Season 2, Episode 9: Christian Langen & Tobias Schütt, Cleantech Bridge
In the penultimate episode of season two, we've got a double header for you! Torsten reconnects with returning guests Christian Langen and Tobias Schütt, co-founders of Cleantech Bridge, a startup bridging the gap between venture capital and infrastructure funding for the rollout of innovative clean technologies. With decades of combined experience in the solar and energy storage industries, Christian and Tobias are tackling one of the most pressing challenges in renewable energy: scaling successful startups when traditional funding sources fall short.
From their early days at Conergy to launching impactful ventures like DZ4, Christian and Tobias share insights into navigating the "first of a kind" financing problems that can derail even the most promising companies. They delve into why SPVs (Special Purpose Vehicles) are key for asset-heavy business models and how entrepreneurial investors, like family offices, can unlock opportunities where conventional investors hesitate.
A resounding endorsement of the potential of renewables and solar in particular, Christian declares, “Solar is the cheapest source, together with wind and storage – it's exploding.” Meanwhile, Tobias emphasizes, “The risk is that the success of solar is so high it jeopardizes future successes. And the solution for that is more storage.”
An engaging overview of the challenges and opportunities of financing cleantech at scale, this episode is packed with insightful explainers and pearls of wisdom from two seasoned industry players – who admit that even with 20 years of experience, they "are still at the beginning of this all."
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🔄 Connect with Christian and Tobias on LinkedIn.
Show Notes:
Cleantech Bridge’s mission to solve funding gaps for asset-heavy startups.
Lessons learned from scaling DZ4 and other cleantech businesses.
Why family offices and entrepreneurial investors are uniquely positioned to fund cleantech.
The critical role of SPVs in scaling renewable energy solutions.
Predictions for the future of solar growth and storage integration.
Transcript
[00:00:00.000] - Torsten
Yeah, welcome to a new episode of the Solar Journey. We have something special happening today. We've had two guests in one show before, so that's not new, but we have our first returning guests today. Tobias Schütt and Christian Langen have shared various parts of their solar and cleantech journeys during their extensive careers. They are now joining forces as with the founders and join Managing Directors of Cleantech Bridge. Gentlemen, thanks for joining again. Welcome.
[00:00:38.910] - Christian
Thanks for having us.
[00:00:40.170] - Tobias
Thank you, Torsten.
[00:00:41.450] - Torsten
It's a pleasure. Normally on show, we like to chart the beginning of each journey by delving into the education and early professional experience of our guests. But, dear listeners, since we have returning guests, I'd encourage you to check our episode number 9 and 22 for the clean tech genesis stories of both Tobias and Christian. Let's get straight into the genesis of Cleantech Bridge. Christian, could you take us how you came together for this project? I'd like to believe, of course, you learned about each other through this podcast, but maybe that's not the case.
[00:01:16.220] - Christian
Well, that's not exactly true. We've known each other for about 20 years when we first worked close to each other at Conergy. Then our path went different ways and they reconnected later on with DZ4, Tobias founded the business, and I was supporting for a while on the board, and we were in regular conversation about a range of topics. One thing where we both had a lot of passion for was seeing this gap in funding new technologies and startups when they get to a certain scale, when venture capital is not enough anymore and they need to maybe roll assets. That's where we connected on this topic. When Tobias basically moved on, then we really thought, Okay, we have to do something together with this. Ultimately, that led to founding Cleantech Bridge earlier this year.
[00:02:15.130] - Torsten
Excellent. You just mentioned the gap you have observed in the market and the company's name, Cleantech Bridge, is very instructive in that sense. Could you elaborate a bit more? What's the problem you're solving? We're facing, really on a numerous basis, situations of successful clean tech companies that come to a stage where they are struggling financially, not because they have a bad product, but quite the opposite.
[00:02:42.460] - Tobias
They have traction, and specifically in cases of asset rollout, and maybe we stop here and define what does asset rollout mean. A company that installs heat pumps, a company that installs battery systems, a company that has a new business model around clean technologies, a company that does biofuels or sustainable aviation fuels, whenever they become successful and get more demand, someone needs to be there to finance those assets. In order to capture a larger market share and to comply with more demand, it is often important to provide a financing solution associated with it.
The example of DZ4, we've talked about this on this podcast, it opened up a whole new market segment of customers that were interested in solar PV but didn't want to buy the system. And we see that also in the commercial and industrial segment and in many different segments where those as a service arrangements just open up a bigger market opportunity and supports a clean tech rollout. Then the underlying question is, who owns that asset and who pays for that? That's where venture capital investors are not the right investors anymore. They cannot do not provide those large amounts of fundings and the return profiles do not match.
This is where the companies that are successful with their new business model, new technology, come to a point where they struggle financially, in the sense that they need to reorganize the financing of their entire organization in order to meet the demand that they created.
[00:04:22.060] - Torsten
When you do a business plan for one of the companies you just outlined, you could have foreseen that a gap comes up, or is was it for many players an unexpected situation that when you're too successful, maybe that this gap shows up?
[00:04:37.940] - Christian
Well, I wouldn't say it's sudden. Of course, you do realize that at some point, if you are successful, you need to be able to install a lot of systems and fund that. But I think in the early stage, venture capital investors are pushing for growth. I think it's not clearly understood often enough talked about. So what happens when we reach this point where venture capital may not be the best solution anymore, it's always the assumption, Okay, we are successful then, so somebody will come and fund it. But the unfortunate truth is that these investors that you expect to come are often not ready, particularly in this clean tech space where you don't have 20 years of track record. And you can say, Okay, heat pumps have been around for so long in large numbers. Let's look at what happens after 20 years.
That's often a requirement for those so-called infrastructure investors who look at really risk, risk, risk. So if you have something innovative without a long track record, it's very difficult to convince those investors that you initially assume will just be there when you are successful. It's maybe a question of how do you define success?
And in an early startup, you define it differently than if you are a later stage or infrastructure investor.
[00:05:52.190] - Torsten
So if you see that initially, a startup would expect that maybe at some point once there is sufficient success aim, the strategic investor comes in and buys the company and takes it from there. And that didn't happen because those strategics are very conservative, if that's a proper description? Or who was the original target then for the VC to buy the shares? And why don't they come or why don't they buy?
[00:06:16.580] - Christian
Well, I wouldn't necessarily say that it always has to be a strategic investor. I think this is more about how do you finance bringing more clean tech into the world than the corporate side of a startup. These two things ideally work together. Ideally, you have a solution for how do I grow my company? And then a solution for, how do I help customers buy this? And a solution for who is ultimately investing into those hundreds of thousands of solar systems or heat pumps or batteries. And this doesn't always come together. And that's, I think, part of the challenge.
[00:06:52.680] - Torsten
So the assets would be, let's say, the heat pumps, the solar system, which are in a lease contract with the final user. And these are the assets that need to be then taken over by the new investor, right?
[00:07:05.440] - Tobias
Maybe we provide you with an example or things that we see here in the market. Let's say the venture capital investors are usually organized as funds, and a typical fund volume is €100 million or €200 million. Some are smaller, others are bigger. But let's say it's that type of fund structure. Let's just assume it's €100 million. So that means as a professional investment company, the fund can only do an allocation of €5 million or €10 million in one company. The other element that is important to understand is that those funds usually have a lifetime or a term, typically 10 years. So they invest over time span, and at some time the fund ends, terminates. That means that a venture capital investor has a limit per target that they can invest, and they have a return requirement over a time span, like 5 to 10 years, because the fund ends.
Now let's take as an example, because we tapped on it, the heat pump rollout. In Germany, retail market, but also C&I market. First of all, those arrangements with customers are generally 20 years. Maybe they are 15 years, others are 25 years. In those lease arrangements, an investment is done.
It provides a return to the investor of, let's say, 8%, 10%, but it takes 20 years for the return to materialize. There you see one of the specific problems, venture capital could not invest in that. If they need to pay back the investors in their fund after 10 years, they cannot make that investment because the timing doesn't work.
The other element is, and now we're also talking about retail heat pump, just because it is an example, it's not limited to heat pump rollout in Germany. I just want to be sure. Let's say there's a heat pump company that did their seed round, Series A, have raised €10 million from different venture capital investors. Now they are super successful. Somehow they did their first SPV, so the company that holds all these assets, maybe that was only €5 million. Now they have their business plan lined up for the next year. It says, We want to build thousands of heat pump installations as a service model. That means an investment of, let's just put out a number, €100 million over the next two years. Here's the other problems that venture capital investors are faced with. As much as they'd like that, they couldn't do it because the investment amount is just much too high for them not to create an allocation risk in one company.
That's where the success of a company becomes a burden because, as Christian said, I'm not saying that founders are naive, but if you're successful, you just assume you get funding for that. The real difficulty is changing the language and changing the approach to the investors that are adequate investors in that asset base and the different mentalities associated with that and the different business models associated with that. That is something where different companies have struggled in the past, and there are some great examples of companies that did that very successfully, but it remains a challenge that comes to awareness now more and more, but really is an uneducated and underdeveloped team to finance those first larger chunks of assets for companies that are successful but not yet profitable, and don't have that long track record that Christian mentioned. Does that make sense?
[00:10:43.850] - Torsten
Yeah. Thanks a lot. It's really about these new businesses, new technologies, a short track record, and suddenly, gigantic volume that makes it then suddenly difficult to find someone who takes it to the next level. This is where Cleantech Bridge comes in.
What's your USP? Mainly you are as a clean tech bridge of the two of you? Because you've been in the market for so long, you understand both languages. You were talking about using the right terminology. Is that your know-how, your experience what's your USP, or is there many others who could do that?
[00:11:19.310] - Christian
I hope there are many others who could do that, but I can only speak for us. I think education is one key aspect how this can be solved, and that needs understanding of both of these perspectives. As I said before, it's like VCs look at growth, growth, growth, and infrastructure investors look at risk, risk, risk. You see those founders using their growth story and going into somebody who's only looking at, That's risky. They want to only grow, and what if I have only a limited return and that needs to be and the other way around? We've experienced both of these sides. We've been working as individuals as well as together with investors and startups on both of these sides.
I think on the one side, we can build a bridge or translate and try to bring them closer together, make the more infrastructure-oriented investors understand that not having 20 years track record is maybe not that bad because the principal technologies have been there. The risks they are perceiving may not be as big in reality. At the same time, helping investors on the venture capital side understand where their limits are and where their role can be in this.
And the startups themselves, to communicate with these different groups and when to basically switch. You need to professionalize your business at some point to be ready for that next stage. I think that's something that many also don't get at the right time, only when it's possibly too late. I think it is this mix of experiences as being entrepreneurs ourselves, but also having helped investors, trying to understand that and bridging these gaps.
[00:12:54.900] - Torsten
Bridging, there it is again. Very good term you found for your company. Two years, yeah?
[00:12:59.160] - Tobias
I think I wanted to add one element to that. I guess, Christian and I, we've both been in the industry for over 20 years. So next to the experience, by now, we really have also a super great network of relationships to investors and companies and can make those connections faster or build those bridges faster and more efficient than probably others could do. At the same time, not that this goes into the wrong direction, this is not a pitch about Cleantech Bridge, and we don't want to pitch the idea of the company too much. What we're describing is referred to as the "first of a kind" or "next of a kind" finance problem. It would be great for all of us if there's more education on that, more people went into that theme and helped solve it, be it investors or companies.
n that sense, it's also a little bit of the approach that Christian and I spend a lot of time in educating both companies and investors for free, giving advice, sharing our perspectives, giving examples of what we've done in the past, and helping those companies or investors to bridge the gap. So far, Cleantech Bridge has never advised under a mandate a startup or a growth company.
That's not our approach. It's difficult for them to find those budgets. We rather support investors in these types of situations. And again, pointing out that education is a really strong element of our activities. And talking about it, making aware of the element, I'm trying to influence the market actors to be at least aware of it and then finding solutions individually in transactions.
[00:14:35.580] - Torsten
So you just mentioned, that it's a first of a kind problem, really, in the world of finance and let's say tech.
[00:14:43.350] - Christian
And maybe "next of a kind", I would add as well. It's not only the first, but first and next of a kind. But the core of this challenge is with new concepts, assets, business models that don't have a sufficiently long track record. I think where one can approach and solve this, and that's where we're also active is in possibly creating different funds that don't work within those classical categories of VC and infrastructure, but combine some of these aspects. That's also one of those things we're hoping with.
[00:15:19.430] - Torsten
Let's stay a little with Cleantech Bridge. So who are your clients? Is it the founders, the startups, or is it more the investor side, the money side that you would describe as your clients. You're educating, which sometimes sounds like a pro bono thing. What's your business model here?
[00:15:38.040] - Tobias
No, fair question. We're not entirely philanthropic. We aim to make some money with that as well. So that is true. At the same time, we don't have a venture capital hockey stick business case as Cleantech Bridge equity advisors. We're working on the specific phenomena that we just described, and our activities are talking to both sides of the market. We talk to a lot of companies that are in the startup phase or in the growth phase and engage with them, and they reach out to us and then ask how we can take the next step in terms of financing.
We provide our opinion and our advice and get a market overview. We do that also understanding the problems in the market and understanding who is active in the market, like matchmaking in the sense that we also engage in conversations with investors, infrastructure investors, investors, venture capital investors, private equity investors – understanding where they are in the market, what their needs are, and in that way, try to do matchmaking. And generally, we advise investors. That's the only mandate that we have signed so far, both on transactions, but also on more strategic elements like what Christian mentioned, fund design, how can we solve those problems that we just described.
Our customers, in the sense, are both investors and companies, but the mandate where we get paid, if you want to put it that way, is the investor side.
[00:17:04.670] - Christian
I just think there's probably the bigger education need as well, which is the ability to be part of some transactions. We help to identify interesting investment targets. We help to look at those that are being presented at the opportunities, give an opinion on those. But because we also work with so many startups, we tend to have a really good overview of what's going on, and that's helpful.
[00:17:30.660] - Torsten
Just one more question on Cleantech, specifically. So is it the two of you or do you have extra staff? And where do you want to take Cleantech Bridge?
[00:17:39.690] - Tobias
Currently, it's the two of us together with a network of freelancers that we have basically at the back if there's a need in transactions to get additional support. And where do we want to take that company? Very specifically, it's not a venture capital growth company. So we want to be successful. We want to help a transaction. We want to help fund the market, and we will definitely grow because at this point, as we have much more demand than we can comply with as two individuals. It's really the question about timing and where and how to grow the organization.
But right now, we decline more mandates than we accept. So that also supports our case that we're working on something that is needed in the market, that there is a gap in the market that needs to be filled. So, yeah, it's growth. But we're both, I think, thankful that we're now working in a different type of setup, me being in that super long 10-year VC cycle, and Christian also as executive board member, but I shouldn't talk for you.
[00:18:43.430] - Christian
Just to add, we both value our independence, and that also creates value for customers. So we're not under pressure to do this or that. Educating is as much part of our goal as it's growing business or turnover over. So we can be very picky with what we do. That's the biggest advantage we have. And otherwise, again, we do value our independence. I'd love to work in this type of setup. So no goal of hiring a hundred people and getting any investors.
[00:19:16.180] - Torsten
Excellent. Very cool choice. Christian, back then when you were on the show the first time, you described yourself as a free radical. So it seems you want to keep that the characteristic. So we only can hope for the whole industry that you and Tobias, you don't attract each other too much, so you avoid being radical, right?
[00:19:40.870] - Christian
I live in Helsinki. That helps being separated by a country.
[00:19:45.620] - Torsten
Excellent. In terms of attracting funds, there are business angels, there are VCs, there's private equity, family offers, there are loans. Which are the financing methods you are addressing then to close that gap?
[00:19:57.600] - Tobias
What we've learned from experience in what we've seen in the market is that if you have the situation that we described where there's, let's say, a company or an SPV, special purpose vehicle, with a lot of heat pumps, and that needs to be filled, automatically, there's a quick question – where the profits in this business model, where do they occur? Where are they shifted to? Are those in the SPV or are those at the developer level or the company that is building those assets? And that provides a conflict eventually between investors in the SPV on the assets and the investors in the company that builds those assets because basically both want to maximize their profits. I'm exaggerating a little bit. It's always about fairness and understanding each other. But still, if you are a company that does not yet have stable processes where everything is very early on, all the details of such a business model are not really worked out in full detail, you need flexibility. You don't really know where it's best to put that margin or that risk element. If you need to define that and lock it in for a time period to do that transaction, wear and tear on your organization can be very high if you do that.
The best thing is that you have an investor in both business models, so to say. So the long term cash flow business model in the SPV and the operational company in order to limit the friction in that conflict in early stages where the company is not yet quite as stable as a Siemens or whatever in their processes. And so what we support or advise is mechanisms where the investors, the early stage investors in those companies provide funding for both for the operational company that does, let's say, the installation and for the SPV that holds those assets. All those, those are very different business models. We understand that this is a problem for some investors. Like I mentioned a couple of minutes ago, we still think venture capital provides the best solutions for the company to help growth and stabilizing processes and optimizing what they have. That is basically the point that we're working on to facilitate those hybrid investments, as we call them, because one is a gross investment, the other is more like an infrastructure type of investment. That's what we promote, facilitating using structures of bigger deals in smaller and younger companies.
[00:22:33.750] - Christian
Maybe just to add. I think who's going to win in this space are entrepreneurial investors, not just thinking in those old categories. That's why we find in the discussions we have that family offices that often come from industrial families, someone who has built a business with all the challenges and different life cycles and growth, are well suited to go in there. If they don't fall into the trap and try to copy the VC and the infrastructure model themselves, which some of them do as well. But we feel that that is one good address. The other one would be also larger private equity investors who dare to see the longer story and then tap a little bit earlier into this than they usually would. So both of these are among those people we speak to very closely.
[00:23:24.810] - Torsten
The term SPV was mentioned now a few times. Let's assume there's a variety of engineers out there who don't understand all the financial terms that well. Maybe you can explain the SPV concept again with your heat pump company.
[00:23:40.510] - Christian
SPV stands for special purpose vehicle, which is nothing else but a company that owns, that has no operational business necessarily, but that owns all those heat pumps. So they're all in the ownership of this. If you lease a heat pump, you make your lease payment to this special purpose vehicle. So the company owes them and the company gets the lease. And the company, this special company, then buys the heat pumps from somebody – it's in the middle. And it is an independent entity one can invest into.
[00:24:14.820] - Torsten
You mentioned the special role of the family office, which still have that original entrepreneurial spirit, could be an important role. So what do these family offices need to be successful in that clean tech space with this "next of a kind" situation that you described?
[00:24:36.000] - Tobias
I think, specifically, when it comes to early on or early stage investments or first of a kind investments, it's about courage and doing what feels right and making judgments based on entrepreneurial experience. And that can provide an advantage in terms of superior returns or also better opportunities in the future.
What do I mean by saying that the advantage of deciding based on entrepreneurial experience differentiates them from institutional investors because they do checklist investments? If you have created a fund like a private equity investor or infrastructure investor, you've got your checklist. And that says, I need to have three years of track record. I need to have a profitable EPC company that built those systems and so on, and so on, and so on. And many of those checklist items cannot be complied with by young companies. But still, they create great assets, great heat pump installations. And so, entrepreneurial judgment means, well, just because they don't have the track record, it doesn't mean that they build bad systems and that they've selected bad customers. And there you can step in and as a family office type of organization, say, yes, I will invest in that and lead the way to help that company create a track record so that in the next two, three years, other investors can follow.
[00:26:09.830] - Torsten
So in other words, in the VCs, you have investment managers who are employees to the fund. They go through the checklist, they can't check all the boxes so that the risk remains for the interest structure. That's the new situation here. That risk is only compensated by entrepreneurial spirit, which you sometimes find in the family office you mentioned. Is that correct?
[00:26:35.400] - Christian
I don't want to speak too badly about venture capital. Venture capital has an important place in all of this. So don't get that song. It's just only part of the solution. I think the advantage of family offices is that they sometimes are managing generational wealth. So they're not really limited by seven year, ten year term, but they can do something today that has a long term impact easier than others can. And ultimately, although all three of us probably have been in this for 20 years, we're still at the beginning of this all. You need to be able to respond, be quick, change pathway and not look at, does somebody fulfill a particular forecast or the way of managing a business, the way of understanding and driving it? I feel is often different when you have a very entrepreneurial investor.
[00:27:29.590] - Tobias
All investors that I know use common sense in their decision-making process. Also, venture capital investors, all types of investors, also banks when they issue loans. But still, for venture capital investors and other types of investors, there's only such a span of wiggle room where they can decide and use their common sense because there's limitations from the fund structure and from the due diligence requirements that they have.
That common sense element can be higher and more important entrepreneurial decisions from family offices or private wealth individuals that invest. They can rely more on their common sense than other investors. I think that's just as important. Why am I saying that? Because I've had situations There's been some discussions in the past where the venture capital investor said (and this is related to asset roll), I totally understand, and it's a good investment, and I would like to do that, an investment in SPV, but I cannot do that from the fund structure. I don't believe it's going to fail. I think it's a good investment, but I simply cannot do that. And that's where the common sense element of entrepreneurial decisions is probably a little bit different.
[00:28:38.070] - Torsten
What are success stories for bridging this gap?
[00:28:42.760] - Christian
There are some that we think are developing right now, where particularly larger investors have taken a step into this. For example, a large investor investing in Inveria, earlier this year, and saying we combine corporate investment with a lot of asset rollout. Or very recently, I think this week in a sustainable aviation fuel startup, where the same thinking applied, Okay, we want to support the company, but we also know they need 500 million in the next few years to build plants. So this is what we also have reserved. So I think there's an increasing understanding of this, but there are not so many examples in clean tech where I would say that's where the case is very clear. I think they're just evolving.
[00:29:36.740] - Tobias
I would agree. I mean, we can go back in our history, Christian and I, we have had successful first-of-a-kind financing solutions, but I don't want to dig into that too deeply, actually. I think another element that I wanted to add is that we are learning about investors that come from the infrastructure side and that cannot take those early stage risks. They've experienced situations where they liked the asset base and wanted to invest in it but couldn't do it because due diligence protocol said, The company that is building those systems, that is not profitable, so we cannot finance that. It's a very typical problem, by the way. They decided to set up their own venture capital fund.
I think that's just great because then out of one umbrella, you have an entity that can provide both that corporate funding that is needed and the asset funding that is also needing. That is a super great example. It's still a bit on the radar screen, so we cannot talk openly about it, but that is something that is currently developing where such an investor that sees that problem, acts immediately, sets up their own VC fund to solve that problem, and we anticipate more of that to come.
[00:30:49.350] - Torsten
Hey, as always at the end, I like to ask as a summary or outlook, what does it to get solar to the next level?
If you like, you can focus on your specific interest, the financing model, but also you can take a more complete perspective on the energy market, the clean tech industry.
[00:31:14.840] - Tobias
I'm happy to go first. I think for more solar, the answer is probably more storage in the sense that the curve is just getting worse, and the risk is that the success of solar is just so high that it jeopardizes the future success. And the solution for that is more storage, really.
[00:31:36.730] - Christian
It may be counterintuitive, but I personally think we have already reached a tipping point. Every day, 100,000 people around the planet say, We want to go solar with a company, with a house, while about 10 big committees say, We're going to build some huge power plant next year or in 10 years.
Look, this game is run. I'm sorry. Solar is the cheapest source, together with wind, storage is exploding. Where I'm always amazed is people compare these technologies. What they forget is a solar panel that you put out there is going to produce power for 25 years without ever touching it again – for 30 years, for 40 years if need be. That's fundamentally different from building a power plant that you need to constantly feed with something. It's really this is a fundamental thought. It's so simple. But in many conversations, I feel people really underestimate, continue to underestimate solar. It will grow because 100,000 people have made the decision just today, they will join this. They will.
[00:32:39.060] - Torsten
Fantastic closing remarks, Christian, Tobias. Wonderful, gentlemen. Thanks a lot for joining again. Thank you so much. I wish you all the best in your educating the markets to facilitate new startups, new ideas, new business model to happen. Thanks a lot for helping them grow.
[00:33:03.170] - Christian
Thank you.
[00:33:03.830] - Tobias
Thank you, Torsten. Bye-bye. Thanks.
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