$150 Million Energy & Climate Tech Investment Fund Announced By TDK Ventures
Government has its levers to use for supporting sustainability, such as tax credits, rebates, research and development, raising awareness, and financial support, to name just a few. Sustainability is not only invested in by government agencies, initiatives, and campaigns, however. Companies use their own private capital to invest directly. They tend to be far quicker and more agile than government, not to mention their ability to provide entrepreneurial insights and advice when necessary.
TDK Ventures, a subsidiary of TDK Corporation, recently announced its third fund, Fund EX1. It will invest in the United States and Europe and focus on early-stage energy, cleantech, and climate technology startups. Fund EX1 has $150 million for investing in the startups it chooses to back. (TDK Ventures previously invested in companies such as Ascend Elements, AM Batteries, Type One Energy, Wheels, GenCell and Autoflight.)
Nicolas Sauvage, President of TDK Ventures, answered some questions about Fund EX1 for CleanTechnica.
For the early-stage energy, cleantech, and climate technology startups in the US and Europe the new fund will be investing in, what is your process for finding and selecting them?
We get projects from three main sources. The first source is from what we call our deep explorations, that are always published online (https://tdk-ventures.com/explorations/). We first select an area we want to explore and often review several dozens of startups using our own internal methods. The second source comes from our trusted co-investing partners. We have now invested in 29 companies across the globe and each of these companies have syndicates of investors, some of them are our close partners and we interact with them closely together to find these new startups. Third, is we work tirelessly to get feedback from TDK engineers, sales and marketing experts, and even corporate officers who can sometimes suggest to us new startups they have encountered. So, having these three main sources offers us a rich, diverse perspective on the state of the art startups across the spaces we look at.
Our method for selecting them is our well-known 3-step process. First, we look for companies that generate outsized financial returns that could create returns for the fund. Second, we look for companies where we as TDK Ventures and TDK can bring tangible strategic value to the startup to accelerate their success or help mitigate their risk. Third, we look for startups that are net positive to society; we use the United Nations’ sustainable development goals as our yardstick here. When all three powers, financial, strategic, and societal good are combined, we usually arrive at the global king of the hill in that space, and then we make an investment.
How do you decide how much to invest and what your return might be?
Each company is different. Some companies are highly capital-intensive, whereas others are not, relatively speaking. Some companies need us to write our maximum check early on, while others don’t. But venture investing is about power law. Meaning, often, one company in your portfolio ends up returning the fund, whereas most others do not. Hence, we try to return the fund with each investment opportunity and our check sizes are proportional to our conviction built internally.
When you invest, do you take a leadership position in the startup, or does your approach allow independence for the founder or founders?
If we were to invest to take a leadership position, this shows that we do not have confidence in the management teams we invest in. We instead believe in being a small part of an iconic journey and humbly serve as sage advisors to the amazing founders we back. So, we allow maximum freedom to entrepreneurs to live and breathe their passion, while we provide them the capital, industry connections, and help them build a lasting business.
Do you provide regular feedback or guidance to the companies you invest in?
Yes, we take board positions and take an active role in helping the business reach new heights. In addition to us taking board roles and helping the company, TDK Ventures has built a scaling team that helps provide strategic guidance on recruitment, marketing, legal, and financing. We even help portfolio companies with customer introductions, trade shows, and help with channel partnerships. All of these services come free of cost and the entrepreneurs we invest in can opt into such things, so we are once again providing a helping hand, but not forcing it.
What is your track record in investing in energy, cleantech, and climate tech startups so far?
We are an emerging corporate venture capital firm, but we have made some interesting investments in this area. We have invested in a variety of areas in the battery value chain and decarbonization. We have invested in next-generation lithium extraction (Novalith), advanced battery manufacturing (AM Batteries), cathode precursor recycling (Ascend Elements), smart electrical panels (Span.io), precious metals recycling (pH7), water sensors for advanced weather prediction (Divirod), green hydrogen electrolysis (Verdagy), and nuclear fusion (Type One Energy).
The fastest growing companies among our climate tech portfolio are Ascend Elements, Span.io, Verdagy, and AM Batteries. The others are <1.5 year of investing and we believe will start bearing fruits soon.
Do you have a priority for investing in energy, climate tech, or neither?
Fund EX1 focuses on electrification and decarbonization. All innovations in these sectors that move the needle towards a sustainable future are in scope.
Do you intend to invest in battery technology? If so, will it be a significant portion of your portfolio?
We intend to invest in problems that solve major pain points of the industry. Battery supply chain, core innovations in chemistry, materials science, and scale-up are all interesting areas for us. There are even new applications for marine, aviation, long-duration energy storage, home electrification that we are interested in.
In general, Fund EX1 focuses on energy generation, energy storage, energy utilization, conversion, and decarbonization. So, there are various technologies of interest in these areas, but we always begin with the biggest problems to solve and then choose the right technologies to invest at the right time.
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How many of your employees manage the fund, and what are their areas of expertise?
Similar to any individual investments, the full TDK Ventures team will be supporting the fund. Their involvement includes project reviews, “devil’s advocate” sessions for particular investments, identifying possible synergies with TDK companies with our engagement team, and helping the portfolio companies scale faster and with less risks with our scaling team. Some of the current investment team members will be deployed to Fund EX1 including Investment Managing Director Anil Achyuta and Investment Associate Katherine He, and more investment team members specialized in energy transformation and climate tech spaces with deep technical background and interests will be recruited in Europe and in Boston.
Can members of the public invest in your company or fund?
We are proud to have our partner ATL joining as a Limited Partner of Fund EX1 and want to make this a success for them and for our portfolio companies. We are not extending Fund EX1 to other partners.
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