over 2 billion of annual revenue, IPO'd at$13 billion. So amazing experience building, operating and now investing. But he's got some great news. So David, what is the news? Yeah, thank you so much. So great to be here. You know, for the last five years or so, I've been working on building a venture franchise, Transition.vc. And yeah, we're just announcing our second fund has been raised and we decided to invest in a few months ago as is kind of typical in venture land.

0:40David Helgason:Amazing. And the fund is$150 million, which is the same size as Fund1. Can you tell me a bit about who are you looking to invest in from this fund? Yeah, thank you. It's a little bit larger than the first fund, but it's similar size. so and say team and well let's see who are we trying to invest in you know we're looking for amazing founders who are incredibly ambitious and want to kind of rewrite the the physical world um you know there's uh you know i come from software i've been in software since i was a kid uh unity was obviously well mostly a software company although we kind of integrated with hardware like you know the graphics chips and the devices of gaming and so on um but but what's happening now is that you know more and more uh technologies are coming out that can really kind of change the old industrial system and rewrite a lot of the old shitty noisy ugly polluting carcinogenic you know distasteful and finally also you know uh climate change causing technologies of the old system yeah amazing and it feels like that first fund was all about climate tech you You know, you raised it back in 2020, 2021, where it was, climate tech was much more the thing.

1:50David Helgason:Now we've sort of moved into this world of AI and hardware, energy, resilience. Was that a conscious transition? Have you made from climate tech or is it, is the ultimate? We're actually not moving very far. I think, of course, you know, when we started investing, let's say almost five years ago. Yeah, there was a bunch of technologies that there was a lot of hope for that haven't delivered. or were really hard to fund in carbon removal and so on. We didn't actually invest a lot in these because we sort of feared, suspected that those were not really, this is not where the future of these technologies were.

2:26We decided, we're looking at this, there's climate change, there's all the kind of other interconnected systems. There's just resource limitations, whether it's mining minerals or power. We hadn't foreseen the explosion of AI, but we foresaw or felt that there was going to be a lot of resource constraints. So the framework we decided to kind of work inside of is the planetary boundaries framework, which is developed by the Stockholm Brazilian Center, which kind of quantifies quite scientifically and thoughtfully nine systems that we live inside of, that we have to live with and not totally fuck up.

3:08and that really remains in front too. The difference is, of course, the world has moved on. There's a lot of AI to deal with, a lot of data center challenges, opportunities. Mining minerals have become more clearly a resource constraint. Power, incredibly important. A lot of ways of making waste products, things that are not, things that have to be recycled be recycled and so on and then of course robotics is exciting, like finally we can do a lot of things that were really hard before so yeah, those are the themes we're looking at

3:46David Helgason:And how did that go down when you went out to LPs? Was that something that you really interested and resonated with? Yes So to be really honest RacingFund1 was a very miserable, tough experience. You know, a couple of years in, if you'd asked me, and if I'd been honest, which I hope I would have been, I would have said, I'm not sure this is happening. And this was before kind of the new, you know, the newest era, let's say. This is just the Ukraine war has started, people had a hard time thinking about anything but war, but, you know, the cross-Atlantic alliance was still kind of holding strong, and there's a lot of things that were kind of still fine.

4:32And it was really hard to raise. We invested, I think, well. We built a great team. Really, really excited. We can talk about that later. And finally, we went out a bit over a year ago, starting to raise. And we're quite successful. I mean, it was much less miserable. We had quite an institutional investor base, a mix of, like, really great institutions and the great founders of companies. And, yeah, most came back. so yeah i shouldn't say it was easy uh actually my brother who i run the firm with alongside the two other partners did most of the heavy lifting to be fair so maybe i shouldn't say it was easy uh but it was it was it was much more downhill yeah that's great to hear that's great

5:17David Helgason:it's really interesting because uh it feels like a lot of uh fund managers who either focus on climate tech have now sort of moved to branding it as resilience and hardware even though to your point the problems are still the same in fact the problems are more bigger now right in terms of data data and resilient security the problems are bigger and it's actually almost the way that we're solving them is very different you know to your point they said about carbon removal it's about taking big bets energy right and it's about uh building hardware and data centers uh one of the companies and by the way by the way we didn't stop believing these were like urgent problems and i think that also resonates both with the out piece but also the also the founders yeah yeah and And it's the same founders idea because, you know, a lot of the companies that we talk about today as being resilient or energy or sovereignty focused would have been called climate tech companies four or five years ago.

6:04David Helgason:But it's just that branding has changed, which I always think is interesting. I want to talk about Olex. You know, Olex is one of the companies that you've invested from. Amazing company building photonics-based computing chips. Really exciting company, recently valued a billion dollars. And now I know that you knew James, the founder, from his previous company. what's he like to work with so i was so lucky to meet him you know in my sort of um let's say between unity and forming transition i sort of wandered the earth a bit i invested in a bunch of different things as an angel just let myself be kind of driven by interest passion you know meeting interesting people and so on and and uh yeah i was so lucky i came across him when he was i think 17 he had kind of come up with kind of the core idea that became his former current company co-mind um you know i got to spend some time with him initially like a quiet it's very rude to call him a kid because he's definitely not a kid anymore but you know at that moment a very kind of quiet uh you know thoughtful kid um i just invested because he was brilliant and it was interesting to see what he was up to um but he's so unbelievably creative this kid young man um and you know it just combines the best of of of what founders can be right you know this thoughtfulness confidence openness um you know listening and then you know striking and making his own decisions of course uh no it's it's it's been a it's been a joy um yeah we got to Dustin Oleg's early I mean early it's a very young company still and uh you know it's just It's incredible that the talent is assembled around him, this kind of relentless organization that works unbelievably hard, going for maybe the biggest market category of all time.

7:59David Helgason:Yeah, but that's what I think is so interesting because he's still very involved in CoMind, but he decided to tackle, like you said, the biggest part of the stack, right? This is a huge area, and it's not even about building something for Europe. this is just a huge like to your point do you know why like why was this you know what piqued his interest what piqued your interest were you interested in this area or wait was it just like whatever james does we're on board with honestly as an angel like i would just invest in whatever he does right um but you know we'd spend a lot of time as a fund as a team on on you know data centers compute you know everything from cooling to energy to kind of actual you know not the well we hadn't really focused on the chips because we we didn't really think uh there was that much interesting to do with it a few years ago but you know that was started to happen happen um yeah i mean you know i got a call you know he wanted to tell me what he's up to we took a lock a look and it was a very fast decision to make yeah i bet i mean yeah i guess when you know an amazing founder they're building in the biggest market in the world gives you even greater conviction he's a Teal Fellow but when you look at some of the other founders in the companies that you've backed Teal Fellows, SpaceX engineers people from ASML highly technical is that a thesis that you have or is that just what kind of founders do you like to back I guess maybe it's a little stupid to say we know it when we see it but I think that's part of the truth but no we like i mean people that have like deep technical expertise you know relentless you know maybe they've seen some of the best the world has to offer in various ways and uh you know they're unbelievably ambitious of course um they're not you know i invested in a lot of things i've invested a lot of game companies in the past that they're not those people those of people that are much more depth deep in tech, like in technology.

10:08And are sort of unafraid of, you know, attacking these kind of large physical problems that require building out like physical things, figuring out, you know, chemical compositions, layering. There's a lot of, you know, sort of really cool things these people are attacking that, you know, I come from software. Software is easy in that perspective.

10:25David Helgason:Yeah, I know. One of the companies that applied to talk about is like developing small modular nuclear power plants. I mean, funding that business probably 10 years ago almost would have been unimaginable in Europe. Or having founders who wanted to build those things, unimaginable. Can you talk a bit about that company? Yeah. So, you know, people from a background of building kind of, you know, a musk-run company, you know, there's this kind of insanity that you get when you meet these people who have seen the kind of crazies that the world has to offer in terms of aggressive build-out. I think those are big thinkers, they realize that some of the approaches to just building, how to say, like being the smartest integrators of technology and being the most aggressive kind of integrators and people, how to say, like being willing to go and combine innovation and integration of technologies and then just being faster and more aggressive than others is a great playbook.

11:31Obviously, SpaceX didn't invent most of the things they use. I mean, they innovated a bunch along the way. I think that's a playbook we really were compelled by.

11:43David Helgason:And have you had to... So I was going to say, I guess from the first fund to the second fund, you talk about building micro-nuclear power plants, we talk about building chips. This is really hard, really hard, hard tech with very long deployment and production times. have you had to change the way you disagree yeah i should disagree like you know again you know it used to be the software was the fast one hardware slow but i think there are playbooks there are approaches now where you can go move very very fast in hardware uh some of it's powered just by you know modern methodologies some of it is powered by ai of course uh there's a very broad toolbox out there um and you know a lot of the sort of things were like that were previously maybe hidden inside big companies.

12:29I mean, like in a sort of a global supply chain, you can find these components, you can combine them. And then there's a mindset. I think actually some of this is the mindset change, not coming from slow companies that were slow and deliberate, but coming from companies that are very aggressive.

12:45David Helgason:That's interesting. So my question was going to be, has the model changed? Has the venture model changed? Or has it had to change to adapt to an ecosystem system that is betting a lot more on hardware and technical founders as opposed to the software companies and founders maybe from 10-15 years ago where it was much more about you know you invest heavily in R &D in the early days you build a software product you have high margins you can move quite quickly and iterate quickly and you know there's a very clear path. Has it changed do you think or has the VCE system had to change? By necessity it has to change right because now software is so damn cheap to create.

13:23I mean, that's not why we started the fund, obviously. We started the fund because we wanted to rewrite the old industrial system because we saw gigantic industries that can be replaced or updated. But yeah, it's maybe even more clear now that there's a model change and a lot of the old stuff just doesn't work. I mean, it's been a few years since I said I wouldn't fucking touch another enterprise SaaS business sort of following the traditional model. But, you know, there's now obvious why we're using more than away from that.

13:57David Helgason:I want to talk because you also, the firm sits across the Atlantic, right? And so you've made some great bets in Europe and talking about like Appiatomics and Seneca, US companies. When you get to sit across both continents, are you seeing a difference in the type of companies being built or the level of ambition? Are there any insights that you're getting from comparing the US to Europe? Yeah. So when we got started, we sort of had this hunch that it would be important to cross the Atlantic in that way. So Ari, my brother, who came from Index Ventures and an entrepreneurial background before that, obviously had kind of seen the best of that playbook.

14:35Index Ventures has been investing across the Atlantic, I think, longer and more consistently than any other venture fund. Others have come and gone and people are doing it now. and that I think is a very healthy thing to kind of make sure that you're looking both sides looking for not just the best company in Europe but the best company on either side we are quite well connected in the US we have great network there and then there is a value in being kind of having great legwork on both sides being able to help the companies and we found that whereas in sort of let's say more traditional venture the companies would be crossing the Atlantic later in their journey uh and and the sort of you know companies were looking at climate deep tech hardware these companies are crossing quite early um in their journey for various reasons um and you know european companies going to the u.s for talent for monies etc um but then you know u.s companies coming to europe for market for customers where like you know europe is you know still quite dedicated to decarbonization in a way that not everyone else is yeah that's interesting yes

15:41David Helgason:different uh yeah different strengths i guess um and can we talk about the team so you're building this with your brother um and you've also built this team of amazing people who have come from you know both great operating experiences and great firms can you talk a bit about the the way you've built this team so who did you try and bring together what skill set were you looking for what do you think makes a great investor that you wanted to kind of build your your firm around sure so i have been lucky as a like a let's say a customer a venture in my whole career uh you know got sequoia investing in my company thrive a bunch of other good people uh great people from even asia and so on so i've seen some of the best adventure has to offer and and of course ari having been inside inside index had seen some of the best that europe has to offer right and the yeah the way we think about it is that you know the venture model is seems to work best when you combine people with operating experience and a really deep intuition for the founders with people that have gone through the apprenticeship model of venture, where you work with great investors and build that very refined, intuitive system for looking at startups.

16:57And, you know, instead of bringing, and I know Ari has had this kind of, you know, I guess 10 years, now it's more of experience. But we wanted people that are like a little younger in their journeys, like less far in their journeys, but had seen the best of this, what this has to offer. And so we were lucky that before we even got started, really, Christian Branagh kind of walked in demanding to be a part of it. He'd done late-stage investing. He had been with Atomico. And, yeah, initially we gave him kind of a small remit, but quickly just acted as an owner, so we made a partner. And then there's Clara Ricard, who came from Bolderton, where she was an associate doing very good work on, well, a number of things, but including climate sustainability.

17:56So she came in and we, again, didn't give her the biggest full remit yet, initially, sorry. But we quickly reacted like an owner, like learned all the things, you know, went for it, took ownership and so on. So yeah, she's a partner in front too.

18:12David Helgason:Amazing. Yeah, some interesting things that you mentioned, as sort of like this intuition for knowing great founders. How do you know when you meet one?

18:26I don't have a good, I don't have a good, good words for it actually, but there is some very fine, and by the way, we have different tastes and like, you know, not every founder who's great will work for every partner in a venture firm, right? So yeah, I mean, I let myself fall in love with people that have some kind of, you know, this depth and this kind of, hmm, it's hard to say. Sorry, I shouldn't. I've never actually developed a great words for this. But there is a relentlessness and a sort of a, I think I'm trying to act out how they look. Like there's this kind of contemplative, deep, deep way of thinking about the world, but while also being kind of fast to strike, right, and fast to move.

19:14David Helgason:And when you know, do you know? Is it very quick? I've heard some investors say, in 15 minutes, I'll know if I want to invest, especially if it's very, very early. You don't need to see traction or product market fit. You're investing in the early station. It's very founder-focused. Some investors say they can tell within half an hour and they can't stop thinking about the founders. Do you find that to be the case or do you need to spend more time with them? It's a good question. I think we with different approaches we take different signals in and then we kind of integrate it together but I think we're pretty fast usually like you know one good partner meeting will pretty quickly kind of know what we think Amazing I'm conscious we are out of time amazing news congratulations on the great razor it's good to see you deploying it in some of the most exciting companies from around the world so I'm going to be following along watching out for some more announcements I know you've got some unannounced investments that we should be watching out for but yeah, congratulations that's always the case thank you so much really exciting and maybe next time we should talk more about Europe I think there's a lot of things to get done in Europe yeah, I would love that thank you very much awesome