Creating an Energy focused / ClimateTech Fund - A Deep Dive with Contrarian Ventures
Rokas Peciulaitis, Managing Partner of Contrarian, tells us all about the power of giving and building a community around the energy venture ecosystem.
Bienvenid@!
It’s been a while. We have been quite busy, juggling work, kids, a very exciting Euros and continuing our collaboration with Terra.do! But estamos de vuelta.
Today we have a very special guest, Rokas Peciulaitis, managing partner at Contrarian Ventures, an innovative venture capital firm set up to disrupt the energy landscape. We explored the inspiration, the meandering pathways, the role models that Rokas has followed to start the firm with a core climate focused component before it became hype. We explored questions like: How and why he created the energy Tech Summit or the Climate 50 VC benchmark ? It was a fascinating discussion on innovation, on excelling at being a David surrounded by Goliaths coming from the VC world and represented by the multiple incumbents in the energy space. At the end, we geeked out on hydrogen, the expected decline in production technology costs and it will open up multiple industrial applications; i.e. cement, steel manufacturing, among others.
But before we dive in, we wanted to also share a great ClimateTech podcast episode from a bit back, one with our friend of the pod Joey Moreau from Startupbootcamp. With Joey we had a great chat about the role of accelerators in the ClimateTech Ecosystem, the state of play in Europe, the current momentum of “ESG investments” and how the new sustainability program that the company is launching will enable both corporates and individuals back climate focused entrepreneurs via a unique IPO model. Don't miss it!
And without further ado… Our conversation with Rokas:
Explorationists:
Let's start from your early journey Rokas. How did you get into venture capital? What was your source of inspiration? What sort of role models did you look after when you were younger? How did you end up creating this venture capital firm focused on climate?
Rokas Peciulaitis:
Yeah, so I think it's definitely not a straight line. There were a bunch of roads, bumps, turns. I was born and raised in Lithuania, went to school there, and then to University of Glasgow, that's where I did my bachelor's degree, and as part of that I had an opportunity to spend one of the best years in California for an exchange in Santa Barbara UCSB. And that was a great year, definitely something to remember, a great place to study as well. And probably Venture wise, it was probably the first time I interacted with it while at Uni.
In Santa Barbara there were a couple of companies there already. I think already at that time even LinkedIn was built back in 2011, and then a bunch of other companies were being formed. So probably that was my first interaction. I always wanted to be in finance, in trading or investment banking. That's really where I mostly focused to get into; however I studied probably not in one of those target universities like Oxbridge, or any universities where investment banks usually are so my path was not really a straight line. It was really challenging to get the job. But I managed and got a job in Bank of America at Merrill Lynch, eventually trading exotic derivatives, a quite structured and very complex product and something that is very obviously challenging. I did that for over three years, and really through that time, a few things happened in my life that really shaped me to where I am now. I actually did something quite unique and probably something that a lot of people at the time thought was something not really a wise thing career-wise to do. I actually came back to Lithuania and I got into this program called Creative Lithuania, it was a very neat program, I was one of the first poster kids of that program, it was initially started when I was invited to participate and that was primarily created for students who studied abroad in order to fight the brain drain.
It was copycat of a DC program, I think they've had one in the US and what I did for that was one particular thing: we worked on a very high level projects with state owned companies that were close to the Prime Minister and I got to meet everyone and build on my network, because I've never had one. And one of the things that I did as part of that was very interesting, something that actually still lives these days. The task I got was to attract foreign investors in venture capital, to basically start to foster the ecosystem locally. At the time, we even created a thing called Startup Lithuania, which still exists now. Even the name, the website, we literally started everything from scratch, because there wasn't really an ecosystem. And to be frank, the first venture capital fund in Lithuania was set up only in 2011. It's only nine years, compared to the US or any other more developed economy from a VC standpoint, it's nothing. So what's interesting, I attracted a bunch of really cool people, worked on a super tight budget and created this thing, which is called now login startup which is the biggest event in Lithuania. I met amazing people and some of them became even my mentors. One of them is Avishai Abrahami, who is CEO of a company called Wix.com, which is a NASDAQ listed company, I think now it's the most valuable Israeli company, I still keep in touch with him to this date.
I think that interaction with him while I was doing my career in London (at Merrill's), I frequently travelled to Israel and there I saw all these entrepreneurs building companies, and it started to fascinate me and I was like ‘ Wow, this is great, this is something that I would like to be part of’. In reality, it was always a question, ‘how do I do this?’ I was fixated on this career that is not necessarily a gate through or gateway or straight path to a VC or being an entrepreneur.
I think an entrepreneur is someone that you don't choose, I think you have it by design. And I think investing was something that still fascinated me, while in Uni I used to read Wikipedia and the biographies of all these people. I still do to this day. I love this resource. I think it's just brilliant to see different types of non-straight paths of how people built their careers, built their knowledge and got into places to what makes them what they are now. That was something that pushed me a lot. As a matter of fact, as a trading career, there are a few very successful venture capitalists that were traders and entrepreneurs that were traders. Jeff Bezos is one example. Another one is Peter Thiel.
There are a couple of salient points that you've mentioned. First, it's clear that success is definitely not an overnight story, there are a lot of things that happen along the way. Second: you depend on your network and there are people willing to help. And it's always good to remind ourselves of the role of luck for the opportunities that you've had, even studying in California and Glasgow. And then your connections with Israel, etc. So they all led you to this place. And actually, I found that the fact that you also worked with the government in Lithuania was quite interesting.
Yes, that's a very interesting turn, which seemed to be something that I really appreciate now looking backward, because it gave me a bit of a different subset of skills, seeing things from a top level and how policies are formed. Seeing the bigger picture it’s something that is very important.
If you approach it like: ‘I don't like this’ then you're not gonna get anything out of it, you should approach every step as another challenge and do your best.
I never intended to work for the government , but it gave me a really different Rolodex of how one develops international partnerships, how the ecosystem itself operates, which I still rely heavily on, because that's where we meet entrepreneurs that we invest in. If you approach it like: ‘I don't like this’ then you're not gonna get anything out of it, you should approach every step as another challenge and do your best. I really believe in it, no matter if it's a small task, or if it's something that is a huge project. Each one of those should be tackled with full energy, and really being the best in it, it’s what matters to be frank and being perseverant in the process of your pursuit.
Well, let's connect the dots. Let's talk about what's the main thesis of Contrarian and then how it led you to create some of the latest things that you've been working on, which is Climate 50 and Energy Tech Summit. How do those three things connect?
I personally believe in just giving to get; I guess you firstly need to give to get something in return. I think that's a very important point that still resonates in my life. The community part is a very crucial element for anyone to be successful eventually in the long term. I think that led me from the very beginning, from the very hard moments to where I literally said ‘I have no idea what I'm doing’ and guided me to a certain direction where I was probably a bit more blindsided just because of lack of experience. We just accept you don't know a lot of things right? So you constantly learn and I think learning is another part of it. You constantly want to engage and learn from people that are smarter than you.
When you have a difference, maybe even a different view to certain things where you can take from it. I think that's really something that as a general knowledge or rule, and that a lot of very successful people, I think, follow, because everything is changing so fast. So putting these things aside, I think, when we went to create Contrarian Ventures, which is an early stage energy sector focused firm, that's where I paused, because that is very important. I said, ‘Look, what are the odds of me creating a venture capital firm?’ It’s probably zero or -10.
Because there are just so many good operators, established firms with a bunch of capital that they raise and experience. These are the ones you're competing with, and at the time, I looked very, I would say, very straight to what I can do or what I cannot do. And that was like a pros and cons type. I said, ‘Okay, I have a short run career in finance. That's something that I was very passionate about from a very early age, and I've read a bunch of books, and I was, I would say, scratching some surface there of understanding. FinTech was something that was very natural for me to go and say, I'm going to do a sector focus fund, and it is going to be FinTech because that's something that at least where I had some sort of an edge. But then I looked and did my due diligence, there were just so many new funds that were popping here and there and I was in London where there was just so much talent working on FinTech back in 2016/17. I was fortunate enough to meet some of the cool entrepreneurs who built out billion dollar worth companies, someone like Nikolai from Revolut and others and I saw that it was really late in that sort of fundraising, the VC rounds, etc.
I always wanted to focus on this early stage part to watch and contribute to the inception and early traction of the companies, and I thought about what was the other industry that had not been disrupted. Telco was disrupted a while ago, then you have FinTech is one big industry being completely challenged. Then I looked and said, ‘Okay, interesting, energy!’ This is a cumbersome old business, which was dominated by very monopolistic, very large, a lot of incumbents, (there were) a lot of big shifts coming and again, back in 2017 that was by no means a sexy industry. Everyone would look at me, with no experience starting a Fund focused on energy, and say ‘are you mental or something?’. Therefore, that's the reason for our company name Contrarian. It was in that moment, that was confirmed for me personally, and for us running that strategy. I think it's a very strong word, I would say to standby. I think I even joke, sometimes I need probably another 20 years to be fully contrarian in my thesis, and my ability to do these types of investments, and I'm learning towards it. And that's a good goal to have.
Let me let me stop you there. Because full disclosure: my last name is Contreras, which I didn't know until very recently, but apparently, it means Contrarian, you can ask my wife (laughter). It's a bit problematic. But I love being contrarian. Taking the other route or the path least travelled. I think that it pays off. So it's an interesting backstory of founding the firm. So you went into energy.
Yeah, the idea was, if you're starting to shake an industry that has been completely undisrupted for the last probably 100 years, I even have this thesis-high-level-description: ’Look, the last 100 years the commodity of choice was oil, the next 100 will be electrons’. And when you look at electrons in general, or electricity is just so much simpler as a byproduct, there's no byproduct as per se, it's just electricity, electrons that you move around. Therefore, it's software that is an will be an amazing thing that will empower it because it's an optimization problem; versus oil, something that has a lot of byproduct, a lot of processes upstream, downstream, extraction, that's something that is not sustainable either but something that we thought it will be heavily disrupted by this technological innovation. And we're seeing Horowitz (from VC firm Andreseen Horowitz) saying, software is eating the world of energy and transportation. I would say, it was not a straightforward discussion at the time when forming a thesis back in 2017. Because I think the willingness of corporates to invest was just starting. The willingness of the public to devote money or investment in this topic was all just starting. And then even VCs would not look at that because there was obviously this Cleantech 1.0 stigma from 2004 to 2006. Really, LPs were the driving force, they were not giving the money to run a strategy for a venture capital fund (in Energy), because there were referencing, finger pointing saying, ‘yeah, that happened. That did not make me money; why is it going to be different now?’
This time around? Everyone was feeling that sore!
Exactly, so we kicked it off in 2017. In July we got onboard our anchor investor, which is one of the largest energy companies in Lithuania, the Ignitis Group, which is a publicly listed company as well. It initially started with $6.5m and later it increased to $12.5m, which is our first fund, invested now fast forward to 17 companies. It's a very tiny fund, but now we're in the process of raising a $50m fund with the exact same strategy. But I think that a lot of things have changed since. One important thing to start off with this kind of discussion about the firm was that the importance of community from day one. We really took this approach of not just building a fund, but building a firm. And that is something that is a journey that I started when I was 26 and I hope to continue for the next 30 to 40 years. We asked ourselves how to build these foundations for us to be known. We're an underdog!
Now, how do you compete with these big funds then? Especially if other type of players were starting to get into the ecosystem - CVCs for example?
There are hundreds of millions ($) available you know, so you have to offer a different approach, let's not forget, to not just serve our LPs to make money but also the entrepreneur. And these are the partners that we go for five to seven to 10 year journeys with.
Let's speak about that. What were the differentiators for you, what made you stand out? being the David against Goliaths? I'm curious, for example, at the community element, how do you play to that? What were your strengths?
I think, as you mentioned, the first question, I draw a lot of inspiration from those people that built these organizations. One example is probably Andreessen Horowitz. This is the premier shop tier one fund, top notch right? And these guys again, they didn't just went to disrupt Venture as per se, they built a platform, they didn't just build a fund. What is really a fund anyway? it's just a bunch of people, a community that trusts each other to give money to the venture manager to exercise the thesis, and to partner with great entrepreneurs that subsequently will drive the returns for the LPs, right? So in reality, it's a bunch of trials that happen between one party, the LP fund manager, and the entrepreneur.
What we saw with a lot of money coming in the industry, that trust becomes more transactional, because people chase higher valuations and things like that. What we said was that we can stand out from the crowd if we are hands on and community focused, and become the go-to-partner for these early stage entrepreneurs.
Energy is known notoriously for this long sales cycle, especially in some hardware-enabled software business models. We wanted to disrupt that by no means and we want it to be very hands on. So in order to help these companies at early stages in their success, what we said was ‘okay, so we're running a very tiny fund but we actually have quite a small team. We have myself and Thomas as main partners in the firm. And then there's also three Venture Partners two in London and one in Amsterdam. One has an operational background (Mark) - he is a serial entrepreneur. And then we have Christian and Steven bring a lot of operational experience. Actually Steven runs one of the most successful energy storage companies in the UK.
The team also brings the know-how and the ability to help our portfolio companies, but we can’t do everything. So we said we have to extend our team through other initiatives and other people that we can deploy as part of our network. I think these initiatives that you mentioned like Climate 50 or Energy Tech Summit or Energy Challengers, were an extension of our team initially, so I'm no Sequoia or Andreessen Horowitz, which has like 200 people, operational people that can help. You can't compete with that. But we can compete with just being innovative ourselves and building that platform.
In terms of the platform, what were you getting from it? Is it deal flow, or were you trying to secure visibility or credibility, what sort of priorities you had, when you built, for example, Climate 50?
I would say everything is so natural, I think when you don't have a vast amount of resources, you really bootstrap things. So for us, that was exactly the same with every single initiative. Example: Energy Tech Summit, this year now probably became the most vetted and biggest largest Energy gathering for tech entrepreneurs and investors, we had like 1300 people. I mean, from day one, we said ‘Look, it was started as an initial internal event for our own portfolio companies, a hundred people, and we run it ourselves; next year we had 200, because we included partners and co investors. And 200 (people) is pretty tricky for our small team to run, but we had to decide: Do we scale it down to just portfolio and LPs? Or should we just go and build the biggest event in Energy in the next five years? And so we did (the latter). We got an external team that run this, and we don't seek any profit off of it, we want it to exist, we want it to serve the community, we put the right incentive soon, we didn't want to make money, we want it to be self sustainable from a financial standpoint, and we want it to be quality.
... while COVID disrupted a lot of stuff, I wanted (the Energy Tech Summit) to be more like Davos was held. It's all about interaction. It's not even about the conference, it's about the idea.
Something that I really highly followed up on was LAs Upfront Summit, which is a great premier event. I said ‘I would like to build something like that’. It's an experience like South by Southwest, which is cool, and it's beyond just the topic, right? Because you go to these conferences, I did a lot of that in the very beginning, because I had no networks, I had to go and build it. I was flying every other day all across Europe, trying to meet people and make partnerships and to get my name out there. And for this conference, I noticed one thing, like it was either very regional, or very kind of economically driven. With no soul.
So we (Contrarian) said ‘if we build an event, it's going to be something that people want to be part of’. It's gonna be focused on content, quality of people brought in, no marketing, and while COVID disrupted a lot of stuff, I wanted (the Energy Tech Summit) to be more like Davos was held. It's all about interaction. It's not even about the conference, it's about the idea. You can build a report or things that you can work in the group of people to later take it from that conference. And you know, whether that's invested in a company or partner with other company or government or corporation. I think it was always this mission and drive why we wanted to do certain things, and they outgrew in a way and improved with time as we put more effort into it. That's one example.
Another natural example was the Energy Tech Challengers. There were a bunch of competitions happening where people could win this or that or get accepted in this or that accelerator. What we said was: ‘we don't need that, what companies need is feedback; feedback from people that matter’. So we created this Energy Challengers type of competition with no prize. The event had around 70 investors gathered from leading energy companies that could give feedback so it's more like an X Factor.
So what's the outcome for the semi finalists and finalists, what do they get at the end of the competition?
You get a prize. Finally you get a prize. But what matters is not the prize, what matters is that you get exposure, it is a process of what they learned, right? It's sort of goes like X Factor. There are quarter-finals, semi-finals and finals. For each of those interactions, you get exposed to investors that give you feedback and eventually maybe even invest in you. We focused on that quality of feedback that goes for each of these steps. Now we have 400 companies applying from all around the world and the quality of companies is really increasing. This is really a great outcome for us and for us it’s obviously deal flow and meeting people that obviously is a worthwhile thing to do.
And what about Climate 50?
Yes, again, Climate 50 grew very organically, out of something that we did for our portfolio companies. We had a running Airtable for all the VCs that we knew that our portfolio companies could help to fundraise. So we were doing introductions to the teams and even crafting their fundraising strategy and identifying the right people, so they don't waste other people’s time. We feel that there's going to be completely irrelevant to their investment strategy. But it's just all about demonstration.
And listen, what entrepreneurs really hate is fundraising. And to be honest, everyone hates fundraising, even myself when I fundraise for the fund, because it's a great learning, for your business, for your team, for everything, but it just takes so much time and effort that can be better allocated to the core business: helping our portfolio companies building a product; for us, it's investing in our partners. And while these are important parts of the business development and business side, I'm kind of arguing even against that.
While it's becoming more competitive for VC firms to invest in the best companies, so therefore, shorten period of time that it takes for an entrepreneur to raise I think for the funds, it's the opposite, it actually is now increasing the amount because there's just so many new firms on the block that now want to raise a fund and it takes two years; so how come you work in an environment where it takes you one week to lose a deal, as opposed to two years to raise a pot? this disparity is a bit something that has blown my mind, I don't have an answer. And I don't really understand.
Yeah, such a big challenge, I wanted to ask you, because obviously, and I can connect maybe with the third and last part of this discussion, the timing has changed since you started the fund. Now the climate emergency is quite clear. Everywhere, and everyone gets it. Especially in Europe, things also are a bit brighter in the US. I think that the momentum is getting there as well. But that means that there are a lot of VC and competition popping up everywhere, but also private equity, moving into the space, quite fast, Tiger style sort of approach where maybe there's gonna be less due diligence in the process. So how are you seeing the future of Contrarian? What sort of main areas are you considering? and we can link this even with a report that came out yesterday from the EIA, basically detailing the steps necessary to get to net zero. Now that you might be able to close your second fund, how are you planning to play the game? What major areas are you looking at, believing in hydrogen? Can you walk us through maybe two or three subsectors that you're passionate about?
Yeah, maybe I think just to finish up the last part of the discussion and transition into the question that you just asked, I think, basically, the way I look at it is, venture is being disrupted itself. Right. So I think for us now looking forward to what decisions we've made four years back, it's really like we're so happy about this. So like we're specialists, we know by design our investable universe, and some that we don't know, because there's some 50%, as Biden said, businesses in technology and energy are not even created from a technological standpoint. So there's definitely a lot of disruption going to happen down the road. But in reality, what's really benefiting us is that I know what I'm going to be in the deal and why I'm going to win that deal. Because I'm really have this community that we're building a platform that we will evolve through time, in a more operational standpoint, why someone would come to partner with us because we know that people will know the industry, we know where they should fundraise, we know the strategic partners and in reality, if you're a generalist trying to deploy capital on this topic, then that will become one of the probably hottest topics in the VC universe.
It's a bit more trickier because the technical due diligence comes with the knowledge that we've looked at 1000s of companies in the space and you know, if I look at a company, I know exactly immediately top of my head, like five companies and we do this top down approach and a bottom up approach analysis and research where we really reach out to a lot of bunch of businesses when we're learning maybe some that are not investable universe for us because they're later stage or we do these mappings according to specific topics. So we take micromobility or a hydrogen map, all the companies that exist in the universe and then track them in a very automated way actually. We have a lot of things that we've done now, it's really automating the process that we do so we get notified automatically. We are really using off the shelf tools to connect them with an Airtable and a bunch of things like slack and get notification when people get mentioned or some breakthrough happens where metrics if we can pull them out and get improved. So we do these things and we want to actually invest more. So as part of our growth we're probably going to have to hire a Head of Platform and a Head of Data Science to kind of tap into it. Because we know our universe, it's just a matter of being earlier. And I think being earlier is what drives and we believe that in the seed stage, there's a massive disparity gap. There's a lot of people that want to deploy money at Series B and beyond and that shifted a bit towards earlier, Tiger and others, but still at seed there are not a lot of people willing, and there's only a few investors that understand.
Your niche, then you're gonna focus on seed stage,
Exactly, we want to be focused primarily at seed, if we miss something at seed, we probably will do a couple of investments in A rounds, or co-invest with people that we know and partner before from an investor side. So I think that's how we see ourselves for probably a few new funds in the future. You know, maybe we'll see a very big gap in venture debt, especially in the energy business, because a lot of these businesses have a hardware component, which is hardly financed by banks, or any financial intermediaries. And not a lot of people in the typical debt community understand Energy and kind of shy away from it, especially because of the hardware part. So we see that as a niche there. Maybe that's the strategy to pursue later as our team grows.
But definitely we see these type of synergies in symbiosis, especially on infrastructure side, and ventures technology being now built to then be used in infrastructure. And let's not forget, for example, solar, as an example, or battery technology, five, seven years ago, it was not economically feasible, and it was technology risky. Now we treat it as a pure commodity/infrastructure. There are going to be a lot of technologies that we are looking at today, like hydrogen, for example, that will be treated as infrastructure, which are enabled by early technology and the economics of it drying to a level where it's feasible to deploy industrial applications or commercial applications.
For example, let's use that hydrogen example. Obviously, I agree with you, there's solar and offshore wind, and how the cost came down, and that's what basically unleashed the power of very cheap and clean electricity. So that's happening with batteries now. So what would be your bet, then in hydrogen? Would it be the electrolyser technology or other things? And a second question with regards to hydrogen? How do you differentiate between the capex part that is going to keep reducing cost versus opex? There are many hydrogen critics; how do you defend against those critics that say, ‘Hey, this is just fossil companies still embedded into hydrogen-tactics basically?
Yeah. So I think there's three elements that are shaping the future of hydrogen, I mean, and again, this is a highly, I would say, we're bending a bit of physics there as well, from a technological standpoint, and I think a lot of energy, a lot of like, for innovations, like carbon capture, and hydrogen and some other technologies that are like proper technologies, they're, you know, it's not just software pure innovation level on the level where you just invent more UI friendly solution. This is different, there's the core physical and chemical innovation happening. So I feel, you know, there's three elements shaping it. So definitely net zero targets are one, and you obviously mentioned the EIA report that came out a few days ago on this net zero path to 2 degrees by 2050. I think what's clear is that when people start breaking down like this, you know, CO2 53 gigaton number consists of and, and in reality, like the big chunk of it, it's industry, right. So hydrogen applications are sort of B2C level like transportation, especially like a valid topic that a lot of people including Elon Musk criticize.
But because of the energy losses, and various other things like infrastructure, investment requirements, and other home applications, that kind of thing, correct. But if you start looking at things like utility scale applications, what happened in the battery space that is not going to be used necessarily in homes because there's still actually not a feasible price point without heavy incentives. So the utility scale is perfectly economically feasible now. So, again, there is a problem that needs to be solved now, in that case of solar and balancing generation and balancing it. The same way in hydrogen, when you basically if you're a steel manufacturer, or if or if you are cement manufacturer, you will have to decarbonize, period. And that means you already have a ticking clock to when you have to do, so that the investments that you will have to do will be heavily correlated to the investments and cap expenses that you will have to do, and then OPEX attached to it as well that you currently have on your current assets that you operate. So, a lot of them are gas powered but when you look at another indication, carbon offset prices going from $50 and the European Union to potentially $100 some of these businesses operate your gas, like a fossil fuel become literally they go bust, that's their endgame...
If you want to send us an idea or a tip, a #ClimateTech company that we should have a look at, or if you have any questions, please reach us at: davidcongeof@gmail.com or arraiz.p.daniel@gmail.com.
What we’ve been listening: