Ep 179: Rokas Peciulaitis
Are You Tough Enough for 'Tough Tech'? Solving Billion-Dollar Climate Challenges, How AI Increases Velocity, Bridging the Gap Between Innovation & Adoption
Rokas Peciulaitis is the Founder and Managing partner of Contrarian Ventures, a venture capital firm specializing in climate tech investments across Europe and Israel. With a background in trading and finance, Rokas brings a unique perspective to venture investing. His firm focuses on backing ambitious founders tackling climate change with innovative business models and sustainable solutions.
On this episode we talk about:
Why climate tech investing is difficult
Scaling ClimateTech startups
How to build companies that create both economic and environmental value
Attracting scientists and technologists to build impactful solutions
How artificial intelligence can accelerate ClimateTech
We are on YouTube and Linkedin as well
Watch select full-length episodes on our YouTube channel > https://www.youtube.com/channel/UCP6ueaLnjS-CQfrMCm2EoTA
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Read the full episode transcript below
Janis (00:41.463)
Hello friends, we're back with another episode of Pursuit of Scrappiness podcast. Whether you're building a business, running a team or just starting out in your career, we're here to bring you scrappy and actionable insights to help you become more productive. My name is Janis Zeps, I'm here with Mr. Uldis TΔraudkalns as always, hey.
Uldis (00:57.131)
Hi sir, pleasure to be here.
Janis (01:00.216)
once again. Before we start, one thing that is as common as all this and me in this podcast is a reminder to follow us on Spotify and Apple Podcasts, helps more than you know. In exchange for that, you will now find almost 180 episodes in our feed. They are covering all sorts of topics you need to become scrappy and very reverse of yourself in life and business, evergreen topics, so there's plenty to explore if this is your first episode.
Plus by following us you will also be the first one to know when a new episode comes out every Tuesday. So open your Spotify, Apple podcasts or YouTube as well actually now and click follow button. All right. One of our previous guests actually said a phrase that I still remember and what he said is basically great founders have to be contrarians. That's about founders. But what about VCs? And also, you know, can an investor or entrepreneur even
even solve the world's largest challenges without a bit of contrarian way of thinking. This is a good and philosophical maybe question. It's a bit of philosophical intro to a very non -philosophical episode where we'll deal with very tangible subjects. We'll deal with venture investing, we'll deal with climate change, and also a bit of AI, which has happened to be a repeating topic a bit.
Uldis (02:10.226)
you
Janis (02:21.209)
We've talked a lot in our previous episodes with several, several guests about climate change and climate tech especially, of course, because that's the domain that we specialize in. two learnings that I kind of have distilled for it is, number one, climate tech is probably one of the biggest problems that humanity is facing. So if there's a big problem, there's also big opportunity. And number two, the solution to this problem
has to be a business solution or a viable business solution. So there are so many funds, there are so many companies on the path to find it, to figure out what solutions, there's not gonna be of course one solution, but what products, what new technologies work for this. And very interesting topic, big potential, huge market, and to help us unpack this, we are very happy to have with us today Rokas Peciulaitis from Contrarian Ventures. Hey.
Rokas Peciulaitis (03:15.325)
Hey, excited to be here. I'll just...
Janis (03:18.829)
Awesome. Contrarian Ventures are backing SeaSage Climate Tech founders in Europe and Israel. They are very active in the climate tech field. They're not just a VC fund, a passive fund, I don't know if there's even a term for it, but like to me they look very active. They are going out, they're organizing annual Energy Tech Summit. They've launched a climate -break community together with such other venture companies as EQT and other investors. So it seems to be very active in the field and it seems that we will have a lot to...
A lot to discuss and today we want to talk about business potential of solving the world's biggest problem that it is. We'll talk a bit of how investors view AI in this space. We'll talk a bit about climate tech and does it make easier to attract talent, for example, because the mission is so purposeful. And also a bit of overcoming gap between innovation and adoption, just two different things. You can come up with all sorts of nice things, but if people cannot...
apply them in practice, they stay on paper. So yeah, let's dive in. Actually the first question I wanted to ask, know, bit of warm up maybe. It's a huge problem, climate tech, right? And you would think that based on the potential payoff, if you solve it...
Why all VCs are not climate tech VCs basically? Why is not everyone almost jumping into this game? Because it seems like if anyone finds something that is globally scalable, the payoff must be huge.
Uldis (04:52.809)
There must be climate change deniers some of those VCs just...
Rokas Peciulaitis (04:53.247)
Thank you.
Exactly. it's a, it's a, it's a, think, there's a few, two sides to take this question. think, when we started in 2017, that was a lonely topic. think factually pretty much because the prehistory of it had some scars in 2006, 2008 when so -called fintech 1 .0 didn't sort of play it out as everyone expected. And some big, big firms like Kleiner Kossela have, have betted significantly. thought this is bigger than internet back then and sort of didn't fully materialize.
When we started in 2017, we launched something, another platform initiative, you mentioned a few, which is called Climate 15. At one point, I think in 2020, 2021, we felt that there was some sort of a product market fit because there was an announcement for climate fund every, I think, month. It became every two weeks. And I think even now we sort of are surprised that it is still continuing to be announcement of a new fund almost every other week. So I think we're going into this a bit parabolic.
parabolic curve where there is definitely more access to capital for this topic. The other way to take this question, I think climate, as you rightfully said, like I say covers majority of the economic collectivity. And I think we're trying to unpack it in areas where it's the most obvious in terms of saving terms of you look at from CO2 perspective or the way you define as a firm impact. so
One note from coming back to my first comment about more investors coming into space, but we just recently went to this event, DROP organized by Pale Blue Dot, our friends. And in the event, was 1 ,000 or 100 people, of which 700 people were VCs. So I would disagree that we're seeing lack of capital, lack of people interested in the topic. And I think while initially it started with specialists like ourselves, we're
Janis (06:47.911)
Mm -hmm.
Rokas Peciulaitis (06:51.861)
which majority of the thesis from a firm's perspective is like catering only for climate tech companies. I think more and more so we see firms that are more generalist, just choosing that as a topic. I think I would say that more than ever in 2024, we have ample amount of interest in this topic. However, I think the one commonality of the topic is that these solutions do take some time.
And I think Bill Gates rightfully said this, we overestimate what we can do in three years, but underestimate what we can do in 10 years. So I think we're just in that shy three years where people, I'd say to certain extent, overestimated what they can do, given the complexity of the topic. But again, to answer the question, I think more and more capital will float into here. The question will be is, looking for a capital stack, if that's going to be purely from a venture capital.
Janis (07:20.883)
Yeah.
Rokas Peciulaitis (07:50.387)
because we're in this kind of phase where a lot of these new solutions are backed as technologies. However, a lot of these technologies need to be scaled as infrastructure. So I think one very interesting fact about climate is not just only about equity, as opposed to if you compare it to traditional enterprise SaaS, where companies can go to become cashflow positive and they don't need any capital or they can basically borrow debt against that or venture debt against that cashflow.
I think in climate, if you want to really scale big companies aside of pure software place, a lot of different capital stack is necessary in order to scale these to a size that is meaningful from a climate and impact perspective. So I think I'll leave it there.
Uldis (08:34.731)
But is it realistic to have like generalist investors make quality investments in the space as you say is relatively complex and I think it's also
first, complexity, and second, think also like passion and beliefs. So I'm a bit skeptical that it's just, you know, another category that you can just add on your, you know, B2B SaaS, fintech marketplaces and climate tech, know, like, how do you see that happening?
Rokas Peciulaitis (09:04.969)
Look, I'd probably be shooting with my foot saying that anyone can do it, but in rightfully say, my answer would still be that anyone can look at the space. I think the one commonality of every good VC is that they're very quick learners. It's not something that we're talking, I mean, in some cases in deep tech companies, surely there's definitely needed to be some more, I'd say, technical knowledge to unpack or compare different technical solutions. But I think climate is not completely unified only about
know, hardware companies. think there's a lot of software enabled solutions, what call companion software, pure play software that is needed in the market. And I think that's where you most commonly find a lot of the general species looking at. But I think where there's, you know, and money to be made, think there's attracts more capital. That's just how economy and financial markets work. And especially depending on your play, right? I think in the early days of
back in a company at pre -seed and seed where we play. I mean, I've seen this curve of like distribution curve, like what matters on the corners, it's still the founder that you underwrite in majority of the cases. And I think whether a Climatech VC is going to be better at picking the best founder versus a coin climber, I think it's just a question of whether they have interest and thesis to underwrite from that perspective. But I think majority of the new, like the firms, the generalist firms that we're close to,
have done so. I think they're definitely in my view, like from an investor standpoint, I think this is a great development because while we do spend most of our time looking at these technologies, therefore one could make that we have a better insight because we've looked at these companies day and night. And we have had like looked at these topics from different kind of perspectives. When you go to a syndicate, I still believe that the most powerful syndicates do become specialists coming with the generalists purely because
they have something different to offer for the entrepreneur. And these tend to be the kind of most, I'd say, successful syndicates, in my opinion, from our opinion that we've backed over like 30 companies in our portfolio. So I'd say this is generally a very great development that more and more traditionally generalist firms are looking in this space. But I think we also need to reflect where we are in the kind of cycle. I mean,
Rokas Peciulaitis (11:28.565)
know, climate has been a very hot topic for the past couple of years, three years, has not been the case if we look that back seven years ago. So I think venture tends to, you know, go in hurdles into these sort of topics. And I think traditionally looking in climate tech in 2017, 2019 has not been a, let's call it a sexy place to be at, but with like more capital running in and I think seeing some momentum, I think there's still some opportunism and let's see if that doesn't get washed out.
And these people don't become mere travelers, but they do stick to this topic. And I think to my previous color, about three versus 10 years, I think it's only the ones that truly stick to it as a theme for long that are going to be successful in deploying in this space. So broadly speaking, I'm very positive. And I think there is a lot to be offered by big platforms, given the resource that they have, given the insights they have. Again, there's a lot of different business models across.
Climate is like a lot of people tend to fixate around just scaling hardware tech companies. I mean, can unpack a bit about climate break where we have seven different business models, but that's how we looked at different companies and classification of them. But I think that's kind of important. think that all sorts of different capital move into this space. think more competition is better for entrepreneurs, not necessarily probably for us, but we have to find our ways to win long -term against that. And again, at the end of the day, as you guys know,
Partnership on cap table is a very long endeavor. So we believe that you as a differentiated strategy or firm have to offer something unique to these founders and hopefully being specialist for us that's to that level of being surrounded by more people that can add to these entrepreneurs either as our venture partners, advisors or ourselves. Haven't seen a lot of these companies turn out well and something to learn from them.
Janis (13:23.559)
How do you overall like this commercialization of climate tech startups? How do you find the whole notion? Like is it something that is easy to crack or do? Well, easy maybe is not the right word, but like intuitively it feels like the opposite is easy. What we did, I know 100 years ago or even probably 60 years ago.
Uldis (13:48.535)
you
Janis (13:49.223)
Burn whatever burns, dump whatever you can dump in the nearby river. It's cheaper. Every regulation adds extra layer to the business of cost and administrative level and whatnot. So intuitively, it feels like the opposite is the cheapest, the fastest, right? And obviously people are also changing. They will not now buy from a company that is polluting the local river, hopefully. Maybe they will, but.
How do you find it? Is finding a commercial, actually business model, extremely challenging or these days just maybe it becomes easier?
Rokas Peciulaitis (14:27.797)
Look, I think we did this exercise for the exact same reason. I mean, we've been investing for over seven years and we went to partner, mentioned about climate break and I'll start from it as a sort of intro to this topic. But we went to look at roughly around, you know, 3000 companies and looked at around 13 ,000 data points of different funding grounds across kind of the whole universe of climate tech companies in Europe over the last like 20 years. And I think we tried to find commonalities of what that success looks like when scaling that company.
Janis (14:38.193)
Hmm.
Rokas Peciulaitis (14:56.925)
And we categorize different companies into what we call bricks, seven different bricks, according to their business model, and try to find commonalities across what we call the top quartile of the companies. What went right for them between different rounds from PC to series, series A, series B, series C, series D, when you scale up the company. And then we picked for each brick a pioneer case. mean, I'll take and use an example, for example, of Northwall, which was a pioneer case used for gigascale.
where you take an existing technology and try to scale it to a meaningful size and build these gigascale facilities to produce and manufacture whatever is, in case of Northwell, is batteries. The commonality of the companies and the scale -up you touch with the difference between scaling a software company, it's bloody hard because it requires a very different discipline.
it requires to touch physical things. Not only you're dealing with unique technology, scale up that technology, you're also building facility, hire enormous amount of people, making sure that everything is efficient, that you're not behind your sort of deployment schedule because every day costs you money. And we're talking again about physical things, these things very fast accelerate in terms of capital spend.
At the same time, you as a founder also have to go and sign large contracts with very, very large corporate buyers, right? There's certain level of complexity around those things because you're signing a hundred million, sometimes even billion dollar contracts. Those are not merely selling a SaaS for $200 a pop. You know, these are very complex. I think, you know, a lot of people, think, you know, say when they build these hardware companies, adjacent companies that
You know, this is like running a circus in a way. You're juggling the five things. You're standing on an elephant, like the elephant is driving a bike. know, like everything can go wrong at any point of time. And the thing is that to make it even more complex, you can't just merely raise equity because if you do so, that becomes very quickly unbackable business from a venture standpoint, just purely of a dilution. And a lot of these businesses at the early days when they went to build
Rokas Peciulaitis (17:19.317)
them out. A lot of them had to rely on outright equity. And you see sometimes by serious C, serious D, the seed investors are diluted 90%. And then from a risk reward perspective, from a VC raises the question why he's asked before, like, why isn't everyone investing in climate tech? Because it is damn hard. And if you are purely as a finance allocator looking from a risk reward perspective,
If you have that data set looking that every company is going to dilute to 90 % or is going to need a lot of like full on capital, that becomes quickly very hard, you know, sell from a risk reward perspective. So I'd say, you know, it is very hard. I think that that's the reason for, you know, advocating for a more efficient capital stack that comprises from debt, project finance, ability to sort of take assets out of balance sheet.
while the OCO is sort of operational companies sort of financed by the equity, having different grants to build the first of a kind type of plants or demo plants for these companies to validate that, because I think there are certain limits that VCs can take in terms of taking risk in these companies, right? I think commonly commonality of people that they say, look, we don't finance sci -fi experiments. We're financing still companies that commercially can be viable. So.
There are certain threshold where that non dilutive capital has to step in, whether that be in government. But if we see at even at the later stages, these kind of things of juggling sometimes don't work fully how you thought would. the problem with climate tech, a lot of cases, I think you have two product market fits in a way sometimes. There's one where technology works. The other one is when you can actually sign a contract. That's very different from when you look at product market as software, right?
Janis (19:05.782)
Hmm.
Uldis (19:05.969)
you
Rokas Peciulaitis (19:08.403)
You have one product market that you sold the con like, and then you just have this flywheel that you just need to scale up with a bit of more capital. And depending on your efficiency, maybe you don't even need to rate because your cash flow positive at series A, series B. In climate, that's not the case, right? Sometimes most cases you validate technology without like almost no revenue. And then you have another product market fit when you're able to sign not a pilot, but a first commercial contract. And those things then tend to take quite a bit of time. So I think, you know,
I think that the beauty of still underwriting a founder in these businesses, someone has to be wildly crazy, think. know, Nvidia CEO had said many times, if you didn't this company again, you probably wouldn't do so because the only crazy person would do inflict so much pain. think a lot of these founders are able to tolerate that pain because just the complexity of things that you're dealing with is really uncommon, I think. And I think we've seen one of those craziest successful businesses now like
Uldis (19:48.556)
you
Janis (19:49.047)
Hehe.
Rokas Peciulaitis (20:05.973)
with SpaceX and Tesla. I it doesn't look like Elon Musk is having an easy life, right? I mean, obviously he inflicted that himself and doing it in multiple directions in many companies, but it's just very hard. And a lot of these founders, we have conversation with them. The commonality of the thing that they will see what they learn is that they almost went back five, seven, 10 times. I don't know if you know, like Croatian Mate Rimac, I think these guys went bust almost 10 times before now running, you know.
Uldis (20:12.021)
You
Rokas Peciulaitis (20:35.103)
Bugatti and being one of the most successful European car manufacturers, part suppliers for global OEMs worldwide. So sort of like these people are just driven by insane curiosity and passion and I think are able to tolerate a lot of perseverance and pain while doing so. But again, have to be driven again, very much so by this mission, right, to change something.
Janis (21:02.755)
Hmm.
Rokas Peciulaitis (21:05.171)
I don't think, we've seen a lot of these companies in sort of acceleration phase where someone goes to build something, it doesn't work out as fast as they thought and they drop it. I don't think that happens in climates often. These people just really try to push through that wall, you know, and there's wall after wall as they scale those companies.
Janis (21:26.789)
Encouraging start. let's address this space. Let's talk about these hard things. And maybe you can elaborate more on this, how to go from idea stage to actual adoption and rollout. Because it seems like, and lot of businesses are, for example, software and B2B SaaS. make some jokes about it. Not that it's easy or anything. But if you compare about it, obviously you
Uldis (21:52.223)
you
Janis (21:54.361)
You can build a quicker prototype. Time to market is probably quicker. Testing is quicker. Iterations are quicker, right? How does a climate change, climate tech company do that? I probably have heard about so many interesting solutions and good solutions in press releases, right? But like how many actually make it to the virtual factory line and to the real users in the real world? So.
Yeah, if you can elaborate on the challenges that are in this between the innovation and adoption.
Rokas Peciulaitis (22:27.615)
Yeah, think again, the complexity of the topic in climate tech is exactly the same reason that climate recreation was, that it's very hard to unbundle and maybe it could common all the journeys by different companies. I think the business model is the determinant of one. I think the journey of companion software company or gigascaling company is a completely different one. Like what we call the critical unlocks are very different for these companies. So I think the scale up if we take
Janis (22:42.353)
Yeah, that's right.
Rokas Peciulaitis (22:56.755)
and new technology because that's kind of most fascinating one, right? Like that's then known that we're trying to collate or the type of Moonshot type of companies. think there is a few type of like majority of the kind of progress of these companies is measuring TRL for better part of venture ecosystem. The others are maybe in two phases of where you go and sort of reach a TRL five, six, and then you build a demo plan and value that technology actually works at all at a reasonable scale outside of lab.
So there's the lab work and then you go into demo plan. From there, you go to what we call a first commercial, first of a kind plan that has to be commercially viable, ideally with a commercial partner. So therefore the price point starts to matter a lot, And then once you do that and you show that scale up, you go into that sort of, if you're building the kind of machinery, electrolyzer or catalyst, then you have to scale up and do it many times over.
and then you go into this traditional manufacturing and scale in many plants and those are commercial. The one unifying things in those is that technology could fail. You have to be efficient with capital as you do so. You have to do the scale up because no one goes from zero to one as normally I think Peter Thiel advocates, but a lot of these technologies go into marginal improvements as they scale. Because the hardest bit about climate tech companies is when you go to your like kind of
core technology sizing, like where you're about to go manufacture that, even then the physics can fail, you know, the degradation can drop for an electrolyzer, the stability can drop, the thermodynamics can drop just purely because you read some sort of critical sizing inflection point on the negative side, not on the positive side. So every single step you're sort of de -risked, I think the kind of good comparison is peeling an onion. So you're peeling
one layer by one layer and you're trying to not cry. Eventually, you will probably cry a few times for that process, but till you reach the core, right? And I think the layering of risk is very important because with the layering of risk, those become the KPIs, how you kind of think about your capital journey. And I think the commonality of the kind of new technology and moonshots are still around catering for like lab, going to sort of demo plan.
Rokas Peciulaitis (25:19.509)
first of a kind and then the scale up. And when only when you go to sort of the first of a kind, you're making a decision about your business model. Before that, you don't know if you're going to actually own and operate these plans. Are you going to be fully vertically integrated? Are you going to go and do a licensing deal? And it's only then when you need to, I wouldn't say that it's only then we start to think about business model, but it's when you make it like a full outblown decision. So I think it's very different journey again from
Janis (25:33.258)
Hmm.
Rokas Peciulaitis (25:49.055)
from a software company, I think you see a commonality across gigascaling or product innovation, how we call it in kind of a context, where you're gonna go these step by step, like scaling that up. And I think we're not only talking organization, I purely touch about the sort of capital stack, and I think I touched about the technology itself, but there's a lot of things that you're gonna scale up. And I think in the software,
In most cases, you're just scaling your team. That becomes the toughest. If you ask an entrepreneur at later stages, like what's the most biggest problem for you, they probably will say talent. I wouldn't say that talent is not a problem for scaling harder companies as well, because with that you need to do discipline, need to completely standardize how you produce things. There's different people that you need to track a different scale of the company. But I think the CEO still is not just the best.
person to hire people and create culture around it, you're still dealing with a lot of like messy issues of technology. So therefore I see a lot of the founders in that space tend to be a good combination of like, know, PhDs and business people that only make these companies work. you only have scientists in the company that sometimes, you know, the business or commercial side tends to be put on side. And I think that's the kind of...
the death value where most of the companies end up and why you don't see on the production line. So I think it's, I don't know if I fully answered your question, but I think the complexity around the scale up is very different, but I think the most important is this sort of different layering of what you're de -risking for that journey and tiring that out to a very clear OKR, KPI logic, milestone logic where you can de -risk and show progress for investors because
Janis (27:16.907)
Hmm.
Rokas Peciulaitis (27:42.133)
it certainly is that you're not going to show revenues to investors alone with sometimes series A, series B. And I think one maybe non -common denominator, which I think a lot of the climatic founders do sometimes fail is I think software founders happen to become very good, I think storytellers and I think something to need to be learned for climate founders, especially given that the topics that they're modeling.
or solving are very, very complex. think climate tech founders still need to get better at telling stories because I think since I think we're as investors still underwrite between different stages progress of the company. And I think progress in our current society is still best measured by revenue. I think there is willingness to take more risk now, but I think still why.
Janis (28:36.984)
Mm.
Rokas Peciulaitis (28:37.759)
to your first question you asked why not everyone in DC is still doing climate tech because it's still very hard to underwrite these companies. And I think we will still see if the commonality of treating companies between stages and calling them as we did in software pre -seed, series A, series B is relevant, to be honest. I think I more and more so challenge that, especially for hardware businesses, because I think the milestones should be attached to funding more to the
Can you prove the demo? Can you prove the first of a kind? And can you then scale the company? And it's more rightly to do so according to that. And I think I'm going to be sounding a bit of a skeptic, but I think some of the valuations in the early stages of these companies have really detached from reality because we try to make that journey look like a software company. And unfortunately, that isn't the case.
Janis (29:32.891)
Yeah, I mean, you also, you touched a lot about the talent and maybe one more question on that. People are fighting very often for the same talent pool. I mean, of course there are specialized roles in hardware companies. think we established that, but then, know, product marketing, management operations, you you would be fighting with other startups for it, right? How do you observe it? Is there, is it...
I wanna say easier, but is it different when you're attracting people that you can say that, look, this is purposeful? Like this old quote that Steve Jobs had when he, I think he brought in the CEO from Pepsi and said, like, do you wanna sell sugar water all your life or you wanna change the world? And I think that guy fired him afterwards. like, know, our company's giving those pitches to someone who says, like, I could work for StartupX and make a bit more maybe, but like, now come save the world with us.
Rokas Peciulaitis (30:19.351)
Yeah.
Uldis (30:19.786)
you
Janis (30:30.072)
Is it a factor or not that much?
Rokas Peciulaitis (30:34.165)
Look, think it's probably entrepreneurs that we need to ask. I can take that question from a founder standpoint. I one of the strongest founders that we've seen are people that have built successful businesses, obviously a commonality. But a lot of those that have built businesses in more traditional marketing space, or I don't know, like on traditional SaaS, I think a lot of them have, especially the successful ones.
they eventually sort of turn to saying like, look, I'm not going to build another thing in that space that I've built before. It would be the easy thing to do. I mean, I'm pretty active in Israel and a lot of entrepreneurs in Israel. And a lot of them would be like, look, the logical thing to do for me is to go and like to another cyber company and raise from Bessemer and many other great VCs in the space because I've done it many times over. And there's great companies like Wiz who are, you know, started by founders who've done it again and again and again in the same space. And that happens to work well for them.
Janis (31:22.309)
Mm.
Rokas Peciulaitis (31:30.825)
But I think there is another universe of founders where they're saying, look, I want to actually do something meaningful. it's, I'm not defined my life force for, through the dollars in my bank account. Not that they don't see an opportunity to make still a lot of money in building a company there, but equally has to tie out with the impact that happens alongside that, that, that, you know, equity creation, equity value creation. So I'd say those people, when they go to build businesses, they're truly driven by that passion. I don't think they're coming out opportunistically.
With obviously the beauty of like emergence of a lot of VCs that come to the like capital that came into the space, a lot of like, I'd say attention to the problem from a media standpoint as well. They came a lot of different people to question what they've been building. Maybe I rather not optimize the Google AdWords spend, or maybe I rather not optimize how emails go out of spam or how I optimize another productivity tool.
I think people want to do meaningful impact and they want to actually go to do build physical things. know, the whole VC narrative back in seventies by Kleiner started from semiconductors, which was mostly hardware investments, right? And we see that reemergence. we have like an amazing run of 15 to 20 years in software since 2000s, right? And now we're maybe going into the cycle where people really want to build physical things, but I think a lot of them get reminded.
Janis (32:44.232)
Mm
Rokas Peciulaitis (32:59.305)
that it's way harder to do so. And maybe another twist to it is probably the kind of emergence of AI where I think there is another avenue of challenge saying that there is still an electricity to power those hyperscalers. There is still the cooling to power that. There is still a water usage that you need to take into account. And that beyond the sort of code and software, there's a lot of things that we need to optimize and solve for.
that to be successful and scalable. I think there's the smartest people tend to go that route, I'd say. I'm obviously not generalizing. There's a lot of different talent going, but I think there's clearly like three, four core pillars that we've seen over the last couple of years, whereas the human health, the climate, AI may be one of them, and maybe crypto, there was like huge run into that part of the talent. But a lot of them still sort of
are touching to the kind of huge impact that these technologies will have in our daily life. So whether that's a from a climate standpoint, from a health standpoint, that is still optimizing for tough problems to solve. the so -called tough tech that the MIT engine created this concept, and I really like it better than hardware. Hardware is hard, but it's really tough. And it's sort of how long can you stick around and be curious to solve that problem from different angles, because it's going to be from
the first ideation stage to how you approach that problem that is going to look like the solution. So I think the talent is still going there. We see more and more so. I'm a bit less excited about talent that goes because of the opportunity, sort of purely opportunistically, the so -called not thrashing McKinsey BCGs, but like consulting jobs and more traditional backgrounds without no, I'd say technological backgrounds. Those things tend to be less exciting for us.
I'm not saying that there isn't an execution place in climate tech, but those, I'd say in most cases tend to be more hurdle and more competitive and, it kind of throw more capital to win type of opportunities, which never, I think are in most cases successful in, in BC from an outcome perspective. So yeah, I think, yeah, we need to still more and lock more talent from universities. I think that's one place where still I'd say lagging in Europe versus us.
Rokas Peciulaitis (35:25.493)
So hopefully that is the push we take a lot of that talent to build in, especially European soil.
Uldis (35:35.563)
There's a bit of a conflict built in there though, as well, right? That we need scientists to do research, to do science. And from the other hand, we say, we need to get more, more, let's say, technical founders going into business. So, but if we take them out of universities into business, then they're not going to do the R &D and the science. So do you see that conflict there or, or, or you think it's a...
Let's say the more founders, the merrier.
Rokas Peciulaitis (36:02.739)
I mean, every technology matures in scientific community level where that could be commercially scaled and look, like if we look at commercial like scalability of a technology, there will be always economical feasibility of that technology, right? So I think on one hand, the more, you know, talent went into the space, there is a lot of technologies that went to be potentially scaled commercially without a clear path to.
to be economical competitive with alternatives. And I think there's one commonality people tend to forget in climate, especially if we go to molecules, like more like the kind of producing of actually fuels, for example, in a sustainable way. The economical feasibility has to exist for these technologies, right? It's just that, you know, the demand supply curve is very well balanced, you know, when we go to commercial scale up in meaningful sizes, right? There could be some early adopters to pay like more for
Janis (36:47.085)
Hmm.
Rokas Peciulaitis (36:58.549)
specific technology, like I'll pick one. So let's say, you know, E fuel. So sustainable aviation fuel. There could be the early adopters that fly private jets and the stars that want to kind of position themselves in a certain way, being sustainable while, you know, on private jets. They could pay the kind of two, three X. And that again, is a blend rate to the traditional jet fuel. So maybe you're only 20 % staff in your, in your, in your fuel composition.
But eventually that technology needs to be almost at par with traditional jet fuel. Otherwise, we're going to rely on some subsidies and subsidies can be some sort of phased out period of time, an alternative to help this technology to scale, but it's definitely not going to be for more than five to seven years because we create adverse selection in the market. So I think...
you know, eventually the price point matters and these technologies that were scaled that are more sustainable have to equally be competitive. And I think a lot of people tend to forget because we've been announcing a lot of European Green Deal, like the inflation reduction act, but there were like billions of dollars that go into help to scale these technologies. But doesn't mean that these technologies eventually don't need to be in part competitive. And I think that's where the conflict maybe emerges, where I think the technology being taken to market too early.
Rokas Peciulaitis (38:22.249)
So my view is that we need to be very cautious, but at the same time, think it's only a handful or a function of scientists that will go entrepreneurial way. I think my honest opinion, we need more of them. And I think universities that have strong backgrounds in material science,
such as Switzerland, ETH, we've seen like a huge uptick in technologies being taken to market. And I think that's an amazing development. And we see that more so happening in also, you know, UK universities and Israeli universities that I think are leading the pack in this commercialization. So I think there's no conflict. think this should be encouraged. And these success stories drive more, you know.
more people to go the route of scientific research to eventually be able to scale that into business and to be very rewarded only from, I think, recognition standpoint, we're in a Nobel laureates or get nominated for that, but also that they can create significant economical value and equity value from the research that we've been spending years and years on.
Janis (39:42.914)
And the AI, what role AI now, yeah, like has to be this thing that comes in and solves everything and we don't have to do anything, right? But what do you think from what you have seen now, AI, what role will it play in solving climate change apart from just making the teams more productive and just thinking, can it come up on its own with some solutions or things like that?
Rokas Peciulaitis (39:48.465)
big elephant in the room.
Uldis (39:50.743)
you
Janis (40:12.302)
And also, investors, do you even look at the companies now as we see that don't have AI in their title or pitch deck, or because it seems like everyone has transformed and morphed into an AI company now.
Rokas Peciulaitis (40:26.537)
You mentioned the word productivity, I want to maybe start from that. I think I would like to use the word velocity and climate that AI gives. We spoke a lot about these hardware, different technologies. A lot of them are experiments at the very early beginning. And I think what AI gives you is the velocity of experiment, meaning you can actually, with less resources, do experiments to validate your hypothesis, whether that's in lab environment or whether that's well -scaling.
There is a lot of different companies that are now going. We've seen that before happening biotech, sort of the creation of or finding new molecules for our drug discovery, right? I think in where it's going to be very interesting and let's see where that comes from, whether that comes from a small startup in a garage or that comes from Google Meta and Microsoft. But I think what these LLMs on the application layer are going to see very interesting different applications is example novel material discovery.
novel metal discovery, novel enzyme discovery to, you know, to clean up oil spills, for example, or do them inefficiently, novel chemicals to produce in chemistry. So these are compounds that we probably have not imagined that exist. And an ability to use AI and that data and to do a lot of these experiments is ability to find the unknown. And I think
in venture, we want to back the unknown because that creates the new category for something, right? Ideally, if that is economically more efficient. So I think in climate, I'm very excited about the use of that because I'm not going to, I don't think it's going to be just an optimization problem where in some cases it's very interesting. It's going to be like finding the new things that we don't know that exist. However, that is, as we know, a very complex endeavor because you have to find the unknown and then you have to scale that unknown, right?
So there's two, again, problems that you're solving for. And I'm overgeneralizing that by design. We backed a few companies in this space, and there's more and more of those emerging. Not that his has not been tried before, but I think we have better tools to do that these days. I think there's always coming to the dream of full autonomous lab to do these experiments and create that philosophy that someone is like doing these experiments literally 24 -7. But I think...
Rokas Peciulaitis (42:50.793)
But I'm very generally positive on that velocity creating like a lower barrier to scale these technology companies. And cost is being very important from, as I mentioned before, from a capital stack perspective. If we can do more with less resources, I think that's generally better. And I think what matters in climate is sort of speed at which we are doing it because we're finding a problem that has some sort of a deadline that we put ourselves at least 2030, 2050, and CIDAs are being...
sort of very voice around certain points where there's no return, but also the scale that we're doing, right? So I think that scale up is very important and AI can be very useful in that. The other maybe thing is where there's gonna be more use for it. I think everything is a genesis of an electron that we're dealing in climate tech. So a lot of the assets, like especially renewables are powering a lot of these technologies.
if you're producing e -fuels that still originate from electron because it's produced usually by using electricity. I think we're going to have to get very much better at distributing and managing these resources. think a lot of people talk about virtual power plants, demand side response. But I think AI is really good at that. If you think that what's the most, one of the most successful hedge funds today, it's Citadel. And Citadel is running on a machine, right? Even Renaissance Technologies is running a machine, right?
So that is purely powered by complex machine learning algorithms that completely scan like an enormous amount of data and make decisions very fast. If you think about the distribution grid, know, TSO, DSO, and then eventually like a consumer, either, you know, utility scale or commercial or residential user, like a lot of like how electricity flows between these different people and agents is going to be
is going to be agent optimized by AI, right? Like how we're going to use these resources in the most optimal way. So I think we recently backed a company in this space called Bebop and these guys are basically doing exactly that on the device level. So I think we're going to have to get very efficient with the use of our existing resources, which I think we have not necessarily been when UN is controlling those resources or where they go. So I think these type of AI agents that are going to enable
Rokas Peciulaitis (45:16.073)
more optimized resource allocation is what again by design is going to lead a bit more in sustainable world purely that we're using the existing resources that we already have. Same way like a lot of people are saying a lot of technologies that we can mitigate climate change already exists. It's just we haven't scaled them to a level where they're meaningfully impacting it. So I think again, I'm pretty bullish on AI. I think I'm pretty bullish on just, you know,
climate tech founders building to enable the scale of AI in general, like even data centers alone that I mentioned before. Think about how you do cooling. Every 0 .5 % shaved off from being more efficient in allocating cheaper electricity or be more efficient with water and cooling is a significant saving for the hyperscalers like Amazon's, Meta and Google. And they're doing a lot of internal work.
to solve for these, I think there is definitely a lot of external people that are gonna be successful in building businesses there. I always joke, Climatech had had to this date in my personal opinion, at one big problem compared to from a venture standpoint and from an outcome standpoint. We haven't seen a lot of exits yet, right? We have seen some spag boom area, which I think you could argue whether that went successfully.
because a lot of these companies are struggling now because they weren't ready for public markets. I think we only get to see probably first generation of, sorry, second generation of climate tech companies only in the next like three, four five years in the public market. And what's interesting going to be about that is this has not performed well from an &A standpoint because a lot of the traditional buyers that would buy these climate tech companies or energy and prop tech and you know.
food and act would have been traditional incumbents in that space. So oil and gas utilities, big traders at Cargill and joined years of this world in agriculture. And they haven't been too aggressive in &A. And if you look at enterprise software, majority of the biggest acquirers have been the big five, The Googles, the Metas, right? They have infinite amount of cashflow and they wanna go move faster, right? And that has been a big of a fallacy because their indie budgets that these guys have are in
Janis (47:30.297)
Mm -hmm.
Rokas Peciulaitis (47:37.497)
incomparable to what the traditional legacy folks have. And what's interesting, if you look at hyperscalers or data centers to say, the R &D spent is ginormous. I mean, we're talking about billions of, hundreds of billions of dollars of R &D. So if you can create anything meaningful that would shave off or be in a cost saver for these gigascalers, I would assume that &A is gonna happen at a very steep price point to get ahead.
in this race. there are certain areas where I think climate should exist and the risk reward is very worthwhile, but I think you have to be very wise when you go to pick those areas because not all of them necessarily could yield you successful investment as from a VC standpoint.
Janis (48:28.999)
Yeah, think you one question during this conversation that you definitely answered is why not everyone is doing it because it sounds like it's damn complex and and yeah, I agree that you have this this passion that you that you showed and I think also the founders in the field must have the same right that
Uldis (48:35.903)
you
Rokas Peciulaitis (48:37.157)
complex.
Janis (48:48.478)
that they must be ready to get punched and knocked down a few times before it's even, know, before maybe the product even reaches first customers, right? Thanks, Rokas, for this insight into the world of tough tech and climate tech. And yeah.
Uldis (48:55.081)
A few.
Rokas Peciulaitis (49:03.053)
Absolutely. Hopefully more people get to build here and you guys are pretty active yourselves in this space. think, can I ask a question? Why are you guys excited about this space? You've speak to a lot of different people investing in different topics. AI came up as one, right? But like, well, how do you perceive from a sideline? Because I always kind of say one thing that is very important for me. It's so easy to be a specialist and to be an echo chamber of listening to your own BS, right?
You really need to sort of ask people around why someone else would go and build in this space, how they see the opportunities set, right? And we've been doing for seven years while it feels like not a long time, I think, and in a topic it's pretty long. I think what for us becomes a bit of like a lazy, lazy thing that we start to see the same rotation of same ideas that we've seen like three, four five years ago. And we're kind of going into vicious cycle and saying, is there no one else coming up with more interesting stuff or?
Or maybe it's the right timing for this idea now. So the loss of ideas is not accelerating from my perspective. It's actually de -accelerating. think we still see more or less similar stuff. Or maybe there's more people doing those. But how do you guys see the space from your sidelines, looking at climate tech? Is it their mere fad, or do you think this is truly something that is going to be generational?
Uldis (50:26.977)
think there was one major on -off switch in our minds and it came quite early when we started doing this more than three years ago in terms of that we kind of got our eyes open that this is actually a business because prior to that at least for me it always felt like it's know government money some kind of
basically not gonna commercialize, not gonna become a business. And then we had some quite few exciting founders showing that, there's incentives there that are aligned commercially and this can work as a business. And I think that just opened up the whole story that completely changed the mindset of looking this not as a charity, not as a government investment, but an actual business.
Janis (51:18.812)
I think also something that you mentioned very resonates. You mentioned about the challenges that founders in this space face, and we want to also talk to people who have faced...
some interesting challenges. Every entrepreneur has faced tons of challenges and just maybe climate is just one interesting angle, but you're almost guaranteed to hear these interesting challenges and learnings from the founders in the space because of what they've gone through. So that's, think, also one motivation that there is a lot to learn from people who have been building in the space. you know, maybe they haven't exited yet or maybe they haven't, maybe the company hasn't even not worked out, who knows in a few years, but
they're spending a few years building something in the field, getting backed by VCs in the field probably means something as well. then the kind of, you know, means that you have some interesting experience to share as well. But of course, biggest problem that we face, one of the biggest problems that we face, and there must be a lot of solutions that will be coming up. Of course, a lot of fat as well. We also very often ask like, you know, how to distinguish good companies from companies who just attach.
green label to their just to raise or just to PR. But once you do that, once you get through to the good companies, think that can get very, know, conversations can get very interesting.
Rokas Peciulaitis (52:41.737)
I think my last point, we didn't touch much on sort of the kind of dynamics of the venture and sort of from a financing standpoint, like meaning from VC standpoint. think the one commonality of a problem, which we yet to see, is that a lot of companies assume they are raising capital as software companies in terms of multiple or how they're valued. But a lot of these businesses end up, once they've scaled, going to be validated even in some cases, even our best at revenue multiple that doesn't look like a SaaS multiple. And that's where
this concept I arrived and you asked this question, maybe I'll finish this with this. You sort of said that there is, why is everyone VC in this space? And my commonality of logic, how I see if I look at public markets and I look at like an early stage venture, and my background, used to be a trader before and I used to trade actually inflation, which interest rates trade on curve. So basically what I'm seeing, the curve usually is like the interest rate.
is like this and you have this flattening or steepening of the curve, right? What I think we are now in the current market, like macro environment and where the kind of climate tech is, I think we're in this flattening of the curve. And flattening of the curve is pretty scary for a venture because you're investing at very high valuations and at series B you're almost valid at the same valuation purely because of where the traction got in or the company actually caught up with the product and revenue and they're starting to get valid on like a multiple of one or two X of revenue.
rather than a 12X like the how enterprise has business is out. And that flattening of the curve really could be detrimental for climate tech investing from what success looks like of these outcomes, right? If you're invested at 25 posts, pre seed round, 5 million, 20 posts or pre 25 posts. And that business has zero revenue, technology proven. And then you go and they only start,
generate revenue series B, series C, that business might be like two, three X, but, at the same time, maybe you have diluted that company by 50 % for that same period of time. Therefore you're almost flat, net net dollar. So that for me is very scary. because the founders have had these expectations that they should be valid across all of them, same like software businesses and they don't, and they don't, and they should be pretending to be software businesses. And on the other hand,
Rokas Peciulaitis (55:03.463)
What is also scary is the public markets have been penalizing these companies because they're at this current environment where their interest rates are, a lot of them are still not profitable, right? And they, you know, you look at Tesla, they haven't been profitable for a very long time to reach certain scale. And that scale is times multiple of what the software business needs to reach. So the tolerance for that cash burn is also not in the public markets and therefore the multiples got compressed there. So I think I'm pretty cautious at this point of time on how we price stuff and
And what to add to that as a fire, the gasoline to the fire is there's just so much capital chasing these opportunities, the best opportunities. they don't get bit up because founders want that valuation is just because it gets very competitive at very beginning. So I think this there's a caution for me that we shouldn't forget the kind of fundamental principles of, of looking at how that company would scale, what type of dilution will. And I think while it'd be shameless plug, but like, that's why we created that climate brick to look at that realistically through different scale up.
for different scale of journeys across different business models, how your journey will look like. And we encourage founders to do that every time. And again, very much aligned with VCs on what these milestones, what these valuations normally look like. Because if VCs don't make money, eventually that capital can valish because we're living in this sort of, again, somewhat pyramid of capital stack. is going to get disappointed again. I don't think there will be forgiving for a second time because Climate Tech was very painful for them. And it took almost 10, 15 years to recover for real piece to
again to deploy in this space. So it's a common, I think, good for all of us to be on the same page. And I think entrepreneurs should not also get detached from that reality. So that's my cautionary tale, cautionary tale.
Uldis (56:43.315)
Sounds to me it's more sounds to me that it's more about VCs aligning between themselves not to overbid as founders here are of course happy to to go with high valuations exactly
Janis (56:45.916)
Co -sign here.
Rokas Peciulaitis (56:55.827)
They're price takers at that point if there is that competition. They're price takers. Thank you guys.
Janis (57:01.855)
All right. Thank you and listeners. We see you in a week. Our planet will still be here in a week, I guess. But if we wanted to be here for several more weeks, then we better pay more attention to climate tech. But yeah, thank you for listening. Bye.
Rokas Peciulaitis (57:16.777)
Thanks for listening, Anas.
Uldis (57:17.099)
And don't forget YouTube. And don't forget YouTube. Go see our faces.
Janis (57:20.194)
Exactly. Exactly.
Rokas Peciulaitis (57:21.897)
Thanks a guys, have a good day.
Please note that the transcript text is AI-generated. We apologize for any potential errors or inaccuracies. Thank you for your understanding.
