Investing in Climate Tech Innovation

Jess Clemans 0:02

We invest in founders . That is the honest truth . If we are not very bullish that a founding team is the right team to be running after a business , it doesn't matter how great the idea is , it doesn't matter how attractive the industry is . It's just not something we're going to back . I know that's a bit of a generic venture capital answer because of course you're investing in the custodians of the business , but it seriously is true the business , but it seriously is true .

Ryan Grant Little 0:29

Jess Clemens is on the lookout for companies that make buildings cleaner and more efficient , in his capacity as an investor at NOAA , a 250 million euro VC fund . I reached Jess in London . I'm Ryan Grant Little . Thanks for being here , jess . Welcome to the podcast . Thanks , ryan , nice to be here . You're an investor at NOAA , which bills itself as Europe's largest built world focused VC . Can you talk a little bit about what the firm does , its history , its thesis ?

Jess Clemans 0:57

Yeah , sure , Happy to . Basically , the firm was founded in 2019 . We were branded back then as AOPropTech , not NOAA . The rebranding was . I think it was about six months ago now . We actually went through that rebranding process and the whole genesis is kind of linked to the backstory of the fund . So when we first launched , we were very focused on real estate and , I guess , other forms of real estate like industrials and some elements of infrastructure transition . What's happened since then ?

Jess Clemans 1:24

We announced our second fund about midway through last year , which is a 250 million euro fund , but with it we've kind of broadened our scope and our focus . So now we say we're a built world investor and broadly we're investing in the transition to a more efficient built world , and to us , built world means anything that is effectively one degree of freedom removal from real estate itself . So you can think about things here like the grid infrastructure , smart city applications , logistics , carbon capture trading , technology that sells to industries that then service real estate itself . So there's a lot more categories we can go into there . But obviously that's kind of the high-level structure .

Jess Clemans 2:09

But as part of that transition we obviously include a lot more things that previously we wouldn't have considered and what you would , I guess , traditionally label as core climate tech solutions today , and as part of that , we invest in seed up until Series B companies . So in practical terms , we invest somewhere between 2 and 15 million euros in our portfolio companies . In practical terms , we invest somewhere between 2 and 15 million euros in our portfolio companies and the idea is to have a somewhat concentrated portfolio structure , but nothing too crazy . So something like 20 to 30 portfolio companies and most of what we do is going to be in Europe , although we do do a sizable amount of our portfolio , which is 30 , 25% , in North America as well .

Ryan Grant Little 2:44

And why this focus ? Are your general partners from the real estate world , or what drew them ? Is it the opportunity itself ?

Jess Clemans 2:51

To be honest , a big chunk of the team actually came from the real estate world originally . Our founder , Greg DeWerp . He was a real estate guy for the last I don't know he'll give you his backstory better than me , but it was 10 plus years did a huge number of real estate transactions in his previous life and he , like the rest of the team , saw a lot of the inefficiencies that exist within the real estate industry and the broader built wealth category as a whole . It's a very antiquated industry . It's the biggest asset class in the world . It's worth like $380 trillion or about that number . It's kind of hard to value real estate as a whole industry category , to be completely fair . But no , let's say ballpark 380 trillion , but it accounts for 40% of global carbon emissions , which is just crazy if you think about it . And if you take that 40% , about one third of that 40% is embodied carbon , that's the carbon that we have in the building itself . So everything related to the construction process as well as the materials that go into the building , and then the remaining two thirds is what we would call operational carbon . So this is everything from heating , cooling , lighting all the stuff that you generally use to operate the building . A crazy proportion of that is heating and cooling . Actually , About 60% of that two thirds is heating and cooling . So the industry has been incredibly focused on kind of decarbonizing that .

Jess Clemans 4:08

But looking away from just the climate tech elements to real estate and the climate elements to real estate itself , the industry is going through a major transition right now . So fundamentally in Europe we have the oldest built stock in the world . We have a lot of climate regulation coming into play . We have set net zero targets for ourselves as a broader base economy , but also the corporates that are most of the tenants and asset owners in the built world have also set pretty aggressive climate targets . But for us to transition just the existing real estate that exists today , it's going to cost us about $94 trillion to actually make that net zero and to help us hit our targets .

Jess Clemans 4:48

And if you look beyond that , we have a growing global population . We have an urbanizing global population . We have a massive housing shortage across the board . We need to build an awful lot of new homes before 2050 . And if you increase the number of buildings we have on the market today , you obviously grow the emissions generated by that sector . And so if we want to produce all of the buildings we need for 2050 , but also keep them green . We need to spend another almost $200 trillion just producing those assets has ever occurred , is going to be occurring over the next 30 years .

Jess Clemans 5:23

We've already seen this underway , but this is the fundamental thesis behind the firm . So it's this antiquated real estate industry with this massive transition that's happening at the same time , but if you overlay the climate emissions on top of all of this , you actually have the greatest opportunity to do good . And , to be frank , climate technology for real estate has been underinvested historically . I can't give you the exact percentages off the top of my head . We have them somewhere in one of our internal decks , but as a percentage of venture capital spend compared to the climate emissions of the sector , it is grossly underfunded . So we saw the need to fill that gap , and particularly fill the gap in Europe , where we have some of the oldest and worst performing built stock in the world .

Ryan Grant Little 6:05

And so in 2019 , when the firm was founded , was it , did it have this climate focus , or was it looking for kind of innovations in built environment , which then kind of , as you know , things have shifted in the past five years . It becomes pretty clear that this is that you know , these innovations are actually largely in climate , because the efficiency and the cost savings equals climate . In that sense , was it a shift or has the mandate kind of stayed the same ?

Jess Clemans 6:32

It's a very good question . The mandate hasn't stayed the same . When we were founded in 2019 , we obviously saw the need for climate solutions . I think the demand was a little bit less pressing at that particular point in time . The last kind of five , six , seven years has seen a massive surge in the number of net zero targets for large corporates globally , and so back in 2019 , the need was still there , but it wasn't like the core focus , and so with the new fund , it's become the core focus , predominantly just because we've seen a lot of regulation in US and Europe come to pass that is mandating a green shift for real estate .

Jess Clemans 7:08

But beyond that , if you look at the S&P 500 , I think the statistic is 45% of them now have a well-defined net zero target to hit , and most of them all of them occupy office space , they have factory space , they have logistics space , occupy office space , they have factory space , they have logistics space , and if the buildings that they occupy are not accretive to their net zero targets , they will not lease that space . And so for real estate asset owners , whether they care about climate or not , the reality is a lot of the global tenants for high quality assets do care , and so we've been seeing this huge shift with the real estate asset owners over the last five years towards retrofitting their buildings to make them appropriate for the types of tenants that they want to get in place . That again have now got net zero targets to hit themselves .

Ryan Grant Little 7:56

That makes a lot of sense . I wonder what kinds of investments you've made . If you want to just talk a little bit about what's in the portfolio and what kind of deals , do you get especially excited about this ?

Jess Clemans 8:06

is always my favorite topic , because being in venture capital , I guess you have to be kind of a perpetual optimist and you're always looking at . I kind of equate being in VC to being the dumbest person in any given conversation , because if I'm ever speaking to a founder that I think I know more about this topic than them , they're probably not the right investment for us . So I spend my entire day speaking to people smarter than me doing really , really exciting things every day , and obviously the companies that go into our portfolio are the top 1% of those companies that we speak to , and so they're always very exciting , awesome founders doing something really cool

Building Management Systems and AI

Jess Clemans 8:43

. But if we think about what's in the portfolio so I was just talking about heating and cooling load and buildings being one of the biggest contributors to their greenhouse gas emissions we have a company in Fund One called Passive Logic , based in Salt Lake City , utah , and what they're doing is a next generation building management system . So that is the control hardware that sits inside a large building that controls the lighting , the HVAC , the piping , the plumbing , a whole bunch of other equipment inside the building , and it is the thing that decides when to turn on the heating systems , when to turn on the cooling systems and you can have a huge impact on the building's performance just by optimizing when you use that equipment , or when energy on the grid is greenest or cheapest , or when you don't need to be heating a building . You shouldn't be heating it . Let's say , midnight , it's totally unoccupied . Why are you keeping it at a certain temperature ? So passive logic is optimizing all of those things . But what they've done , that no one's done in the past .

Jess Clemans 9:38

They are a fully autonomous BMS built from the ground up with artificial intelligence at the very core , and there's a lot of buzzwords there . It's obviously an exciting space to be in , but what they're doing fundamentally is they're running a whole bunch of GPUs in the building and they're creating a digital twin of that building . In real time and based on the physics simulation that's occurring in that digital twin , they can make decisions on whether to heat , whether to cool , whether to turn lights on or off in certain pieces of the room , and they can do predictive analysis , like we expect the temperature to drop outside in the next two hours . So we're going to heat the building now , whilst there is a lot of solar on the grid , in order to not have to heat it in two hours or three hours , when the energy on the grid is going to be a lot browner . So it's an awesome company .

Jess Clemans 10:26

They're starting to expand commercially now across the US and Europe . They're doing incredibly well and , honestly , they have very few direct head-to-head competitors except the very , very old-fashioned incumbents that occupy this space . So it's one of the companies in fund one we are most bullish about and , honestly , we scout the market constantly and so far we haven't seen anyone that's even remotely competitive with them in terms of technical sophistication or scale of the opportunity . It's cool .

Ryan Grant Little 10:54

It's really exciting . You've entered a no acronym zone , so I will say BMS , building management system , gpu general processing unit , but I'm still I'm going to break the rule and use an acronym AI , because you mentioned that as well . And I wonder right now , in this space , does every single pitch deck you see mention AI and if so , what extent is it hot air and to what extent is this actually just changing ? You know this industry , as it is with many others .

Jess Clemans 11:21

Yeah , every single pitch deck I see has AI somewhere in it . I think even worse than including it in the pitch deck is including it in your company name when you don't have AI in the product . That's always my favorite the ai domain name when what you're doing is not even remotely related to AI .

Ryan Grant Little 11:37

Yeah , no one wants io anymore . Now it's all ai Exactly exactly .

Jess Clemans 11:41

That was the xyz during the metaverse craze and now we've gone up to ai . I think you can make quite a bit of money buying domain names if you can predict what the next lot is going to be . But yeah , we see an absolutely huge , huge number of companies leveraging AI . I mean , there's good reason for a lot of companies mentioning AI these days

Founders and Verticalized AI Solutions

Jess Clemans 11:57

. The reality is , transformer models have really brought the industry to a place where they are usable in a lot of different use cases and , honestly , they're pretty easy to integrate into products . The thing we're seeing that is maybe a negative trend and I'll speak about the positive aspects of AI in a second but I think the negative trend we're seeing in VC is there is a lot more competition for relatively simple , verticalized AI solutions , so serving a very specific use case in a very specific industry .

Jess Clemans 12:28

There's a lot of companies that have identified these use cases that are very text or communication based . So the one we've seen quite a bit of is in the property management space . You can leverage large language models to basically triage and communicate between a tenant and a property and the property manager . Let's say there's a leak in the sink . It's generally a WhatsApp message or an email to the property manager who says send me a photo and I'll find the best handyman or plumber to come fix that . That simple type of communication AI is really really good at , and we've seen a plethora of solutions that are leveraging large language models for that type of thing . I think the challenge we've seen is the value proposition is really strong for these types of solutions and , honestly , these companies can gain a lot of traction quickly . We've seen companies go from zero to 2 million ARR in like six months selling these types of solutions .

Jess Clemans 13:17

But the question marks always been for us with a lot of these things and not all of these things , but where do they go in the long term ?

Jess Clemans 13:23

How does this become a billion dollar business ? The reality is it's pretty quick for someone to spin up a competitor , regardless of how strong the value proposition is , and unless there's a very strong data mode , some stickiness to the product or you're going to develop out a very unique set of AI features going forward , it's pretty difficult to justify these things becoming very large venture scale outcomes . So we've passed on a lot of these verticalized AI solutions that are leveraging large language models for that exact reason . But the positive aspect of this is there is a lot of very , very usable and very valuable products coming onto the market for a plethora of diverse use cases out there , so I think it's going to have a huge boon in efficiency for not just real estate but a lot of sectors . I just don't know how many of them are going to be venture backable , but that's not a bad thing for the founders . To be completely frank , I think you can make some very profitable businesses doing this .

Ryan Grant Little 14:16

One thing I'm seeing a lot at the sort of pre-seed or seed level right now are deals that are kind of positioning themselves as like the connective tissue between other systems and saying that here's all these proprietary systems out there that don't talk to each other . We've got the solution that allows everything to talk to each other . I wonder if are you seeing things like this ? Do you think that sort of going to more of an open source approach on kind of sharing data is key to decarbonization of the built environment ?

Jess Clemans 14:43

Yeah , definitely , to be honest , like the built environment has always suffered from this lack of digitization . That just isn't enough data out . There is the reality . We are deploying a lot more IoT solutions into buildings themselves . You know factories , warehouse facilities , smart city applications . There is a very large increase in the amount of data that's being gathered , but it's almost always siloed .

Jess Clemans 15:05

If you look inside , what's going on inside a real estate asset manager ? They have scanned documents , they have digital documents stored in a myriad of different SharePoint files . Their IoT solutions there might be six or seven for one building alone . There might be the Lyft system , the access control system , the HVAC system , all living inside separate dashboards and between the internal documents from the asset manager as well as the asset-specific information coming from IoT . There's just no common data format . There's no common data lake . It's a bit chaotic , and so there is an absolute need for those types of solutions and we have been seeing more of them . There's data lake solutions for real estate specifically .

Jess Clemans 15:46

But just to pull away from real estate itself for a second , the one space I'm very interested in that has seen a huge problem with integrations in the past is in the architecture space . So if you look at how buildings are designed . Today , there is a huge number of different softwares that go into the design of the building , from early stage to late stage , the engineering , the site planning . In large projects , you can have north of 20 or 30 different softwares being used . In smaller projects , it might be four or five , and they all speak different languages . They have different data formats .

Jess Clemans 16:18

Generally speaking , they have offline databases , and so in the real estate , in the building design process , you have this incredibly siloed and disaggregated workflow .

Jess Clemans 16:27

That's a huge problem , and you've got solutions like Speckle on the market today that are aggregating that data , bringing it into one place , bringing modern version control . I guess the point I'm making here is just that data needs to be aggregated and connected , not just within real estate operations itself , but within the construction process . Even if you look inside factories and industrial automation , they also have a huge degree of different data silos , and so solutions that can aggregate this , bring this together , are incredibly valuable . I mean , the whole idea of Zapier for real estate has been an incredibly attractive one for a while , and there's a couple of companies that are doing it for real estate , some for construction , and they're all gaining popularity , but it is a slow market to adopt certain solutions and when you're connecting digital workflows , you need a degree of broader-based digitization in the sector to really gain enough scale , and I think that's where real estate has suffered in the past . The lack of digitization has hampered the growth of these solutions that are serving only the digital players .

Ryan Grant Little 17:20

There's a great company doing this right now called C-Scale . That's spun out of an architecture company in the US and they're raising right now , but they're too small for you , so keep them on the radar for their Series A or later down the line . And speaking of this , what separates a deal that you pass on versus a deal that makes it through the investment committee ? So are there any kind of rules of thumb that you have ? I mean , you mentioned the ticket sizes of 2 million plus , like the example in Salt Lake City . What was special about that that made it get across the line ?

Jess Clemans 17:50

The simple answer is founders . We invest in founders . That is the honest truth . If we are not very bullish that a founding team is the right team to be running after a business , it doesn't matter how great the idea is , it doesn't matter how attractive the industry is , it's just not something we're going to back . I know that's a bit of a generic venture capital answer because of course you're investing in the custodians of the business , but it seriously is true .

Jess Clemans 18:13

We look for different personal qualities in those founders . We want them to be articulate so that they can convey a very compelling vision , and it's not just about being able to fundraise with something like that . But when you think about hiring your early stage employees in a pre-seed or a seed round , they really have to buy into the vision of the company . They're not going to be earning a great salary . What they're looking at is really , are my stock options going to be valuable in this business when it gets to a billion dollars ? And a founder in these types of businesses need to convince investors . They need to convince early employees and then they also need to be the chief salesman in the early days of the company's life . So we like to see articulate founders with a very clear vision and know how to sell it to all these different stakeholders . That's incredibly key .

Jess Clemans 18:57

Obviously , you have to be resilient . Being a founder is one of the hardest things . You can possibly be right , and you obviously know this . How do you test for that ? That is a very , very tough one to test for and that's a very good question .

Jess Clemans 19:09

The best answer I can give you is we like to spend as much time as we possibly can with the founders we invest in , ideally in person , not just over Zoom , and it's really about the soft things that come out in their background , the way they speak about some of the challenges they faced in the business , and the tough part of the making an investment is you don't have that much time to make a decision , so you really do try and cram as much valuable interaction into a short time period as you can , but there is no formula for it . You just want to see a background that shows some struggle , ideally , and then we always ask founders to give us their stories of things they've struggled with and see how they've overcome them . But I wish I had a more scientific answer to that , to be honest .

Ryan Grant Little 19:53

I don't think there is a scientific answer . And I mean , as you kind of allude to there , you find out most about founders after the money's in the bank , and sometimes that's good and a lot of times it's not , but that's exactly it it's too late . One of my favorite examples was when I was , you know , looking at making an investment . I did make this investment , but the founder just sort of casually passed off that he's an ultra marathoner and I thought , okay , that's good , that's like the hungry , humble , smart , like that fits in with that kind of framework as well . And you're not , you know , boasting about it or building a brand around it . But if you can run a hundred kilometers , you probably have you know , at least partially some of the traits that are necessary for leading something from a back of an envelope to a large exit Enduring pain definitely Definitely something you want to see .

Jess Clemans 20:38

Yeah , that's what it is . Yeah .

Ryan Grant Little 20:41

It's like how hot can you like ? What hot chili peppers can you eat ?

Jess Clemans 20:45

Maybe that's exactly it and I can tell you I mean , although we try and be good about judging founders , we've obviously made investments where we thought the founders were amazing . They were resilient , articulate to begin with , and then you know , as you sit on the board for long enough and you interact with them over an extended period , they turn out to be not exactly what you were hoping they would be , but then the opposites also turned out to be true . There's some founders in our portfolio that you know we thought at the IC it's a strong founder , but we have some question marks here and here and they've just absolutely shined and those are the businesses we want to double down on . Honestly , the nice thing for us we're multi-stage investors , so we can invest in Seed and if the business is going well or we just absolutely love the founder , we can also lead the Series A and that's a great benefit for us .

Ryan Grant Little 22:22

So you like to lead . If you're a current investor in the seed , you'd like to lead the Series A as well .

Jess Clemans 22:26

If we can , yeah , absolutely , Absolutely . And look , we always try and do what's best for our portfolio companies , particularly if we're existing investors , so it doesn't mean we need to be selfish and make sure no one else comes in . But if there's a great co-lead or a great follower or even a better lead than us that you know we think can add a good dynamic around the boardroom and help guide the company in a certain direction , we always want to optimize for that and bring in people that we think can be accretive towards the ultimate mission .

Ryan Grant Little 22:52

Yeah , the founder-focused VCs , and we're special on every VC website , but yeah . I mean , I'm sure you guys are great , don't ?

Jess Clemans 23:00

worry .

Ryan Grant Little 23:01

How did you get into this space , jess ? I mean , you were delivering pizzas 14 years ago in Australia and now you're at a 250 million euro fund

Journey From Pizza Boy to VC

Ryan Grant Little 23:09

in London . Bring us from point A to point B there , the short answer is .

Jess Clemans 23:13

I kind of fell into it . The longer answer is I think , like a lot of people , I didn't know what I wanted to do growing up . You know , I was a pizza boy when I was a teenager , going through high school . Everyone needs some job . That generates suffering . I wasn't just a pizza boy . The pain factor again yeah , that's exactly it . For me it wasn't delivering pizzas that was particularly painful . I was also the guy at the end of the oven cutting the pizzas and putting in seasoning . And on a 45 degree Sydney summer summer day , sitting at the end of a 300 degree oven , it's not a whole lot of fun . There's a lot of sweat in the pizzas I was cutting , but we just didn't label it as such .

Jess Clemans 23:51

But I studied psychological science when I graduated , which is a combination of psychology and biology , because I just loved science . To be completely honest , going through high school it was my favorite . I loved chemistry , I loved physics , I loved biology . I taught myself to code when I was a teenager as well , and I also loved computer science . But I didn't know which of those fields I really wanted to go into . For whatever reason , psychology and biology drew me the most at the time . So I ended up going down that track and I really loved it . I loved what I studied . It was so fascinating , it was so interesting and there's a couple of good lessons from that that you can kind of apply to VC but not many , to be completely frank .

Jess Clemans 24:32

And then after that it was clear when I graduated that I didn't want to go and be a researcher in this field . I didn't want to go be a clinical psychologist . It just wasn't what drew me and I got offered an internship randomly in a real estate fund based in Sydney doing asset repositioning work . So we'd buy pretty crappy D-grade buildings that were very energy inefficient , they looked bad , they had tenants on short leases and we'd go and we'd spend a bunch of money , make them look nice and pretty and we'd go and find better tenants to come occupy those and then we'd would hold those buildings or would sell them if it was appropriate to do so . I really liked real estate . To be honest , every building is different . There's a combination of math and underwriting . There's a combination of sales , because you have to find the deals that other people don't find , and then you have to understand how to generate alpha . So you have to arbitrage the market . In reality , you have to know something about a tenant that other people don't know , or you have to be able to know something about how much money you're going to have to spend on that building to make it attractive . That other people don't know , and so I really liked that . But after two and a half three years I also realized that technology is probably where I want to be .

Jess Clemans 25:36

I wanted to come back to science in some shape or form , whether it's computer science , whether it's biology or psychology . I wasn't sure exactly what it was , but I was drawn to this idea of being a founder . I think so much of entrepreneurship , startup culture , vc culture is in the media today , and obviously that drew me in . So I decided I had to get out of the Australian bubble . I left real estate , I moved to the UK .

Jess Clemans 25:58

I did a master's in entrepreneurship , which I wouldn't advise anyone does . It was a lot of fun , but I wouldn't say it was the most informative course in the world . It's pretty difficult to teach someone to be an entrepreneur , but it did introduce me to my co-founder of a business I started after I graduated , and it did teach me a lot about the VC ecosystem , which was something I had very few touch points with , but so after I graduated that , I ended up starting a fintech business . It was kind of unrelated to a lot of stuff I'd done in the past , but I found a very interesting problem within the payment space , which was connecting data between point of sale terminals and your banking apps . So the idea was bringing itemized receipt data and there's a lot of stuff you can do with that simple data connection , like fraud , advertising . You can connect online advertising and offline sales behavior , loyalty programs , credit underwriting there's a lot of interesting things you can do with that and the idea was to be the piping system .

Jess Clemans 26:51

Sadly , that didn't work out , as a vast majority of startups don't . We ended up raising a small amount of money from friends and family . We started growing that business during the pandemic , but it became clear at some point that it wasn't going to work out and I got offered a job here at AO at the time . Now I'm Noah and it felt like a perfect combination for me of my real estate background , my love of science and technology , as well as just being in a very interesting ecosystem . So I joined four years ago now and haven't looked back since , but it's a good place to be .

Ryan Grant Little 27:24

I always wonder about these entrepreneurship courses at business schools , taught by someone who has gone from bachelor's straight through to PhD and never stepped out of academia , and what they can actually do to , except for the theory of entrepreneurship , but what they can actually impart to future entrepreneurs . And it feels a bit to me like you know someone at a teaching pilot who's never been in an airplane before , but anyway , that's exactly it .

Jess Clemans 27:51

I guess simulators are kind of similar to the real aircraft , but I don't think it helps you handle emergency scenarios , which I think is a vast majority of what founders do most of the day .

Ryan Grant Little 28:01

But yeah , you're spot on . I mean they , the unruly passengers . You don't get that Exactly .

Jess Clemans 28:08

Exactly . But you're right , these entrepreneurship lecturers . They're very smart , they've done all the statistics on what makes successful entrepreneurs , but they can't teach you to run a business . That's the reality of it . You can only speak to other entrepreneurs or learn for yourself . Get hands on , yeah .

Ryan Grant Little 28:22

I think it's something you really have to experience and kind of internalize in your gut . You're also now well , I'm not going to say an author , but you've published a piece about the problems with solar installation with the excellent title how to Fix the Solar System . What's that about and what's wrong with solar installations that kind of drove you to publish this .

Jess Clemans 28:42

I wish I could take credit for that title . It is brilliant . It was the brainchild of Abai , who's our communications lead on the team . He's a very funny guy he's funnier than me , at least so I have to give him credit for that .

Jess Clemans 28:55

But in a nutshell , I mean a lot of what we do in VC is building VCs on various spaces . I mean a lot of

Building Solar Innovation in Europe

Jess Clemans 29:01

what we do in VC is building VCs on various spaces . To make an investment in a space , you have to understand the business you're investing in and the space that they're growing a business in fundamentally . So we spend a lot of time building these VCs and one of these spaces was solar . Obviously , it's core to what we do . It's currently the most deployed type of renewable energy generation and in Europe as well , the growth rates of rooftop solar have been staggering . So it was something we just had to pay a lot of attention to .

Jess Clemans 29:25

But fundamentally , the article kind of gives a bit of an oration as to why we've invested in the deals we have related to the space and what the most attractive areas are for us in this space , because obviously a lot of venture capital money has gone into solar . A lot of it's gone into the likes of NPAL , sunrun , sunover in the US , these big tech-enabled players that then go install rooftop solar . And to us , whilst these businesses have done well , the statistic that really struck us is , if you actually look at their market share , it's somewhere between 3% and 9% . So more than 90% of solar installations on rooftops in Europe and North America are done by SMB solar installers , not big tech aggregators that make up the billion dollar companies in the market , and we just thought , wow , that was really staggering , and it felt like there wasn't enough technology solutions that were focused on helping that particular chunk of the market become more efficient , which to us is the greatest way to accelerate solar adoption , right To enable efficiency amongst the people that install 90% of total solar panels . And so if you actually break down the costs of the solar installation , it's roughly 25% soft cost , and soft cost is everything unrelated to the hardware and the installation itself . It's all of your back office , admin , your sales costs and so on , and that's a staggering percentage . I mean there's a lot of efficiency to be gained , there's a lot of ways to reduce the cost of solar by improving those soft costs , and to us , that's where solar can have a massive impact . So we ended up making an investment in a company based in the US , but they now have an R&D office in Paris called Ether Energy , and Ether Energy is fundamentally an all-in-one software solution for SMB solar installers to do everything from design and proposal to do automated permitting , ready diagrams for solar installations for rooftops , as well as a CRM , customer management , financing , and it's pure play software . So for us as a venture capitalist , that made a lot of sense , and they hope to and promise to reduce soft costs by circa 25% as they roll out , which to us is a pretty pretty solid efficiency gain for these SMB installers .

Jess Clemans 31:36

But if you look a little more broadly at the market as well , we see a huge customer acquisition cost problem in solar installers . Some of the players in the US are paying like almost $10,000 in customer acquisition costs for a single solar install . That's like almost 50% of the entire cost of the installation . In Europe it's not as high , but it's still too high , to be frank . And these costs are really associated to the big tech enabled players who are doing online performance marketing . And we looked at the SMBs out there and they're largely generating leads via word of mouth , hyperlocal marketing approaches and their CAC is much , much , much lower . I mean like Customer acquisition costs Sorry , yes , no acronyms customer acquisition costs .

Jess Clemans 32:18

In some cases it's like less than a hundred euros , so it's staggeringly cheap , and our idea here was then all right , how can we build a venture-backed player that can take advantage of the customer acquisition cost for these SMB installers ? And the way we've looked at this is you can have software that makes them more efficient . That's the one potential avenue here . The other avenue is you can incorporate some sort of franchise model . So if you look at a lot of your quick service restaurants , they've done this very , very effectively , where a lot of the marketing is done centrally , but all of the operations is done at a franchise level .

Jess Clemans 32:54

And so , for us , taking this approach to solar was a little bit different to what the quick service restaurants has been , which we want to enable the SMB players to do all of the marketing that they've proven so efficient at , but then give them a central supply chain that can benefit from economies of scale , best work practices , as well as the software that they can operate their business on , and so the idea here is effectively a business in a box . Let's give people the ability to start their own solar franchise to generate leads immediately and run a very efficient business out of the gate . And this is the idea behind SolarRock , which is based in Paris , one of our portfolio companies doing spectacularly well , and this is their vision . It's also the same vision for VAM , one of our portfolio companies in Germany , but they're on the air gap insulation , loft insulation , space , so not related to solar , but it's fundamentally the same vision .

Jess Clemans 33:46

And then the final piece of this puzzle and sorry I'm monologuing a bit about this , but I find it fascinating , at the very least , I hope someone else does too is the chronic labor shortage we have , particularly in Europe .

Jess Clemans 33:58

There is just not enough people to help and actually execute on these installations on rooftops , and the same is true for utility scale solar , but in this particular article we're just talking about rooftop solar . And so we made an investment into a company called Smolt , also based in Germany , and the idea behind that business is let's upskill people , let's upskill immigrants , let's upskill people who want to work in green trades with the skills they need to be very , very efficient solar installers down the line , heat pump installers and installers of other things , and part of that is a tech enabled academy , but then also providing that skilled workforce as feedstock to a lot of the other companies , whether they're SMBs or large tech enabled players in the space . And so those were the interesting approaches we kind of had playing into this , and so far they're all playing out very well , fingers crossed . We backed some amazing founders with some very cool ideas and you know we would expect CAC not to kill them . Sorry , customer acquisition costs not to kill them .

Ryan Grant Little 34:54

I find the training and the upskilling topic really , really interesting and I met with a company here in Vienna that has a contract with the chimney sweeps like with the chimney sweep union and is retraining them to install solar panels .

Ryan Grant Little 35:06

So you could imagine that you know one industry as it kind of sunsets and another one is , you know well , post sunrise , and I mean don't intentionally mean to use a solar analogy there , but really cool to see how that transformation can happen and I think probably very needed , jess , for people who want to get in touch with you . What's the best way to reach out and who are you hoping to hear from ?

Jess Clemans 35:29

I'd love to speak to any founders that are building something interesting . I just love speaking to interesting people . I mean , you obviously know the areas that we're targeting as a fund but , honestly , even if you think you're on the periphery of what we would invest in , I'd still love to speak to you , whether you're pre-seed , seed series A , even B . So long as it's something interesting and you're passionate about it , I'm keen to hear from you . Linkedin is the easiest way to get hold of me . You can find me there very , very easily , but otherwise email , if you have it , it's jess at noahvccom Also pretty fun , Jess .

Ryan Grant Little 35:59

It's been great talking to you . Thanks a lot , Ryan , absolute pleasure . Thanks so much for having me . Thanks for listening to another Climate Tech Podcast . It would mean a lot if you would subscribe , rate and share this podcast . Get in touch anytime with tips and guest recommendations at hello at climatetechpodcom . Find me , Ryan Grant Little , on LinkedIn . I'll be back with another episode next week . Bye for now .