Johannes von Borries and Benjamin Erhart, GPs at UVC Partners: Backing Europe’s next deep tech champions

0:00Benjamin Erhart:Hello and welcome back to the Scaling Europe show presented by Deal. I'm Seb Johnson. Today I've got two great partners, Johannes and Benjamin, joining from UBC Partners, which is an amazing firm based in Germany with quite an impressive track record with the likes of ISAR, Aerospace, Proxima Fusion, Earth Alpha and a bunch of amazing companies. So look, thank you both for joining me. How are you doing today?

0:21Johannes von Borries:Great, thank you. And great to be here.

0:23Benjamin Erhart:Look, for those who don't know the firm or for those of us who are not so close to the German ecosystem, can you touch a bit about the firm, the thesis, what you invest in and what stage?

0:34Johannes von Borries:Yes, sure. So at the moment, we have a 400 million fund and that has two buckets. One is early stage fund of 250 million where invest in seed to series A. And the other one is more an opportunity fund and also external growth investing in deep tech. Amazing.

0:54Benjamin Erhart:Sorry, go ahead.

0:56Johannes von Borries:Yeah, sorry. And what we are investing in is mostly deep tech and AI.

1:01Benjamin Erhart:And the growth part of the fund is relatively recent, right? How did that come about? What was the thinking there? So it's a new fund indeed. We just closed it. And the journey was basically we wanted to double down on the winners we have in the portfolio. We have a growth opportunity fund one. We have vehicles where we invested in winners like Flixbus. And there's a couple of deep tech champions rising in the portfolio. And it was very obvious that there's opportunity to invest. So that's where it started. So 60 % of the fund will be dedicated to the portfolio. But we will also invest outside of the portfolio because the ecosystem has become off scale.

1:44Benjamin Erhart:And there is value we can bring to companies that we might have missed in early stages. so we want to open up our network, our ecosystem with fairly small tracks and growth stage to support them along the journey. And what are you looking for at that growth stage that's going to get you excited and going to make you want to invest?

2:06Johannes von Borries:Well, I mean, it's I think following also our early stage thesis so we still want to invest, sure, in the big winners the European companies that can also compete globally And we think that especially in the deep tech area, there's also a lack of capital out there, especially if they need to do lead investments. And there we see also a chance that with our experience and also with our ecosystem behind us, the Unternehmertum, which gives access basically to corporate Germany, is extremely helpful also in this phase. So we are looking at, let's say, the similar ESA or Proxima fusion companies out there.

2:49Johannes von Borries:Could be in semiconductor, could be in other deep tech technologies.

2:54Benjamin Erhart:And have you started deploying that gross capital already? Yes. So we just announced the first investment. It's been Cineera. It's an engineering software company with AI at its roots, basically. It's based in Bremerhaven, first investment of the fund. will have the second being signed soon, but there's more to come. So that's already going to be a unicorn, I feel. Amazing. It's a great company. I saw the announcement that was a week or two ago. But can you touch on some of these great companies that you've got in your portfolio? Proxima, Isar. These are really frontier companies that are being built and leading from Germany.

3:32Benjamin Erhart:Can you touch a bit about maybe when you invested and why? And then maybe let's start with Proxima because I think Proxima is super interesting and then we'll go to Isar. Sure. So we're one of the two early lead investors of Proxima. So together with our friends from Plural, we had the chance to help the team set up the company. So we have been the first investors that wrote the first checks. It was a 7 million round on the thesis that this outstanding leading team is building a fusion reactor in Germany based on the knowledge that this country has been built in the past 50 years by building the Stellarator in Greifswald W7X.

4:14Benjamin Erhart:So roughly three years ago, that was the initial thesis. And that was a pretty wild one. So fusion doesn't match exactly the series AB and, you know, front lifetime metrics that were common at the day. But it was an outstanding team potentially disrupting a trillion dollar market with a technology where this continent really has a global chance. So both on maturity, skill set, talent depth, and most importantly, supply chain. And just as Chancellor Merz said, I think two days ago, Germany is really keen on winning fusion. We need the first fusion power plant in Germany. And that's what Proxima is up to.

5:00Benjamin Erhart:And they're working on it, right? They signed this agreement, I think, to kind of get the first plant up and running by 2030, is it? which is really exciting. And you're right, this is like a huge problem that they're trying to solve. One of the biggest problems facing Europe and the world more broadly. Why did you think this team was able to solve this problem? There is a really unique set required. It's, you know, first and foremost, you need to be brilliant physicists. You need to be able to tackle the engineering challenges that are fundamentally under this. So what Proxima is doing today, they're building the world's strongest non-planar magnet.

5:40Benjamin Erhart:So it's a weirdly shaped magnet that is incredibly strong, built out of material that is more or less superconducting at higher temperatures. And this incredibly strong magnet is a proof point that you can increase the performance of a reactor that we've already built by a factor of 300. So they're working on the most critical component. Once you have that proof point, you can go to the next step and build a demonstration power plant. And you heard the big news that Bavaria is committed to building this. And there's a strong alliance of both academic partners, industrial partners, public partners that are working on this project.

6:22Benjamin Erhart:So you already see the new development here that it's rather an ecosystem that works on both capital formation and technology advancements jointly. to build very quickly such a gigantic project. And the result will be a machine that produces energy. And with this proof point, you will have a great basis to actually build a power plant that will deploy energy at scale. I think it's such an amazing company. And your point about it being a trillion dollar market, I think is really interesting. Because in many ways, it's so different to other VC backable businesses. especially of the saz era right like that has a very you can really understand the model there you invest heavy in r &d you give it 10 to 12 years trying to exit and you you know you can see product market fit and growth and you know you can see the scalability and it's quite similar to other companies in that space something like proxima which is not just deep tech it is so capital intensive and the timelines are so long and the market is so huge you know this isn't going to be there's no way that this could be like a 10 billion dollar outcome or five billion dollar outcome if it works it'll be way bigger and if it doesn't work it just doesn't work so in some ways it's the perfect model for vc in the sense that you take one big swing and it could be massive and on the other side it's quite strange for vc because the timelines are so long it's so capital intensive and you need a lot of that partnership you need the academics You need the government.

7:56Benjamin Erhart:And so I'm curious, does the VC model still work when you have increasingly companies like this? And eStyle is a bit similar, but it's so capital intensive. A lot of it is public support. The timelines are probably even longer than what we've seen in 10, 12 years. Is the VC model fit for purpose to back these companies? I'd say this was exactly the discussion we had three years ago. The discussion, is that a BC case at all? And I think BC is great at disrupting views. It's great at doing things that are non-obvious but true. And I think Proxima is a prime example for that. So, you know, all the barriers you just mentioned, let's try to break them down.

8:48Benjamin Erhart:Capital intensity. How many companies do you see across the globe that raise 500, 400 million, a billion or more to reach an inflection point? Building an LLM, building a humanoid robot, building any sort of global enterprise software, you are in that dimension. Proxima is delivering an inflection point. I just mentioned a machine that's literally producing energy with roughly half a billion in equity. Why is that the case? Because there is a government stepping in and jointly building a demonstration reactor. So we're aligning interest on achieving a higher goal, an inflection point for a company, and an inflection point for energy security for a country, by also sharing the financial risk.

9:39Benjamin Erhart:So in terms of capital intensity in the bigger scheme, it's not. Now let's break it down to timing. So you break down this huge engineering challenge into smaller buckets like HTS magnets, like coils, like simulation. You combine them with AI and simulation capabilities and first and foremost, the execution speed of a company. And all of a sudden, you're breaking down timelines from years to months. You can really literally understand how long it will take to get to a demonstration reactor. And the last thing you do, you take care of manufacturing. You take into the boat everyone who's really great at that.

10:20Benjamin Erhart:And Germany is basically leading this field worldwide. So many American and Chinese manufacturers of fusion reactors, and there are some 30 around the globe, purchase their stuff on European supply chains. So we leverage that know-how. We use what's in front of the door, compress timelines, and try to de-risk the path to demonstration reactor at maximum. And the last factor is the unique joke of Max Planck. So we have an 800-people research organization that is running all types of reactors successfully for the past years, breaking every record you can imagine. And all of a sudden you figure, hey, all these things assemble.

11:01Benjamin Erhart:What's blocking us? And the last thing that's blocking us is, hey, we're Europeans and Germans. We think about the risks and let's focus on the successful outcomes next. And maybe that's the You know, that's also with our job as VCs to enable these things and jump over the fence. Do you have to manage LPs on this? Like, is this something that LPs can understand and get behind, given there's probably a very different type of company to the companies that you may have been investing in five or six years ago, in the sense that it is such a very reliant on public partnership and very, very capital intensive.

11:36Benjamin Erhart:Is that something that LPs can get behind? Is it something they ever push back on? I think it's about trust and credibility. So when we did the initial check in Proxima, of course, there is questions to be asked, especially from that end. And it's important to make clear that we're investing in these types of companies and that this is consistent to what we have been doing the past 15 years. So there are questions when you're backing the first company like Flixbus, backing three students that want to disrupt the bus market where a lot of incumbents are. You know, there's also questions being asked.

12:13Benjamin Erhart:And I think that's exactly our job to do non-intuitive things that are fundamentally right. And breaking it down to a fund model, we led a significant seed round, but that's also why we invest out of a 250 million early stage fund. So we're not breaking our investment strategy. We're not breaking the fund model. We're staying 100 % in the investment strategy, helping this company on a balanced chance and risk approach to go the first steps and build a potential fundmaker. So if you break it down to our job, it's a picture-perfect early-stage company, potential fundmaker, defined risks and financing steps.

12:50Benjamin Erhart:Amazing. I'm absolutely loving the resurgence of deep tech across Europe and specifically in Germany, which is really leading Europe, I think. I often talk about how Stockholm had this amazing moment last year with AI, and it really feels like Munich and Berlin. And Germany is having a much bigger moment in this new deep tech wave. But I'd love to talk about ISAR as well. Can you touch a bit about when you invested in that company and why?

13:17Johannes von Borries:Yeah, sure. So, I mean, it's actually quite similar to Proxima. When we invested even eight years ago, let's say no one really was talking about rockets and venture capital, right? I mean, we have seen SpaceX, but it was still, let's say, not very known what's happening there. And so when I first brought it to my colleagues, they said, hey, are we now investing in rockets and flying cars or whatever? So I think that was the mentality at this time. But as Benjamin said, I mean, if you then really look into the details, and I had the chance actually before we invested in ESA, we talked to Orbex, another company.

13:55Johannes von Borries:And there the CEO actually came to me and said, I want to convince you that this is not rocket science anymore. It's rocket business. And this is exactly, I think, he now explained to me there is a huge demand of satellites and shooting up satellites is a business. And now you just need to shoot them up. And honestly, that was kind of the clicking point. We didn't invest in Orbex, maybe luckily. We then invested in ESA because also there the combination was, so the market was actually pretty clear that there is a demand. Not as much as we see today. We can talk about this later. But back then it was clear there is a market.

14:34Johannes von Borries:You don't have enough supply of rockets going up. And then we met actually ISA very early. They pitched to us. And this is also a good example out of our ecosystem. So they came of the TU Munich. But actually TU Munich runs a student-run organization, WAH, where they build rockets for over 20 years just as students. They don't shoot them into space, but into high atmosphere. So they have experience in shooting up rockets. And now we got Daniel on the other side, who is very visionary. I think as you see founders, right, they can present equity story. They can be enthusiastic about what they do.

15:19Johannes von Borries:And you have Joseph, who's really the guy that has shoot up a rocket before, which you don't find so many usually. And then, let's say, first of all, they wanted to only build the engine. So not the whole rocket, but the engine. And then we talked to them very early and we said, hey, it doesn't make sense. Who do you want to sell the engine to? And then they got together with Bülent Atland, also who worked in our ecosystem. He was ex-SpaceX very from the early on. So he brought in a lot of knowledge. He was the chairman of ISA Aerospace. And together, they basically made the concept of building the whole rocket, building the microlauncher similar to SpaceX.

16:02Johannes von Borries:And then we said, OK, that's now the way to go. Let's invest.

16:06Benjamin Erhart:And for those who don't know, can you share a bit about where they are in their journey today? Yes.

16:11Johannes von Borries:So, again, as Benjamin mentioned, their big inflection point is definitely bringing up the rocket to orbit. Right. I mean, and again, this is not science anymore. You see rockets going up in orbit a lot. It is more like an engineering task. Yeah. You have to break it down. And I think that at the moment they're in testing phase. So the big problem with this, you know, if you have a better software and you have some errors, well, you can go and change your code. Here, everyone kind of sees if something is not working well. Right. It blows basically up or it goes down. So this testing phase is special.

16:50Johannes von Borries:It is all very public, so everyone watches it. But in the end, you need just several starts, right, to test the rocket. Does it go up? How is it behaving? And let's say after three, four flights, as SpaceX has shown, you will have a stable system, and then you can shoot off the satellites. So they're exactly in this testing phase. They had one rocket launch, which was already very successful because the worst that can happen is that it blows up also the launch pad, which didn't happen. Right. And so it flew about 30 seconds. And now they're working on the second launch to test again more systems.

17:32Johannes von Borries:And I think within, let's say, a year and let's say two, three flights, they will probably have a stable system to go up in orbit.

17:40Benjamin Erhart:and as a vc you know you talk about how software companies can just iterate and test and just keep trying keep trying business like this right you only get so many swings before you know every swing is incredibly expensive at what point as a vc do you assess an opportunity like this and you go this is too many attempts like how many yeah how many attempts do they get and how do you assess that? Give them more time?

18:09Johannes von Borries:This is at the moment, they are fundraising, very successful at the moment, but this is definitely the question everyone asks. How much time do they need? Maybe also going back, what is really the innovation? And this is important. The innovation is not building rockets. Again, it's still very complex. Not everyone can build rockets, but rockets have been built, right? The innovation is the manufacturing, the serial manufacturing of rockets to get into this iterative mode. Because if you have a large burn rate and you have hundreds of people, right, you want to do the testing fast. And this is what we also learned from SpaceX.

18:46Johannes von Borries:It's trial and error, right? Which has not been done in ESA, like the European Space Agency or NASA. They always go and test for two or three years and then do one trial and then usually it works. Here it's more like try and error. That also means you need rockets very fast and you need to have a very good manufacturing. And this is actually innovation also ISA is doing. And this allows them to test fast. Let's put it this way, right? Maybe not as fast as we would have liked, but it doesn't matter a few weeks or months, right? so then in the end it's not the time only it's the money available so so we think that you know with the financing round now they will get enough money to really have the chance to get a stable system can you really you know so many things can happen can you really judge um if they do it in three or four or two runs no i think there's no chance but i mean the chances can you manage it right maybe don't get up the burn rate too high let's focus on things so i think you can still

19:56Benjamin Erhart:financially manage this process yeah i got a super interesting and when you look across isar and proxima there's a lot which is about being you know like european resilience european sovereignty having a european space company blasting rockets having energy resilience is that part of the thesis or is it just a coincidence that both of these companies work in the same things and they're actually just both great companies irrespective of the sovereignty and resilience angle?

20:24Johannes von Borries:Maybe starting with Isar because when we invested actually this topic was not so much a topic right it was more like generally there is no supply or only SpaceX and a few others and they cannot just fulfill the demand there is and that over time yes it grew definitely even stronger, right? That we need also European and actually European satellite producers don't want to send it up with SpaceX or are not allowed to or whatsoever because there are a lot of defense satellites. So I think this thesis came more up over time, but it is now extremely strong pushing for even more funding. And what we back then but already kind of realized is that, you know, you will not have one company like SpaceX providing for every satellite.

21:17Johannes von Borries:There will be several players. And Germany, not Germany only, but Europe has the capacity and capability to do that. So why not building someone here as well?

21:28Benjamin Erhart:And if you look at the broader UVC portfolio, you could say we have sovereign rockets, we have sovereign energy supply, we have wire sovereign communication, we have Planck, the leading, you know, neutral atom platform. You could say UBC's portfolio is poised to be a sovereignty play. But the honest answer is it's not the initial thesis. The core thesis is always competitive products and big markets. So, you know, there is only sovereignty if the product, the proposition is competitive. And that's our fundamental belief. It's important that we build these winning companies out of Europe, but it must happen in an open, competitive manner and not a protective and sovereign manner.