Today’s a special day here at eu.vc as we’re announcing our investment into Nucleus Capital 🥳 and of course, we do that by sharing with you a deep dive episode with Max and Isabella, the two General Partners of Nucleus.
For those who've been with us for a while, the name 'Nucleus Capital' might ring a bell🔔. And for good reason, as we’ve been tracking the firm's journey right from the launch of Nucleus I. To big hardship (literally made the below meme for the occasion!) we missed the opportunity to invest in Nucleus I, so of course, we’re now buzzing with excitement as we’re binding the final knots for our Nucleus II Syndicate.
Based in Berlin, Nucleus Capital is a frontrunner in the Pre-Seed and Seed venture space, dedicated to supporting purpose-driven founders who are solving systemic challenges to planetary health.
Let’s get the basics in place:
Nucleus I, of 7M€, built a portfolio of 24 firms including standout investments in Planet A Foods, Farmless, and Yuri. Nucleus focuses on backing purpose-driven entrepreneurs addressing systemic global issues within Programming Biology, Foodtech and Industry decarbonization across Europe and specific US hubs. Let’s take a closer look at each of these verticals:
Industry decarbonization, a $21 trillion opportunity comprising the replacement of petrochemical-derived materials and products, technologies to drastically avoid and reduce C02 emissions as well as decarbonization of the manufacturing & energy industries.
Food technology, a $12 trillion opportunity comprising ensuring food security for 10B people on earth, the decoupling of food production from agriculture, saving water, land and C02.
Programming biology, a $30 trillion opportunity comprising the rethinking of our systems of production through the lense of biology, rebuilding the global economy with a green DNA and alleviating supply constraints & enhancing resource efficiency.
Why now?
As many of you will know, we believe now is the right time to be placing your bets in climate as we’ve now got a solid base of climate funds to pick between. In fact, since January 2021, a staggering $4 billion has been raised by 132 climate-centric investment entities, encompassing VC, Corporate VCs, Growth, Infrastructure, and Private Equity funds. With this abundant reservoir of 'dry powder', investment in climate initiatives is expected to persist, even if there's a market correction. However, it's noteworthy that while only 20% of these new funds exceed $500 million, they control a disproportionate 80% of the total assets. And looking only at the venture space, we’re starting to see some breakout firms positioned to lead the pack. We believe Nucleus is one of these.
Looking at the bigger picture, there are some very substantive trends that underpin our bullishness:
Post-Internet Value Creation: As we transition into an era of post-internet value generation, the leading categories will be anchored not just in the digital realm (bits) but also in the tangible, physical world (atoms).
Technological Affordability: Analogous to Moore's law, there's a significant reduction in the costs of foundational technologies. This decline is enabling superior economic models and unprecedented scalability in various sectors.
Climate Urgency and Market Dynamics: The looming climate emergency combined with a marked shift in both consumer behavior and governmental policies is generating a powerful market demand. This change is creating a ripe environment for ventures that address these pressing challenges.
Talent and Entrepreneurial Drive: The current landscape boasts a blend of a new wave of talent, brimming with enthusiasm to make a positive impact, and experienced entrepreneurs with a renewed purpose-driven mission. This cohort, equipped with expertise, networks, and capital, is keen to tackle systemic issues head-on.
Given these prevailing conditions, backing Nucleus seems not only to be a prudent decision but also a timely one. Their vision and approach align seamlessly with the current market dynamics and global imperatives.
A note on the GP team
At the heart of Nucleus lies a team of accomplished professionals, embodying both depth and breadth of expertise. Maximilian Schwarz and Dr. Isabella Fandrych anchor the team, having built and maintained a trusted partnership for over 17 years.
Max brings to the table six years of VC experience with a strong focus on Synbio & Food. On the other hand, Isabella contributes five years of specialized knowledge in decarbonization and the intricacies of building bridges between corporates and startups.
What is more, the team will be complemented by a Principal with a PhD in Bioprocess Engineering and industry experience at the intersection of bio-process scale-up and commercialization.
Adding further strength to the Nucleus team is a strong set of VPs and advisors consisting of experts in establishing companies within the target sectors and who have a co-investment history with the core team. Among them are Raffael Wohlgensinger and Martin Weber. Raffael, Founder and CEO of Formo, boasts four years in food and bio company creation. His notable achievements include raising $54 million, fostering a team of 100 employees, and being crowned Entrepreneur of the Year in 2022. Martin was among the first employees at Infarm and now runs one.five a biotech platform to scale applied material science in sustainable packaging, backed by Planet A Ventures, Speedinvest, Climentum and Revent.
Other notable advisors include Dr. Mazen Rizk (Founder of Mushlabs), Dr. Patricia Bubner (Co-founder of Orbillion Bio), Prof. Ian Marison (expert in Synbio production systems) and Andreas Berger (Food Industry Advisor and ex-MD Aldi Nord) as well Christian Ohlshausen (CTO of Climate leader Sunfire).
Track record
While we cannot share the hard numbers here, we’re of course investing because we’re seeing strong early indicators of Nucleus's prowess on the back of their 29 investments. What is more, they’ve shown a skill in strategically and incrementally expanding their shareholding in their winners, which given the roster of follow-on investors is noteworthy. The list includes esteemed names such as Founders Fund, YC, Lowercarbon Capital, Lux, Pale Blue Dot, Speedinvest, Project A, Cherry, FJ Labs, and Collaborative Fund.
What is more, the team have successfully instituted a well-structured advisory and community model which not only superpowers them by enlisting the wisdom and insights of seasoned industry mavens from its target sectors, but also aligns them perfectly with our community investing approach.
The venture community has taken note of Nucleus's exemplary contributions, bestowing upon them the title of "Top Emerging Food VC" and featuring them in the list of "Top 50 Climate VCs to know," highlighting their significance in the climate-focused investment space.
In sum, we’re honored to be backing the Nucleus team and we can’t wait to share with you our enthusiasm.
Strap in.
Table of Contents
Full video interview & chapter overview
Founding story of Nucleus Capital
Finding Partner fit
The Hustle Mentality - something we like to underwrite at eu.vc
Deep Dive on Nucleus’ Investment Thesis
The Exit Environment for Climate Tech Startups
From Abstract Thesis to A Tangible Look At The Portfolio
Balancing the Venn-diagram
A note on pitch decks... for other VC managers 👀
Join the EUVC Syndicate
Full video interview & chapter overview
00:00:00 - The European VC Podcast Introduction
00:04:10 - Pooling expertise and building a community
00:08:11 - The Journey of Building Nucleus
00:11:30 - Making the Decision to Work Together
00:12:56 - Isabella Realizing The Worst Decision She Could've Made
00:14:38 - Lessons Learned from Fundraising
00:16:18 - Inflection points and supporting founders
00:17:43 - Tech Bio: Software-driven models leveraging biological data sets
00:19:44 - The Importance of Meta-Level and Environmental Factors
00:21:41 - Building Relationships and Effective Decks
00:23:30 - Differentiation and Positioning in the Startup Industry
00:25:16 - Delivering Change and Driving Returns
00:27:14 - Bio-based solutions for industry decarbonization
00:29:17 - Sector Focus for Better Returns
00:30:51 - Including Sustainability and Deep Tech Premiums in Valuations
00:32:53 - Investing in Technologies for Sustainable Production
00:34:23 - Repath, Analyzing Risk Exposure and Climate Change
00:36:15 - Planet A Foods The CO2 Footprint of the Cocoa Industry
00:39:41 - Enabling a Viable Future
00:41:38 - Balancing the Portfolio
Founding story of Nucleus
In the heart of 2020, when the world was grappling with the shockwaves of a global pandemic, Maximillian found himself at a crossroads. It was a period when opportunities seemed scarce, yet for him, the entrepreneurial spirit burned brighter than ever. With the world in chaos around him, he took a leap of faith, leaving behind his stable job at Atlantic Food Labs to follow a vision.
His initial idea was to create an angel syndicate that would democratize access to assets. However, young and optimistic, he hadn't considered the complexities of German regulations. His ambitious plan to create a vast syndicate faced an abrupt halt. But as they say, when one door closes, another opens. The setback paved the way for taking the plunge and build a micro VC.
The unique proposition Max and his team of advisors and confidants brought was their insight into the importance of having individuals with specialized expertise on a company's cap table. Whether it was science, scaling ventures, market outreach, or branding, they believed in pooling together people with the right knowledge for a deal.
It all began with small steps, sometimes as modest as investments of 2,500 euros. But in just over half a year, they had made 13 investments, proving their knack for sourcing and accessing deals. These early strides caught the attention of more seasoned Limited Partners (LPs), who saw potential in what Maximillian and his team were building. The venture that began as an angel syndicate had morphed into Nucleus I.
At the core of Nucleus was the idea of community. It wasn't just about placing bets; it was about bringing together and leveraging functional experts and building the best first-check investor for purpose-driven entrepreneurs solving systemic challenges to planetary health. A key characteristic that remains a strong differentiator for Nucleus as they go into Fund II.
Finding Partner fit
The synergy between GPs in a VC fund is crucial and one of the key risks associated to emerging managers. According to Sapphire Venture Capital Data, only 50% of Fund I’s graduate to Fund II. I can’t actually remember the source, but I recall hearing in a podcast recently that only 17% or so actually graduate up to Fund IV (don’t quote me on this one, but sounds in line with our experience). Consequently, alignment is not only important to ensure the smooth functioning of the fund but it also greatly influences the perception of Limited Partners (LPs).
The story of their collaboration is a testament to the importance of alignment between GPs and their success with Nucleus how that builds confidence with LPs. However, despite having known each other for 18 years and sharing a deep bond of friendship, their professional collaboration wasn't immediate. Isabella initially rejected Maximillian's proposal to start a venture together, given her established career trajectory at McKinsey. However, after introspection and recognizing the potential of what they could achieve together, she reconsidered. Their shared vision, combined with their trust in each other, made them a formidable team.
The choice of partnering with a long-time confidant doesn’t come from nowhere. Earlier in Max’s entrepreneurial journey, Max went through a founder breakup, instilling in him a great respect for the importance of building on a strong foundation and paying adequate attention to maintaining that through the journey. Seeing this mutual respect, trust, and unified vision in the partnership instills confidence in LPs, assuring them of the fund's stability and potential for success.
The Hustle Mentality - which we like to underwrite at eu.vc
Just as the best founders are scrappy and are able to get things done with duct tape, red bull and ramen noodles, so are the best emerging VCs.
And the Nucleus team knows how to hustle:
We had warehoused five investments leading up to our first closing, essentially asking our founders to accept our investment without us having the capital upfront. One of these was a lead investment into Planet A Foods.
The catch was that this check would only materialize if we successfully completed our close ... in time!
Today, Planet A Foods stands as a testament to that trust, having grown into a well-executed company with a significant Series A funding from some of the leading climate investors.
However, the road to this success was fraught with uncertainty. With merely two weeks to the closing of Nucleus I, a staggering 30% of the commitments unexpectedly fell through. This jeopardized the minimum required to execute the warehoused deals, leading to several sleepless nights. Through sheer determination and the support of our community investors, we managed to raise the required funds, saving the deals and the reputation of the firm. But damn… that was a hectic period.
In our pod episode with Max and Isabella, Max shares with us how this was a profound learning experience truly instilling in them a strong empathy for founders during their fundraising endeavors and reinforced the adage that a commitment is only as good as the money in the bank.
However, Nucleus's journey wasn't just about overcoming hurdles. Isabella highlighted that their path was also marked by several rewarding inflection points. One particularly heartwarming aspect was the influx of talent eager to join Nucleus. Despite their limited budget and minimal marketing, the reputation of Nucleus grew organically. Prospective employees reached out, expressing their admiration and desire to be a part of the Nucleus vision. For Isabella, these moments were a testament to the impact Nucleus was making in the industry and a reflection of their commitment to excellence.
In essence, the story of Nucleus is one of resilience, determination, and passion. Through every challenge and celebration, the team remained committed to their vision, navigating the VC landscape with unwavering dedication and the type of hustle we’ll underwrite any time.
Deep Dive on Nucleus’ Investment Thesis
Over the past few years, multiple climate funds have been raised, oftentimes with a broad mandate to tackle a spectrum of challenges. Believing in the power of concentrated expertise, Nucleus is markedly different from these allowing them to spend the majority of their waking hours immersed in a limited set of topics so as to develop unparalleled expertise in that area. And just as important; build strategic relationships, connect with scale-up partners, and collaborate with key ecosystem players.
What is more, a key differentiator for Nucleus is its commitment to sectors that are less heterogeneous. Their investment thesis revolves around the core enabling layer of synthetic biology, described as programming microbes such as yeast or bacteria to produce specific entities, from proteins to molecules. These molecular structures then become the foundation for myriad applications, from food products to diverse materials.
Providing a tangible example in our pod episode, Max mentions Nucleus's investment in Ucaneo, a direct air capture solution that harnesses the power of enzymes and biomembranes to extract CO2 directly from the ambient air. This bio-based approach stands as a testament to Nucleus’ commitment to using biology-driven solutions to solve the problem of industry decarbonization.
Isabella further elucidates the vision by touching upon bio-based materials. From textiles and leathers to fuels, a significant portion of the materials we use today are derived from fossil fuels. The transition to biology-based alternatives can retain the essential properties and performance qualities of these materials but with a significant reduction in carbon emissions. Again, bio at work.
This strategic alignment and focus on bio as the enabling layer makes Nucleus exceptionally equipped to support specific types of companies and diligence them prior to making commitments, all while still ensuring a diversification across applications and markets and technologies not to be cornered into over-concentration.
In conclusion, one can draw parallels with successful sector-focused funds like Point Nine in SaaS and FJ labs in marketplaces, Nucleus just operates within the realm of impact investing.
The Exit Environment for Climate Tech Startups
The primary concern in the climate field for many is the ambiguity of the exit environments. With fields like decarbonization technologies and synthetic biology being relatively nascent, the ability to predict venture-scale outcomes can be tricky. These industries have been enabled only recently, and understandably, there's a degree of uncertainty surrounding their long-term trajectory.
However, Nucleus's belief, and one which we in turn underwrite at eu.vc, is that the potential for sustainability premiums in valuations is unwavering. In our episode, Max and Isabella elaborate on the food sector, where traditionally, exit multiples might not have been where VCs would like to see them. Yet, the pair firmly believes that the landscape will evolve. As larger food corporates recognize their limitations in in-house innovation and pivot to their strengths in consumer engagement and distribution, there will be room for premiums based on sustainability and deep tech. This concept of a premium isn't limited to the food sector. The chemical and mineral industries, for instance, are increasingly valuing supply chain security. As commodities become scarcer and industries become more reliant on specific regions, technologies ensuring ingredient availability might command a premium.
From Abstract Thesis to A Tangible Look At The Portfolio
We know that we’re a bit special here at eu.vc in that we get lost in talking about the VC funds but rarely go into what it’s all about: the tech & the startups 🔬🚀
Let’s first look at Repath—a standout company that epitomizes science-driven analytics within decarbonization technology. Repath has built a second-to-none competency in understanding and analyzing risk exposure of infrastructure and assets owned by large corporations, particularly in the face of looming threats posed by climate change. With the reality of climate change becoming increasingly evident, and with the world expected to undergo significant transformations over the next century, there's a pronounced need to assess regions vulnerable to heatwaves, floods, and fires (as also discussed by David Friedberg and the gang at All-in just this week, go here to listen 🎧).
Looking to the food technology part of the Nucleus thesis is Planet A Foods 🍫. Operating within the cocoa and chocolate industry, Pellat Foods addresses a little-known fact about the high carbon footprint associated with chocolate production. Cocoa, surprisingly to many, ranks fourth in the food value chain's CO2 footprint, trailing only beef, cheese, and lamb. Planet A Foods creates a bio-derived ingredient that, while not chocolate, mirrors its taste and performance in various applications. From the coating of a Magnum ice cream to the chocolatey layer sandwiched between cookies, their product promises to redefine mass-market chocolate-based offerings allowing us all to indulge bad-conscious free.
The company's methodology is twofold. Firstly, they employ precision fermentation—programming host organisms like yeast to produce specific molecules. In this instance, they create lipids or fats that serve as a cocoa butter substitute. These fats play a crucial role in taste transmission and texture formation. Secondly, they mimic cocoa flavor by fermenting and roasting seven natural ingredients. Intriguingly, these ingredients are often waste or side streams from the food industry, making for an appealing circular narrative. While Max refrains in our pod from detailing the entire ingredient list, he cites oat as a familiar component he can disclose.
As a testament to their groundbreaking work, Planet A Foods is set to debut in the German market later in the year, partnering with retailers to introduce their innovative products to the mass market.
Together, Repath and Planet A Foods exemplify the kind of pioneering ventures Nucleus Capital champions—ventures that not only address pressing global challenges but also redefine industry standards.
Balancing the Venn-diagram
While the prototypical investment for Nucleus would fit squarely in the middle of the three circles in the Nucleus venn-diagram, companies like Repath that distinctly represent one sector are also strategically chosen.
Repath's software-as-a-service model provides a diversification to the portfolio's risk profile and by investing in Repath, Nucleus avoids adding another company with similar risk factors, effectively hedging against certain risks, such as time to revenue ramp-up relative to scientific IP.
In our episode, we dive much more into this and how Max and Isabella think about risk distribution across the portfolio, and the dual responsibility of a fund manager in this space: to balance risk, time horizons and outlier potential. As an example, companies like Repath are essential for balancing out those investments that are heavily rooted in scientific defensibility and intellectual property but may take longer to become commercially viable.
A note on pitch decks... for other VC managers 👀
The world of venture capital is replete with pitch decks, each promising a unique vision and groundbreaking insights. Yet, every so often, a pitch deck emerges that not only informs but educates, enlightens, and instills a sense of anticipation for the future. Nucleus Capital’s deck is one of these.
At eu.vc, we like to refer managers to Nucleus when it comes to best in class as it strikes a perfect balance between depth and clarity in a highly technological field that hard to understand for most potential LPs. Their deck isn't just a presentation of their fund and strategy; it's an immersive journey into the megatrends shaping our world, underscored by meticulously researched data and insights.
Most VC decks we see market industry insights and co-investment opportunities as part of the deal, yet leave us without a single insight about the industry and technologies the firm targets. These decks not only fail to enlighten us, but they also fail to show us what a partnership with the firm might give us. If you promise to be your LPs guide, rep and access point to an industry, try and hand your deck to someone unfamiliar with your sector and gauge how much they've learned by the end. That's the true measure of a pitch deck's worth.
What truly sets the Nucleus deck apart is its inherent educational value. Being pitched by Nucleus is akin to attending a masterclass, one that enriches your understanding of the sector. For aspiring and emerging fund managers, this is a gold standard. After all, the objective of a pitch deck should be not just to impress with your track and terms, but to impart knowledge.
This doesn’t come easy, of course. In our episode, Max and Isabella share the rigorous journey that went into crafting their deck. The current version, they estimated, is just about the 270th iteration, underscoring the commitment and iterative process of perfecting their message. Differentiation is key in the VC world, and Nucleus's unwavering focus on sector expertise, especially in the pre-seed to series A phase, has positioned them as thought leaders in the space and the perfect partner for us at eu.vc We cannot wait to join them on this decade-long journey together.
We're determined to create a community for investors tapping into the vast potential of Europe. LP investments underpin our approach, offering access to European tech at scale. We double down on the winners by co-investing and following-on into successful startups. 🚀🌟
As a member of the community you get:
🌟 Curated investment opportunities, including access-constrained deals.
🤝 Privileged connections with inspiring people in the industry, building strong networks and relationships across Europe.
🔍 Proprietary insights into cutting-edge tech and emerging markets.
📖 Access to best practices, skill development, and valuable insights to enhance your investment expertise.
💸 Exposure and access to the asset class we all love - Venture Capital.
And the best part? You get all of this for FREE, as long as you remain an active and engaged member.
Announcing our investment into Nucleus Capital II - dive in with us 👀/🎧