EXCLUSIVE: Environment-focused venture capital firm TSP Ventures is looking to back up to 10 start-ups in 2023, its CEO has confirmed.
Co-founder Chris Smith also said the VC will invest between £250,000 to £1m primarily into hardware-producing start-ups, with £750,000 plus being the sweet spot.
“Being a young VC, we spent more in 2022 than in 2021 and we’d expect to invest more again in 2023,” Smith told Growth Business at the Tomorrow Matters conference in London.
“Our thesis is that the world has got four problems,” Smith said. “Climate change, pollution, biodiversity and habitat loss, and equality of opportunity. If those are the problems, what needs to be done to address them?
“Carbon capture utilisation and energy storage is part of what we do because one of the main problems with renewables is intermittency,” he added. “The sun doesn’t always shine. The wind doesn’t always blow when you want it to.
“But some things are not venture capital investments. As well as looking at these big problems and how we can invest our money into companies that are going to change the world, we also need to invest in something that makes us a lot of money. It has to tick both boxes.”
One start-up that certainly has ticked both boxes is HiiROC, a company which cracks methane to produce hydrogen using its plasma torch. TSP Ventures was the first to invest when the tech was at its very earliest stages and last year the company raised £28m, resulting in Smith and his team taking a partial exit.
“We took enough off the table to de-risk our entire portfolio,” he said. “But we’re still very much invested.”
‘These are the things that are going to solve the world’s problems, not another app on another middle-class iPhone’
In its strategy of investing primarily in hardware, TSP Ventures is bucking the venture capital trend according to a recent US report, which found climate tech hardware start-ups are finding it a lot more difficult to fundraise than software firms.
“Science and engineering are difficult,” Smith says, leaning forward. “You’ve got to really work hard to understand it. We’re prepared to put that hard work in because it’s hard science that’s going to solve the hard problems.
“Just because you have an app on your phone which tells you what your carbon footprint is, will it change your behaviour? It might, but it’s the energy transition, energy storage or soil health – these are the things that are going to solve the world’s problems, not another app on another middle-class iPhone.
“It is more challenging now for founders to raise money than it previously was. That is certainly true,” he adds. “And the more stable things become, the more comfortable it will be for founders to raise money. That said, there is still a lot of money sloshing about looking for a home.”
Smith says he feels a degree of empathy with these founders. After attending Sandhurst straight from school in 1981, he started four start-ups himself and now implements a “venture then nurture” policy at the VC.
“I get a bit military about this so I tell them now, I’m in the trench with you and I will fight for you,” he says. “I coach soldiers with PTSD and I coach entrepreneurs in my portfolio – if they want it.
“That sense of we’re on your team and you’re not alone anymore. One of my start-ups went wrong and I lost a lot of money. I had three kids, I was sat at the end of the bed, tears in my eyes turning to my lovely wife saying, ‘Sorry darling, I’ve effed it.’ It’s a lonely place.
“It’s not for everybody being a founder of a start-up. And to be able to put an arm around their shoulder figuratively, and say, ‘Look, this isn’t so bad, what can we do here?’ It’s not unique – but I’m not sure many VCs do that.”
What does TSP Ventures look for in founders?
Grit: “Defined as passion, purpose and perseverance. We’re looking for that grit.”
Technically savviness: “And when I mean tech I mean science, not software.”
A bit of humility: “A dangerous sign for us is inexperience, coupled with a lack of humility. You get some young, smart, technically savvy, confident 27-year-old who’s a bit of a marketer. But you just think, you’ll want it all your way. That’s a dangerous thing.”