Greencode Ventures: Merging AI and Energy Transition in Impact Investing

In this Zero One Hundred ESG & Impact Talks, we have Dr. Terhi Vapola, Managing Partner and Founder at Greencode Ventures. Terhi is a venture capitalist specializing in greentech and digitalization, with over 40 investments and 18 board positions. She founded and led Helen Ventures, and has co-founded multiple startups. She's an Aalto University alumnus with a D.Sc. in International Business and holds degrees in Industrial Economics and Electrical Engineering. In 2022, she founded the pan-European VC Fund, Greencode Ventures, focusing on investing in the most impactful digital-first green transition startups across Europe.

Listen to the full episode here.

Can you share a short update on Greencode Ventures' current status with us?

So, Green Co-Ventures, we are a green transition-focused fund where we apply digital solutions like the power of AI into the context of solving some of the biggest problems of our planet and then focusing on European early-stage startups. So, that's our main focus. And indeed, we do believe strongly that technology can help us to solve some of these issues.

So, bringing the capabilities from the different kinds of new, it could be deep tech, it could be using that power to address these issues.

And you founded and led Helen Ventures and now you founded Green Co-Ventures, right? What's the difference in terms of approach?

It's very similar. So, Helen Ventures is the investment arm of Helen, the energy company here in the Nordics.

So, the investment thesis and investment strategy are really what I believe in. So, bringing the digital solutions into this context. However, I felt myself personally that I am foremost a founder and entrepreneur myself.

So, basically, we wanted to create, and I luckily had a very fortunate situation in that I had a mentor there at that time who started discussing the themes and investment focus and where are the value gaps. And then one thing led to another. So, we jointly formed Greencode Ventures as an investment firm of our own and focusing on exactly these topics, in which we have a strong, profound interest.

And you could almost say that investment thesis-wise is like 2.0 of Helen Ventures. So, very similar kinds of topics. Also in our team, we have a third GP and she has also exactly invested and led the fund earlier in this focus area.

So, in other words, strong expertise in investing and building operative companies in this field.

And what would be the difference since you started with Corporate VC, right? And then you launched your own VC. So, what's the difference in the approach when you do Corporate VC and when you do it independently?

Largely, I would say in terms of investing and in terms of working, no difference.

So, I think I give full credit to Helen as a company, understanding what the VC is and then also giving free hands to run it as it should, so that you can be able to drive that impact in the ecosystem. And also, therefore, add value with the kind of capabilities understanding, and deep know-how on the topic, which you can leverage out of the business units and vice versa. So, linking the startups also into that ecosystem, but at the same time, making sure that the investments are always done on the profound VC perspective on where to invest and which companies are strong.

So, from that perspective, I see very little difference. The biggest difference is, you could say, mental. So, kind of a feeling for myself, like feeling the sense of ownership, but then at the same time, it's almost the concept of, I feel that all the portfolio companies are like my babies, but then at the same time, kind of realizing that you're only the nanny. And I wanted to be the mom.

So, that kind of a perspective was more about myself in terms of wanting to have that full ownership of the firm and its going forward.

I really love what you just said, like you wanted to be the mom, not the nanny.

That explains perfectly the difference between founding and leading a corporate VC and founding and leading your own VC, right? So, as a digital-first transition venture capital firm, what do you think about or what do you think it is, the role of AI in the whole energy transition?

I believe that AI is one of those transformative powers, that we saw in the early stages of when the internet came about. So, AI is doing a similar kind of transformation into so many different industries. In our context, when we look at the green transition, for me, one of the biggest questions, which I have been kind of pondering, is if you now invest in early-phase and build a company in the climatic phase, and of course, we need hardware, so being able to capture the CO2 and so forth, but in terms of the timeframes, I've been investing in hardware.

So, the timescales to scale companies into having a large and meaningful impact on the ecosystem, so really like in the product market, not in Excel. So, that takes a lot of time because you have those physical limitations or things that you just need to get done. And then at the same time, if you look at the IPCC report, for example, which is basically saying that half of our emissions should be gone by the end of this decade if you want to keep the Paris Agreement.

And then you kind of figure out that, OK, these two don't align. So, to do something that will have a big impact in the real life already within the next few years, because we are already in year four, we need to find solutions that can scale faster. And they're basically, they're kind of coming back to the AI.

So, being able to predict more efficiently, use the big data to be able to analyze, look at, for example, weather forecasts, capabilities to kind of observe the earth, being able to optimize complex processes like, say, distributed energy systems, for example, and then be able to run it more efficiently so that we can cut immediately. So, meaning this summer, this winter on the emissions, whether it is in energy or mobility or transport or thinking like electrification of the traffic or whether it is in the buildings, buildings are wasting a huge amount of energy all the time. And then also, of course, all the industrial processes.

So, if you can take a few percentage points of energy out of those systems and do it now, then apply it into the context where you have most of the emissions in, like exactly these sectors which I just said. So, that is the way where we can drive impact right now. And of course, AI as a tool provides a very efficient way of us getting into the levels of optimization, which we can't do with the traditional methods.

But AI has been around for a while already, right? It's not that new. So, why do you think it's been taking this long for AI to be taken seriously as a tool that can actually help us tackle everything related to the green transition?

I think maybe taking one step back. So, I think we are now in the AI, you could say this hype curve on the top, on the peak.

So, we are now in the stage where it is being discussed by a very large population and it is seen as a solution for everything. So, I think we are also like in terms of the development, the basic capabilities and platforms of AI are in, how do I say, robust enough to be applied in multiple contexts like green transition. But then at the same time, as an investor, we also need to be a little careful on not to overpay because normally in the hype curve, if it's on the peak now, then you will have a backslash.

So, it didn't solve all of the problems of the world because it never will. And no technology whatsoever, even if they are super transformational, they will never be a solution for everything. We will eventually have the backslash on AI as well coming into play.

So, I think in terms of like looking at how we look at it, we look at like proper solutions. So, are we dealing with a problem that is worthwhile solving and is it big enough? And what are the right tools to address it? Is the AI the right tool? Not necessarily. It could be that we can do a much simpler way of addressing the problem, then we should do that because that would be more efficient.

And then if it is the right solution, then kind of going into solving it. There are, of course, certain things where you need a huge amount of data, and the analysis is very difficult with the traditional methods. And those solutions, of course, are all in terms of using the capabilities of AI.

And when you have seen the most innovative solutions for your specific goal, is it here in Europe? How do you look for solutions?

We do it in two ways. So, when we look for solutions, we tend to run because we are a specialist fund. So, therefore, we have a strong and profound understanding of the field ourselves.

And we tend to do quite analytical work on looking at the landscape and seeing where the value pockets are and then looking at different players in that field so that when we come into, OK, this company in particular, we believe in having the, they're solving the right problem. They are in the right position to kind of scale. And then at the same time, they are the strongest candidate to be able to succeed in it.

So we tend to do that kind of, you say, thematic investment. Of course, at the same time, we also use it, so we have a huge amount of deals all the time. And occasionally it happens that there is a new emerging field, which we find super interesting.

So we do read everything that comes in, even though it's a massive amount of work. And we disagree with some of the other VCs' perspective that you are all in the relationship play and then you need the warm intro to get into the VC and then you are kind of considered. So we believe that in that kind of approach, you would miss a lot of good opportunities that come out of maybe networks or areas, geographical areas, which are not as prominent.

And they could be as good companies because many times people see the same problems at the same time in different parts of the world. And actually, as a VC, to be able to have that kind of a, you could almost say, proprietary perspective is something which we find very interesting.

So what do you do? What's your policy when it comes to warm intros?  For example, a few weeks ago, we spoke with another GP that had a policy of no warm intros. That way they could make sure that they will allow everyone. So how do you do it?

We tend to look at the thematic perspective, which helps us to identify most of the players in the field.

And then we would love to talk to most of them at the same time so that we can see and compare the differences. So that would be more of our preference. And then if you look at something that we haven't been looking at earlier, it would be in our interest to do the same anyway, even if it comes as an inbound.

We do, of course, have strong networks because we've been investing in this field for such a long time. So we have strong networks of other VCs. We do constant deal flow sharing with the others, as well as then, of course, the founders we've packed in the past.

And they are a fantastic source of deal flow, which we also like very much. So, of course, there is something behind the warm intro, but if you would only focus on those, you would miss out for sure on opportunities out of your network because that just simply and as I think also in terms of the values, I think it would be wrong not to give everybody a fair chance. So we want to give everybody a fair chance.

And for example, have you had the chance to invest twice in the same funder?

Yes, we have actually. So in our current portfolio, we have one company, which even in the same company we are now in a second time. So I invested first at Hellen Ventures.

I know the team inside out and they are super strong. So we went in again.

And when you say, you know, the team, I'm wondering, how do you what do you look for the perfect team to invest in?

So, first of all, they need to be experts in their field.

So, our field, when we look at the climate tech, typically this be quite, how would I say, deep tech or complex in terms of context. So, do they do they have a fundamentally deep enough understanding of that space? That's one thing. Then the other thing, how are they as a founder? So, I prefer the founders who are in one aspect super smart so that they can figure it out and they are diligent enough.

So, they are not intellectually lazy, but they do their homework. They check the other options. They analyze the market.

So, they do that part. And then at the same time, they need to be super strong in execution. So, they say that, OK, this spring we will do this, or this week we will do that.

And then a week later they've done it. So, they keep on constantly hitting their targets or exceeding the targets, they set for themselves. So this combination of operational excellence and then third, of course, the ambition level.

So really want to build something big, because I think many great entrepreneurs can do a nice company. But of course, as a VC model, we need the outliers. So this is a power law game.

And that requires that we look at the companies that could potentially become unicorns. And then, of course, to build something like that, you need to have an exceptionally driven, smart, and ambitious founder to do it. So those are typically the things we get in a character.

For example, the whole personal part of the founders. I'm asking you this because I have seen many startups that have an awesome founder, no? Because it's a person that, as you said, is very ambitious, very driven, very handsome, very everything. But then it's a very, very toxic boss. You know, it's a toxic leader because of what you said, because it's very driven. It's very focused on taking care of the baby. But then that's the way that person is with the rest of the team.

And it's not the kind of way, you know. So how do you manage that? No, because you are looking for people that make very, very goal-oriented. But then there's also this other part that in the end can take down a company, right? If you have a leader who is always burning out the team, how long-term that company can be, right?

This is a long game.

So building a startup is always longer than the founders expect. And if you assume that you're going to run a marathon. So to succeed, you need different kinds of skills in a team.

So it's a team sport and as a team to win, it is not by having one, you could say genius, but it is a team which complements each other and have different strengths and weaknesses and also can accept that they are different and embrace it and have the high respect of an individual is what I'm in creating a best team, whether it is a VC team or a startup team. So it's more or less the same thing. So you need that kind of like, how would I say, respect for individual and individual differences to build the winning team, because this is a team sport.

And of course, there are exceptions in the world like Steve Jobs type of profiles, which probably were not so nice to work with. So then you need to have people to accommodate around them. But in principle, I would think that life is short.

So you should also kind of as a winning team, you should have this, how would I say, vulnerability. And they are even researching this, of course, based on Google and so forth. So this kind of vulnerability, being able to also be like, how would I say, as a founder also being able to, you know, I have these weaknesses.

I don't know how I do this. And that's when the others step in and also be ready to accept that the others are there to help you. So believe the best of the other people around you, that they are trying to help the company to succeed.

So I don't believe in this kind of superhuman founders actually in the long run being the best for the company.

And you mentioned also that you want these people to be experts in the technical part. So they know that they are solving something meaningful and they are solving it right.

 Right.

And you are also an expert in this field and you are surrounded by experts as well. What's your take on more generalist funds that are doing now green tech-focused investments? What's your take on that?

I believe that in this field, you need to have a certain level of understanding of what works and what doesn't work and how the practicality is actually in real life.

What are the limiting factors? So maybe the world doesn't exactly work as you plan it in your Excel and you need to understand why. And you also need to understand the levels of how you get things moving and into the goals. So that technical understanding, but also the industry understanding, I believe is super important.

But then at the same time, we also believe that we believe in collaboration. So, we tend to like syndication as a model of investing in startups. And that is because we bring certain types of perspectives ourselves based on our industry understanding, our having invested in this field, having built startups in this field, and having built large companies in this field.

But then on the other side, we strongly value the perspective of the, like you say, these generalist funds who have invested in hundreds of startups in the past and kind of looking at the KPIs and looking at how to bring them into the next stage, what needs to happen in what phase. And when we combine forces, bringing those capabilities together with the capabilities that we have, we are much stronger supporters of the startup. And I strongly believe that the complementarity that exists between the generalist and then the specialist like us is super powerful.

I appreciate that response. I mean, because it's very, explains very well how this works because you need the technical part, but then you also need the other element, which is the long-term expertise in investing.

Exactly.

And also across the sector. So it has benefits also. So combining it with our capabilities is very powerful.

And for example, when you talk to your LPs, what type of LPs do you have, first of all? And then when you talk to them, how much do you have to explain?

So most of our LPs are institutional. So we have banks, we have insurance funds, pension funds, and so forth, also family offices. So I think that most of them have a very good understanding that free transition as a whole is a tremendous opportunity.

The market is large and it's growing fast. What we need to discuss further normally is then understanding of, because we are not obviously the only climate tech fund in Europe. So, there are many others.

So, what sets us apart? What makes us special and why that is important? And those are exactly the right questions. So of course, for us, how we see it is that looking at the team. So we basically essentially at the end, it is a team.

And since we have a deep and long substance matter expertise exactly in this field, from the investing, from founding companies in like operative experience, founding companies, as well as building businesses. Like my co-founder, she built a company business from zero to 3 billion euros in revenue in this field. So that kind of how do you scale businesses in our field? Bringing those capabilities to the benefit of the startup is how we add value.

And then it goes into like, okay, since we understand this field, that helps us to be able to pick the winners. And since we have this expertise in this field, it helps us to help them grow so that they can realize the potential what they have. So those are the things we can bring at the end.

Of course, it's the founders who build the company. We are there to support them. But with our capabilities, we fundamentally believe that they have much better chances of succeeding in this environment.

And to wrap up a little bit, you're based in Finland, but Greencode is a very European fund, right? So how did you get together? Maybe you can tell us a little bit about where are the other partners helping to get together?

So Kaisa and I, Kaisa was my mentor in my previous role. So she helped me to figure out some of the parts of our investment thesis at Helen Ventures. So we know each other from there.

Ines, we have joined an investment target portfolio company, which we invested together in, and we know each other through that network. Manuel, I invested in his company, so I know him, I would say, more or less inside out through that experience. So we have that kind of past background, which of course helps us to kind of quickly be a strong team and have that bond that is needed to keep us together.

And then the other thing we did, because this is the fund number one, so we know that the biggest risk is the personal risk. And for us, the risk is, of course, we can't accept that that would be realized. So how do we avoid it? So we went into starting from the basics, like building up the culture.

So where do we stand in terms of what are the values we drive? What is the kind of way of working? So building up the foundations, and we did the personal tests of all of us so that we understand our profiles and we are fundamentally different from each other. So in terms of the profiles and, in terms of the experience, respecting that difference and celebrating that difference because it makes us stronger as a team is something that we have focused very much on when setting up the team together.

And you all work remotely, right? You are spread across Europe and this is like a fully remote fund?

It's not a fully remote fund.

So we have like a group of people based here in Helsinki, but then we also have people in Sweden and Germany, because those are key markets for us. We know from the past that the majority of our deal flow comes from certain markets, and we have feet on the ground in the markets. So we wanted that.

So as a team, we work as one team. We are not all in the same location, but we focus very much on kind of making it so that it is not just one office and the satellites, but we are one team across Europe to really, truly leverage the pan-European opportunities. It all makes sense.