Explore Planet A, the first Article 9 fund VC fund in Germany and its strategy to integrate both financial and environmental considerations into its investment decisions when both aspects are equally important—without a significant environmental impact, the fund would not proceed with an investment. How do they balance a powerful impact team with and equally expert business team?
Listen this ESG & Impact talks with Dr. Benedikt Buchspies, Senior Scientist, and Dr. Christian Gonzalez, Investor at Planet A.
Benedikt holds a Master of Science degree and a PhD in environmental engineering. At Planet A, Benedikt is responsible for impact assessments, methodology development and calculating the LCAs. Christian is an experienced scientist, consultant, entrepreneur, and business developer in both the chemicals and biotech industries. Christian holds a PhD from the Massachusetts Institute of Technology (MIT) and an MBA from the Judge Business School at the University of Cambridge. At Planet A he focuses on the areas of food tech, manufacturing, construction, and hydrogen.
They are both part of is an early-stage impact fund Planet A, the first Article 9 fund in Germany, with €160M of AUM. employs Life Cycle Assessments (LCA) to analyze the impact of their investments comprehensively, considering factors such as emissions, biodiversity, recycling, and waste management.
What's the thesis of Planet A, the current status, and what makes you unique?
C.G: We have a very unique approach and I'll give you the spiel that we always give about Planet A on the investment side.
So we are an early-stage fund. We're based in Berlin, 160 million. We're focused on pre-seed, seed series A across hardware, software, and also hybrid solutions.We are an impact fund. So that means that we put impact at the very, very core of what we do. And we assess our investments, not just in financial returns, but also on the impact potential.
And we have our in-house team that assesses this. Benny is here with us today. So usually this is what I tell the founders. And, you know, we're looking at it holistically, not just looking at emissions. We're looking at ways, resources, savings biodiversity, and so on. In terms of geography, we focus on the UK, EU, also Israel, all thinking about verticals. We are generalists in that sense. We look at everything from heat and water, remediation, construction, food tech, ag tech, manufacturing, and so on. So, I mean, I'm part of the investment team.
Usually, we're the first touchpoint with startups. And then we consult and we'll tell you how we interact with the impact team. But really on the core of what makes us different is this assessment.
It's really this marriage of these two things impact and financial returns. And I'll let Benny, if you want to add anything to this. Maybe just to give some more context on the sustainability assessments.
BB: And Chris, what you just said, I think this is what makes us unique. I mean, we have this in-house science team taking a very in-depth look at startups and business models. And we do this all pre-investment decisions.
So we assess these companies and form an opinion before investing. And we're doing this by using lifecycle assessments. That's a methodology to assess the business models of companies or technologies concerning their environmental impact.
And as I said, we make these decisions only based on these lifecycle assessments. So there's no investment decision without us having a profound understanding of the potential systemic environmental impact of a company. That's great.
So how do you do this analysis together? How do you analyze this together? How do you make the decision? How do you balance these criteria? Because in the end, you are an impact fund, but a generalistic fund at the same time.
CG: So I don't know. I think that makes it even harder, right? Because you have many areas to explore, like many sectors, as you said before. Maybe to answer the easiest question, the balancing, I would say it's both spheres or dimensions are equally important.
So, of course, economics matter and the startup in general, but also impacts us. So if there's no impact, we wouldn't invest. So it's clear, they're equally important. So it's not to balance them out or to find a compromise between the two. Both have to work out. Otherwise, we wouldn't invest in a company.
I will also give you a little bit of insight on our side. So usually in the investment team, we take the first call with the founders. In the first call, I mean, we are assessing the business case and we're using, I mean, you go through the standards.
I mean, you look at the founding team. For us, founders are very important, but you also look at the market. You also want to look at the traction and you also want to look at technology. I mean, that's also something very important that we look at. At this point, we eventually reach out to the impact team and we ask the question, what do you think of impact? And it's also important to point out that we're not expecting founders to have a full LCA. One of our big added values, and actually Benny's added value on this, is that sometimes they can give insight to founders of things that we're not aware of when discussing their startup with us.
So it's another dimension that we add. But at this point, you know, if I see that, I'm like, OK, this could be something very interesting. I give it to the impact team and I ask them, I say, what do you guys think of this? And now they take it from there.
BB: And then we take a closer look. And of course, it's a kind of a funnel, right? So we see many, many companies. So on a first step, I would say I'm looking for scientific publications, reports, and so on, as well as, of course, what the startup does and form an opinion based on that.
And of course, if knowledge is lacking, I would consult a startup and have a discussion with them on that. And then usually it's like a funnel, it deepens, right? So as further we proceed with the company and we only proceed if all indicators indicate that we want to proceed. So as Christian mentioned, the things that he looks at, also us, we do the same.
So then as further we proceed, of course, we deepen our assessments of the company until we reach this full-fledged LCA calculation where we run the full calculation of different scenarios, and different potential futures of the company to see what the potential systemic impact could be. And it's not isolated or we're not working in isolation, I would say. It's rather we work in symbiosis and combination because, as I said, we look at the systemic impact of companies.
And often it happens that impact-wise, we need to gather information that is relevant for the company for the impact. But this is also very, very important for the economics, right? So, for instance, if you think of a company that uses waste as a feedstock, often you run into resource constraints if you do that or some companies do. And that's very relevant for impact.
But it's also very relevant, of course, for the business model, because if you rely on waste streams that might not be available in the quantities that you expect them to be, then this might also be, of course, an obstacle for the company itself. So of course, you have many business models, for instance, all of those working with carbon certificates. So there you have a direct correlation between impact in terms of greenhouse gas emissions.
And of course, the economic success of the company. So that's why it's often a joint approach to assess these companies, not an isolated one.
And from all the companies that Christian gives to you, what's the ratio of you saying, yes, this goes green, green, green, red, you know?
BB: Oh, to be honest, I can't tell.
There are some companies that we reject from the impact team because we think there's not enough impact in this business model on this company. But I think there's also a more indirect way of how our impact work shapes our investment decisions, because as we have been working for many years now together, we, of course, form hypotheses on what solutions in which sectors are promising impact-wise, as well as, of course, the analysts and everybody working in on the business side understood quite well what type of business models we're going to reject because of impact.
Right. So that's what the whole organization learns in terms of impact. Right.
BB: I mean, as we learn, of course, in all the other dimensions as well. But this is something that shapes the perception of everyone at PlanetA. So it's not just us saying, OK, this is a no-go.
We wouldn't invest in this because of impact. It's also practically, I think we shape, at least for my perception as well, the quality of companies that end up on my table is ever increasing. And this is because I think a lot of stuff is already rejected also by the analysts because of impact, because they're already, OK, going to give them this.
It's not going to accept it anyway. So I think that's why the bar is continuously rising, I would say. And not just because of the impact team rejecting a case, but also because of the analysts. I think they continuously improve the understanding of impact as well. But maybe Chris. Yeah.
CG: Yeah. I think I think what's really important to know is that we, an investment team, do not make any decisions on impact. So when I see a case, we give it to the experts on the impact side.
And usually, I mean, there are parallel conversations that are taking place. Oftentimes, Benny calls with me or I join some of the impact calls. And there are really two conversations happening.
On one side, assessing the business case and on the other side, the impact case. But we don't make the decisions on our side, the investment team on the impact. We act as the first filter, I would say, on the business case, because obviously, we need to make decisions that are both financially sound and also impact.
So, yeah. And you kind of mentioned something about it, Benedict, like some example of some promising technologies that did not meet the impact thresholds set by the fund, but maybe they were business-wise very attractive. So we had these cases.
I mean, I would like to refrain from naming specific companies now in this podcast. But I think, in general, we had several cases where I think the business model was promising, but we then, in the end, decided not to invest solely because of impact, I would say. Some of them were related to the agricultural sector.
So often, as I said, I mentioned this, if companies use waste streams. So usually, waste don't end up anywhere. They're somehow treated, somehow used at the moment.
So, of course, if you use these types of wastes, you trigger some effects on the market. And if you take these into consideration, so the systemic effects, you might realize that the impact is not as promising as it is if you do not consider them. That's one example.
We had cases where companies produced bio-based materials that are currently produced from animals. And, of course, if you substitute certain products, but they are not the economically determining product in the current system, you can produce as many as you like. You will not reduce the number of livestock that's being held if you do not target the primary cash cow, in a true sense.
That's one example. And then another prominent example, I would say, we had a few cases. It's a secondhand platform where people can sell secondhand things, I would say, from home equipment to vehicles.
And then if you take a closer look systemically at the impact of that, the question is always, do you just accelerate existing markets and consumption patterns, or do you leverage secondhand materials to avoid the production of virgin materials, virgin products? And in certain cases, we did not have the confidence that this is the case. So then we did not invest. I think these are the three most prominent examples of a whole bunch of business models where impact said no.
And then going back to before and being thesis-driven, we take this learning. Impacting also communicates it to us and the investment team. And we learn from this and we apply it when we assess our deal flow at this point.
I think it makes your work very hard. It is tough to find specific companies with this specific criteria. I guess it makes it a bit harder to be done, especially since, as you were saying before, you are the first Article 9 fund in Germany, right? But right now there are other VCs that are Article 9. And this Article 9 is about giving the fund more homework to do. So, for example, you are a sector agnostic, yet you do impact. So what are those sectors that you feel are kind of specializing maybe the most, where you can find the best solutions that comply with all the requests that you have from the impact side?
CG: On our side, I have to say that would introduce a bias right away, I would say. We assess every single case with an open mind independently.
So we really, really need to hit those two targets and to ensure that we are doing this, that we're doing it properly, rigorously, and also in a systematic way. We created this new space in VC where you have people like Benny, who traditionally did not get involved in the VC industry. I mean, people with my background, you see them in deep tech funds, and they've been around for a while, and now you start to get more and more technical people.
I'm coming into climate, but to make it a very strong value proposition and to make it what I call scientific, you need people like Benny in this industry. And before, they were not really there. But again, the emphasis is really on those two things.
It's fulfilling the promise that we made, and the promise that we made. Also, it's riding on this idea that the most impactful companies in the future are going to be the most successful. So our thesis really is that impact and success are going to be linked in the future.
And you see it already. We're kind of slowly moving into that direction, driven by consumer preferences, regulation, and so on. I really love what you just said about more Benedicts joining the industry.
There will be more Benedicts in the world. There are not enough Benedicts right now. No, but I agree with you. I mean, don't turn red, Benny. It's true because it's about being able to find the best. I think that's Benny's job. But from your experience, you have a PhD in environmental engineering.
CG: So maybe we can just say, because impact is a word that's very big. And when you say Article IX impact, well, you can say that your focus is mostly environmental climate-related, no? I would say our key focus is on environmental impacts, but not just climate. So we look beyond that.
So I think equally important is biodiversity. So we recently published a white paper where we developed a methodology to assess the biodiversity of our portfolio companies or investment opportunities. I think that's at least as important as climate change.
Unfortunately, not on the radar of so many people yet. And apart from that, we look at resources. So water, land, mineral resources, and so on, and on waste production.
So these are key areas that we look at. And ultimately, of course, we chose those ones because we would like to invest in companies that help us to not the economy to operate within the planetary boundaries. I think that's the key aim that we have in the end.
BB: And as Christian said, I think often it's not conflicting targets, right? So the economic success of a fund and the environmental performance of our portfolio companies. Because as he said, we have a changing environment out there, right? So it's physically really changing. And of course, you have changing legislation, and changing societies.
So a lot of things are changing towards a greener future. And of course, those companies that are the greenest out there might be or are very likely to be the most successful companies out there. So of course, if all the other boxes check, right? So that's why I think it's usually not a conflicting, yeah, no conflicting targets.
And in addition, our work also supports the founders tremendously. So our portfolio companies, they make a lot of use of our assessments for several reasons. So of course, one is for them to understand the potential impact.
And I previously discussed it. So we look systemically at things, right? And often, we ask questions and trigger systemic thinking in their thinking as well. So I think that's very beneficial to them. Last but not least, we publish all of our studies on our website and also provide them to the founders. And that is of tremendous help, to be honest. They use them to show how beneficial their solution is. And usually, startups at that stage don't have that. And I think that's a very, very useful tool to them. And we can really see this by all the early investments that we made.
So they are all coming back. They request an update of their LCA because they have changes in their supply chains, changes in their processes, and so on. And they would like to have these changes also reflected in these LCAs.
So then they come back, and we assist them or we provide them with an update of these LCAs. And that's a very clear indication of how this extra work, if you call it that, is not just influencing the decision-making process in the investment process itself, but it's also a huge benefit to the portfolio companies, to most of them. So that's another dimension to it.
And I have a question about how you end up in the VC world.
BB: To be honest, by accident. I had a colleague, and she's a friend of Peter, one of the founders of Planet A. She introduced me to him because I was working at the university in a postdoc position working on assessing systemic changes in terms of environmental impacts. And to be honest, I had no clue what a VC is.
And then I got introduced to him, and I found it very, very compelling and interesting, but more from a technical perspective, how to assess startup companies, how to project this into the future. So for me, it was rather a technical problem. And I didn't see how the whole ecosystem worked at that time because, as Christian said, there was nobody in this field working with somebody assessing sustainability at a large scale.
And I didn't realize that when I started working for Planet A or in this whole ecosystem. So I just happened to realize, like, over time, I realized that this is a crucial thing, that this work brings also to the whole industry, I would say. So, yeah, I ended up by accident there. And I'm pretty happy that I did so.
And it's harder. It makes conversation harder with the founders. With the LPs, it doesn't make it harder. And maybe it makes it, you have to explain it much more, right? But when it comes to the startups, for example, when you talk about impact, there has been hundreds of new VCs and startups. Everyone wants to do impact now because it's a field where the money is going and where the opportunities are, right? So maybe you both can tell us a little bit more about how have you seen this evolution, the red flags that you see when you start talking to companies, and also when you have the conversations with your LPs? How do you manage this, especially since you have such a technical background?
CG: What I assess is a different level, different stage than what Benny assesses because what I'm assessing is the technical feasibility of the solution that the startup is bringing. I'm not an expert in the founders, I'm the real expert, but we have to, I mean, we owe it to our LPs to have, we need to understand what we're going to invest. And my background is in synthetic organic chemistry and also molecular biology. And I look at a lot of solutions that technologies I'm familiar with and the way at the stage and what we assess, we try to understand technical risks.
That's really what I'm hunting for and to paint a complete picture about how we make this decision. This is super important for LPs because it risks our investments and this understanding of what's happening. So bottom line is you need to understand what you're investing in.
And this is different now to what Benny and I have to say, I always get amazed when I see the assessments from the impact team because the level of detail, and they look at a different level because these guys are looking into feedstocks, they're looking into energy requirements in the process. And this is something that I don't look at this point, I mean because I'm not assessing the impact potential in this. We are both technical but we come in at different stages.
BB: Yeah, agreed. But I think it's also a very symbiotic way of detection, right? So often things that you, of course, your technical assessments, I need them for my work, and often my work, it's back into yours. So I think it's, yeah, it's a very symbiotic way of working, I would say.
I never had an experience ever that we scared off founders with our technical understanding of things or need to understand technically in a very deep level. I never had this. So usually, as I said, the founders we're working with are very, very much mission-driven.
So they usually approach us because they know what type of approach we are following, right? And many of them see the value of the work as well. So as I said, we also support these portfolio companies. So, and that's why I think it's, yeah, we never had this problem of companies thinking, okay, it's just too stressful to work with Planet A because they ask so many questions.
It's quite the opposite, I think. And as Christian said, they are the experts. So it's not us proving them to be non-impactful or non-successful.
It's us trying to understand how successful they could be and how much impact they could have, right? So it's a collaboration. It's a proactive work together with them, not against them. No, but I think first of all, it means that the due diligence, it's been done correctly in the first round to the second round to evaluate the impact.
I was just talking to a startup founder earlier today and he was, we were talking about how is it to talk to the VCs and how important it is to get to be technical with them as well. So I think that that's what you're saying. In the end, it's very important that you understand what they are talking about and the other way around as well, because I guess that many impact funds won't make it to their second fundraising, their second fund. After all, there's not enough money in the market. And I had this conversation with one of my guests a few months ago and he's been around since 2006 and he had started as an environmental fund. But he was saying that and then he suddenly saw all these funds and now he knows that the market is gonna go back to balance and many of them are gonna just disappear. So I think that the same with the startups, like those that are not really technical, that don't solve real problems, are the ones that are not gonna be here in the long term.
BB: And I think that for us to actually keep this industry credible, we need technicals. Maybe I can add something on this topic. Yes, there are many, many green tech funds out there, but it's I think another observation that we made and Christian, please correct me if I'm wrong in this, but I think we can also see that more generalist funds invest in companies that we tend to invest in.
So it's also non-impact funds suddenly being interested in companies that were before only considered green tech and so on. So I think that's something that we also observe. All these heavy hardware cases where also other more generalist funds suddenly are interested in.
And that's a development, of course, which means more competition to us, for sure. But from personal opinion, I would say this is what needs to happen, right? Because these are the technologies that need to scale and only if the large chunk of money is invested into more sustainable solutions, this is the only way how we can save this planet, right? And this needs to happen. So ultimately this is, yeah, it's a desirable thing from a planetary perspective.
Yeah, and you also pointed out something which is you said hardware, right? So it's a different game to invest in hardware and software and the skills that you need to assess those two deals are actually quite different. I mean, software has been the favorite and darling of VCs for the longest time in terms of returns and how you assess that there are clear metrics and so on and so forth. But for the climate crisis, software is not enough.
And how do you assess hardware deals and how do you assess them properly? You do need to understand, you need to have scientists in there that really understand it and can actually inform the fund and help management in the fund to make better decisions for our fund and for our LPs. So you really need to have all the scientists because this is especially true for early stage, not for later. So, I mean, there's some instances, I mean, where you're looking at a pre-seed deal and sometimes it's two founders and a pitch deck with a vision, right? So in this case, or sometimes even a seed round, you haven't demonstrated product market fit yet.
So how do you assess this? Like, how do you look into this? You have no financials. I mean, the financials are your sort of like speculation. You can make educated guesses of what it would look like, but you do need to assess it in another way.
You do need to look at technical risk, also scalability risk. Is this technology the right solution for this problem in our opinion? Like, what do we think? How is this going to scale? Like, is it realistic or not? So it's very different from scaling software. And it's intrinsic.
This is very practical to apply at this very moment. But you do do a lot of hardware as well. Yeah, we do both.
We do software and hardware. Yeah, I mean, our fund is split. I think it's like 30% software, 30% hardware and the rest hybrid solutions.
And I remember when we were talking for the podcast, you mentioned the first-of-a-kind approach, which is an approach that you use. So what are the intricacies and challenges when you use this approach?
CG: I mean, first of a kind, it just literally means first of a kind. And the implications of this is that you are navigating uncharted territories.
You have never, I mean, we're witnessing in climate tech, new models of production, new business models, and right now there's not enough information or it's never been done before. So how do you make decisions? How do you risk this? What do you do? What do you do about this? So it's, I mean, it's really exciting to see, but it's also very, very, very risky. And financing and identifying the right finance instruments for this, it's really a challenge.
There's this idea of first of a kind, you hear it left and right about, say first of a kind plant, like industries that need to scale up. And then you ask the question, is VC the right money to do this? And what's going to be the challenges for this? So what are the alternatives? What else one can do? So at the end of the day, it just comes to, it's just dealing with uncertainty and dealing with risks and making the best decisions with the information that we have. It's a tough place, but it's a really exciting place.
You need to find innovation. Otherwise it's just some modified copy or something like that. Yeah, exactly.
It's innovation in new products and new processes. And as I said, a lot of this, I mean, we don't really have any lessons from the past that we can then infer and look into the future. It's just not there.
It's never been done before. And before we go, maybe you can tell us a little bit about what's the current status and what's up to PlanetA right now. So we are actively deploying.
And you said you're doing it across Europe, in the US. You mentioned, where else?
CG: It's mostly UK, EU, and also Israel. We do have some leeway into other geographies. I mean, that is true. Up to Series A, so pre-Seed Series A. But why UK? The UK is a powerhouse of innovation. Yeah, but in terms of environmental solutions. I think, yeah, I mean, the strongest ecosystem in geographic Europe is definitely the UK in terms of innovation and the deal flow that we see. It's the strongest.
The second strongest, I mean, so London is like a hub. And the second hub, I would say, is Berlin. It's a German ecosystem. It's also very strong. And a third one, I would say, it would be Paris. Paris, which is in France, is picking up.
So we want to be where all the innovation is happening. We want to have access to all these deals. So we need to be in the UK.
And we have invested in quite a few UK companies. Good, because, I mean, when I talk to people, there are a lot of impact funds from everywhere. But I think the Netherlands is a place where there are many interesting impact funds.
But it's also interesting to see that the companies are based elsewhere. It's interesting. No, no, it's true.
And actually, the Netherlands, there's a lot of innovation. If you normalize it to population, there's quite a lot going on in the Netherlands. So we do look in the Netherlands as well.
I mean, we exchange often with funds in the Netherlands. We interact with founders in the Netherlands. So we're pretty open.
Yeah, but you also have more competition there as well, right? I mean, because there are, as I said before, many impact funds there. So maybe it makes sense that you look somewhere.
CG: Yeah, and then at the end of the day, it comes down to founders, right? I mean, the founders can choose which one to work with.
