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March 14, 2024

Powering the e-fuels revolution: Why we invested in INERATEC

The potential for Sustainable Aviation Fuels (SAFs) is attracting a lot of interest and excitement, and HG Ventures recently made a new investment in this space. Here, Nick Arnold outlines the technology involved, and our rationale for investing in INERATEC.

Nick Arnold, Principal at HG Ventures

In the global challenge to reduce carbon emissions, airlines loom large. Aviation accounts for around 2% of CO2 emissions, and this number is only likely to increase as demand for air travel rises in populous markets like India and China: Air travel demand is expanding massively, with the number of daily flights expected to double between now and 2035.

While there are a number of options for carbon reduction in road transport, such as battery electrification and hydrogen, the same alternatives are much more challenging to deploy for aviation, not only because of the weight of the vehicles and length of the journeys involved, but also because of the major changes that would need to be made to the way aircraft are designed and built, as well as to airport infrastructure, to accommodate battery- or hydrogen-powered planes.

This is why attention has focused on sustainable aviation fuels (SAFs) as a way forward. The International Air Transport Association (IATA) favors this route, as a major plank of its Fly Net Zero commitment, and many of the major airlines have been competing to assume a leadership position by making various commitments to switching to SAFs.

What is Sustainable Aviation Fuel?

The U.S. Department of Energy defines SAFs as an alternative fuel that reduces emissions from air transportation, made from non-petroleum feedstocks. So far, so simple, but there are a number of different routes to production, and the Department of Energy summarizes these here. Each is a highly complex, multi-step process, and none represents a ‘silver bullet’ solution. One of the key challenges with the production of SAFs is the ability to do so at scale, economically. That is where INERATEC comes in.

INERATEC and the e-fuels revolution

INERATEC is a German power-to-liquids (PtL) company that has developed a micro-structured reactor (MSR) technology to transform electricity and recycled CO2 into high-value products. The company’s Fischer-Tropsch, Methanol, and Reverse Water Gas Shift reactors are 80x more compact than conventional reactors and 2x as efficient.

Power-to-liquid fuel is seen as one of the most promising alternatives to today’s aviation fuel; it describes a type of Sustainable Aviation Fuel (SAF) that only contains renewables, instead of using waste or biological materials like plants. To make it, a facility takes the hydrogen out of water, carbon dioxide from the air and electricity from renewable energy, and puts it through a refinement process. In facilities that use INERATEC’s MSRs, CO2 and hydrogen are combined into e-fuels, which then go through further processing to obtain SAFs. Deploying INERATEC’s MSRs enables the ability to ramp production up and down quickly, to leverage renewable power cost efficiency.

While there are several emerging competitors that are developing technologies for an e-fuel to SAF pathway, INERATEC is the market leader in technology readiness, with more than 28,000 hours of operation and commercial development progress. The company is able to produce e-fuel at the highest energy efficiency yield today, with the potential to replace crude oil over the long-term.

A growing market

SAFs, which represent less than 0.1% of jet fuel consumption today, must scale by a factor of 100x by 2030 and 1,500x by 2050 to meet aviation industry goals. The total global e-fuels market, estimated at $6B in 2023, is expected to grow to $49B by 2030.

This growth is in part propelled by legislation such as Europe’s ReFuelEU Aviation legislation, which requires fuel suppliers to all flights originating or ending in Europe to blend a minimum ratio of SAF starting in 2025. The blend ratio starts at 2% in 2025 and increases to 70% SAF by 2050. Similarly, the U.S. Inflation Reduction Act (IRA) provides a SAF blending credit if the SAF reduces emissions from fossil kerosene.

We believe INERATEC will play a major part in this growing market.

The company has over 30 contracts with well-known customers from Europe, Chile, and Japan across various industries including aviation, maritime, automotive, and oil and gas. Working with industry partners, INERATEC has already installed 7MW of its MSR units, equating to a total annual production capacity of 1 million gallons and the ability to recycle 8,000 tons of CO2 into e-fuel products.

A world-leading team

INERATEC’s co-founders, Tim Böltken and Philipp Engelkamp have already built an impressive leadership team: CEO, Tim has a chemical engineering background with ten years of professional experience; CCO, Philipp has a background in consulting and marketing, and leads the sales and business development function of the business. They are joined by COO, Ingo Katz, a manufacturing and operations expert with more than 30 years of industry experience, and CFO, Caspar Schuchmann, with experience in corporate finance, including investing and fund raising in shipping and renewable energy industries.

We are proud to be working with such an exceptional group, whose technology will be at the heart of the e-fuels revolution.

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March 13, 2024

Emerging Leaders 2024: Ginger Rothrock, HG Ventures

Ginger Rothrock, Senior Director, HG Ventures, is one of Global Corporate Venturing’s Top 50 Emerging Leaders in corporate venturing for 2024.

Original article on GCV’s website linked here.

Born to a family of engineers and entrepreneurs, it was only fitting that Ginger Rothrock, senior director at HG Ventures, would end up working in a highly technical field. With her chemistry PhD in tow, Rothrock co-founded a biotechnology company in grad school and led the technical and commercialisation practice at a billion-dollar research institute before being – to her surprise – recruited to the world of venture capital at The Heritage Group’s CVC.

“First rule of career planning is: don’t plan your career. You have no idea what might happen if you stay open-minded” says Rothrock. “I never once thought I could be a VC. I come from the era where VCs were only men with MBAs that went to certain business schools.”

The highlight of her time so far as a venture capitalist has been the ability to add tangible value to startups – something VCs typically don’t have a good reputation for doing. Being able to deliver for both parent and portfolio companies in ways that they wouldn’t be able to do without the other is meaningful. She’s especially excited about the future of infrastructure, the circular economy and supply chain resilience.

“She exhibits integrity, honesty, and builds trust within our team, The Heritage Group, and with external venture collaborators.”

VCs should be data-driven but fearless, says Rothrock – a philosophy that should extend to the rest of life. “What would you do if you were fearless? We so often, as humans, make personal and professional choices because of perceived needs, or self-doubt, or fear. And I think it’s critical to look back to who our former self was maybe three, five, 10 years ago, and think about how far you as an individual have come. People are really amazed by that,” she says.

“She exhibits integrity, honesty, and builds trust within our team, The Heritage Group, and with external venture collaborators,” says John Glushik, managing director at HG Ventures.  “Over the past year she has become well known in the market and sought for her expertise in our investment sectors, particularly in sustainability.”

See the full list of GCV Emerging Leaders for 2024 here.

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March 11, 2024

Pitch Perfect: A Guide for Young Founders Presenting to VCs

The process of securing investment for a startup can be daunting, especially for young or first-time founders. The newest and youngest member of the HG Ventures team, Erin Crowther offers guiding principles on how entrepreneurs in this position can focus on generating the most value and investor interest in these high pressure situations.

Erin Crowther, Analyst at HG Ventures

Let’s make one thing clear right from the start: I’m no expert. I have only been in the world of venture capital for a short period of time.

But I do know what it’s like to be the youngest person in the room, surrounded by individuals with a variety of impressive startup and industry experience themselves, something that can be intimidating to young or first-time founders.

And while I am certainly not claiming to have all the answers when it comes to pitching a VC (I’m not even sure I have all the questions yet), I can offer advice based on the numerous pitches I have seen.

As a general guiding principle, entrepreneurs should be thinking: “What is the key information I need to communicate, to generate interest and keep the conversation going?”

Given the blizzard of information at hand, this can be a challenging task. And while each fund may have a slightly different investment process, the information presented below can serve as a guideline to those looking to maximize value in that initial conversation:

1. Know Your Audience

Before stepping into the meeting room, take the time to understand the goals and incentives of the VCs to whom you’ll be pitching. Are they corporate venture capitalists (CVCs) like HG Ventures or pure VC funds? Knowing their investment thesis and financial motivations is crucial.

At HG Ventures, for example, we primarily invest in technologies that are aligned with the industries in which The Heritage Group operates, as these are where we are most able to add value. Other CVCs are purely strategic investors, seeking to leverage synergies between the startup and their own business. And most VC funds have a sector focus. Who are you meeting? Tailor your pitch to demonstrate how your startup aligns with their interests–and how it can generate substantial returns.

2. Demonstrate Your Value Proposition

Clearly articulate the value proposition of your product or service in a concise and compelling manner. It is surprising how many technical founders struggle with this, usually because they are just too close to the subject matter. VCs are unlikely to be experts in your industry, so it is essential to communicate in clear terms how your solution addresses a pressing need and offers significant market potential.

A key reason why many startups fail is because of a lack of product-market fit. So while your product many have substantial product-feature advantages, it is critical to communicate the economic incentives that differentiate your offering. Is your product at cost-parity? Are you helping realize cost efficiencies elsewhere? Are you solving a supply chain problem? This allows investors to understand what’s driving your customers’ purchasing decisions. As a general rule, most VCs, whether pure VC or CVC, are financially driven, so unless you can demonstrate that there is a willing-to-pay market for your product it will be a lot harder to secure any kind of investment.

3. Highlight Traction

Actions speak louder than words. Provide tangible evidence of your startup’s traction and success to date. Whether it’s paid pilots, customer acquisitions, revenue growth, or strategic partnerships, concrete metrics validate your business’s potential and instill confidence in investors. What better way to demonstrate initial product-market fit than showing that people are willing to pay or partner with you?

Describing traction sets the stage for go-to-market and sales pipeline discussions. The early years of a startup’s life are filled with estimates, and traction is the foundation to helping us believe those multimillion-dollar revenue projections you are forecasting.

4. Emphasize Team Capabilities

As you set out to solve a problem and address an industry need, chances are there will be other people trying to do the same. Venture capitalists will be looking at the competitive landscape and placing their bet on who they believe will emerge as the market leader. Due to the variable nature of a startups’ early life, a large part of that bet relates to the team.

For a young or first-time founder, this can be more difficult given that you are ‘new to the game.’ If you lack previous startup experience, acknowledge it transparently and showcase your ability to surround yourself with the right talent. Be able to talk about what gaps are missing on your team, and how you plan to fill those gaps; this demonstrates a grasp of forward strategy.

5. Be Clear with Your Ask

The purpose of a capital injection is to accelerate development towards commercialization, so be crystal clear about your funding needs and the value-added milestones you aim to achieve with that investment. VCs appreciate entrepreneurs who have a strategic vision for their business’s growth and can articulate a clear roadmap for success. Whatever your funding stage, outline your capital requirements and how they align with your business objectives.

In addition to the financial ask, be clear about what your ask is from an investor expertise and strategic standpoint. The best VCs have much more to provide than capital; it’s important to know what other value they can add, and to ask for it.

6. Keep the Conversation Open

Remember, securing funding is never just about just one pitch meeting; no founder should expect that an investor will be prepared to write a check right away. I keep coming back to that guiding principle, that the goal should be to spark enough interest to keep the conversation going. This is not only important to remember in current investor discussions, but can be a crucial element to future capital raises. While an investor may choose to pass today, maintaining a positive rapport can lead to opportunities down the road.

Progressing through the diligence process, investors will be looking to learn more and more about your business in order to make an informed investment decision. All funds handle their investment processes differently and there is no single ‘right’ way of approaching things. That said, having a well-articulated and validated value proposition goes a long way.

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March 4, 2024

Destroying ‘forever chemicals’… forever: Why we invested in Aclarity

HG Ventures recently participated in a $16M funding round for Massachusetts startup, Aclarity, a company focused on the destruction of PFAS. The investment expands our portfolio of water startups, and here, senior director Ginger Rothrock outlines our investment rationale.

Ginger Rothrock, Senior Director, HG Ventures

The issue of PFAS (Per- and Polyfluoroalkyl Substances, colloquially referred to as ‘forever chemicals’) is not new, but has increased in awareness as more has been uncovered about their widespread occurrence, growing numbers, and potential impact on public health.

Entrepreneurs are increasingly responding to the challenge of micropollutants, and the technical challenges associated with finding, capturing, and destroying PFAS have captured the minds and resources of many. Earlier this year we increased our investment in Puraffinity, a London-based startup that develops precision technology for the removal of PFAS across water treatment applications. Aclarity, meanwhile, provides a proprietary, cost-effective technology for PFAS destruction.

A growing need

The most widely used solution for PFAS destruction today is incineration. However, government regulations, costly lawsuits, and public pressure are increasingly driving organizations to find solutions for the capture and destruction of PFAS and alternatives to products and processes that use these chemicals.

Destroying hazardous fluorinated compounds in wastewater is top of mind for many organizations, including The Heritage Group and our environmental operating companies. Currently, we manage PFAS-contaminated waste streams at the hazardous incinerator for destruction, but with the growing demand, capacity is an issue, so an effective (and cost-effective) alternative is very attractive.

Aclarity’s best-in-class destruction technology obviates the need for incineration. It centers on a proprietary anode that attracts PFAS in water and breaks down the core carbon-fluorine bond into carbon dioxide, fluorine, and hydrogen fluoride. Once decomposed, the PFAS constituents become inert and easy to manage.

A number of other destruction technology routes are being explored by different companies, but most are still in early development or beginning pilot trials, and do not offer validated total destruction of PFAS compounds. By contrast, Aclarity’s decentralized electrochemical PFAS destruction technology has already been successfully piloted with prominent industry players, and our analysis indicates that the company is well positioned to emerge as a leader in this field: With growing public concern and increasing regulations, the PFAS remediation market is estimated to grow to $6.15 billion by the end of this decade, and Aclarity’s technology lends itself to multiple verticals within this field, including landfill leachate, municipal drinking water and industrial wastewater.

Experienced leadership

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Earlier this month, Julie Bliss, Aclarity CEO, visited The Center, the headquarters of The Heritage Group. She met with the HG Ventures team and leaders across THG and several operating companies.

As with all of our investments, we are backing the leadership team just as much as we are backing the technology itself. CEO and co-founder, Julie Bliss Mullen developed Aclarity’s primary technology as a PhD candidate at UMass, and previously worked in engineering and policy development at the EPA’s Drinking Water Unit. COO Pamela Lynch, meanwhile, has 20 years of experience spanning engineering management, operations, supply chain, quality, and programs; and CSO, Dr. Orren Schneider previously worked as Manager of Water Technology in R&D for American Water.

We are excited to be working with Julie, Pamela, Orren and the wider team, as they apply truly innovative thinking to tackle the serious and growing issue of PFAS.

“HG Ventures has proven to be an invaluable partner in Aclarity’s pursuit to tackle PFAS destruction. Their unwavering support and strategic investment has significantly contributed to our success, making them an exceptional ally in our journey towards environmental sustainability.” – Julie Bliss Mullen, Founder and CEO of Aclarity