Listen to Rob and Victoria’s Discussion Here:
Part 1:
Part 2:
Explore the intricacies of sustainable investing and leadership dynamics in the chemical industry with Rob van der Meij, a partner at Capricorn Partners in part 1 of this 2 part series. Host Victoria Meyer delves into Rob’s expertise on ESG and impact investing, the vital role of leadership throughout a company’s life cycle, and the emotional challenges founders face in relinquishing control.
Hear about Capricorn Partners’ unique approach to venture capital investment in cleantech and chemistry sectors, highlighting the importance of diversified investments and the innovation hurdles startups encounter.
Join us this week as Victoria and Rob discuss the following topics:
- Sustainable Investing
- Transitioning skills from big to small companies
- The role of venture capital in the chemical space
- Venture capital versus private equity
- Derisking and business development
Killer Quote: “In business development for a new venture, it’s crucial to find customers who understand that our product is still evolving and who are willing to accept that it’s not yet perfect.” — Rob van der Meij, Capricorn Partners
Other Links:
Tom van Aken, Avantium: Commercializing New Technologies For A Sustainable World With Tom Van Aken Of Avantium
Corey Tyre of Trillium: Scaling Up Sustainable Chemistry: Trillium’s Path to Green Acrylonitrile Technology with Corey Tyree
James Gibson, Void Technologies: Neil Burns, James Gibson, And Jon Timbers On Creating A Greener Planet With Sustainable Innovation
Keith Wiggins Econic Technologies: From Carbon Emissions To Valuable Raw Material With Keith Wiggins of Econic Technologies
Watch the Interview with Rob van der Meij on Youtube Here:
Part 1:
Part 2:
Role of Venture Capital in Clean Tech Startups with Rob van der Meij of Capricorn Partners
Part 1:
Hi, this is Victoria Meyer. Welcome back to The Chemical Show, Where Chemicals Means Business. Today I am speaking with Rob van der Meij, who is a partner at Capricorn partners, which is a venture capital and investment management firm focused on. Innovative companies that help people and planet. So clean tech and green chemicals and other things. Rob’s a chemical engineer and has spent the majority of his career in chemicals at big companies, including Akzo Nobel and Shell Chemicals. In fact, I met Rob at shell and we might get into that part of the story. Um, and then he has since been CEO of a number of startups before he started and joined Capricorn Partners.
So we’re going to be talking about the role of innovation, how venture capital plays into it and a little bit about clean technology. So Rob, welcome to The Chemical Show.
Thanks, Victoria.
Happy to have you here. So, so let’s just jump right in. You have worked at some of the world’s biggest companies and now you focus on startups with innovative technologies and frankly, quite small companies. So first of all, how’d you get interested in chemicals in the first place? And then secondly, how did you make this shift from big to small?
I got interested in chemicals because my brother studied chemical engineering. When I went to look at universities and what to do, I found the apsect of creation with chemicals, you take molecule A and B and you make C and that was kind of like a magical box. Still when I think about my graduation work and my thesis on the role of zeolites in methanol to elephants, that’s almost 40 years ago, but the code has not been cracked yet. It was kind of magical to see methanol going into your pilot plant and then smell gasoline coming out, obviously we had a leak, but okay.
So that’s how I got interested in the chemical business, in the chemical industry, you create stuff and that got me going. Then I worked at Akzo Nobel in the catalyst and technology business, and then in Shell Chemicals, first in catalyst and then later on in the surfactants business, where we both worked. The chemicals industry, it’s a cash machine on the one hand, because it runs very large facilities with an immensely important role in the world. At the same time it has this questionable image.
Right.
Partly probably deserved and probably also partly very undeserved, but, then I switched to being an entrepreneur. Basically in Shell Chemicals, you saw a little bit of plant based stuff coming. And in our own business in the surfactants, Shell had the ethylene based surfactants and you saw the palm oil based surfactants coming in. That intrigued me, then biofuels got there and Shell clearly did not have a strategic interest at that time to go that way. An acquaintance of mine from Akzo Nobel had developed some patents and started a small company. Then I decided Shell is a freight train and you can only influence a little bit, but in a small company, you can have a lot of influence. So then I decided, okay, you don’t get that many chances in your life to do something completely different in a field where you think you can be comfortable. So that’s when I jumped to the small corporate world and I learned the hard way how American venture capital works where, in my first investment as a founder/CEO I was also the first one to get fired, partly because I was stubborn.
Partly, I think the venture capital world at that time, grossly overestimated its capacity to be in the energy world, because this is in 2009. Venture capital from Silicon Valley had the idea that they could change how the energy world works. It’s a very different world. It’s fascinating in small companies to see what you can do by yourself and the impact you have on that at the same time. It’s usually frustrating because when you work at a company like Shell it has the incredible power of the machine that you have there, and also the quality of the people in systems. people complain a lot that working in corporate is bureaucratic, but in reality, Shell is a continuous asset management machine. If you remember the plant managers we’ve had at Stanlow and Geismar and how every year, year on year, they improve performance continuously, I thought that that’s an amazing skill.
It is.
But then when you come to the startup world where people have very little experience and then how they grossly underestimate supply chain or manufacturing complexity or construction complexity. That’s where if you have the mix of experiences that I have, it actually is a good place because I’m not a specialist in anything, but I know enough of it all that I can be of use.
Yeah, absolutely. I think that’s an interesting point. People do underestimate the value that the processes and the systems and the brands have when you’re at major corporations across the industry, like Shell, Dow and Akzo. Then you move to a startup, which is nimble and fast. But it probably makes a whole lot of mistakes and a lot of times you don’t know what you’re doing and how you’re doing it. So, quite a contrast between the two.
Definitely.
Yeah. So let’s talk a little bit about Capricorn Partners, just in terms of who you guys are and what you do.
Yeah. So we operate under a license of the alternative investment funds management regulatory. So we are what you call a regulated fund. Which means we are under guidance of the European financial authorities. So we have quite some good compliance procedures and risk management, and we manage both listed equity funds that invest in clean tech, and we manage venture capital funds that invest in clean tech, in digital and health type startups. So we have different funds. We are a player that plays in the more specialized ranges.
Typically, the series A type financing, which means there is a market, there is a prototype, the company has eyes on how to get there. This is the phase where companies are between say 5 and 15 people. That’s when we start to invest. So you’re beyond science, but you’re not in the market and you haven’t scaled technology yet.
Before we started recording, we were talking about the fact that most of the chemical industry is big established companies who don’t actually understand how venture capital works, the role of venture capital. I think certainly we see in the chemical space, when we think about green chemistry, there is a lot of startups right that are at varying sizes, varying degrees of success. Some quite small with small valuations, some quite small with really big valuations. I’ve had the opportunity to speak with several different people, some of whom Capricorn invests in. So I think about James Gibson at Void Polymers and Keith at Econic Technologies. I’ve also spoken with Gaurab Chakrabarti from Solugen, which is arguably one of the biggest clean tech startups in chemicals today. But what’s really the role, because you’ve obviously experienced this from the corporate side, and now you’ve experienced it from the small company side, and now you’re experiencing it from the venture capital side in terms of identifying investments and figuring out where to put money.
So tell us how that works.
It’s interesting, there’s no real blueprints. Every follows a sequence on scouting, scanning and selecting, that’s all pretty obvious. One of the key things now that you have is, there’s a lot of good presentations out there, but the key question for us is always, is this a good presentation with a bad idea or is this a bad presentation with a good idea? So, the thing that we do in our funds, all the people in the cleantech team have a scientific, technical, engineering, or business background. Before we make any serious attempt to look at the company, we look at if it is thermodynamically possible and you may laugh about it, but we’ve seen proposals that from thermodynamics make no sense at all. And some of these actually get financed.
Don’t get me going on direct air capture technologies, but we can have a different discussion about that. At the same time, there’s a business need for these things and therefore things get through, but what we try to do is, we have a slogan that we invest where technology impacts most, but then we have the second question, which is does it make sense?
Is it thermodynamically possible? Is it chemically possible? And then what you get, does it make sense? The “does it make sense” question is business but also complexity of manufacturing. You also have a chemistry background so you know, with 25 synthesis steps, you can make almost any molecule you want, but outside the pharmaceutical industry probably doesn’t make any sense at all.
Yeah, you can’t actually afford it at that point.
Yeah, and then the other question is towards the market. It doesn’t make sense for the customer to buy this or use this product or technology.
That’s the most critical thing to look at. The politically correct answer is of course that I really like the team and blah, blah, blah. But if you have a bad idea, even with a good team, it’s hard to make that work in the chemicals world. If you get to software and SaaS, it’s a different thing, but in the engineering chemical tech world, you cannot have a product that works 95%.I mean, still today, Microsoft Windows is not perfect. But the chemical plant that’s not perfect can explode or when you don’t get your cost over variable costs, it’s a money sink. That’s one thing I really learned in Shell. Like this cost focus is an enormous thing and a lot of people underestimate that. So we need to have these questions, does it make sense to do it? Does it make sense for the customer to buy it? And doesn’t it make sense to manufacture it now.
I guess the question for me and for a lot of people is like, why venture capital? How does it work? You talk about going in and investing in a lot of series A, which means in my very simple point of view, it tends to be companies where the technology has been developed to a certain degree, and then it’s ready to start moving into some degree of commercialization. Small scale, probably initially but there’s still so many unknowns. And I guess the question is, why do people go to venture capital to make this happen versus some other form of funding? How do you guys fit into the ecosystem of innovation and business development?
So a lot of corporates are good at evolutionary progress. When they have a product, they can improve it. When they have a technology, they can improve it. But if they want to try something new in a big corporate, there’s hardly space. There’s no room to do real new things. So startups are there to kind of promote that ecosystem. Now they are in this ecosystem supported by accelerators and hubs and whatever. With these startups, you can work out ideas.
It’s trial and error. So the startups, they need finance and there’s a lot of governmental regional finance, but the chemistry based world, not that many people that have the knowledge in that. If you look at life sciences, it’s a developed ecosystem of startups. And it’s a very common model to go to venture capital for your research and then large pharmaceutical companies, they are basically selling marketing and regulatory machines.
So they need new molecules in their pipeline. They don’t develop a lot of molecules themselves because it’s very costly, high risk takes a long time, but once there is a molecule that there is an acquisition model, in the pharmaceutical world, there’s an existing acquisition model where you can invest in clinical trial, phase one, phase two, phase three, there’s certain valuations related to that in terms of the size of the market in the chemicals industry. We don’t have that yet.
It seems like we’re going that direction though, right, if I think about what’s going on in biosurfactants?
Surfactants is a good example. That’s where it starts to happening. We get into the series A, as a specialized investor that helps co investors put money in it. They have some trust in us.
You kind of provide the vetting process, I suppose.
Yeah, we can draw the molecule, that helps and then we can kind of do an evaluation. Is this scalable or not? And how would you do it? And how much risk is involved? Then call for the other investors like, this has a chance. The role of venture capital is then really to take that, say first 3 to 7 years in a company to bring it to a stage where you get to the either large scale demo, or you get to the real commercialization phase.
Okay. So you maybe answered my question, which is what’s your investment horizon when you guys put money into a startup? How long do you plan to stay with that startup?
Most venture capital funds have a 10 year horizon now, but they have plus one or plus two as extensions. Actually the 10 years is too short really for most. But the way we balance that is by investing. We only do early stage investments at the early phase of a fund, you do some later stage investments, too. So you balance your portfolio between early and later stage. So that means that at some companies, you’ll stay 3 or 5 years. Other companies, you stay 8 to 10 years. That depends.
Got it. Your point about you maybe even need longer. I know like the LanzaTech story, which is a great success story. It’s gotten a lot of investment, it’s getting a lot of success, and for those that hadn’t followed their story, they don’t realize this is 20 years in the making. This was not overnight success.
Capricorn invested early stage in Avantium and we just sold our last portion of shares because we liquidated the fund. So we could not keep the shares. Otherwise we may have hung on. But, I think we’ve spent 16 years in Avantium.
No kidding?
Yeah, but if you think about it in that timeframe, we’ve had the financial crisis as one big thing, you had low oil, high oil prices, the whole development of wind, electricity, solar and COVID. So the people at Avancium, the persistence of these people is admirable, but hey, they’re building the plant. I think opening is scheduled for October or November, so it’s great.
I hadn’t realized that you guys were part of Avantium as well. So when people are listening to this or reading this, I’m going to end up linking all of the episodes of executives I’ve talked to that are somehow affiliated with Capricorn. I talked to Tom Van Aken of Avantium, I’ve spoken with Corey Tyre of Trillium, James Gibson of Void Technologies. Then of course Keith Wiggins from Econic Technologies.
So there’s a whole lot of clean tech energy investment, that I’ve managed to talk to and that we’ll link to this, that have a Capricorn connection.
Definitely.
So Rob, how do you contrast what you guys do from a venture capital perspective versus private equity or versus some of the big venture capital? Cause it sounds like you’re coming in very early stage, relatively small investments when we think about, let’s be honest, the scale of what it costs to build and develop a chemical plant or chemical product, they’re relatively small investments, but how do you contrast what you are doing versus what like a private equity firm might do or a bigger VC firm.
So when we enter, we do a smaller ticket, but at that point in time, the valuation of the company is still on the lower side. So we get a decent share package. And then when the company grows, we continue to invest. So we stay until there’s a growth phase where we cannot no longer follow and then we start to dilute, but by that time, you hope that the valuation has gone up sufficiently and that your dilution is compensated by valuation increase.
Got it.
At some point, we need to sell it and that’s what I tell all the people you just mentioned, James and Keith and others, we invest to sell at some point, so you have to agree to that. The difference between venture capital in the early phase is we get pretty actively involved in the board
Where we use our network, we can help the management team, and tell them look at this, think about that, you need to make changes to people or to procedures. We help the connection not to strategic partners, to service partners, but also syndicates to invest. When we look at a company in our first investment round, we also look at investability down the road. Are there co investors that are interested in this space? Are there potential exit parties interested in this space? But then our role is really in that syndication. Private equity and late stage venture capital really comes into play when the technology risk is outa nd when the initial business risk is out.
They come in and they’re really good at growth, when you then say, all right, we put in chunks of 50 million, a 100 million, and we got to make this work. But that’s not our role. We do that pre work and when it comes to the financial reengineering and the growth finance, that’s for them. But we like to be at that beginning of that part.
Right, and so you’re really in a lot of the de risking and validation, of the technology, of the markets, of the investment to help it progress to the next step.
Correct, it’s de risking of technology and business. In some startups, you have to do it at the same time. You do it parallel, and then it’s like, how do you do that?
If you take, for instance, business development for an existing business, it is very different than business development for a new business. In business development for a new business, you really have to look at customers, where do they understand that we’re not completely finished and do they accept that this is not perfect. Also when it doesn’t work, it’s not a failure to us in the market. For your first new surfactant, you may not want to talk to Procter and Gamble. You may want to wait till you’re a little bit more developed. And also, rightfully so for these kinds of companies, they will only be interested if you have a pathway to large scale. They’re not interested in a tiny little bit of something. If you want to sell to these type of customers, you have to be able to scale. If you’re in a niche market, you can work with different customers.
So in the business development phase early on, you have to think about that. Where do we have to prove, what do we have to prove, and how do you go about it? Then you balance your risk profile on that.
Part 2
Yeah, and in my observation, and certainly the companies that we’ve already talked about that Capricorn is invested in and has made. When I look at technology companies, there’s this whole aspect of partnering. Frankly, a lot of partnering with potentially go to market partners as well as end use partners. So I think about Avantium and I know they’ve had a longstanding relationship with Carlsberg Beer, to pull through the product. How do you guys get involved in that partnering aspect? And is that where you’re looking at what the rest of the syndicate is, are you getting engaged in there? And is that part of your decision criteria? Is that something that you help with?
Part of our decision criteria. Are these possible now?
Do they make sense? But also, we often make those connections and that’s because in a starter people have a hundred things at the same time to do, and it ranges from we need paper for the printer to we need to find the strategic partner. So we try to help them also to pace that, because you don’t have to do everything at the same time, don’t get involved in five partnerships, but also think about who’s the first, who’s the second and then what type of partnership do we talk about now? Is it a developmental partnership? Who develops what IP, who owns background and foreground, who gets to the go to market? Or is it about technology proof? Like, can you help us or application proof? It’s those types of things you got to think about. Then look at it. Like if you take Econic, I’m going to produce material at Monument Chemicals. which is great.
Getting really close, but they have this partnership with Unilever on the surfactant side, which gives you a lot of credibility in the future to go to the ethoxylators and say, one of your biggest customers know these molecules. So it’s this proof getting on, whereas Monument is on the propoxylation step where we insert the waste CO2. So these are two things that don’t bite each other. But you have to think about that. You work with partners that are also not even indirectly competing with each other. Some startups say if I go talk to everyone and then let’s see how they work, but in an early stage partnership, you want to have a good exchange of information and really learn and understand. If you talk with too many at the same time, that’s not going to work. So it’s these types of things that we try to help the portfolio companies on and not saying what they do, but really think it through.
They still make the decision,
Right, because at this point you’re an investor and a board member, but you’re not the decision maker on these things.
Which sometimes is okay. But again, the good thing is that there are also other people in the board. So you get different perspectives and that’s very healthy. Now, if you have financials investors in the boards, they give you a very different perspective. You’ve got other venture capital companies with a different experience set. That’s really a healthy perspective. And that’s kind of also the big difference with when you innovate in a corporate, because in a corporate, you don’t have that diversity of thought there because it’s all the same corporate think.
That’s why I think corporates are not so suitable for this type of early stage work and investment.
Well, if these ideas don’t appear to move the needle in the early stage, right? In a corporate environment, whether you’re Shell or another company, you’re looking for technologies that actually add a zero or something to your bottom line and so it has to be scalable and I just don’t think they have the patience to get to that point of scalability. There’s systems that are designed to be robust from a financial perspective, but they are not really geared towards new and novel innovation. They’re geared towards improvements because these new and novel innovations, by their very nature have to start really small. And it takes a lot of patience to get to that point.
The patience is an element. It’s also the lack of long term vision and a reward for the long term vision. Now, if you think about it, CEOs today, they get rewarded by stock buybacks. Which in my mind, you should fire any CEO that buys back stock because he’s basically telling the investors, I have no clue what to do with your money.
Yeah. Corporate Finance 101.
And don’t forget in the past, it was not allowed for companies to buy back stocks, for a good reason. But go back to innovation, that’s a different topic. If companies don’t innovate themselves, they have to mentally prepare that they have to do merger and acquisitions in addition to organic growth. Then it’s a question, when do you do that? Some companies have a philosophy to say, we operate businesses. We’re very good at that and where needed, we acquire, which is a very valid strategy.
There’s no right or wrong. But, if corporates don’t innovate, what’s their long term future? If you take Shell, how did Shell got into the business of molecules for detergents, because they had some paraffin feedstock left that they had no clue what to do with, and they got into that business. From the paraffins later on, they developed an alcohol business and needed to sell ethoxylates to get rid of all the alcohol and to get rid of the EO. If you don’t innovate in that area, you’ll never get to that next phase.
The patience for long term innovation, if we go back to Shell at a Shell GTL process, it took a long time, but without that, they could never have built Pearl in Qatar. Without Pearl in Qatar, they would never have had the concession for the LNG deal. So technology also creates a long term strategic competitive advantage and on the timeline of a company it’s not that long. On the timeline of management and executive rotation it is way too long. I think that’s a key issue if you think about the chemicals executives today, don’t take a look at the website of chemical companies, how much diversity is truly in the executive system?
Not much.
How many of the people there truly came in through innovation into the executive team? Hardly anyone. You don’t get rewarded for innovation. You get rewarded for avoiding risk. You get rewarding for asset management squeeze, you get rewarding for optimization and for efficiency, et cetera, But far less for having a strategic vision and almost zero for doing innovative things. So the startup system is essential for the chemical industry to innovate. If you think about the transition that the chemical industry is going to make with feedstocks and applications and different products that need to be developed.
For the battery industry, for the electrolysis industry, for the materials industry, the consumer demand, light weighting of cars, light weighting of airplanes, all that kind of stuff that’s largely coming from the startup community. The corporates have a huge opportunity to scale that, but their hesitation to step in is like, it’s not finished yet. It’s not proven yet. There’s the not invented here syndrome, but at the same time, the opportunity that they have today is enormous. If I take industrial biotechnology as an example, you can make certain molecules now way easier through microbes. You can then disconnect your supply chain from the thermal cracker part. You can kind of cherry pick in the value chain. Which molecules do you want to do? That realization is starting to come. A couple of companies are early adopters, a couple of companies will lag forever.
We already talked a little bit about biosurfactants. I see a lot of the partnerships and I see this as one product area where I think we’re going to start seeing and where we’re already seeing the corporate stepping in and partnering to bring it to fruition and bring it to market. That’ll probably accelerate, but it also sounds like there’s some lessons that we can learn from the life sciences and pharmaceuticals to your point who actively seek out product innovation elsewhere and know how to bring it into their system to build it to commercial scale.
Yeah and I think biosurfactants, it’s actually one of the shortest value chains in the chemical industry. Now, if you think about a bio surfactant, it’s making it in a formulation and it goes into a consumer product.That’s one of the shortest value chains you find in the industry. There’s some in polymers, but even in polymers, you go through making the polymer, compounding it, extruding it, following, shaping, whatever. But biosurfactants is one where consumers also have a direct impact and understanding. So that one is a good area to start and accelerate. The other reason is biosurfactants is largely formulation, a lot of the buyers in the surfactant market, it’s more about the functional role of the molecule than what it looks like. So, it’s far less a specification product. It’s really about trying and testing. I remember in detergents, you have these 20 washing cloths and you just try.
Which one works? Yeah.
That’s a very good area to innovate quickly. Where you have small scale and large scale customers to try now. But if you want to try something new in polyethylene, the large polyethylene units, that’s a different thing. So you’ve got to think about that, and that’s for us also an investability question, are there small scale entry points? If I take Trillium as an example, Trillium makes bio acrylonitrile. Acrylonitrile facilities are all under 200,000 tons a year because it’s difficult to make, it’s dangerous to make, and you need a lot of propylene to make it.
You make it where the propylene is. At the same time, the market is a little bit fragmented. There are about 35 global supply units and over a thousand customers and the acrylic fiber people, they buy acrylonitrile in large volumes, but the carbon fiber people buy a little bit now. So our rational to go into this bio acrylonitrile is like, you know, Airbus, BMW, Mercedes, carbon fiber in cars, carbon fiber in bikes, carbon fiber in all kinds of other composites will continue to grow fast. Now, people would like to get bio carbon fiber by renewable carbon fiber bio based, but to make carbon fiber through lignin or other routes, you make a different type of carbon fiber and you have to go through the whole qualification. But if you then make a drop in molecule, because in Trillium, the last step we do is almost identical to the last step that INEOS does in their process. So the molecule we make and all the by products are 99.999% the same.
So you get a drop in molecule, which means you don’t have to go through the requalification at Airbus or BMW to get the carbon fiber approved. Carbon fiber plants are spread across the U.S., and they’re 2000 tons, 5000 tons. So you can build facilities. Biobased acrylonitrile, you don’t have to be connected to the thermal cracker. You eliminate them, the transport of a dangerous material, which is another aspect of impact and making impact is not just looking at the greenhouse gases or the resource efficiency. It’s also safety. Safety of production or safety of transport. Transportation of chemicals like an acrylonitrile remains. So anything you can do to shorten that distance, reduce the exposure for us is an important impact. At Capricorn, we always said before ESG was there, it’s about the people and the planet. The earth has to be a better place with this company than without this company.
I like that.
Today we call that ESG investing, impact investing, article nine, et cetera.
I think it’s the right idea and approach and it’s certainly working for you guys. So we’ve talked about a lot of things so far. I know one of the things you’ve said is, a great idea is really the fundamental great idea, great markets, et cetera. What’s the role of leadership in this? When you think about leadership at these companies, what’s critical in terms of that and driving success. What do you guys look for?
It’s different in the different phases. When you go through technology proof or technology scale up, it’s a very different leadership profile when you’re going to build a demonstration plan. Or when you get into the market I don’t believe in the super CEO type thing. I know in the U.S. the CEO has to be the magical superhero for everything. We look more at the teams. A good leader is a good team enabler and a good composer of the teams. So it’s more like an orchestra and the conductor doesn’t play any instrument but he or she gets to understand how it works together and how to improve it.
Like yeah that part needs to be stronger, but it’s also determining when do you need that? If you’re not getting into manufacturing or supplying to a customer yet, you don’t need a lot of supply chain knowledge in your team. Now, you also got to think about what kind of skills and attributes do you need in the team permanently and what can go temporarily. It’s that type of thing, and then it’s about growing the leadership. Some CEOs can grow with the business and they stay in a long time. Some CEOs are good for a certain phase. In two of our portfolio companies, we have founders with a very technical orientation and background.
So at some point in time, they move more to the chief scientist or the chief engineer or the chief technology role. Then other people get the business to the next phase. Part of our role is sometimes to drive that and bring that message and convince people that this is the best way to do it.
Victoria [00:43:57]:
Yeah. Shifting leadership is not easy, particularly for somebody that’s a founder who doesn’t recognize that different skills are needed as the company changes and evolves. But emotionally it’s hard to let go.
Yeah, and I’ve been on both sides, right? That emotional side is an aspect that we really try to care about, it’s a process and sometimes it is done well. Sometimes it’s not done well. I mean, boards makes mistakes on that too.
Well, absolutely. We see that all across the industry at public and private companies.
In the boards, you have to be critical also to watch yourself. You have to be able to have some self reflection on these things and that not everything you say is the magical formula for everything. So that’s a part too, you have to be critical about that.
When you’re successful, it’s hard to sometimes check your ego at the door and move forward. So final question here, Rob, when I think about next steps or investors and investment funds, where are you guys going? How do people get involved with VC and how do you guys find your money and take your money forward?
So we get money from different sources, governments typically have economic development funds that are there to promote the startup industry ecosystems. So they tend to invest in funds like ours, because then later on they can have co investment opportunities. We get investors from the insurance industry. Insurance has a very long term view about risk and they realize climate change, food transition, energy transition are all big risks to the world. So they tend to invest and they have lots of money to invest.
Family offices. There’s some really visionary family offices that don’t look at returns at the short term, but also at the longer term. There’s all kinds of funds, there’s lots of large money management companies, asset management companies that then invest in funds like ours. For like the private equity industry, it’s important to have this kind of deal flow now. So there are people who invest in private equity who can also invest in us because otherwise their companies don’t have deal flow.
Got it.
So it’s quite a far fetched ecosystem. The thing with venture capital is it’s the end of the tail, so when the tail wags venture capital gets like this. When interest rates rise, there’s less money in venture.
Even though in the total money market, it’s a small shift for venture capital, it’s a big shift. So that’s where we find our money with these kind of propositions. Then of course in the world of cleantech and chemistry, there’s corporates. And corporates can invest in our funds too. We avoid having too many corporates in a FUD because you don’t want competition and it’s also not your FUD. We don’t work for one corporate because we want to spread the risk over different market segments, different sectors, different areas. But most chemical corporates are so broad that they could invest in a fund like ours.
Some have their own corporate venture capital, which is sometimes good and bad. Corporate venture capital firms have a good view on the market and the technologies. But in a lot of cases, they don’t have a fund, they have a budget.
Oh, interesting.
And corporate budgets change every year.
So when we co invest with corporate, we consider that a risk because when there is a next funding round, you never know whether the budget is there or not. Some say, oh yeah, we have a long-term budget. Like, okay, can you decide that? Or do you have to go to your head office to decide about that? And when they say, oh, we always get approval from head office, so you don’t have control, because if you are the CEO of a $10 or $20 billion multinational chemical corporate and your fund says we need to invest another $3 million in this round and you have to go to the CEO of the $20 billion corporate that $3 million is a nuisance, right? So for us, that’s often very difficult because when we invest in a company, say we invest $2 or $3 million, we plan to invest $10 to $12 million in a company.
In the fund, we reserve that money for that investment. We cannot always predict when the company needs money. When it goes well, you may want to accelerate. So the next funding round comes faster. When it doesn’t go well, it takes more time. You need to do an intermediate route, and what we see with the corporates is that they struggle with that. It’s not the people in the corporate venture fund, but it’s really the corporate mentality around it.
So when you’re organizing a fund, your investors are giving money, but it’s also a commitment. The money’s not all in one drop where you get a big bucket to spend.
No, we have a capital call. So when somebody commits $10 million in our fund, it typically starts 10% as a first call. And then we call the money as needed. But, at the moment we start to get access, we start to repay.
Got it.
Yeah, a lot of times you call 70-80% of the capital and then you start to repay. So it’s never 10 million in one go.
Is that typical for most of the venture capital funds? Is that how they all work?
Yeah, but it is a hard commitment. When you go into default, you’re in big trouble. At the same time, from a cash perspective, to a large corporate, it’s nothing, because any corporate of $20 billion at any point in time has this money on their cash balance. The problem that we sometimes have to explain is an investment in a fund is a balance sheet item. It’s not an expense. But in a lot of cases, corporates put this under like an R&D expense.
It’s not an expense. It’s a balance sheet item. And if you go to your treasury department that manages your money, it’s probably a different view, but these are very different.
It’s complex. I can see where the challenge is, because the reality is, if you’re sitting inside a corporate, you don’t really think about where the money’s coming from. You just have a line item,, and then understanding how to navigate that is not always the easiest. Frankly, nobody gets trained this way. You just learn it along the way, right?
It’s on the job training, there’s no school for this. But that’s interesting, when they invest in our fund, we offer corporates, if they invest enough, a certain secondment option. They can send people to us for three months, six months, they join our team, they get to learn the routine. We also have corporates where we go to their innovation department and explain venture capital. And, when does it make sense? We look at sharing deal flow, and because a lot of the deal flow we see may not be suited for venture capital, they might be very well suited for one of our corporate investors as a partnership, as a technology scouting, in all kinds of shapes or forms. We always tell corporates that when you invest in us, you get a window on the world that you don’t have.
You have this blind wall, you get an additional window on the world there. And that can be quite interesting for them because it’s kind of filtered deal flow because we don’t take 20 corporates in our thoughts, we have a few, and we really want to understand from them, what do you think your business in 10-20 years from now will look like? I also get corporate sometimes when we talk about our portfolio companies. They’re like, we’re not interested to invest because this portfolio company doesn’t fit with our current business. I’m like, yeah, it should not fit with your current business.
That’s the point.
It’s an option for future business. That’s also the point that when you think about corporate developments and developments of new molecules, new materials or new product lines in a company, it doesn’t get in 0 to 5 years to 200 million. That takes time. That’s the part that surprised me most. Getting into venture I always thought that the chemical industry has this vision, and that people in the business really understand that it takes that time, but as an executive in the chemical world, you don’t get that time.
You don’t get rewarded for a new product that you develop now, 20 years from now. But it’s essential for the company or the industry to continue to build that portfolio.
Yeah. We need to continue to make it happen. I think the industry went through a period that felt like a lack of innovation, maybe in the 90s and 2000s. And it’s good to see that we’re back at it, because it’s needed, it’s needed for the future and to change our future.
If you look at the pharmaceutical industry, they really understand that and they kind of made it their business model. I think the chemical industry, you don’t have to go all the way, but a little bit more of an open attitude, investing in funds like ours and others really can help you to open up and understand the different views in the world. It’s often that you see certain companies or businesses are so rigid on what they think their business is and at the same time, it’s like, well, you might be surprised in the future.
Absolutely. Well Rob, I was going to ask you about being a shark in Shark Tank. But you’re half Shark Tank and a half matchmaker, is a little bit of what it sounds like.
We’re a friendly shark, you know, That’s more of what it is. It’s also different. Some venture capital worlds, like if you go to software, it’s a far different competing model and far different deal flow and different pace of development. I can see in the software world, you have to be first to market. You have to be big. But in the chemicals and energy world, you don’t have to be first, but you have to be good, and you cannot come with a half finished product. There’s some good developments in the bio based products industry where there are some hybrids coming and that really helped to introduce these things. But if you build the plant, you cannot build a plant that works almost.
Right. It either does or it doesn’t.
And that makes our business different. The Shark Tank model, we’re a bit more of a cooperative fish. Probably more like the dolphins now.
There we go. That works. Well, Rob, this has been great. Thank you for making this happen and I have enjoyed diving into the world of venture capital and clean tech and startups and getting more insight there. So that’s been great, thank you for joining us today.
Thanks, Victoria, for having me. You built up a great show over the years with this. Really, I enjoy listening to the different episodes of it all the time.
I appreciate that. It has been a great journey and I’m glad you’ve been there. So thanks everyone for listening. Keep listening, keep following, keep sharing, and we will talk with you again soon.
About Rob van der Meij:
Rob is a chemical engineer who has held business management positions with Akzo Nobel and Shell Chemicals. Rob was one of the founders and the CEO of KiOR in the United States, and he has worked as the CEO for several other start-ups in chemicals and water technology. He likes to invest in start-ups, both privately and as a partner at Capricorn Partners, and he currently serves on the board of several start-ups in the EU and the US.
Rob has a master’s degree in chemical engineering at the University of Delft, did the business administration program at the Amsterdam School of Finance, and he has completed the New Board Program at Nyenrode Business University.
Rob loves spending time with his girlfriend, playing golf, reading and hiking. Rob is an avid cook, and he likes to pour himself a good glass of wine while he is at it in the kitchen.