322. Building 10 Venture Funds To Back 93 Carbon Removal Startups w/ Perminder Dhillon | Carbon13

0:00Hi, so I'm Perminder Dhillon and I'm Principal at Carbon13. We invest in climate tech companies. We don't just invest in climate tech companies, we're building the companies that we're investing in as well. And you've been there for a while, right?

0:15Amardeep Parmar:So as you said, your model's a bit different where you've got cohorts and accelerators over time. Could you explain a bit how that works? Yeah, sure. So Carbon13 itself, we're a venture builder. I've been there since the very beginning. So before we even had one invested in company. So since the very first cohort. And the way it works is a cohort model. So we run two cohorts in the UK a year, and then we run two cohorts in Germany. And if we take a cohort, we typically receive anything from between 600 to 800 applications for a cohort and kind of select the strongest 60 to 70 individuals to join one of our cohorts.

1:03And those 60 or 70 individuals meet each other and come on to an eight-month program where they have the ability to then connect with other founders on the program to then launch this climate tech company.

1:18Amardeep Parmar:Well, that's some of the strategy behind it, right? Of like, why do you go for certain things that you do so like why why can't I say 60 to 70 why name up program can you just explain like how you kind of came to some of these ideas yeah absolutely so obviously the barrier to entry is quite difficult with that many founders well would be founders applying and having only 60 or 70 make it we're very selective with that demographic as well so we aim for a 50 50 split between really technical talent and then really commercial talent The idea is that within every cohort, there's an even amount of complementary skill sets that are within the program as well.

1:57And a technical person will meet a commercial person within the program. And technical can be anything from a physicist to a software engineer to a mechanical engineer. And then on the commercial side, it can be anything from an exited founder, for example, to a CEO, to a strategy consultant. And in terms of the length of the program, it kind of really goes through all of the different phases that we kind of see as being pivotal to being able to create this company, receiving all the support that they need, and then becoming investor ready for a VC as well.

2:40Amardeep Parmar:And how has the program changed over the years? Because obviously the first time around, I'm guessing it was in perfect straightaway, right? So how have you improved the program? How has it changed and maybe you've had to change your views on things? Yeah, I mean, there's always learnings, I think, coming through as these programs develop and run as well. I think one interesting thing was around a lot of the documentation that you obviously put together immediately without going into lots of detail, but we want to make sure that all of the term sheets, et cetera, are kind of tightened up, still remaining founder-friendly, but really kind of making sure that everything from a kind of compliance and from a regulatory perspective are just sound and neat when making these investments as well.

3:26I think within the actual programmatic elements as well. There's certain things that you kind of realize that work really well and certain things to lean into and then certain things that some founders might not find as useful in the program as well. But with a program like this, it's really hard to make everyone happy and individuals are coming at it from very different experience levels. So to be able to create a program and all of the different elements that are going to resonate with everyone on there is near impossible. So just making sure that you're feeding in the right content as much as you can at the right times of the program as well.

4:07Amardeep Parmar:What do you think that the founders love the most about the program? What do you get the best feedback on? I think a lot of it is down to the network. And so once these teams actually coalesce, so if we take the first, say, six weeks of the program, it's really founder on founder. And a lot of these there are bits of the program for these individuals to to dial into you know what makes an investable idea what does a fundraising strategy looks like look like what is impact how do we measure impact all of these kind of quite top level sessions but ultimately it's about them meeting these other individuals at that very beginning stage it's the community that they're actually meeting within the program so all of these individuals that they're actually meeting within the program is what we get the best feedback on because ultimately the program only works if you've just got amazing founders actually coming on as well.

5:01I would say the second thing is the community of domain experts as well that we've built. So there's now around 400 or so domain experts that are kind of on our books. So whenever a company is building and whatever sector that they decide to build in, we can pull in experts from Cambridge from all these top institutions in across Europe in the UK to really help these companies grow um yeah so that's been amazing for us as well so when like

5:35Amardeep Parmar:a big draw the program rise who else is on the program obviously at the beginning you've got to make sure that you pick the right people for it right how do you go about picking those people and what is it that stands out because obviously you said when you're picking technical people versus the more CEO style people. You're going to have to wear different hats for assessing different people too. Yeah, so there is a team involved within the onboarding process for these individual founders as well. And it's quite a rigorous process to make sure that it's not just the ability of the individuals, but also just their tenacity in wanting to build these type of companies as well.

6:13You know, there's a lot of people that are really good on paper that are wanting to build, but we just really want individuals that have a lot of conviction to build as well. And diversity is obviously really important for us within the cohort as well. So I think we've now, across 10 cohorts in the UK and seven cohorts in Germany, we've built just over 300 ventures now and invested in just over 100. And of those 100 that we've invested in, 65 % of those ventures have a female co-founder. And in terms of ethnicity stats, actually, it's quite interesting as well, because if you look at how many Asian founders, especially within the UK cohorts compared to the Berlin one, but that's obvious that it's going to be less in Berlin.

7:07but for the UK ones around 20 to 25 % of the cohort that begins are founders with an Asian background as well.

7:19Amardeep Parmar:So as you're going through that too, as you're picking all these companies and you mentioned a bit about the funnel there, right? So obviously you said 600 to 800 people apply per cohort and then you've had all these companies that have been built and then you invest in some of them as well. How does that funnel work? So is it, can the top of the funnel is like people just invest, to go to the program, some of those people on the program will then build actual venture-scale businesses. And then do they pitch to the end or talk us through that? Yeah, sure. So let's say top of the funnel, we have those 6 to 800 applications.

7:51We whittle that down to the strongest 60 or 70 individuals. So these are not yet companies. They join the program. It's a program roughly about eight months long. First six weeks, let's call that phase one. is about teaming. And what happens in that phase is that around 25 ventures will coalesce. And that's usually teams of two or three, mix of commercial and technical. And not everyone teams. So those that do go into the next phase of the program, which is around three months long, that's when they really start working on the idea. And this is where we draw those domain experts that I talked about in as well.

8:34So these companies now that have domiciled with us, they have to build a business and show that they are building a business that's venture-backable, but can also mitigate carbon or equivalent methane, for example, by 10 million tons when it's scale. So these companies are big industrial companies as well. They're building in everything from energy to AI to batteries to built environment to new materials, like a whole host of different types of companies. We're drawing those domain experts to help them build, but they also are given an entrepreneur in residence at that time as well. We have roughly, I think, around 12 entrepreneurs in residence, which is a successful exited entrepreneur that will help these companies scale.

9:27Amardeep Parmar:And they do one-to-one mentoring with these companies on a weekly basis as well. Those companies are then building for the next three months until they reach the point of IC. And these 25 companies or so will then pitch to the Carbon 13 IC for their first pre-seed investment. And then we select from each cohort anything from between 6 to 10 of the most promising companies, the ones that we feel are going to create the most impact, but also the ones that are going to be able to potentially create venture-style returns as well. those six to ten companies then make it on to the final phase of the program the last few months and that's where we really work closely with the companies and essentially gear them up for their go-to-market, their value propositioning, their customer discovery, everything that they've been doing already but a little bit more tightly but then also getting them ready for their next follow-on raise as well.

10:33Amardeep Parmar:What part of that do you enjoy the most? So with my role specifically I think for me, I kind of come in once the teams have received investment. We've got an amazing team at Carbon 13 as well. A lot of them are doing the kind of operational side and working with the ventures pre-investment. What I really like is being able to connect the dots for those teams at a little bit of a later stage because I've built up quite a good, strong network of co-investors and individuals and family offices, et cetera, and so forth that we can then lean into to introduce these ventures to for further investment as well.

11:15And I really like that as well, just kind of being able to be a bit of a conduit between the good companies that we've built and these incredible founders and their follow-on success as well. It's a nice feeling being able to do that.

11:29Amardeep Parmar:So with that kind of cohort-style structure, how does a fund actually work? What's the actual structure of the fund? Yeah, it's a good question. So where we have the UK cohorts, we run SEIS funds. And the SEIS funds, we run a new SEIS fund for every new cohort. We typically raised from high net worth individuals for those SEIS funds. And they are made up of a really large community of angel investors, mostly from the UK because of the kind of tax incentives that obviously SEIS provides as well. And so we've built up a really large community now of angel investors that want to back impact focus startups, but also back early stage startups as well.

12:22And we've put ourselves in quite a privileged position now that we've been doing this since 2021, which was our first SEIS fund, to now our 10th SEIS fund. So yeah, a huge community of angels in the UK. And how does that work?

12:43Amardeep Parmar:So obviously the first fund you did, you'd had to convince people of this new project and how you're going to get all of these companies in and that you have to explain your funnel before you've done it to get the first investors on board right how is that kind of conversation and trying to make that happen and trying to convince people and how do you think you're able to get those like angels on before you really had a track record the partners of the fund as well nikki and michael they've got great profiles and as you know the profiles of the individuals to begin with uh what can create a lot of momentum now that coupled with Nikki's connections to Cambridge, I think as well.

13:23She's a fellow of CISL, Cambridge Institute of Sustainability and Leadership, and holds her PhD from there as well, opened up this network of amazing talent and wanted to join these programs as well. And I think once you're kind of a part of those kind of ecosystems, and then, you know, Michael also on the entrepreneurial side as well, having exited his past business is a kind of recipe and mix for just kind of bringing in that early stage talent into the programs but also the people that might want to fund it as well and then my kind of role in that was kind of I guess getting that ball rolling across multiple individuals and entities that might be interested in backing something like this as well but from the early days it's a story and it's a narrative to where it is now where there's you know there's a track record we can say that there's x amount of ventures they've raised x amount have done this x amount have done that so yeah and then obviously like the founders as well

14:24Amardeep Parmar:right when the investor themselves has say sas backers and ers backers versus say like traditional like limited partners how does that change like your mandate in a way right in terms of what you have to deliver for your investors. How does that affect the way you run and the way you think about things? I mean, it's pretty hands-off, I would say, in that we work with a fund manager. We wouldn't have to be FCA regulated ourselves. So, yeah, we work with a fund manager. And then in terms of just the reporting side, it's biannual reports that we would have to write for these LPs within our SEIS funds.

15:04So it's not so onerous. There are obviously things that we do outside of the kind of legal biannual reporting, like events, monthly updates, that kind of thing as well. It would work obviously quite differently, I guess, from a more traditional LPGP structure.

15:24Amardeep Parmar:And what are those investors expecting from you, the people who invest in the fund? Are they more kind of climate driven? Are they more impact driven? Do they tend to be more returns driven? Do you have different profiles? Yeah, there's definitely a mix of profiles for sure. And all of those profiles that you've just described are the ones that are in the fund. So yeah, we have a lot of very successful entrepreneurs that have exited their businesses all the way to the guys that work in finance that might receive large bonuses to partners of law firms to everything in between. So yeah, but really it's about do you care about impact and do you care about early stage?

16:09And yeah, those are the kind of angels that we want in our mix. And to be honest, it's really nice for us when we do get individuals that are on the entrepreneurial level as well because quite often they want to also help on the mentorship level as well and potentially become a domain expert. And then also look to do follow-on investments into those companies outside of the fund as well. So it's, again, quite a cyclical thing, which is great.

16:37Amardeep Parmar:Hello, hello. I hope you've enjoyed the show so far. I'm Amrit Parma, co-founder of BayHQ and the host of this show. For those of you who don't know, BayHQ is the community for high growth Asian heritage founders and investors in the UK. over 7 ,500 people have attended our events 200 people have been for our impact programs and obviously there's been over 250 episodes of this podcast if you want to join us and take part in the programs and come to the events go to bahiehq.com forward slash join we also just released our first ever book called startups for outsiders which you can get on amazon now and the link is in the bio hope to see you soon at our event hope you enjoy the rest of the episode Is there anything where, obviously you've had hundreds of companies come through you now, is there any ones that really stand out to you that have been the big successes for Carbon 13?

17:34Cocoon Carbon is a very interesting example. Actually, it's a cohort five company of ours. So Cocoon Carbon, they recently raised their Series A, and they've raised now just close to in total$20 million. They create an alternative to cement by taking steel slank, steel waste, and creating this alternative. So they've got a really special piece within their IP that they've obviously made it very interesting. And their trajectory has been so quick from, I guess, meeting on our cohort to where they've got to now. I mean, I think that actually they were one of the quickest companies to raise a substantial round once they'd left our cohort as well.

18:22So three amazing founders. One of the founders had already exited a company when he joined us, Threva Health. And then the two other founders were from Oxford and Cambridge, kind of PhD level, great technical commercial mix to create the team. five months after leaving the program and kind of meeting they raised around five million dollars from wireframe ventures in the us and then quite recently raised from a vc called 2150 which is a big kind of urban built environment vc here in the here in the uk as well so their trajectory

19:01Amardeep Parmar:has been amazing to to watch as well and to have a very carbon thursday having that kind of small beginning part of their success you know because ultimately it's these companies that are going out and doing all the incredible things but yeah amazing that carbon 13 just have that kind of space to be able to bring them together and show that the model works right and now we have multiple companies i guess now raising quite strong rounds which is ultimately what what we want and like with that process you said you're coming in like after they raise the investment and helping and go further. What are you seeing in those companies now where when you come and you can see who is it that's going to go a bit further and how are you trying to assess them to make sure that they're ready for that as well?

19:47Amardeep Parmar:Because some of the companies that might get the investment, but when they come to you, you might say, okay, you've got a bit of work to do still, right? Yeah, I mean, it's a really good question, actually. And I think that that's also been, I guess, back to one of your earlier questions around kind of learnings is that not all, even though all of the companies that would pitch to Carbon 13 for their first pre-seed, even at that stage, you realize that all of the companies can still mentally be at very different levels of how they then treat their next fundraise as well. And so those next few months, it's quite interesting for us as a team to see which founders are really leaning into fundraising and knowing how important it is and how much time that they're going to have to dedicate to just this aspect versus the ones that naturally just want to build, right?

20:40Because ultimately, as one of these founders, you just want to build your company. You don't want to just be spending all of your time fundraising. But yeah, it's one of the things that we really want to see founders doing and leaning into, especially the CEO of the company as well doing that.

20:58Amardeep Parmar:Is there anything else you think you've changed your mind on a lot in the last few years where when you first started Carbon 13 and those early days when you were joining to like now where you are today like is there anything where your opinion changed on what makes a successful company or what makes a successful founder? I think you see so many different personalities coming through like you know I said that there's been 100 invested in companies and then 300 companies built but if we take the extra layer of the funnel on top of that that's more than 2 000 founders that have come through these programs and obviously on a on a day-to-day you don't get to get to know everybody one thing that you do realize is the ones that are actually i guess quite helpful towards each other are the ones that actually end up in a weird way becoming quite a lot more successful as well like success it feels like is never something that is down to one individual.

21:56It's a collective experience and it feels quite shared. And we actually have, during our demo day, which is at the very end of the programme, we have a prize that we announce for every cohort, which is the most kind of helpful team within that particular cohort. And that's kind of peer-led in terms of a vote as well. and quite often those ones that have received the highest votes that are still very much focused on their own businesses but have actually helped others you can see that they've actually become quite successful as well I mean I don't have any data points against that but anecdotally they've definitely kind of excelled as well so I think yeah the ones that give back definitely do seem to

22:46Amardeep Parmar:yeah work quite well as well and then as you like building out right so you've been going for like four years so far where is this going like where are you looking forward to the future like where do you think that like carbon 13 is going to do more in the future is it going to be a similar model are you looking at experimenting what's happening there yeah i mean so we started in cambridge in the uk and then quickly realized that there was a whole model to be built out across europe there was a lot of interest from founders wanting to build and have a model like this to basically join to be able to build these type of companies so that's again why um berlin started as well in terms of like what the future looks like it would be great to kind of replicate carbon 13 potentially across other geographies as well um that would be one yeah amazing thing to to see and what's interesting about the carbon 13 model and obviously models where you're bringing together founders who didn't know each other before and kind of like smushing them together and see what works, right?

23:50Amardeep Parmar:What is it you think that in those founding teams where they haven't done stuff before, they haven't known each other since they were like childhood friends or they aren't like brother-in-laws or something like that or it's not like they're best friends from wherever, what is it that kind of makes them stick or gel or like what are you seeing? Because obviously you've seen some people where at different phases might get along really well at the beginning but then it kind of falls apart towards the end. And the other ones who have been going for years and have their really tight bond, like what are you seeing there that kind of better wisdom that can help the founders as well?

24:20Yeah, it's a good question. And I think that that's why a model like this is so interesting as well, because it is really quite an experiment as well. It's about these people coming together. But one thing that, you know, there's data points that show that with models like this, where founding teams come together through a venture builder, and the, I guess, trajectory in which they reach a Series A is much quicker than teams that are already formed that don't have such a structure in order to actually team. There are accelerators, but just that teaming element, if you look at the importance of that and the quickness that those companies that have gone through a venture builder do raise, it is a lot quicker.

25:12and I think it works because all of the different sessions that we run we really kind of help these individuals to understand what a good team looks like as well and I think one thing that people can quite easily fall into is becoming friends with somebody and then thinking that this is a great person to then just start your business with as well whereas that as we see through the model isn't the case and we really encourage people that to not do that because a lot of the time you know these individuals yeah you're going to partner with them for the next 10 years plus and you need to be able to have a really good relationship with them absolutely but ultimately it's about complementing each other's skill sets as well as having a really good relationship as well so just embedding some of that methodology within the program is yeah really helpful i think it's interesting to think about it because i think when it's somebody you know well from before

26:07Amardeep Parmar:in a non-work context, it can be quite hard to set those boundaries where you might not want to say something a bit uncomfortable because let's say it's your spouse or something like that where it's going to cause an argument outside of the work environment. Whereas when you don't know each other than before, you have worse questions up front a lot sooner, I think, right? Because if they meet through you, then they're going to know what's your working style. You're going to ask these kind of questions which you wouldn't necessarily think to ask your best mate because you don't know what they're like at work, right?

26:35Amardeep Parmar:I always find it funny sometimes when you have people who complain about their job or their boss and they'll be like, oh yeah, you have no idea if your friend's good at your job, right? And I always think back to that, sometimes I think about it when I used to complain, it's like, yeah, it's like I might not have actually been good at my job and that's kind of maybe why I didn't get this or didn't get that. But I think in that friendship environment or that environment from beforehand, you can't, like you kind of just assume the best thing of the person. with an amazing fresh in like a carbon 13 you're going to be a bit more cautious and you're going to ask the right questions but you wouldn't do otherwise yeah and we try and create a very structured approach even to those quite uncomfortable conversations as well so there's you know tasks that we might get founders to do as well where they'll go through and really have to before they decide to team really understand that person's motivations and background for who they're teaming with and some quite uncomfortable stuff will come out of those quite structured conversations that we lead as well like you know does this person have enough I guess personal runway to be a bit uncomfortable for the next year or however long it might be what does that person's appetite look like in terms of just being able to travel to different locations or you know What's their family dynamic as well?