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- [00:00]
Romain Diaz
Yeah, I think there's a few ways to look at it. One is look at the spectrum of the global emissions and see where they come from. So a lot of it comes from energy, but if you break it down, then within energy, that's transport, that's industry, steel and cement, that's food and agriculture. It's many different sectors. So that's one way to look at it.
- [00:27]
Joel Palathinkel
Welcome to the Investor, a podcast where I, Joel Palathinkel, your host, dives deep into the minds of the world's most influential institutional investors. In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. All right, so it looks like we are live here. Really excited to be here with Romain Diaz from Sudgana. So, Romain, it's been great getting to know you the last couple weeks and excited to hear your story. You know, we do this a couple times a week talking about how people have broken into venture. So, Romaine, why don't you kick this off and tell us a little more about your background, how you brogan a venture and really just the amazing thesis that you have at Sabgana.
- [01:26]
Romain Diaz
Sure. Thank you so much for having me. So my name is Romain Diaz, I am French, also have Spanish citizenship, I'm based in Portugal and our fund is incorporated in Luxembourg. I do a lot of work on the African continent, so quite global. And I'm the general partner of SAD Ghana, which is a globally distributed venture studio and pre seed fund which invests into early stage climate and sustainability studies startups mostly focused on Europe, but with a keen eye on certain emerging countries where we have some good networks and full on funding and really excited to be here. Thank you.
- [02:04]
Joel Palathinkel
Thanks for coming here. Well, tell me a little bit about your background, your family, where you grew up and what you initially studied and how you became a venture capitalist for the audience here. A lot of people are people that are looking to try to transition into venture capital, people that are already in venture capital, that are trying to maybe start a venture studio. So walk us through the, you know, the evolution of your career and how you started a venture studio and maybe unpack to us your definition of a venture studio and how that, how that has worked for you and the founders that you support.
- [02:41]
Romain Diaz
Cool. Maybe just, sorry, a logistical thing. I think your sound is a little bit weird. Maybe it's your microphone or something. I think it's.
- [02:50]
Joel Palathinkel
Am I a little too close to the mic? Can you Hear me now.
- [02:52]
Romain Diaz
Much better now.
- [02:53]
Joel Palathinkel
Okay, yeah, cool.
- [02:55]
Romain Diaz
So yeah, so yeah, indeed. I'm going to speak a little bit about this thing of venture studios, which I think is an emerging subset of the VC asset class. The way I see it is really being at the crossroads of building companies and investing in companies. Another way to look at it is also to really look at the broad spectrum of venture capital and saying that it's really the earliest stage, so basically helping companies. Sometimes I refer to it as being the pre. Pre seed. So even earlier than this new thing of. Or it's been a couple of years now that we speak about pre seed. But I think a venture studio can also be seen as being pre. Precede. That's one difference is coming in more early than what VCs traditional do. And also it is about investing a lot of operational resources which means that as a venture studio you're typically not going to do something say 10, 20, 30 or even more investments into one year. You're just going to have like more of a concentrated approach where you're going to do a couple of deals per year, maybe four or five. That's typically our sweet spot. And the goal is to invest a lot of operational resources so that we mitigate the risks of coming in so early, maximize the chances of succeeding. So we are a lot more deliberate about the kind of companies we're going to go into because our success rate or target success rate is going to be more around 80% from seed and a onwards. So that's how we define venture studios now. There's a few varieties of them. Some of them do internal ideations for example, I've done that previously. I've been part of some well established venture studios. I also co founded one of my own in South Africa about seven years ago which is now fully invested, fully holding company, now on track to deliver very good returns, but is now no more active. And we were doing internalization and for a number of reasons we've decided with SAD Ghana to not do internal ideation but rather to have more of a traditional VC approach whereby founders come to us with an idea, they pitch us. And the good thing about being in the impact and sustainability space is that you have founders that are super driven, super, you know, mission driven, purpose driven. They know their thing and why they're doing it, which is something that we really like is ensuring that people know their why very clearly and are very dedicated to do this for the next couple of years. And, and they come to us, they also come to other VCs for sure. But in general they're too early for other VCs and we are not afraid of coming in super early. But to mitigate the risk of coming in so early, we're going to be super involved operationally in each of them to maximize the chances that each of them succeed. So I can also tell a bit more about the kind of support that you provide to them. But I guess I'll let you keep on leading the conversation.
- [05:42]
Joel Palathinkel
Yeah, no, that's helpful, I think to double click a little more. Maybe you can tell us, maybe just walk us through the life cycle of a typical venture studio model company. So you know, I've heard different models and different approaches to this. But you know, one of my friends who's at a venture studio essentially builds the technology in house. So they have capital in house almost like an operating company and then they're, you know, investing their own resources into the company to build the company. So to your point, you can only do four of those at a time as opposed to, you know, typical 35 checks or 40 checks that you do for the life of a fund when you think about portfolio construction. But you know, walk us through the whole process of how a company gets created. Is that built in house or is it a pre seed company that you're working with and then you're helping them by rolling up your sleeves and, and how do you source and screen those? I think that maybe that would be helpful.
- [06:39]
Romain Diaz
Yeah, indeed. So I think there's quite a few shapes of venture studios. Some of them you can look at them as a full spectrum of. On the one hand, you might be familiar with companies or venture studios like RO Internet, although I don't think they define themselves as venture studios. But they really fade the way of the model and inspired many to take similar approaches where they do 100% of the funding of the operational resources. And it shows also in terms of how the cap table looks like because typically Rocket Internet would start the company with maybe 98% of the equity and just give a very tiny bit of equity to the founders. And so typically the kind of founders that they recruit, that they recruit because that's really how it looks like. It's like more your McKinsey, Goldman Sachs neighbor people, very high salaries, very little equity, which I think has paved the way to building like to be pioneers of certain models, especially in emerging countries. But it's definitely not the way we do it for us looking at it from a traditional VC funnel. So we receive a lot of deal flow from different geographies and industries etc. And then we skim through it. We have our scorecard, our criteria, we look at the team, we look at the potential impact. We look because we're obviously impact focused, we look at the potential commercial success, we look at whether we vibe with the team and whether we really see ourselves working with them because then that's becoming like almost like a marriage. It's a.
- [08:11]
Joel Palathinkel
So this is an out, this is an outside team that's already started to build. You're just coming, you're coming in more on the pre seed. So I think that's the model too. Right. So the first flavor which is kind of like rocket Internet, they just build everything in house, they pay for development, growth, everything and they own most of the company. You're another flavor which is like we found an interesting pre seed company but instead of just giving them a check and just letting them do the work, we can mitigate the risk by rolling up our sleeves.
- [08:39]
Romain Diaz
Right? That's exactly it.
- [08:42]
Joel Palathinkel
What's another flavor outside of that?
- [08:45]
Romain Diaz
I think one that has worked quite well is a venture studio in France and Belgium and that has cemented a couple of unicorns recently which is called efounders. They do B2B SaaS. They would have founded front spendesk and a couple of successful companies and basically they do like they're super niche in terms of the kind of businesses that they build. It's only B2B SaaS and it's really internal ideation and then they would bring both the operational resources and the capital in a similar way that we do, but they don't have a funnel. So for us like every day we receive deal flow founders pitching us, sending us us their deck with you know, their, the name of the company. Sometimes most of the time it's already incorporated, it's already have a name, sometimes they have a beginning of the product etc. So they're a tiny bit more advanced than what typical E founders for example would do. So it's a bit different. I think there's quite a few flavors. Some of them are more like corporate driven. So there's also like corporate venture builders where corporates on a specific topic want to create new companies and then they're going to hire teams to build the internal ideas. So there's a few flavors. For us it's more akin to a venture capital fund but super early stage basically. And then again we're going to invest all these operational resources to really help the founders because typically they come to us with an idea, a Name a deck. And to be honest, that's about it. Sometimes the beginning of the product. But then we're going to plug in a lot of operational resources so we have a CTO in house, someone in charge of sustainability, someone in charge of marketing, of finance, operations, etc. So we're so that we can then really work with entrepreneurs to go from zero to one. So we're going to invest the pre seed and then we're going to help them to build the company, build attraction, revenue, etc. Until seed where we will reinvest to keep our paratha. But then we'll work with also external investors that will be leading rounds.
- [10:44]
Joel Palathinkel
Got it. So you know, so you're also investing like a venture size check along with the, along with the venture studio. Are there other models that don't use capital where they just kind of provide their resources and product development support? I think I've seen a few other product development agencies that do that. They offer. I think what's interesting is I've seen another flavor where it's a development shop consultancy firm and what they do is they offer cheaper subsidized developer resources to be able to get the company at scale, to get the company to scale much faster. They also have cheaper resources for growth as well. But in exchange they take equity and then I think they actually make revenue from offering the developer resources. Have you seen that? And I don't know what your thoughts are on that model. The only issue is you're not really offering any capital. It's almost like a barter system.
- [11:34]
Romain Diaz
Yeah, yeah, we've seen that. I think it has its merit. I think it's just a bit harder to scale. I think what we're seeing also sometimes is agencies that use the process and the profits, the proceeds of the agency work to then spin up their own company, typically of the company, but then take these kind of companies to VC backable models. And I've done this mistake in the past, like previously being a bit naive. I had an idea for a business within the venture Studio. I founded the company, I built the first version, I hired the team, etc. So it really felt like it was like basically me, myself and I, but then we hired the CEO to run the company and we gave way too little and we as a venture studio had like 80% of the equity which initially sounded logical because we did pretty much everything and we funded the company, etc. But then raised with external VCs then it was a hurdle because the founder was not incentivized enough. And VCs wouldn't want to have a studio owning 80% of the company, not vesting and contributing to the growth of the company going forward. So I think the model we have now is more scalable. It's more akin to VC basically pre seed VC being more involved operationally during the first 12 to 18 months and then once we raise an external seed round to let the company fly by their own wings, where we take still a fairly decent meaningful stake into the company, but not too much so that it's not a hurdle for subsequent rounds. Sure.
- [13:08]
Joel Palathinkel
No, that helps. And you know, with your model too, can you, can you give a little more detail in terms of how you source and screen these companies? Because you only have four to five companies that you can support at a time and I'm thinking you look at thousands of companies. So what are some of the characteristics that you'd say is a consistent characteristic of a successful possible deal that goes through and walk us through your process. How do you screen them? Do you, you know, do you look at certain things for the team, the technology, the market size? Would love to, you know, share that with the community.
- [13:43]
Romain Diaz
Yeah, definitely. So indeed we received quite a bit of deal flow I think at the moment. Currently in our pipeline we have about 350 companies. Partly is inbound. So it's people just finding us online, social media visibility, partnership, etc. And they come to us. Partly it's us doing like active sourcing and really doing outreach to entrepreneurs that really fit within our thesis. So less quantity but generally better quality. That's what we notice. And so within that deal flow we have to obviously analyze which one can be a fit for us. Some of them are just not fitting the thesis. So we just send a decline email pretty quickly. We're pretty quick to respond. It's just a couple of days and entrepreneurs know whether there's going to be a next step or whether it's a no. We don't want to keep them waiting for nothing. And then I think out of all of that probably about 25% we invite them for calls to dig a little further and then we run them through our own scorecard that was built internally that has four main pillars. There's lots of things that we look at, but four main pillars. First pillar is more the commercial side of things. So we look at typical things like market size, technology, barriers to entry, like trading, typical things that most VCs look like. Then we have a second pillar which is more around the impact. So do we think that this company can have a meaningful positive impact on any of the environmental sustainable development goals that we look at. And the primary one that we look at is SDG 13. So climate action. So can this company really make a dent in terms of reduction or removal of carbon emissions as a main North Star metric that we look at from an impact perspective? And then so that's a scan pillar around impact and obviously also looking at potential adverse impact like okay, this can have a positive impact, but can it also not have other adverse negative impacts on other areas as well? Also something that we look at then third pillar is more on the team. So even if we're not so convinced about something, but we really think that the team is smart, capable, you know, like more. Sometimes this is as much a science as it's an art. And sometimes looking at intuition of whether you think that this founder really has something. So really looking at the team, especially, especially at such an early stage is a critical factor.
- [16:01]
Joel Palathinkel
What are some things that stood out greatly when you're looking at the team? Obviously there's the education, there's the special unique characteristics, but can you unpack that a little more? Maybe thinking about some of the companies that you invested in, what really stood out with the team?
- [16:20]
Romain Diaz
Yeah, so I'll take a very concrete example of the first company that we invested in actually didn't look at the education, fortunately, because otherwise we wouldn't have invested because the founder CEO dropped out of university to found the company. So for us that's already a very strong sign. He is young, he's super driven, very mission driven as well in terms of decarbonizing transport in East Africa. So this company does electric mobility, so solution for emerging markets and in particular East Africa, starting with Nairobikinia. And as soon as we saw the founder, we saw a lot of potential in him. Very smart, very driven, in for the long term, has already been very scrappy and resourceful to build a first MVP without really having capital. Really managed to bring in a strong advisory board, people around him, et cetera. So all of these things were signs. And then you look at the softer set of things. Do you think that this founder can convince people? He managed to convince us, but do we think that he can really convince other people? Whether that's partners, talent, investors, etc. And then the softer do we think that we vibe with the founder? Do we see this person smiling and being good and do we want to work with this founder? Because once again we are not just going to be investors, financial investors, we're going to be together to build the company. So actually just before that I was in a call with him and it's always a joy to work with him and we have to really ensure that we work with people that we see ourselves working with for the many years to come.
- [17:56]
Joel Palathinkel
Yeah. What are some trends that you're seeing with impact and can you unpack that a little bit as far as like, you know, the things that you look for? Obviously carbon emissions is really important, but what are some other secondary factors that you're looking at with impact? And can you just tell us a little more about the ecosystem where you're investing and tell us about the people that you partner with and maybe even just kind of the LP ecosystem as well?
- [18:22]
Romain Diaz
Yeah, for sure. So for us, we really see Impact as being a driver of alpha returns for the next decades to come. There's lots of hot trends in the venture ecosystem at the moment. Some of them I believe are more short term because right now they're hot. But in a couple of months, who knows? Whereas the way we see climate and sustainability, it's not a fad. It's going to be around for the next 30 years because in any case, if we want to survive as a species, we're going to have to decarbonize our economies. We're going to have to do things differently. So I'm mentioning decarbonizing because it's one of the key topics, climate and carbon emissions in particular. But we think that there's other areas that are equally important. And recently I saw like a cartoon around carbon tunnel vision. So we think that carbon is obviously like if we don't decarbonize our economies, we're basically screwed. We're not going to survive on this planet and many other species either. But there's other areas to sustainability. There's obviously other greenhouse gases emissions such as methanes and, and sorry, methane and nitrous oxide etc. There are other emissions that are also important to look at. But also this like circular models around. How can you reuse, for example, like refurbished items in terms of electronics, like back market? One of the biggest unicorns in Europe is around refurbished equipment. Not so much. I mean it is about carbon emissions but it's also about reusing materials for like precious rare earth metals and other like circular models. There's around access to water, pollution, etc. So I'm just mentioning this because I think currently climate has most of the attention and I think it's a great thing. But there's other areas of sustainability that we think are important so that we look at things from a holistic perspective and we think that this is going to be the case for the next 30 years anyways because there are commitments in terms of, you know, governments, corporates, there's innovation, there's also the younger generation. Talents really want to work for more purposeful and respectful environmentally conscious companies. So I think everything points to this from a very long term perspective and that's going to drive alpha returns for investors and for everyone involved within this space.
- [20:47]
Joel Palathinkel
And you know, can you tell me a little bit about the different regions? So you know you, you talked about Africa and then you talked about Europe and, and a couple of the other sectors. How, how have you seen just variations in how impact is handled and then just the venture ecosystem. Are you seeing big differences? And I only ask because I'm in New York, right. So I'm not really, you know, super plugged in. I have, you know, obviously I do have friends in, in the UK in Europe but excited to meet other people just across the pond to learn more about the global perspective. And then what do we need to do to provide more co investing opportunities? Cross border.
- [21:24]
Romain Diaz
Yeah. So we're still quarterly in our fundraising process. So for now we just have one portfolio company, that portfolio in East Africa. But going forward we're going to focus mostly on Europe and actually about I would say two thirds of our deal for at the moment is coming from Europe. We're in due diligence process with three companies that are all based in Europe and our investment piece is going to be mostly focused on Western Europe with an eye on certain emerging countries again where we have like networks in terms of follow on funding and we know the markets because either we have people within our team or we already made investments there or we've worked there in the past, et cetera. So we're not going to go into any emerging country. But we have a remote and fully distributed team which enables us to look at opportunities basically anywhere I would say I think time zone is still important for us. So this is why Europe and Africa obviously works quite well. The US is a little more challenging and also I think it's a different set of challenges and we don't have a track record, we don't really have a team in the US etc. So going forward within our fund I think it might be that we start doing co investments but for now our model is mostly doing pre seed, being the sole investor at pre seed stage and then co investing at seed alongside other investors. So that's going to be our model, but hopefully I really hope we're going to be doing more things in the US going forward. And who knows, I mean our setup really allows for us to be global so. So who knows, we might do more work in the coming years in the.
- [22:57]
Joel Palathinkel
U.S. and you know, we didn't get a chance to double click on this a little more. Just going further about you and your background. So tell us how you pivoted into the venture studio model and a little more about your background and what did you study when you were in college or just earlier in your career?
- [23:15]
Romain Diaz
Yeah, so I have a business background, both my bachelor and the masters and I've always been into entrepreneurship. I had a very short stint at strategy consulting. Really didn't like it wasn't for me. I wasn't meant to be in suit and tie and just DO Excel and PowerPoint analysis. I really wanted to be in franchise. So glad to have had this experience to realize that I wanted to be an entrepreneur. I had so many ideas. I was like when I was 20 I kept a list of hundreds of, of ideas literally and I wanted to do them all. So I think that was the first thing around saying, is there a way for me to start many ideas at once? Because I just wanted to do many things. Obviously a lot has gone through for me to realize how to do things, how not to do things, how to focus, etc. Now fast forward 10 years, I'm really glad of having founded this company which enables me to do just one thing because I believe focus is key. So I just do this, I say no every day to opportunities in advisory, investment, et cetera because I just want to do one thing and do it really well. But within that thing I have the opportunity to look at many, many things. So again we look at deals in mobility, in agriculture, in energy, in industry, in many different things. So that gives me the variety and intellectual challenge of seeing many different things but always within one thing. And plus we have like a lot of geographical like insights into different markets. So it's very, very rich but going backwards a little bit. So that gave me a first opening into what a venture studio is. I was fortunate to join the most established and known venture studio back in the days, rocket Internet famous and infamous because they also have their practices which sometimes are a little bit controversial. But I was glad that I, I learned through that some of the good things, some of the less good things of the things that I wanted differently. Very early days of what became the first unicorn in Africa. It's called Jumia. It's basically the Amazon of Africa. So I was in Morocco part of the very early days of what then became now it's Nasdaq listed. Yeah, that was really, really interesting. Then I joined another venture studio which was former founded by former rocket engine people. So with the same philosophy, more focused on E commerce in South Africa, got an investment by Naspers. Also really interesting, similar model. Then I co founded one venture studio of my own in South Africa where we started four companies, two of which have ended up merging within each other in financial inclusion space for the bottom of the pyramid in South Africa. One of them was an attempt to replicate a coupling peer to peer ride sharing model which is successful in Europe trying to implement into Africa. Raised a round of funding, didn't work out eventually and won a fourth company which is in the fintech space doing artificial intelligence solutions for the financial industry. Raised a couple of rounds of VC in South Africa, then expanded to Europe and that company as a parallel typical VC model is going to deliver 99% of the returns at the studio level Right now I think we're sitting on about 12x at the fund level so and still there's quite a bit of value which is still yet to be realized. So in terms of IRR, the studio is sitting on a 57% IR that was founded in 2015. We invested the full fund that we had raised and now it's been about three years that I'm working on on SAD Ghana, taking a lot of the learnings of what we've done previously, but solely focused on sustainability and climate. Because I realized two things. One is that I think it's a massive challenge. We have to do things very differently than we've been doing for the past 200 years. If we have to survive, if we want to survive as a species and if we don't want to decimate other species as well. So rethink everything. And also that it's a massive business opportunity. Opportunity. And so I think there's a really interesting thing which is happening right now is the conversion, the convergence of strong returns with doing the right thing and having a positive return. And that's really what I'm committing for the many decades to come.
- [27:27]
Joel Palathinkel
Yeah, no, that's exciting. Can you go a little deeper on what you see as the different sectors of climate change? Because a lot of people have different definitions. I've seen climate change also cascade out to food tech. So, you know, more sustainable types of food options, you know, whether it's lab grown meat, plant based Meat and then, you know, supporting things that are assisting with the infrastructure of climate change. I've also been really interested in just alternative energy sources, but you know, would love to, you know, see, you know, learn about some of the trends that you're seeing in climate change as well and what you think are going to be kind of exciting opportunities.
- [28:09]
Romain Diaz
Yeah, I think there's a few ways to look at it. One is look at the spectrum of the global emissions and see where they come from. So a lot of it comes from energy, but if you break it down, then within energy, that's transport, that's industry, steel and cement, that's food and agriculture. It's many different sectors. So that's one way to look at it. Another way to is in terms of how far are we into the development of the technologies needed to decarbonize and make our world more sustainable. You are probably familiar with the fact that Bill Gates with Breakthrough Energy Ventures has raised and launched a $1 billion fund to invest in into breakthrough technologies. So that's typically the technologies that are not there yet in terms of decarbonizing the hard to abate industries such as steel, cement, etc. So that's more like the breakthrough. We're not there yet. There's a lot of interesting work happening in terms of hydrogen, nuclear fusion, decarbonization of steel and cement, hydrogen. I think I mentioned it.
- [29:20]
Joel Palathinkel
And how do you, how do you decarbonize steel and cement? Is it like a unique process or is it more synthetic materials that are more biodegradable and you know, climate friendly? Is that how you decarbonize, just finding better options?
- [29:36]
Romain Diaz
Good question. So there's breakthroughs, so different doing things differently. There's also tapping into new sources of energy that are 100% clean to power industries. And then you have deployment of existing technologies. And that's more the kind of technologies that we're going to be investing in just because of the nature of our team, first of all, and also in terms of the kind of ticket size that we're going to do. Because if you look for example at nuclear fusion, which is obviously very exciting because that would be if we managed to put it off. And a lot of people are saying that we might be closer than we think, or some people say it would be a source of infinite free or close to free cheap clean energy. But to pull it off, it's going to require, and it requires and it's already bringing a lot of like billions in investments. That's not the kind of investments we're going to get into because of the nature of the ticket size, we're going to do the equity stakes we're looking for and the, you know, the meaningful. And so, so typically, if we invest say half a million dollars for 20, 25% of equity, that gives you the kind of startup we can invest into and that's more into, say, deployment of existing technologies. So, for example, electric mobility, once again, the one we invested into, the technology is proven. It has been that the price of electric mobility and batteries has been declining for the past 10, 20 years. And now there's no more technology risk. It's more like a deployment infrastructure play that we're deploying into a market where there is no such thing. We can also use software quite a bit. Obviously, that's better in terms of being asset light. We're looking at a couple of companies that are utilizing software to make industries more efficient in terms of methane reduction. In terms of. We're quite excited about company which is into basically helping companies to reduce, monitor, monitor, measure and reduce their plastic footprint as well. So it's more this kind of innovation, which is a little bit further.
- [31:51]
Joel Palathinkel
Hey, guys, can we go on mute, whoever it is? Okay, I think we're good. All right. Sorry about that, Romain, go ahead.
- [31:59]
Romain Diaz
No, so basically that's more the innovation where we think we're going to be well positioned to assist founders.
- [32:06]
Joel Palathinkel
Yeah. And for the audience, you know, I'm really excited about nuclear fusion as well. Can you unpack that a little bit? You know, so from my understanding, it's the process of using water to create energy. And I don't know if you've guys ever seen. This is old school, but have you guys ever seen the movie the Saint? Like with Val Kilmer? This was like Val Kilmer in his prime, but he discovered nuclear fusion with this scientist. So I always think about that. I don't know if anybody in the audience here has seen that movie, and I don't know if you have, Romain, but that's when I kind of first learned about fusion. But what are you seeing in the developments in that area? Are you seeing big universities get involved? Like, who's advancing that and where are we with that? Like, what are some of the updates you've seen on that? Because that's a really hot space right now. So I think it'd be good to take a few seconds to talk about that.
- [32:56]
Romain Diaz
Yeah, definitely. So nuclear fusion is a very exciting space because it would be a source of unlimited clean energy by basically using a nuclear reaction. But Instead of doing a fission of atoms, you're them, so you're making your. You're doing it in such a way that does not produce waste. Which is one of the biggest problems of nuclear vision at the moment is that first of all there's the overarching risk of accidents like there has been with, with Fukushima and so on before Chernobyl, before. So that's a big risk also in the public eye, although obviously I believe that, that the risk is much lower than what we're seeing in terms of risk in fossil fuels. That's another story. I don't want to get into that debate. But that's a big problem with nuclear fission and that it has radioactive waste. And that's a big problem. Nuclear fusion would be basically a panacea because it would enable us to have fully clean, abundant energy without producing nuclear waste. Some people say that it's still a couple of decades away. Some people are investing into companies that seem to indicate that we might be a lot closer than we thought. There's one company which raised I think 2.4 or 2.6 recently billion euros called Commonwealth Fusion, which has received investment from Breakthrough Energy. Lower Carbon Capital, which is the new fund of Chris Sacker, which before was lowercase, now is Low carbon, focus on climate and some of the most prominent investors in the space. So obviously it's more deep tech. It's a lot of research development a couple of years ahead before really being fully at commercial deployment phase. But that's really exciting and very much looking forward to seeing how that unfolds in the coming years.
- [34:54]
Joel Palathinkel
And what is the fundamental challenge of making nuclear fusion reality? I guess what's the, you know, these companies that are getting some more funding and they're a couple decades away. Why do you think we're closer and what, what is kind of holding us back?
- [35:10]
Romain Diaz
I think it's really still, if you look at the deploy development cycle of any technology, you have like the really, really early stage where it's more of an idea and experiment and labs and so on, and then we're still, I think in the fairly early days, there's a couple of challenges in terms of really making it happen at scale and in a way that is economically viable as well. It takes a lot of resources, infrastructure, investments, etc. But if we listen to the people who are really in the trenches making it happen, a lot of work happening at MIT as well. Some people are saying that it might be as soon as 20, 20, 25, 26, that we might start seeing it as commercially viable in the US to start with. There's a big expansion in France. I hope we can get to get countries as well to collaborate more on these topics. There's always geopolitics at play because that's. Energy is basically food for economies. It's how we power everything. And so there's a lot of, of geopolitical interests around fossil fuels and gas and oil and coal and nuclear and so on and obviously the renewables now. So that's going to be really interesting to follow in the next couple of years.
- [36:30]
Joel Palathinkel
Yeah, no, that's helpful. And so what you're saying is really the challenges are the capital intensity and then is there like stability issues? I know with the quantum. One of the biggest issues with taking quantum commercial is just the stability of just maintaining the technology to kind of be in a stable state. But when you think about the challenges of fusion along with the capital intensity, probably just a lot of trial and error and having lab space to be able to test out some of the emerging tech. I'm assuming they probably have to set up the infrastructure to test it and, and, and see if it's commercially viable.
- [37:09]
Romain Diaz
Commercially viable and safe.
- [37:11]
Joel Palathinkel
Yeah. Yeah. What are some of the safety issues with fusion?
- [37:16]
Romain Diaz
I think like any technology that might deploy at scale, especially for something as big as energy, which powers everything from food to buildings to transport to everything, you really have to be careful before for redeploying it at scale. It's a bit like, you know, carbon removal is also having a moment at the moment because it's been said over and over again by the IPCC and all the big corporate bodies around climate that we're going to need that beyond just reducing our emissions to get to net zero, there will be anyway residual emissions that are going to be hard to abate and we have to remove to remove past emissions. So carbon removal is really having a moment right now in terms of ensuring that we have the technologies to. Your audio is okay. I think if you speak too close, it's getting a bit busy.
- [38:12]
Joel Palathinkel
Got it.
- [38:14]
Romain Diaz
Carbon removal is really an interesting topic at the moment in terms of both nature based solutions and engineering solutions. But if you really look at any of the carbon removal solutions and you say that one is viable, but you scale it very, very quickly, there's always a risk that one solution being scale can have negative impacts on other areas. So for example, if you look at one of the solutions is injecting. I think it's, I don't remember the name of the, the gas but it's basically like sending one gas into the atmosphere because that would filter the rays of the sun to make it basically less strong towards the Earth to cool it down. But if you do it at scale, then it's going to make our sky, basically it's going to change the color of our sky. And that, that would be a solution that is proven as being better for cooling the planet, but it can have that impact in, in terms of sky color. So yes, it's good for the climate, but there's other things to look at. Same with trees. If we plant many, many trees, we're not going to have enough space. Plus if you plant the same species of trees into a massive land, that's going to kill biodiversity. So you need to look at things holistically and one climate solution is not going to be a silver bullet for solving the climate and ecological questions.
- [39:39]
Joel Palathinkel
Sure, yeah. I mean, it's very similar to software, actually. It's funny, I used to have a life previously just working in software and a lot of times when you fix a bug, that issue is fixed, but there's some other issues with the database and the server so you break something else. So yeah, I think that a lot of these lessons that you learn cascade across different sectors and industries and processes. I know we got around 20 minutes left. We'll leave a little bit of time if anybody has any questions. But I always wrap up with any lessons that you've learned. So if there's anything that you know, kind of looking back on your career, what are some big lessons that you'd like to share with us? Maybe from a mentor, maybe just from your career, maybe a coworker, you know, anything you want to share, a family member. So what kind of life advice do you have from us? Or career advice?
- [40:31]
Romain Diaz
I think few key ones that I always refer back to. One to be very clear on our why, because I think entrepreneurship is a very hard. We see the tip of the iceberg in the media and fundraising rounds, etc. But it's like one should not get fooled that it's really, really hard to build a company. And so you don't really know very clearly your why, your own why of why you're doing it and what gets you up in the morning. You may might do it for a while, but I think it's really hard to sustain in the long run if you don't know your clear why. I think it really enables you to go through the lows because you have a clear why. So it's easier to go because as I Always say entrepreneurship. In entrepreneurship, the highs are really high and the lows are really low. So that really helps to navigate that. So knowing the why is also way to ensuring that you can do it for five, 10 years, whatever it takes to really do something at scale. Otherwise, I think it's. It's much easier to, to abandon, to just give up if you don't know your why. So that's one thing that I keep on referring back to and now find my why, my personal why. And I'm very committed to do this for the next decades to come. So that's always something that I advise to founders, and that's also something which is great in the impact and sustainability space, is that the founders generally know very well their why. We. I don't even really have to speak about it because it's very clear. Another thing that I keep on referring to always is having a very strong sense of integrity and selflessness and helping others and just doing the right thing. I think it always comes back. Whether you believe in karma, whether it's just business sense, I think doing the right thing always pays back. As Warren Buffett Sundays, it takes 20 years to build a reputation, five minutes to ruin it. So I always refer back to just doing the right thing, being very honest, being very fair, and trying to help others as well. I've helped countless people, as I've been helped by many others, and oftentimes it's the people that I've helped that has come back to me like much bigger ways and without me really counting or expecting anything in return, like being less transactional. Transactional. Just I want to help because I believe in what you do and just because, you know, I think at the end of the day, we're all humans and we have to help each other, you know, in this together. And that has been very, I think, beneficial for me. Whether that's karma or whether it's just business sense, it always come back in much bigger ways.
- [43:03]
Joel Palathinkel
Sure. That's all really helpful advice and good stuff for us to take back with us. So, audience, any questions, you guys, feel free to unmute and shout it out. One other question I have while they're thinking about a question, is any advice you have for career changers, people that are trying to maybe pivot into a venture studio, when you've hired some talent to help you with your studio, what are some things that you look to for in a talented candidate, and what are some things that people can do to kind of become better professionals in the venture studio space?
- [43:45]
Romain Diaz
So in the Venture studio space. I think there's quite a broad spectrum of skills that can be needed because as a venture studio you really want to ensure that you can cover the full spectrum of what is needed to get a company from A to B from 0 to 1. So that can can come in the form of being technical and helping founders to build their first MVP and product can be around. For example, for us, sustainability and impact, which is very important, can be around marketing, can be around finance. So either you can be really specialized into one of the key functions to help founders to get from 0 to 1, or it can be more just holistic in terms of I've already been a founder, I've been through the whole process of getting a company from idea to getting funded, getting its first customers and revenue, etc. So it can be more like a broader entrepreneurial game, more like an advisor, or it can be more like sectorial. Like I know one industry in particular, whether that's within the frame of say, climate, I know mobility really well. So I can help you figure out the industry, for example, that can also be a lens through which doing a venture studio is not easy. Obviously it comes with its own set of challenges, but it's also really rewarding. There's not so many studios that have been successful at scale. There's a couple of them in the us, there's a couple of them in Europe. It's not an easy model to pull off. I think it's really sexy on paper because you get to work with entrepreneurs from zero to one, which I believe is one of the most exciting spaces to be in. But to pull it off and make it work is not easy. But when you're really committed, once again, you know your why, then we're on our way to make it happen.
- [45:26]
Joel Palathinkel
Yeah. Okay, great. Well, if anybody else have any questions. All right, if you do, feel free to shout it out. If not, we will wrap up. So, Romain, I know you're super busy. Thanks so much for your time and excited to get to know you. It's been great, you know, learning more about you and excited to have you in the the fund accelerator as well. So for me it's just exciting to build more relationships cross border and internationally to see how we can collaborate. Oh, it looks like we got one here. So viral you want to just shout that question out?
- [46:01]
Audience Member 1
Hi Romain, thanks for the talk. Just had a couple of quick questions. So firstly I just wanted to understand how do you, how do you quantify impact? Right. Because you said that you are looking at companies and you're looking at whether they are going to reduce carbon emissions in the longer run. Is that the only way that you're looking at quantifying impact or are there other parameters as well? And as a follow up to that, just wanted to understand that when you do you come across trade offs between the impact aspect of a company and the commercial, whether it'll be a commercial success or not. So for example, it might be a big commercial success, but you feel that the impact impact isn't strong enough. And if you come across cases like those, how do you decide whether you want to invest in the company or not?
- [46:45]
Romain Diaz
Yeah, thanks. Really good questions. So on the first one, the main impact metric that we look at is indeed carbon emissions or greenhouse gases emissions. But not only it's just our main one because it's the most quantifiable, it's also the one that many companies are tackling at the moment. So that is the main one. But first we start from the framework of the Sustainable Development Goals. So we look at what are the subtargets that one company is addressing. It can be around, say ecosystems monitored. It can be around for example, amount of water needed for growing a specific crop, for example. It can be any environmental metric. And looking at this metric, how can we, we imagine where can the company go if it really succeeds at scale? Which leads to your second question which is around do we see any trade off? Obviously there can be trade off, especially when you look at impact from a broader perspective of impact investing in particular, like the more socially driven social impact companies, I think there may be some trade off. But what we see in the environmental and climate space in particular is that we think that the more a company can scale, the more it can have a positive impact. If you look at one very famous example obviously is Tesla. The more they're going to deploy electric cars, the more they can decarbonize transport as a whole. So the way we look at it and the way we present it to our LPs and to anyone looking at what we do is the more commercial success one company can have, the more impact they can have. So we don't really want to look at, or rather ensuring that one company does not have adverse impact on other environmental or social metrics. But if there's no clear adverse impact, then we are taking the stance that the more commercial success means the more more positive impact.
- [48:50]
Audience Member 1
Got it? Thanks. Romain. I had another question, can I go before Jayad if that's okay?
- [48:57]
Joel Palathinkel
Sure. Romain, is that cool?
- [49:01]
Audience Member 1
Romain? I was just a bit curious about how your firm would scale in the sense that because you're so deeply involved in the startups that you're investing in, Right. And because you said that you would not be able to invest in more than four or five companies at one go, I'm assuming that once you invest in them, it's not that you take your hands off and say that, okay, now that I've invested, I will not be involved. You actually get more deeply involved in these companies. Right. So as you identify more potential companies to invest in, would you need a larger team or would you need to grow your team as well along with it if you want to invest in more companies? Or is there any other way in which you're looking at scaling?
- [49:49]
Romain Diaz
Yeah, thanks.
- [49:50]
Audience Member 1
Scaling.
- [49:51]
Romain Diaz
Yeah, it's a great question. So in our first fund, we're currently in the process of raising a 25 million euro fund which will enable us to invest into 20 companies, 25 companies that precede and 20 at seed. That's how our portfolio construction is going to look like. And that's going to be about four to five companies per year for the next four years. And indeed, the way we are set up and the way we intend to be involved in each company does not allow us to do again, 20 or 40 deals overall, or at least not in a year. Overall, 20 companies, but not per year. Now, going forward, in terms of scaling, I think there's a few ways we can do this. This obviously is just fund one, but we have much bigger goals in terms of AUM and in terms of raising Fund two, Fund three, et cetera, we can be a bit more specific on either verticals. For example, if we have one LP specifically on one vertical that would want us to launch a specific venture studio or venture fund for one foot specific vertical, that's one way to scale. Or we could be a bit more geographical, for example, saying we're going to do a fund specifically for emerging markets or for Europe, for example. And also the more I'm seeing this, the more I realize that we're going to be doing more and more later stage deals. So series A and potentially more onwards for the first fund, we're going to do only precedent seed stage rounds and we'll pass on our parata to our LPs for Series A onwards. But to scale and to put more capital to work, it's also not unlikely that going forward we also invest into later stage rounds. And also more AUM means more management fee and hence more ability to have a Bigger team to support more companies.
- [51:44]
Audience Member 1
Got it, got it. Thanks, Romain. Cool.
- [51:48]
Joel Palathinkel
All right. And Jai, it looks like you had a really quick question, right?
- [51:53]
Audience Member 2
Yes, actually, I think Romain probably answered it with the question with Avril. But basically I wanted to sort of know how you benchmark sort of the benefits that a small entrepreneur could actually bring forward in looking at climate targets. How are you actually benchmarking that? And, you know, are you using specific models to make some sort of calculations of how a particular firm or, you know, startup could do?
- [52:26]
Romain Diaz
I'm sorry, I'm not sure I understood what you meant.
- [52:31]
Audience Member 2
Just more in the sense that if. How do you actually benchmark the benefit that you're getting that an entrepreneur can actually, actually bring?
- [52:40]
Joel Palathinkel
Do you.
- [52:41]
Audience Member 2
You know, obviously there's different climate change goals and expectations. You know, for example, we're trying to reduce the temperature of the world and stuff like that. But are you, you know, have you got specific benchmarks that you're. That you're. You're looking to achieve from the companies that you bring in?
- [53:01]
Romain Diaz
You mean like in terms of impact targets?
- [53:03]
Audience Member 2
Yes, that sort of stuff? Yeah.
- [53:06]
Romain Diaz
Yes. So for each company, they have to have a potential for commercial success, meaning that for us, we look at any company need to be a potential fund returner, meaning that for each company, they have to have the ability to return at least 100 million to the fund. And that's in terms of commercial viability. And in terms of impact, we want to look at companies that can have a meaningful impact in the millions of tons of. Of carbon, either reduced or removed, or any other environmental metric. But it has to be. It cannot be just marginal. It has to be meaningful impact while also ensuring that we don't have adverse impact on other metrics.
- [53:47]
Audience Member 2
Okay, that's great. Thanks.
- [53:50]
Joel Palathinkel
Great. And I'll just fly through these here.
- [53:52]
Romain Diaz
So.
- [53:54]
Joel Palathinkel
Competition for the startup company, low entry barrier. So I'm assuming, Jesse, and feel free to correct me if I wrong, but I'm assuming just how do you look at competitors when you're looking at companies? I'm assuming that's just covered within your scoring rubric, right, Romain? When you're kind of looking at the competition. So that's one of them. And then the question is, do you think the general public is aware of the difference between venture studios and venture funds? I think people know of venture studios, but I think thanks to this talk, we're able to go a little deeper in terms of the different flavors of venture studios and how they work. John, I don't know if that covered your question, but feel free to chime in if you got, if you want to double click on that question. But I think in my opinion too, I think people that work in product and have done a lot of project management have been very tactical. Those are like really great fits for venture studios because you're really supporting the founder, you're a lot more operational. But I don't think everybody, like the general public knows what a venture studio is. And would you agree with that, Romain? And I think it's increasingly growing because there's more corporates that are now opening up their corporate innovation labs and they're posting jobs. But what are your thoughts on that as far as just like the general public knowing about what, what venture studios actually are and how they operate?
- [55:19]
Romain Diaz
Yeah, for sure. I think it is growing in terms of awareness also because there has been a couple of very successful companies that spun out of studios, et cetera, but it is still nascent. And I think maybe a limitation is that some of the very strong entrepreneurs, sometimes second time entrepreneurs, feel they don't need Venture Studio and that may also be a limitation. So right now we're still defining ourselves as a venture studio because we're super early stage, because we invest a lot of operational resources. But I think that going forward it's also not unlikely that we define ourselves as Venture Studio and Venture Fund because that's also what we are. We're structured like a typical GP structure and we have also the flavor of a venture fund. So that I think will also be a way to attract more entrepreneurs that don't necessarily know of Venture Studio or don't think that they're fit. But we still think that we can help them with both the capital and the operational and strategic.
- [56:17]
Joel Palathinkel
Yeah, sure. Well, this is great. Well, thank you so much, Romain and thanks for everyone else. Just rapid fire and some additional questions and, and keeping the discussion engaging and I'll catch up with you soon, Romain. Have a good one.
- [56:32]
Romain Diaz
So thank you so much for organizing that and everyone.
- [56:34]
Joel Palathinkel
Yeah, thank.
- [56:38]
Romain Diaz
You. Sa.