Venture capital investment is pointer to power future

It is perhaps a sign of the times last week that the Czech Republic’s biggest electricity company ČEZ, better known for its ownership of massive power plants, made news with the first investment by its relatively new and little heard of venture capital arm. The investment was in a German company which is at the cutting edge of making what could be the future model of the power market work: where consumers produce some of their power themselves and combine it with that purchased from convert. We spoke to the head of ČEZ’s venture capital fund. Petr Míkovec, about Inven Capital’s funding and targets and specifically about what sort of projects it is interested in.

Photo: Filip Jandourek

“Inven Capital provides mainly expansion capital to later stage growth start-ups who are doing business in energy, new tech or downstream. By later stage start-ups we mean small firms who have already brought out end [products] and have sales, not necessarily profitable. By energy clean-tech, you can imagine various business models related to decentralised generation or services related to flexibility and storage like virtual power plants and demand side management, the whole topic of connected homes and smart homes, clean transportation, and so forth.”

Basically, how much money have you got?

“We have got 180 million euros from ČEZ. The deal size we would like to see is approximately 10 million euros but we could do smaller or larger deals.” And how long has the fund been operating? How many projects have you been looking at and what are the projects you have been looking at?

Petr Míkovec, photo: personal archive of Petr Míkovec

“Formally, the fund was set up in the Autumn of 2013. But last year we were setting up the team and doing the housekeeping to start really working. Since then we have seen around 160 firms. I would say 60 percent are from abroad, from the EU, Germany and such countries, and 40 percent from the Czech Republic and Slovakia.”

You announced your first investment last week, but before that how many projects did you look at?

“We have seen 160 opportunities, actually seven made it to the final round but only three are almost there. One of the three is Sonnenbatterie, that is the first deal that we made and another two firms are in the due diligence process where we already agreed the term sheet and the price.”

Founding values

For the many that did not get so far, what was the main failing? Was it related to technology, how the investment was set up? What was the main failing of those that did not get so far?

“There are different things. Usually we look at three things: usually there has to be a great founders’ team because at the end of the day they are the key to success. So sometimes the founders were not trustworthy for us. Sometimes there was a great product but no sales, no distribution channels, no go-to-market strategy. Or there was a distribution channel but the product was not great. There are usually a combination of things which result in you not deciding to go ahead.”

It seems that there are a lot of opportunities out there but a lot of them will not be good enough for us.

So coming to Sonnenbatterie, can you explain what this had that they others lacked? Obviously there is some sort of technology which is well developed and there are already sales and why did you opt for this one?

“By the way, Sonnenbatterie is a darling for the European venture capital industry. As we speak, we are receiving congratulations. They are a really great firm. To make a long story short, there are three things we really like about them. First of all is the founders’ team. Those guys have known each other for a long time already. They have been doing business before. They have failed in the past, so they know what they need to have before they can really go for big success. In 2010 they came up with their first prototype and since then they have delivered the fifth version of their product. So they have been very innovative, hard working guys with a great chemistry.

“Secondly, the product is great. It has a great value proposition for the client. But it is not just the clients that like them it is also the distribution network likes them. The installers love this product and that was important as well. And finally, they have really proven their business model with sales. The distribution network works, they have more than 60 Sonnenbatterie centres which are selling this product and it is growing fast.”

Can you basically explain what the product is?

Photo: Miloš Turek

“Yes, it starts really with the mismatch between the production of a solar panel on the roof and your own [electricity] consumption as a residential client. During the time when the sun is shining you are actually not consuming. So you are storing electricity in your battery and using it later when you actually need it. It is a very simple proposition, but it is not only that. In addition to this, they have developed their own software which is able to manage the whole system of your residence so that you maximise as much as possible your own consumption and lower as much as possible your bills related to the consumption of energy. So it is a combination of hardware and software which works together and delivers savings on your bills.”

Given what you have seen on the market so far, do you think you will be able to spend or invest all the funds that you have at your disposal? Has it surprised you the number of projects that you can or can’t back?

“I am cautiously surprised what we have seen on the market. We are pretty new here, so after this deal and another two that we have in the pipeline, we want to de-brief a bit and really have a look around and make sure that we don’t just see maybe just 160 opportunities a year but that we see maybe 500. It seems that there are a lot of opportunities out there but a lot of them will not be good enough for us. I hope there will be enough opportunities for us. I feel there is momentum in the market but I still feel I need more time to come up with a clear answer to this question.”

Board seat

In Sonnenbatterie you have a minority stake. Is that satisfactory for you and are you happy to take a minority stake?

They have failed in the past, so they know what they need to have before they can really go for big success

“In this particular case we are happy to take this minority stake. We are co-investing with other venture capitalists in Sonnenbaterie. There are another three players: E-Capital, SET Ventures, and Munich Venture Partners. So for this emission, we own minority stakes. However, we have negotiated a board seat so that we can influence the long term strategy of the firm. So we are happy.”

And do you have any target return in the long term?

Photo: Czech Television

“The minimum we are seeking is three times the money in five years or 25 percent IRR (internal rate of return), that is the minimum. So we have to have firms that will deliver 10 times the money and so forth. So that is what we are looking for. With Sonnenbatterie, their potential is huge, the sky is the limit here so hopefully it is going to be the one that is really great.“

And would you back just European projects or would you go further afield?

“European projects. We want to be really close to it and be able to help. By the way, the reason we have been successful with Sonnnenbatterie is that we have behind us the client base of ČEZ as well. So that in addition to capital we can also offer access to the client base of ČEZ, so it has to be local.”