Q&A - Vireo Ventures: Investing in electrification start-ups

The Vireo Electrification Fund, a venture capital fund, is targeting a final close of €60 million (£53m $65m) in Q1 2024. It targets early-stage companies within the electrification domain, particularly in software-driven business models across the electrification value chain.

Recently, the European Investment Fund (EIF) pledged €20 million into its fund.

Based in Berlin, Vireo Ventures is a venture capital firm that invests in early-stage start-ups that drive electrification, particularly in software-driven business models across the electrification value chain.  

inspiratia speaks to the managing partners at Vireo Ventures, Felix Krause and Matthias Engel, about the company's investments, driving the growth of start-ups committed to advancing electrification.

Can you provide an overview of Vireo Ventures' portfolio companies and how you align with the goals of sustainability and electrification?

Vireo Ventures focuses on investing in companies that bridge gaps in the renewable energy sector, with the goal of creating a seamlessly connected and intelligent energy ecosystem. Our portfolio includes investments in companies that help optimise the production, management and consumption of renewable energy. The focus is on breaking down silos between sectors, improving communication and fostering intelligence in the energy system. This approach aligns with the vision of an all-electric world and emphasises sector coupling to increase efficiency as a lever for a sustainable energy world. Our current and future portfolio companies are and will be active across the energy value chain, with the aim of bringing intelligence to each step and contributing to the creation of an intelligently communicating and efficient energy system.

What is the Vireo Electrification Fund, and what are its investment criteria?

The Vireo Electrification Fund, a venture capital fund, is targeting a final close of €60 million in Q1 2024. It focuses on closed-end investments and targets early-stage companies within the electrification opportunity, particularly in software-driven business models across the electrification value chain.

The investment will typically be a minority stake, between 5% and 10%, with ticket sizes up to €500,000. Vireo will seek an active role as a shareholder, providing advice and support to the founders.

With a preference for seed-stage start-ups, the fund seeks "innovative technology" across sectors, from buildings and real estate to transport and mobility and SMEs and industrial processes.

Our current investor base encompasses energy companies, family offices and high-net-worth individuals. Recently, the EIF pledged €20 million into our fund.

We are currently in discussions with institutional investors, fund-of-funds, and financial institutions with the aim to further diversify the investor base.

After reaching the final close, projected in Q1 2024, we will put all efforts into further growing and diversifying the portfolio, targeting around 30 early-stage companies.

Could you talk about your geographical remits?

Our geographical focus is on European companies, with a selective approach to opportunities outside the continent. An important criterion is that companies have or will have some European exposure, be it operational, capital or customer.

Vireo Ventures has mentioned the Energy Trilemma concept, which considers sustainability, security, and affordability. Could you share how your approach to investing addresses this concept?

We address this by focusing on the shift to electrification and the expansion of renewable energy. We understand the role of affordability in pricing and the potential for a future of abundant renewable energy.

Hence, our investment strategy is to support companies that drive the expansion of renewable energy to strengthen the supply side while also exploring investments in business models that improve energy efficiency and address the demand side of the affordability triangle. While we recognise the uncertainties inherent in early-stage investing, Vireo Ventures places a strong emphasis on assessing the impact of our investments. Each investment must meet our ESG criteria.

 Early-stage investing in start-ups can be challenging. What challenges you have encountered in supporting sustainable electrification initiatives?

A significant hurdle for our portfolio companies is effectively marketing and selling technology-based products. The key challenge is to articulate the value proposition of these technologies to the market.

Founders sometimes struggle to clearly communicate the problem their technology solves. Young companies need to effectively implement marketing and sales processes and focus on communicating the benefits of their innovations. This is where we actively support our portfolio companies.

Vireo Ventures places a strong emphasis on electrification. What is the rationale behind this focus?

The energy sector is responsible for over 70% of all CO₂ emissions. Achieving net-zero emissions by 2050 will require a massive investment of over $30 trillion. The market potential is seen as enormous, coupled with the understanding that renewable energy has low variable costs, making it a logical and compelling focus for investment. The transition to electrification is seen as critical to transforming the energy system for a sustainable and low-carbon future. In other words: Without electrification, we will not achieve society's decarbonisation goals.

 What emerging technologies or trends within the electrification landscape excite you the most?

Electrification is a key focus for Vireo Ventures. Rather than focusing on a single technology, we are interested in assembling a comprehensive energy puzzle by connecting different elements.

This involves looking at the entire energy value chain, from upstream to downstream, and strategically investing in companies across different segments.

We also believe that artificial intelligence has a lot of potential in the energy transition. It can have a game-changing impact like cloud technology did in the 2000s. While we recognise that AI alone won't save the world, it is seen as an enabler, accelerating the pace of learning, research and development to make the energy system smart.

A good example of what we are excited about is advances in battery technology. Although Vireo Ventures does not invest in pure hardware companies/projects, the focus is on supporting innovation that makes batteries more sustainable, efficient and cost-effective, e.g. through software-enabled battery design.