Uncovering the Concept of Nature as an Asset Class with Vanagon Ventures

On this Zero One Hundred Conferences ESG & Impact talks, we dive into the concept of nature as an asset class with Susanne Fromm, the general partner and co-founder of Vanagon Ventures. Susanne brings nearly 20 years of experience from roles in strategy consulting, corporate leadership, and venture capital. In early 2023, she co-founded Vanagon Ventures, a Munich-based VC focused on the twin transitions of digitalization and decarbonization. With their first closing completed in December 2023 and investments in 11 companies, Vanagon Ventures is at the forefront of investing in next-wave technologies and green transition solutions. Join us as we explore the unique characteristics and emerging opportunities within the nature tech sector.

The first thing we would like to know is a little bit about Vanagon Ventures since it's such a young VC, maybe you can give us a short intro about it.

Yes, and thanks very much for the intro before, you already said some cornerstone information.

So, we are a Munich-based VC and were founded last year. We have a target volume of around 30 million, and we invest in the so-called twin transition. And so, what is that twin transition? The two current enormous transformation waves of the next level of digitalization on the one hand and decarbonization on the other hand together have a massive influence on shaping our economy.

And of course, if you look into what it is, the next wave of digitalization is of course the next internet technology such as AI, novel data sources, also distributed ledger technologies. And then the green transition of our economy, that's what's meant by decarbonization, which is of course driven by society, customers, regulation, and investors. And so, within these focus areas within the twin transition, we are focusing on the one hand data and finance solutions, circularity, and in particular nature tech.

What is nature tech VC? What are its unique characteristics? Is this a new concept that you are working on? Are there any nature tech VCs around? Can you tell us a little bit about that?

Yes, so there are not that many nature tech-focused VCs around. It's an emerging category within the broader climate tech sector if you will.

It refers to solutions that are aimed at protecting and also restoring nature with the latest technologies. So, for instance, earth observation or AI. And of course, it's a very important emerging topic because, you know, and I'm stating the obvious here, our planet is in crisis and we have massive problems with climate change, pollution, biodiversity loss, and so on.

And yes, nature is our most important critical infrastructure, you could say. But as opposed to other critical infrastructures, we don't really invest in maintaining it. It's actually the opposite.

That's the case in our current economic system. You can earn much easier money by destroying nature and not by protecting or restoring it. And this is a field that is, fortunately, changing now with nature tech.

And yes, there are quite some exciting developments here. So, I think that the most known area in this field is of course the voluntary carbon market. It's also a nature equity market if you will, and it's a very important tool for nature conservation and restoration.

Put simply, companies pay for carbon avoidance or removal projects via these carbon credits, and they can neutralize their hard-to-abate emissions. So, there's lots and lots of money coming into the sector. Yes, to some extent it's still a theory. The market has been quite inefficient and quite low-tech so far because the market started off in the early 2000s and also with the tech stack of the times. Carbon credits are still traded in the form of PDFs and so on.

So, it's very low-tech, it's very inefficient, and there's lots of transparency in the market. But this is of course now a big opportunity, and there are lots of startups that are working on making this market more efficient. We also invested in a few of them, happy to go into detail later.

Apart from the voluntary carbon market, there are also other natural equity markets developing that you could see are kind of the further development of what we've seen so far. One example I would like to introduce here is the Land Banking Group, which is also one of our portfolio companies. The Land Banking Group, for example, has set for itself the goal of restoring nature really on a planetary scale and doing that by turning nature into an attractive and investable asset.

So, they are building the trust infrastructure for it. You can imagine it as kind of a tech platform that is based on, you know, the latest earth observation technology, on AI. And you can basically assess every square meter of nature in terms of biodiversity, water, soil quality, and carbon of course.

So, not just carbon but it's a much more holistic approach. And then you can assess natural capital. This natural capital can then be used for natural service agreements.

And analog to a carbon credit, this can be "assetized" or traded. It's just much more holistic and proven.

But before we go further into Land Banking Group, because I do have some notes on it, I wanted to ask you about this nature equity you talk about nature as an asset class and this concept that should be very well known by everyone but I'm afraid it's not. So, I wanted to ask you, are LPs familiar with this concept? Are those who you're talking to aware of what it means?

Yes, so let's say partly more and more so I would say it's of course a rather new area for VCs and that's also LPs. But I observed that increasingly LPs are aware of course of the state of our planet but also what it means for our economy.

And yes, more than 50% of our global GDP is directly dependent on nature. And in the long term, it's of course 100%. So, I do see some awareness there.

On the other hand, I see that there is an increasing understanding of basically the next frontier technologies that are emerging and how much transformative potential they have. And so, definitely, there is a lot of curiosity and willingness to learn about how these new technologies can tackle climate change and other planetary crises. And what also helps is that our portfolio companies, get increasing attention, and they become increasingly known.

And so, for instance, they have been featured in media outlets such as Financial Times or Die Zeit. And also, we got featured in the Süddeutsche Zeitung article which definitely helps this kind of external validation to bring across the message that the fund that we are investing also in topics that are of broader societal and economic relevance.

So, when you decided to go for Vanagon Ventures, how was your experience as an investor before you came up with this idea? And what made you go for such a sector-focused fund and very specific topic?

Yes, so I started quite not knowing what to do after school.

I'm the daughter of a Lutheran minister. And yes, I was very lucky actually that I chose very generalist studies that also included on the one hand computer science and on the other hand business. And these were the areas that drew my interest.

So, I spent internships programming search engines. And, for the first few years of my professional career, I explored the business world and management consulting. And then in 2009, I did my MBA at INSEAD.

And this was the time of the financial crisis. So, if you will, the economy was pretty dead. The economy was not in good shape.

But what was very encouraging and very interesting was that we did also some tracks to start up ecosystems in the world, also the Silicon Valley. And just to see basically how vibrant they were and how there was some, you know, like a new movement you could feel. And that was basically when these Web2 technologies were unfolding, you know, mobile, social, and cloud technologies.

And so, I also picked my next job in this field. So, I joined Allianz, an insurance giant, and was the head of global mobile strategy, rolled out smartphone technology and then also joined the corporate ventures teams, one of Allianz and also of global construction material companies. And that made me, you know, understand this first-hand experience, this rollout of technologies, you know, that first are quite exotic as a cloud in 2013 was very exotic.

A lot of companies were not touching it because of privacy concerns. But now it's completely standard. And just seeing this transformation and how much it changes the economy, that was, you know, striking to me.

And it also inspired me to dig into the next wave of internet technologies. And I especially did this during my parental leaves. And so, I was very fascinated by the disruptive potential of, you know, AI, of blockchain, as really it took me.

And then at the same time, I did also an impact investing course in Insead. And so, for me, it completely clicked. I was like, okay, my investment thesis was born.

And just, you know, for me, it was like seeing the massive potential of these technologies for positive impact. That was something, you know, I thought, okay, I have to go into this area. And I would like to invest in this area.

But it was 2020 back then. And so, very, very early. And so, I spent another two years running a frontier tech investment company.

And it was basically digging into climate topics in my spare time. And then eventually, end of 2022, I got together with my two partners, Sandro Starkey, an ex-Microsoft executive, and Axel is an ex-entrepreneur. And then we set up Vanagon Ventures.

So, you are all about technology, AI, and software, that's your background and your passion, right? And when did the part of nature come into the equation? I mean, because of the impact on the thesis that you made? Or why did you choose to do a specific area? Because in the end, there are all types of VCs, right? And some are more generalist, others are more focused, but you're very focused.

It was also always a topic for me, though I must say I was very focused on my job that wasn't, you know, acting on my conviction, you know, like doing something about climate change in a professional way. But when I was, you know, digging into, in my parental leaves, into AI and blockchain, it struck me because I thought, you know, this technology is unable to measure impact to an extent that has never been there before.

And also trade impact, you know, as an asset. And so, the market between the payers for impact, if you will, and then creators of impact, that that will really take off. And so, I was very fascinated and also was convinced that it would be basically in the nature space beginning and then in the social area.

And so, I was focusing on this field. And I think, you know, that really, there's a lot of areas that are at the moment served by charities, so on, that really, that there are many, many more opportunities now for impact investing in for impact entrepreneurship to take over these areas in a much more efficient way. And also in a profitable way because of these new technologies.

And so, that's basically the focus areas that we've chosen so far. And when it comes to, as you said, there's not that much knowledge about nature or nature as an asset class within the LPs, but also in terms of like knowledge and sensitivity around nature equity within the industry.

What do you think is the level of maturity of knowledge about this topic? No, because for example, you mentioned Land Banking Group, what they do is a very technical specific activity. And, and I don't know, like, if you see, they are ahead in terms of times or this is like this moment for this type of technology to be applied on like on lands worldwide, you know, what do you think about it?

Yes, so the level of, you know, general knowledge and sensitivity around this topic is growing. There's definitely a lot of room for growth. Let's put it this way.

I do think that in two years from now a lot of VCs will invest in this space. It's just because this is where the technology is heading. This is the future.

You know, the technologies are the future of, you know, of technologies as such. And also because of the necessity to protect and restore nature. Yes, so I think it will go there. And it probably is not fast enough. Right now, we observed that knowledge in these fields in technology on the one hand, and also in, in basically in climate change, if you will, and other planetary crises is quite low in large parts of professionals. And that is actually why we as Vanagon got active in the education space.

We collaborated with the Frankfurt School of Finance and Management and other partners and initiated an online education program in the space, where we deep dive over 18 weeks. And it's all you know, it's online, it's also free. We convey knowledge on basically how these new frontier technologies can help to accelerate the green transition, the transition to a regenerative economy.

And we target professionals from the sustainability space, the tech space, also the finance space, and startups from across the globe. And we were quite surprised actually, how much this program resonated with our target group. Because what we did, we did some, you know, LinkedIn posts.

And after like a couple of LinkedIn posts, we received more than 600 applications from across the globe, from Bangladesh, from Fiji, really everywhere from all kinds of companies and startups. And so we kicked off the first cohort in September and graduated in January. And how many people did you have on that cohort? We accepted 200 people on the cohort.

And yeah, most of them stuck to the program. And we have very high attendance rate until the end. That was amazing. And also to see basically the feedback from the participants, and then also this kind of momentum that was created. We saw people really looking for jobs in the space, starting projects. And yeah, and of course, we saw also many synergies without our ecosystems and our portfolio startups.

And they were quite actively engaging in the program. So they were speaking there and engaging with their community. And so we decided together with the Frankfurt School to basically do another cohort, which will start in July.

And we hope that it will be similarly impactful. And you know, what's, you know, driving, motivating us is to see and to help this space that we are operating into really become a talent magnet because there's so much interest now. The brightest minds we see are joining the space.

And we also encourage really everyone, and really regardless of their career stage, to join the space. And also, you know, it doesn't have to be that you quit your job and start something new, but also that you basically mentally join the space and you know what the possibilities are and what the necessities are. And then you use the influence that you have in your current job to move something, to move your industry, move your company to the better.

And yeah, so we hope to motivate a lot of people. And because we, of course, we need all hands on deck, if you will, in the space.

I'm sure you will. We mentioned earlier, right, you just started with this VC fund in January 2023. And by the end of December, you already closed the first round and invested in 11 companies. So maybe you can tell us a little bit about those companies. And what are your expectations and plans for the future?

Absolutely. So basically, what is the theme for the companies we invest in? It's startups that tackle our biggest problem, if you will, which is, of course, the climate or planetary crisis with the most powerful tools we have and which is, in our view, next-gen software technologies such as AI, for example.

And this can be, you know, in the area of circularity. For instance, our next investment will be a digital product path solution enabled by AI and also by blockchain. But, of course, particularly true in the nature tech area.

And here, for example, we have several investments in the voluntary carbon market, in renewing the voluntary carbon market. We already touched on it. You know, there's a lot to do, a lot to do to reform the market and to digitalize the market.

One example is, for instance, is Senken.io. And it's a tech-enabled marketplace for carbon credits. The company has already helped hundreds of companies neutralize their emissions with, which is important, trusted carbon credits because there's a lot of insecurity around those markets, and carbon credits, are really worth their money. And so they help basically with technology.

On the one hand, they solve topics around traceability and also question marks around quality. What we like a lot is that we think the success that they have right now really shows how needed the solution is in the market. So they recently won a big contract from a DAX conglomerate, the customer, and then also for their most recent financing problem, they managed to attract top-tier US VCs.

Great to show, you know, how these solutions really are taken more and more seriously. And another good example is Renoster. It's one of our companies in the portfolio.

They are a company from the US. They are assessing forest carbon projects that have already issued credits. Also, they are assessing the potential of new projects.

And they have managed to actually become quite known in the space. On the one hand, they're assessing the projects with really, as we said, the latest technologies, earth observation, remote sensing, and machine learning. And they do this really in-depth around additionality.

Is the project justified? What would happen if this carbon project didn't exist? Is there any leakage? Then how much carbon is stored in the trees? And for how long? And they assess this with a very scientific approach and very, very transparently. And so, what they do is rate the companies based on what they have promised in terms of carbon performance. And so, for instance, a project that has been cautious and under-promised could get a two as a rating.

So, for instance, they perform twice as well as they have promised. But more often than not, the score of these projects is way below one. So, that means that the project has significantly over-promised its performance.

And what happens if they underperform?

Yes. So, what is really revolutionary about the approach that Renoster has is that basically, after a few months where only paying customers have access to these results, they publish everything. And this is really unheard of in the industry where you have really not a lot of transparency.

And so, they bring radical transparency in the market and also set incentives for more honesty because these reviews often uncover quite some, you know, let's say stark differences between what has been promised and what is the actual value of the project. And so, they have already been covered by all kinds of news outlets. There was like a big New Yorker article, for instance, that everybody in the carbon industry was reading about one of the key players, the South Pole, and their main project, Kariba, which was really, yeah, not performing at all because they were overstating their performance 30 to 40 times.

And also, there was a big investigative article by The Guardian and Die Zeit that focused on Vera, which is the largest registry about their rainforest carbon credits. And they found that 94% of those rainforest carbon credits are actually pretty much worthless because there's no additionality. And so, these kind of revelations were also based on basically Renoster publications.

And yeah, so, they moved the market, if you will. They set incentives to change to the better. And this is exactly what we love.

So, to find a profitable business model that has, on the other hand, really, you know, like really moving the market to the better. And this is a company based in the US, you said, right? Yes, in the US.

So, you don't only invest in the DACH region, but you also invest internationally.

Exactly. So, what we do is we, I mean, of course, we are also due to, for instance, my INSEAD network because I do have a global network as well. And we all do, but of course, the strongest network is in the DACH region.

So, mostly, we get some leads, you know, from our network there. So, we look at different companies in detail. And so, for Renoster it was, for instance, like you said, we got similar companies that we were looking at.

And since this is kind of a global business model, because most of the carbon projects are in the global south, and the buyers are more in the global north. And it's a completely global business model to assess the quality also of these carbon projects. And so, we were looking, you know, out there who had the most convincing approach.

And then we found Renoster. And we really loved them because they have, you know, just this very, very high transparency ethics, which we haven't seen anywhere else.

I want to ask you one maybe naive question about going a bit back to what we were talking about before, about nature equity, and about nature fund and climate found, you know, what would be the main difference between those two concepts? Because now, I'm afraid we are falling into bringing new names into the table, you know, and then people don't know what they are, they don't know when to use those terms, like, what happens ESG, for example, which is a term that's that means everything and anything and nothing at the same time, you know.

Yes. So, so I'm, I think it's a sub-section. So, climate is generally used as an umbrella term for all these VCs.

And of course, the climate crisis is one of the planetary crises, there are several ones. And, and that but they are related to each other. So, there's a biodiversity loss crisis, there's a pollution crisis, and so on.

You know, climate has been, you know, used as a very broad umbrella term. So, really, there are a lot of different areas within this field. And since we are basically, you know, as we were talking about the twin transition, that is, that is basically the imperative for our economy and to stay within the planetary boundaries.

So, basically, there has to be a lot of transformation work enabled by technology, as we said, but a lot of transformation work has to go on. And, and that is our energy system that is, you know, changing the ways how our industries work, changing incentive structures, and so on. And so there are so many different fields of work, that, of course, different terms is evolving.

And as we said, in nature tech is really focusing on using technology to to restore and protect nature. And so, it's an it's a very important sub-segment. You would say that's part of climate, more specific.

Your portfolio companies are from the US, and Europe, but when it comes to nature, maybe I'm wrong, but when it comes to a company like Land Banking Group, you know, emerging markets are the ones that need this technology the most. What's your point of view? Or are you thinking of investing in emerging markets? What's your your approach to this?

I mean, so basically, a lot of also technologies we've invested in, they are used in in the global south, if you will, also the land banking group, for instance, they can be used to really assess any plot of land within seconds in the whole world, and determine the nature, the nature capital of this specific plot of land and can exactly track how the nature equity is developing over time.

And what's important is that there are these nature service agreements that can be done. And this can be really any party that can be governments and indigenous groups. It can be, for instance, food companies and farmers.

So their food companies can de-risk their value chain and make the crops in their value chain more secure through sustainable land use practices and so on. So this can be really used everywhere. And so we are definitely looking for solutions that have, you know, global impact and can, you know, can create a positive impact across the globe.

Right now, what are your your plans? Because you closed around in December and now you're fundraising again.

I mean, so we did our first closing in December. And so, we continue to fundraise our fund. This is like one big topic that we are doing. And also, we are investing on the side. So we are still, of course, scouting because we get so much deal flow and have really interesting companies who would like to invest in. And so we are, you know, continuing the screening process. We have a pipeline of investments.

And this is that the next one is it's a Munich-based startup. It's an ex-BCG team that has created a solution for digital product passes, which is a big topic that is also driven by regulation and will be required by regulation soon. And so, yeah, so we are basically active in different spaces, but also we are doing a lot of work regarding community building.

You know, we have we host our own events, we attend events, and also we will conclude with the refit talents program in order to, you know, bring this program to the next level. And really, because of what we've seen so far, we really would like to continue and provide also more participants a chance to deep dive into the topics and then, you know, be part of our community and create be it innovations or help basically bring forward the regenerative economy, the technology.