Emerald VC's Gina Domanig on CVC as a service model and how you work with Corporate Investors

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Emerald VC's Gina Domanig on CVC as a service model and how you work with Corporate Investors

Join us for a very thorough and inspiring conversation on fundraising before and after the TechReset, and lessons learned while building Emerald. Don't miss Gina's show notes below. ⏬

Oct 03, 2024

Transcript

In this episode of the EUVC podcast, Andreas and our in-house CVC expert Jeppe Høier discuss venture capital with Gina Domanig, Managing Partner at Emerald Technology Ventures.

Gina Domanig is the Managing Partner of Emerald Technology Ventures. In 2000, she founded the business as Europe's first independent cleantech venture capital fund. In addition to Emerald activities, Gina serves on the boards of Die Mobiliar and the Basel Agency for Sustainable Energy (BASE) Foundation.

Emerald VC is headquartered in Switzerland and manages approximately €700M in assets. The firm focuses on various activities, including incubation, acceleration, and corporate clienting, while also working closely with corporate investors. Their unique approach to venture capital allows them to foster innovation and support early-stage commercialization efforts.

Emerald primarily targets investments in Climate Tech across North America, Europe (including Israel), and the APAC region. This focus positions them at the forefront of addressing some of the most pressing environmental challenges we face today. Some of Emerald's notable investments include Ushr, Spear Power, Visedo, Rhombus, Inge, and Optimatics, showcasing their commitment to driving impactful innovation in the climate sector.

In today’s conversation, Gina shares insights on how they landed their first corporate LPs and the challenges of engaging with startups. She also emphasizes the importance of technical depth, thorough due diligence, and being supportive and constructive in the startup ecosystem.

Watch it here or add it to your episodes on Apple or Spotify 🎧 chapters for easy navigation available on the Spotify/Apple episode.

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✍️ Guest’s show notes

We believe in giving you our guests' thinking directly and unaltered. Therefore, no changes, no AI, no nothing has been done to the following sections.

The Emerald hack of flex-term funds for Corporates

Emerald, with a team of 60 employees, including many technical experts, primarily serves corporate LPs seeking both financial returns and strategic insights into sustainability-related technologies.

To accommodate these needs, Emerald developed a "flex term" structure in 2016, allowing corporations to terminate their investment period anytime after an initial five years. This structure, which Emerald has been using for eight years, doesn't change the investment duration in startups but offers investors more flexibility.

Building Emerald & building a franchise

Technical depth in the team – we don’t invest in things we don’t understand.

Understand the risks we are taking – do proper DD even if you get a reputation of being very thorough and slow. When we table a term sheet, we intend to follow through with the investment and very rarely have we ever backed out.

Partner with the startups – through thick and thin. I don’t mean throwing good money after bad, but startups will hit road bumps, and we need to pull together to get them over those bumps and back on the track to success.

Pivotal learnings in your journey

Investing in early-stage companies is really exciting and a lot of fun… until it’s not.

Understand the risks and timelines in early-stage industrial technology companies.

Don’t be afraid to sit on the sidelines when everyone else is investing like crazy – there is no guarantee that you get out at the same revenue multiples that you got in at. Stay disciplined, even if you have to explain to your investors why you aren’t investing at a higher pace.

Deep Dive on your VC and CVC as a Service model and how you work with Corporate Investors

We manage 4 active funds (3 flex-term/evergreen and 1 closed-end) and 4 CVCaaS. Roughly EUR 450 M in the funds and EUR 250 M in CVCaaS mandates.

Fundraising with corporates is a long-term endeavor—typically, it takes them 2 years to get from an internal champion to actually invest in a fund. This is partly because it is not something they do every day and it ties in with their open innovation strategy.

Fundraising before and after the #TechReset?

Given that our flex-term funds are always open, there is no defined fundraising period. We are always fundraising and never fundraising. Even so, we did see a peak of activity in 2021/2022, and now it is back to a normal pace.

Three things that allowed you to be successful.

Resilience and dedication. There was certainly a time after the financial crisis when most of our peers closed shop. We revised our strategy and dug in for a rough ride. We were lucky and survived.

Experience and stability of the team is probably the one aspect that made the difference between success and failure for us.

”It takes 20 years to build a reputation and 5 minutes to ruin it” – be thoughtful in how you treat others (team members, coinvestors, startups) and careful about who you do business with.

Core learnings from your last CVC Client raise and from driving CVC as a Service Model?

There are several models that corporates can choose eg only direct, direct and fund investments, only fund investments and CVCaaS (ie outsourcing the investment part). Not every model fits every company and it also changes over time.

What is clear is that corporates who are doing direct investments which have little impact on their business (whether core or new business) will likely not survive.

At some point, someone is going to ask why this activity exists because even if they are financially successful, it is just a rounding error in a multi billion dollar corporate’s financials.

A look at the person behind – Who is Gina Domanig?

Fairness
Good judgement
Building talent is the most important job of the CEO.

VC animosity to corporates & tech bro culture

Gina shared her perspective on the relationship between venture capital (VC) and corporate worlds, contrasting with the sometimes adversarial "tech bro culture" view. She emphasized the importance of startups partnering with corporations rather than trying to compete directly.

Gina believes that leveraging corporate strengths can reduce risk and increase success probability for startups without diminishing their value. She pointed out that most exits in the past 25 years have been through mergers and acquisitions (M&A) rather than IPOs, highlighting the importance of building relationships with potential corporate acquirers early on.

Gina disagrees with the notion that "companies are bought, not sold," arguing that the selling process begins early through relationship-building. She advocates for startups to maintain multiple corporate relationships and have diverse corporate investors on their cap table to improve the chances of a successful exit.

Advice to young people in the industry

Don’t get caught up in the hype. For example:
- 1) A unicorn is just a company that someone decided to give money to at a very high valuation. If it doesn’t mean that anyone did or will make money from the investment.
- 2) Awards for making the most investments are silly—anyone can make investments. The hard part is getting your money back.
Market standards are just a reflection of what was done in the past. Dare to do what you think is the right thing to do – that’s how standards evolve.
This is a collaborative industry built on interdependencies. Don’t burn bridges, help your peers, make a contribution to improving the ecosystem and it will come back to you in spades.

The most counterintuitive learning

Don’t invest if you don’t have to.

If you can achieve your strategic goals, such as a commercial agreement, without having to make an investment, then save your cash for something else.

Bringing builders and visionaries together.

How to Web Conference brings together world-leading experts in startups and technology, major investment funds, ambitious startup founders, and more in Bucharest, Romania.

Join the venture pulse in Eastern Europe – use the EUVC10 personalized 10% discount code for your Investor Tickets.

Get your ticket here

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