BXVentures appeals to large LPs with global venture studio for climate tech

BXVentures today unveiled an ambitious plan to launch a global venture studio fund promising to give large LPs a rare opportunity to invest in climate technologies at the earliest stages.

The Brussels-based company aims to bridge an innovation gap created by a lack of institutional capital by supporting climate tech companies at the launch stage that hinders the transition of climate tech research and development from universities to the market. In 2022, just 2 percent of institutional funding went to pre-seed or seed-stage climate tech start-ups, according to the Organization for Economic Co-operation and Development.

BXVentures is targeting between $200 million and $250 million, according to a press release. Unlike most venture studios, which are regional, the one that BXVentures has in mind will be global, to allow the firm to build climate tech companies in multiple hubs around the world.

The firm has already established regional venture studios in Canada and Belgium, partnering with McGill University and Katholieke Universiteit Leuven, respectively. The objective has been to test the principles and get its team up and running, BXVentures managing partner Daniel Malek tells Venture Capital Journal.

“After two venture studios, it became clear that in order to scale our strategy at a faster pace – because we need solutions today, not tomorrow, and to raise capital in one pool – it would be much wiser and better to do it in a fund structure,” he says.

In addition to local teams in Canada and Belgium, BXVentures plans to base another team in Switzerland with a local university there and a fourth in the US. Instead of establishing new relationships with universities separately, they will all be done in the fund, said Malek.

Although a first close is likely to be at least six months out, BXVentures is not waiting for allocations from limited partners to start putting the necessary pieces in place.

“We are actively hiring and talking to universities, preparing to actively deploy capital,” Malek says. “In the US, there are a lot of universities we are talking to and would like to work with.” In smaller countries, the firm will probably partner with one university with a strong reputation for climate technology.

BXVentures envisions a couple of universities per regional hub. Hubs comprise not only university partnerships but also relationships with corporations that are looking for technology to help them innovate and are in a position to validate the technology that BXVentures is considering for development. These corporations can also potentially become the first customers of the new companies being built.

“One thing we do differently is we involve corporates very early on in the due diligence phase [of a technology spin-out from a university],” Malek notes. One of the common pitfalls of start-ups is neglecting to pay enough attention to product-market fit as early as they should, he adds.

Although BXVentures does not have a preference for particular kinds of climate tech over others, Olympia De Castro, managing partner and head of venture scaling, says technologies that aid the transition to cleaner energy are likely to dominate, followed by those related to agriculture, forestry and waste management.

“It’s really about understanding what are the corporates’ needs,” she says. “But I suspect a lot of that will be within the vertical of energy – the use of energy via transport, or within buildings.”

Serving larger LPs

Venture studios date back more than 25 years. They typically raise small funds of $5 million to $10 million because they have a regional focus. Most LPs do not want their allocation to represent more than 10-20 percent of a fund, so an institutional investor or family office is limited to committing no more than $2 million to a fund that size.

To be a global venture studio that can deploy its strategy to various hubs across North America, Europe and Israel, BXVentures needs to raise considerably larger funds. “We are democratizing access to venture studios [by making them available] to the wider LP community because now they can make much larger allocations,” says Malek.

“The larger institutions will spend the time to do due diligence on us to be able to put $15 million to $20 million to work,” he explained. Malek said he is familiar with how the investment committees of large institutional allocators operate from having worked for a large allocator for a decade.

“They will not spend the required time [for due diligence] to invest $1 million in a [regional] studio,” he said. He believes institutional LPs will be eager to invest in a venture studio, which historically have higher rates of success with their companies than traditional venture funds.

LPs see allocating to a venture studio as complementing their investments in traditional venture funds, says Malek. Traditional funds typically invest in companies that already exist, pay a higher equity valuation, take a smaller stake and remain passive. BXVentures does the ideation, brings the management team together, has a cheaper entry in the equity and usually takes a larger stake, he said.

Malek believes a larger portion of eventual exits will be acquisitions by corporate investors, potentially at an earlier stage than most venture exits. “The aim of our technologies is to re-industrialize our planet. So a lot of companies will want to use our technologies and hence are natural buyers of our companies.”

He cites a comparatively high success rate of 60 percent among venture studios in bringing companies from the seed stage to Series A. “We hope to bring a lot of companies that will bring meaningful solutions across several industries and unleash great climate impacts thanks to the companies we are going to launch.”