Connection Points – Will A VC/Corporate Venturing Hybrid Help European Startups Find U.S. Partners?

Help for European impact companies to enter the U.S. market

Matthias Dill of Energy Impact Partners

Energy Impact Partners

It’s an equation that can be difficult to balance. On the one side, you have corporate businesses who are under pressure to do things more sustainably – particularly in terms of energy consumption – as we move towards an environmentally-friendly, zero-carbon future. On the other, you have a community of tech-driven startups, all keen to sell their sustainability solutions.  

In theory, there should be a symbiosis of sorts. Corporate players keen to access new technology and thinking, a startup community offers a way to do just that. New ventures that want to make a real difference usually need to win support or, better still, contracts from large organizations. To take a simple example, an SME that develops a wonderful piece of smart grid management software won’t get very far unless it teams up with a business that runs an electricity network.  

The problem is that large businesses are not always that brilliant at dealing with young companies and nor are they necessarily very good at investing in them through corporate venture programs.  

So how do you square the circle?  Well, one way to do it is to create a VC business backed by sustainability-conscious corporates. That’s the approach taken by Energy Impact Partners, a US-based company that has just launched a European division.  

Hybrid VC

As Managing Partner in Europe, Matthias Dill explains, the fund is a hybrid between a traditional VC and a corporate venturing operation.    

It works like this. In Europe, Energy Impact Partners has assembled a raft of corporate backers, including EDF, National Grid, EWE, and Fortum. As is apparent from that list, energy companies are well represented, but backers for the European operation also include Microsoft and the Norwegian Sovereign Wealth Fund. 

Value Creation  

“We have a value creation model,” says Dill. “We have assembled a coalition of industrial LPs (limited partners) who want to access new technology. We focus on backing the best entrepreneurs we can find in the sustainability space at the series A and B stages.”   

Historically, sustainability-focused tech has been a notoriously difficult area to invest in. Much of the innovation ten or fifteen years ago was focused on the development of hardware that would take time to bring to market. Investment in capital intensive long-term projects didn’t really suit the VC model and a lot of investor’s finger got burned.  

Dill says EIP is seeking to avoid that trap. “We focus on software-enabled startups,” he says.

Deals are sourced in various ways. Some are brought to EIPs attention by the corporate LPs others are surfaced by the fund’s own team. “About 55 percent are sourced proactively,” says Dill.  

So what’s the attraction for European startups, who may also be of interest to more conventional VC funds? After all, there is a considerable amount of investment available in the impact space. Witness figures published this week by Tech Nation, the U.K. body formed to nurture the digital economy. Drawing on data from Dealroom.co, Tech Nation says that in Britain alone, £1.4bn has been invested this year in ventures addressing United Nations Sustainable Development Goals. Tech Nation estimates that Impact investing accounts for over 15% of total European VC investment, 3 times higher than a decade ago. 

As Dill sees it, startups taking investment from Energy Impact Partners benefit from introductions to potential partners and customers  – not only in Europe but also in the U.S – a marketplace where startups from this side of the Atlantic might struggle to catch the eye of customers. “We find the best founders and help them export,” he says.  He cites the example of eSmart Systems – a supplier of A.I. software for power companies. “We got them a landmark customer (Xcel Energy) in the U.S.”

Dill stresses, however, that the startups are under no pressure to (ultimately) sell out to one or any of the corporate partner investors.  “All of the partners are shareholders in the companies we invest in and there is no cherry picking,” he says. “And we optimize the exit.”  

There is, of course, more than one way for startups to engage with corporate partners. For instance, many of the latter run their own venturing schemes and innovation programs. In bringing its model to Europe, Energy Impact Partners offers another option.

This post was originally published on Forbes - Startups

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