Insights

There is an abundance of CVC strategies that enthusiastically started or accelerated over the last 5-10 years in Japan. There have been good strategic intentions for open innovation and new technology adoption, as well as green transition and growth as key focus areas. However these days, we see a pause on such strategies or a moment taken to review their performance and strategic achievement, because the financial results have not been as envisaged.

Over in Europe the GET Fund has been working on European green transition as an opportunity for the last 15 years, and they are visitng Tokyo to share their learnings with a few Japanese CVCs and corporates. It is worth noting that Europe has started climate investing in the early 2000s vis-a-vis Japan in the 2010s, and funds like the GET Fund already experienced one or two rounds of full life cycle of climate investing (funds are usually 7-10 years) and lots of learnings picked up.

As a brief background, the GET Fund is an innovative climate tech fund based out of Germany investing into Pan-European climate tech. Given its track record of 15 years and strong performance in the European market with previous large scale exits aggregating to more than >EUR 1bn of exited value, we asked for some insights on an effective CVC investment strategy.

Here is a quick summary.

1. Business model first – hardware + software
2. 100% impact x profits
3. Exit consideration from day one

Business model first. It is fun and not so difficult to aggregate 30 interesting technologies, however not easy to assess the best technology for growth and enter at the right timing. After all being too early for a 7-10 year fund is a “bad” investment. This is why the GET Fund looks for a hybrid business model of hardware + software, where the hardware technology should already be selling i.e., “clustering” of players, revenues of low single digit.

The hardware should also be used as the “Trojan Horse” to get into the household or factories that require an e.g., energy solution. The software should bring in recurring revenues. The GET Fund also avoids project-based revenues, which can create chunkiness in growth and jeopardize growth timing. >> Heat pump and rooftop solar portfolio example.

100% impact x profits. Some may view impact to not be profitable, however this is not always true in the short-run and many envisage it will be mostly wrong in the medium to long-term. However, one must be very selective and intentional. The GET Fund uses a “Tripple Top Line” impact model to only invest where there is 100% alignment of profitability, environmental and social contribution. >> Tripple Top Line impact logic model.

Exit consideration from day one. While the Japanese market has suffered from a challenging M&A exit, which pushed investors to IPO for an exit, the European VCs try not to rely on IPOs from the outset, and especially not in Germany where the equivalent size of IPOs are one fourth of Japan. This is why the GET Fund prioritizes building an eco-system around the technology, from securing off-takers/customers to encouraging co-investments among the LPs in the fund. Not only does the GET Fund promote LP-GP collaboration but has also rendered LP-LP JVs, which can support exactly this purpose (eco-system creation). >> LP-GP partnership program.

Thank you for reading this brief notes. If you are interested in further details, including the portfolio company examples, impact logic model, and the partnership program above for a better understanding of the European climate market, please kindly share your name, affiliation, and contact and we are happy to provide you the full notes.