Felix Krause: 0:39

how customers similar to me are behaving. When are we charging our car? When do we power our heat pump? What's the electricity produced in our solar system? How do we act with the excess energy that we are having? And here, by relaxing some of the regulation, we could really spark the transition to an all electrified, distributed energy world much faster. But also it would help a lot of new business models in the startup world to become true and to actually happen. Because a lot of those business models we are seeing rely on smart meters but we do not have a smart retail rollout and hence they're just little sandbox projects that most likely will not work. And to me, this is the single biggest problem we need to resolve.

Ryan Grant Little: 1:33

Welcome to another Climate Tech Podcast interviews with the people trying to save us from ourselves. Felix Krause is managing partner at Vireo Ventures. Their thesis is that Thank you about the grid, distributed energy, europe, geopolitics and more. So I was really happy when I got to hit record on this one. I reached Felix in Berlin. I'm Ryan Grant Little. Thanks for being here, Felix. Welcome to the podcast.

Felix Krause: 2:13

Thank you for having me.

Ryan Grant Little: 2:15

You are the managing partner of Vireo Ventures in Berlin. Talk a little bit about what Vireo does, how it fits with the climate tech VC ecosystem and maybe actually where the name comes from too. Very good question.

Felix Krause: 2:27

So we started, as what we do is, we invest in an all electrified world, so we believe that ultimately, everything will be powered by renewables and, because renewables have the lowest operational costs, that everything will be electrified either directly or indirectly, via hydrogen, green methanol or so forth, and we see that the connection between the different sectors that will use electricity to power it needs to be adapted or needs to be managed intelligently, and therefore we are investing in companies that allow for this sector coupling, so making the off-taking of energy the most efficient when free or very cheap electricity is available and maybe stopping charging a car when electricity is not available or only very expensive. We invest in European companies, european tech companies, at a very early stage, so we love to be the first institutional investor typically invests pre-seed and seed with an initial ticket size of 500 to 1 million euros. The name actually came, and I like that question. We were looking for something that includes green but doesn't sound like too green, and then we found that Vireo is actually the name of a color of green, or a shade of green and a bird, and hence we thought it's the perfect combination for a VC fund.

Felix Krause: 4:12

Also, you said the cleantech. We don't regard ourselves as a pure cleantech fund. We see ourselves more as a specialized fund as we see that in this whole clean tech scheme, electrification will have the single biggest impact on CO2 savings, because the energy consumption and production is responsible for over 70% of all CO2 emissions and hence for over 70% of all CO2 emissions and hence focusing on electricity has the single biggest impact on avoiding CO2 emissions and, at the same time, we believe it's the biggest investment opportunity that we see in our lifetime.

Ryan Grant Little: 4:55

I love that thesis and also that focus because I think I mean, it's totally clear and it makes a lot of sense. I agree with you that electrification, everything will be electrified. It just makes sense also economically. And then I look at myself as an investor. You know I'm invested in 35 companies as an angel and they're all over the place in terms of Impressive. Well, maybe Impressive is maybe one word for it, but but you know, all over the place from alternate proteins to electrification and everything in between.

Ryan Grant Little: 5:24

And it becomes very hard to all of these things like, as you say, like climate tech or clean tech. It's a very broad term, it encompasses so many segments, so many different industries, and so it becomes very hard to know all the things you need to know to make the right bets within that. And so if you're focusing purely on pieces like electrification and, as you say, like the sector coupling, that becomes very clear. And you've mentioned this term already. So sector coupling and I think what it refers to is like bringing energy, mobility, heating, cooling, all of this stuff together. Can you talk a little bit about what the opportunities are there for integration and maybe some of the types of companies that are working on that energy or electricity, and we're just feeding it into the grid and no one cared who is actually off taking that electricity.

Felix Krause: 6:25

Of course you had, like big industrial complexes that had a direct link to the producer of electricity, but for the rest they really didn't care. Same for the heating sector. Heating was mainly powered by oil and gas and hence they didn't care about electricity prices. And if you were using an oil heating, you bought your oil once a year. Gas you sign up a contract with a running time of one or two years with a fixed pricing, so it didn't really matter to you to act efficiently for the distributor of your source of energy.

Felix Krause: 7:03

Now, with this interconnection between all the different sectors, it makes a lot of sense and it is extremely important that all these sectors so mobility, heating, cooling, but also production communicate with each other. Because if you do not know if there are off-takers available for your electricity, you do have a problem on the grid. Same if suddenly all the off-takers start working but you do not have enough electricity or just very expensive electricity. It doesn't make sense. So sector coupling basically means interconnecting these sectors. So electric mobility, not only EVs like private cars, but also buses and road transportation, together with heating and cooling of buildings which will be electrified as well, and we already seen this in the heat pump but also AC market. That is picking up also here in Europe, and if I can only switch the consumption of a heat pump or the production of heat of a heat pump by like an hour or two, I might have significant impacts on the grid but also allow the offtaker to have significant savings, especially if I'm using variable electricity tariffs that are now rolled out throughout Europe.

Ryan Grant Little: 8:29

I used to look at this topic like load balancing back when I was in renewable energy and between 2006 and 2010. And obviously we didn't have the same kind of computing power then that we have now and I'm a bit, you know, just away from it right now. But I can imagine that the optimization that comes from AI to do specifically things like load balancing and the efficiencies that can be captured there are insane. And you've said before that AI is the new electrification, I think, and I wonder if you can talk a little bit about, maybe, what you mean by that and what role AI is playing in this whole, whether it's the sector coupling or load balancing.

Felix Krause: 9:11

So, like you said, 10 years ago we were struggling with the amount of data that was produced to actually manage load balancing efficiently. There were initial companies doing great jobs, but for proper load balancing there are so many variables that you need to look at that no human can do that by themselves. And now we're living in this changing and amazing world of AI and AI, for the first time, really allows to gather all that data that is available, enrich it, learn about it and then make projections of what will happen within split seconds. Within split seconds. And therefore this load balancing that we all envisioned 10, 20 years ago is now finally possible.

Felix Krause: 10:07

Because now I can use the production, the data available, for what is going to be produced, including weather data, maybe also taking into account local little clouds, wind shifts. I can include all that data and at the same time I get data about factories, like when exactly will they run the next shift, like maybe they've adapted a little bit and the shift will start only five minutes later. Already, that has a huge impact, and if I gather all that data, not just from two sources but from millions of sources, I am suddenly empowered to shift the load accordingly. And now into our equation. Take it to batteries, and we're seeing this huge evolvement of batteries becoming available and especially cheaper, with all these large scale batteries being built. I couldn't manage those batteries if I would not have. I mean, of course I could manage it, but I couldn't manage it to its full extent or capabilities if I wasn't using AI to incorporate also the prices on the energy exchange, like including all these different variables. Using AI is just amazing because it really allows us to offer a fully balanced grid.

Ryan Grant Little: 11:29

Yeah, so it feels like before the problems were, as you mentioned, information overload and storage right, and we have largely solved this through AI and through cheap batteries, and so this makes also things like distributed energy much more feasible, and I know that's a topic that's very important to you. Can you talk a little bit about your views on what it means to move away from a centralized fossil fuel system to decentralized renewable ones, and maybe what's enabling this right now and what's standing in the way aside from just like general human inertia?

Felix Krause: 12:08

Yes, inertia is a big problem. We're seeing that energy systems are changing. Traditionally, energy systems were centered around one big production nuclear, coal, gas power plant and everything was then distributed one way into the grid. The operating model involved relatively okay capex and high opex because I needed to burn something. Renewable energy is completely shifting the game.

Felix Krause: 12:36

Renewable energy systems can A can be located more or less anywhere as long as I have some form of grid connection. But also renewable energy, seen on a price per kilowatt hour produced, has extremely high capex. So initial cost of building the system but virtually zero opex. Because once the solar system is installed maybe I need to invest in a little bit of cleaning and some insurance. But the system runs. Same with wind, yes, I need some maintenance and things can break, but compared to all traditional forms of energy production they just run smoothly and therefore these new forms of energy can produce the electricity at virtually zero marginal costs. Yes, there are some costs involved and we will not get to a complete zero marginal cost model, but it's getting very close.

Felix Krause: 13:36

And that's the power of the distributed renewable energy system. We're producing the electron itself virtually for free. Now I need to transport that electron to where the offtakers are, and you were speaking also about the inertia that a lot of people have about renewable systems. Yes, the wind doesn't always blow and the sun doesn't always shine. This is a problem, and especially in Germany, we found this world dunkelflaute, so meaning that there's no sun available and we are facing a blackout. Difficult because the world has moved.

Felix Krause: 14:17

We are connecting the grids within Europe.

Felix Krause: 14:21

That means that if we are not producing enough electricity in Germany, for example, we can procure electricity from Scandinavia, from France, but also from Switzerland and Austria, so all these systems are interconnected.

Felix Krause: 14:38

Or when the French nuclear fleet, maybe in summer, is not able to operate to its full capacity, we can provide them with renewable energy. Plus, as you said, we now have batteries available, and we do not only have batteries that are short duration, so that can store electricity for a couple of hours, maybe one night, but we're also seeing systems being built that can store electricity for a much longer duration. We still need to find a price model how we pay a price premium for someone to store energy or electricity for a couple of weeks, maybe even months. But I'm pretty sure we will get there because the production costs of that electron are so cheap and at the same time the cost of operating, especially nuclear, are so high, but also operating gas, as we've seen with the Ukrainian war, where Russia invaded the Ukraine and suddenly gas prices spiked. Once the systems are operating in Europe, even though they might be produced in China, they're operating in Europe and they're producing the electricity locally and do not need anything from outside.

Ryan Grant Little: 15:56

Totally. In my experience, working with policymakers or people who aren't necessarily interested in the climate side of things, when it comes to renewable energy, you can always make the case for energy security and I think today more than ever, people can realize the importance of this, and both from a geopolitical standpoint but also from, like a grid reliability standpoint. So I you know, speaking right now as my sister-in-law's family and parents in Canada just went eight days without power because of a nice storm, and you know these challenges around distribution and transmission that so often nobody wants to pay to upgrade or to maintain, and the solution to that realistically is probably getting smaller power plants situated at very close to the site of the offtaker, and that's not going to be a nuclear or a coal plant, that's going to be a renewable energy plant.

Felix Krause: 16:50

Highly unlikely. Highly unlikely that it is a nuclear power plant.

Ryan Grant Little: 16:54

Yes, Just a little backyard nuclear power plant. You've got the investment arms of major grid companies like Frupund X and Beve New Ventures backing you and, I think, work closely and come kind of from the from the big power world. I wonder if you can talk a little bit about how you can you know what's the pitch for some of these big grid incumbents to bet on early stage innovation, and how do you, how do you make sure that this doesn't just become like sort of the land of pilot projects, but rather transformational? I love that question.

Felix Krause: 17:36

We see that the energy market is probably one of the most regulated markets in the world. It is extremely complicated and expensive to become a full-fledged energy company, to become a full-fledged energy company, and therefore we believe in the power of collaboration. Classical incumbents have all the knowledge about regulation, they have the access to customers, they have capital and they've been operating and they know their game for maybe even centuries. On the other hand, I've got startups that are extremely capital efficient, that are extremely innovative and that are seeing the world with completely different eyes. And we believe that if you bring the incumbents and the startups together, but on a level playing field, not in, as you said, like some POC and some sandbox and whatever, but actually seeing them as putting two players together to develop something new, then, man, it can happen.

Felix Krause: 18:38

And we've already seen that a couple of times, and you were mentioning two of our investors in our fund, two of our investors in our fund. We are working with their innovation units and also have a clear understanding that we do not want to see all these companies as, like, caught in the POC loop, but that they are looking for actual innovations to push into the organization and we're not only doing that for those companies we're doing that for a lot of others as well as we really believe like avoid the POC loop. Yes, start with the POC, be happy, but be extremely careful or extremely suspicious if there's only a POC and there's no senior management involved and there's no clear follow-on guidelines. So to all the startups listening if you are signing a POC with a big incumbent, congratulations, but make sure that there are already next steps. When do you leave the POC stage? What are the goals? What are the benchmarks? What are the budgets? If you do not have that, don't sign a POC.

Ryan Grant Little: 19:44

I love that. That's really good advice. And also with the senior leadership involvement, because you need a sponsor up at the top levels in order for the thing to see light of day. Otherwise it becomes this little someone's little hobby project and rarely goes past that.

Felix Krause: 19:58

And you will always find that you will always find these hobby projects in any incumbent.

Ryan Grant Little: 20:03

You mentioned regulation there, but in the context of grids and utilities. You've talked about this as well, though regulation from like an EU standpoint. You've spoken about this in the context of foundational AI and in the context of different things, and I wonder you know you're largely at an EU focused fund how do you think regulations are supporting or standing in the way of the work that you're trying to do?

Felix Krause: 20:26

First of all, we all need regulation because otherwise we would have anarchy. So, to a certain extent, bureaucracy and regulation are good. However, I think that the EU is sometimes pushing regulation a little bit too much and that it is hindering real innovation to happen. We need data security, I fully agree. We need also some regulation on AI, but quite often the EU is setting the rules, especially for startups that do not have big law firms supporting them or consultancies, too strictly, and I'm a great fan of the opportunities that are arising right now. It should revisit a lot of the regulation that it is placing also on small companies and that are just costing them a lot of time and money and might even stop them from doing certain things that, overall, are for the good of the EU or anyone living here.

Ryan Grant Little: 21:48

One term that you've mentioned as well that I really like is you said that AI is making the energy system legible, and I think that's a really, really great way to put it. I mean, so it's been a pleasure researching this episode and finding you know some of the different interviews you said and these little nuggets of information and terms that I think are great and like that's a fantastic term and really helps to kind of think about how to think about the energy system, and I wonder if you could just talk a little bit about what's not yet legible in the energy ecosystem that we need to urgently decode or decrypt.

Felix Krause: 23:22

We were speaking about regulation and I think the whole data security, privacy is hindering the full rollout of a distributed renewable energy system. If we are looking especially into Germany, into our smart meter rollout, which is becoming kind of a joke or is not becoming, is a complete joke, a complete failure we do have a misunderstanding about smart meters. Everyone is worried that the utility company could extract data when you're waking up, when you are at home, and use that for kind of I don't know fraud or whatever. However, unless the utility company has access on a 15-minute level or even at shorter intervals, a whole distributed energy system is not possible. Because I need to understand what my customers are doing and I highly doubt that the utility is interested in an individual person to see what is happening in my household and make me individualized office. But they would like to understand what's happening in our street, what's happening, how customers similar to me are behaving.

Felix Krause: 24:31

When are we charging our car? When do we power our heat pump? What's the electricity produced in our solar system? How do we act with the excess energy that we are having? And here, with the excess energy that we are having, and here, by relaxing some of the regulation, we could really spark the transition to an all-electrified, distributed energy world much faster, but also it would help a lot of new business models in the startup world to become true and to actually happen, because a lot of those business models we are seeing rely on smart meters but we do not have a smart retail rollout and hence they're just little sandbox projects that most likely will not work, and to me, this is the single biggest problem we need to resolve.

Ryan Grant Little: 25:19

That's fascinating. I mean, the more efficient you can run an energy grid, the more information you need about the profile of energy usage, and that has implications about when people are at home, their transit patterns, their mobility patterns, things like that, and it does have privacy implications. What about the sort of corollary of security Because before we hit record, we were talking about this briefly as well and some of the challenges that could also be introduced to a distributed energy system that relies maybe more on things as basic as Wi-Fi in a way that our old school industrial size energy or power plants don't necessarily. What are your thoughts on security?

Felix Krause: 26:01

It's a topic that has been completely neglected by most players in the distributed world.

Felix Krause: 26:08

In a classic energy system, where you have big power plants and one grid, operator security was extremely important, and RWE actually built their light water on NATO security standards, so making sure that your control rooms are compliant with NATO standards.

Felix Krause: 26:32

Each individual nuclear power plant, gas power plant and also coal power plant was under constant attack by people that wanted to just look around or maybe stop production or whatever, and companies used to are spending millions to protect each plant. If we're now moving to distributed energy system, where every household, every factory, every small company suddenly operates their own energy system, maybe people have a firewall, but not more, and hence it might be extremely easy for a ransom player or state to take hold of all these small distributed assets. They are all connected to the cloud, are all relatively unsecured and, in an ideal scenario, only ask for a ransom In a worst case scenario can cause blackouts, and I know that a lot of companies are working on solutions to protect us, but I see right now the willingness to actually pay for security of these distributed assets is fairly low. And, speaking again of regulation, I think that we will need regulation in this part that actually forces operators to have at least a basic cybersecurity or antivirus program running to protect their distributed energy system.

Ryan Grant Little: 28:09

I'm sure, with a little bit of imaginative riffing, the two of us could come up with more worst case scenarios than just blackouts for those, but indeed something to be avoided, and you mentioned that this is something that's very much being neglected. Two other things that you've talked about as being underhyped, which is maybe a form of neglect agrivoltaics and bidirectional EV charging. Do you want to? What's your hot take on these and why do you think we're not paying enough attention to them?

Felix Krause: 28:35

Agrivoltaics is the combination of PV systems together with a classic agriculture, pv systems together with classic agriculture, so combining either on the sides or on top, adding PV panels. And we are seeing in France and Germany, but also other countries, not only protests against wind projects but also now against solar projects, where people see that building a solar system on something that could be used for growing crops is taking away valuable land. Most of those crops are used for energy production, so they're not really taken away, but nevertheless it's an emotional topic and agri-fuel tags allows to combine those two. And especially if you're looking at producing fruit and berries, you need to. With climate change happening and less water or less rain, less humidity and more sun, you need to shade your valuable fruits. You can either do that via plastic and the classic way, or you add PV panels on top of those fruits and allow those fruits to be shaded and at the same time, you produce electricity. It comes with a lot of risks because the tractors still need to pass through. You do have a lot of more dusting. Nevertheless, I see this as a huge potential to resolve the conflicts that we are seeing and combine the best of two worlds, and bi-directional EV charging allows that the car cannot only be charged one way, but that the car can feed its stored electricity back to the grid standard normal grid or to my household.

Felix Krause: 30:31

And we are seeing that the batteries in cars are reaching levels that are triple quadruple the size of standard household batteries.

Felix Krause: 30:44

Hence we can tap into a potential by stabilizing the grid using those car batteries. However, here regulation is also extremely slow and there is a conflict of interest between the OEMs, so the car manufacturers and the grid operators. Who actually makes money on this? Is it the one who put the car into place? Is it the owner of the car or is it the grid operator? And that fight has not been fought out yet. I, however, believe that in a couple of years bi-directional charging will just be a standard term and no one will buy a car or a charger that is not bi-directional charging ready. And we will also see that we can reduce the cost of owning an EV significantly by bi-directional charging. And we're already seeing things like the collaboration between Renault and the Mobility House in France, where you can more or less own an EV and operate it free of charge by just allowing bi-directional charging and helping the car to stabilize the grid as long as you plug it in all the time when you're not driving.

Ryan Grant Little: 32:10

I'm aware of a similar play on computing power and a company that I'm looking at right now using the same with sort of you know, as these EVs basically have supercomputers sitting in them with like idle computing power 23 hours a day and finding ways to basically bi-directionally use that computing power for ll, to train llms and with a similar kind of thing. So all kinds of interesting things happening with evs right now as they become, you know, more than just mobility solutions, but they become these like power plants or like little intelligence factories as well at the same time. So it sounds like you're excited about these things, about both ecovoltaics and bidirectional EV charging. Is there anything else that you're like if you were to look at the year ahead? Is there anything else that, when a deal comes across your desk, is there anything that sparks your interest or that you know particularly gets you excited?

Felix Krause: 33:04

Well, as mentioned, cybersecurity at the moment is one of the big topics. We also see huge potential in battery management, intelligent management of batteries, but overall, just using AI to make the current system more efficient, using the abundance of data intelligently, understanding it and then executing. Maybe, to add on this question, what we want to see when we're looking at teams, in an ideal scenario we are seeing teams that have really deep technical expertise, have seen a problem and are building a solution for a problem, and are not building a solution and then looking for a problem that most of the times doesn't work. In search of a problem. Yeah, exactly, we've seen.

Felix Krause: 33:59

Unfortunately, we've seen that quite often, but really, really, we've seen a problem great tech team, deep understanding about the tech, plus having commercial guys that can sell the product, either B2B or B2C, because unfortunately, the best products don't always win. You need storytelling and you need simplification of features. People do not buy features, people buy solutions, and we're seeing that quite often when technical teams come our way, that they are extremely proud of their solutions, which is all good, but me, as a business person who has very little understanding about the features itself, I need to have it simplified. Probably most decision makers that will buy the product need to have a solution offered instead of being introduced to various forms of features.

Ryan Grant Little: 35:00

Exactly. Yeah, they need to know the solution and then maybe the benefits to them. But and then you know the features, deliver on that, but you can't sell them on the features. I take it one step further with the companies that I'm investing in. I say, like, show me that this is a solution to a problem that people are willing to pay to fix. There's there are lots of problems out there and you can find a solution, but if you don't have someone who's happy to pay for it, you don't have a business.

Felix Krause: 35:28

Exactly, totally agree, and this is something we differently phrased. We do exactly the same. If there's no willingness to pay, to properly pay for whatever you're offering, then you do not have a business.

Ryan Grant Little: 35:43

So, felix, you're closing the fund right now and I think in the next few months you're closing what are the different ways that people can get involved in Vireo's mission? Are you hiring, I think, founders who are listening? It's pretty clear what kind of founders should approach you, what can people do and where can they find you?

Felix Krause: 36:01

The easiest way is to approach us via LinkedIn. We are all quite busy on LinkedIn, also happy to receive emails or warm introductions when we were looking for. We are looking for networking partners that help us to accomplish our missions and, as you said, primarily great, ambitious founders that really want to make this all electrified world happen, that see the multi-billion business opportunity and that are actually striving to becoming a relevant player in this market.

Ryan Grant Little: 36:38

Yeah, that makes a lot of sense, and as you're closing the fund, you're not allowed to say it, but I am. You're probably looking for new LPs to join as well. You don't have to comment on that and we'll leave it there, felix, thanks so much for joining the podcast.

Felix Krause: 36:53

It was a pure pleasure. Thank you so much.

Ryan Grant Little: 36:58

If you got something from this episode, please share it with a colleague or friend and rate it on Spotify, apple or wherever you listen. Word of mouth and reviews are how people find the podcast. I'll be back with another episode for you very soon. You can find the podcast on the web at climatechpodcom. Thanks for listening.