Heidi Lindvall is one of the three founders of Malmö, Sweden-based Pale Blue Dot, one of Europe’s best-known early-stage climate tech investors.
Pale Blue Dot launched in 2020 — just before a huge wave of climate tech funds began raising amid the tech boom — and backs pre-seed and seed-stage startups reducing and reversing the effects of climate change, in Europe and the US.
Before starting Pale Blue Dot, Lindvall was a founder — and since starting the firm she’s also become a mum.
Breastfeeding in an LP meeting is a fantastic way to vet your potential investors, she told Startup Europe — The Sifted Podcast. “It was a really great test for us to see who we really wanted to have on board, and who we wanted to work with.”
Plenty else has changed for Pale Blue Dot since it launched: LPs are much, much more interested in investing in climate tech — and the competition is far stiffer; the firm has changed how it structures its team, assesses companies and LPs; and it’s launched an annual climate tech conference, The Drop.
What hasn’t changed? Founders’ passion for starting carbon accounting companies. “It’s really not going away.”
Read the (lightly-edited) highlights of our conversations below — or listen to the full thing here.
It feels like we're in a golden era for climate tech; climate tech startups have raised more capital in the first half of this year — both in equity and debt financing — than startups in any other sector, and many of Europe's hottest companies (aside from those in AI) are in the sector. Are you seeing that reflected at early stage? Are you seeing more and more climate techs come along than ever before?
Yes, and no. When we first started in 2020, everything was kind of new and exciting — and I felt like climate tech was just coming out of everywhere. We are still seeing a lot of climate tech companies, but I feel like we're seeing less new stuff than we did before. Maybe that’s because we've been doing it for longer, and we've seen more things, so it's harder to surprise or impress us so much… but I still think some of the same solutions keep coming up year after year.
We've seen so many carbon accounting tools over the years and so many kinds of horizontal ESG tools for reporting and understanding ESG internally that I think it's hard to win in those markets. Of course, we have some investments of our own, which I'm very happy with — but we're less excited to do new bets because we think it's late to try to become a leader in this market and it's hard to see anything new and innovative in the space.
Two years into the fund, we started tracking all the carbon accounting tools. And once we got to about 132, we just said, 'Okay, let's stop tracking, let's just decide that we're not going to invest in more of them at this point.' Today they keep coming up — I would say on a weekly basis — in our dealflow. It’s really not going away.
In general companies that only monetise through the carbon markets — essentially selling carbon credits or tokenising things — those are things that I'm still very sceptical of, and I think we haven't really seen work.
Where do you see big opportunities, big challenges yet to be solved?
We normally say we invest in ‘reduce and reverse’ but also ‘prepare for a new world’. And I think that [second] category is rather unexplored. My background is in human rights, so I very much came to climate from a humanitarian perspective, saying, ‘This is the biggest humanitarian crisis. How do we actually live in the future? And how can we, as humans, survive?’ Obviously the planet will be fine; but we're screwed.
It's very exciting to look at that part. It includes, for example, looking at things like supply chain risk — in terms of risks from warfare, slavery and child labour — and we’ve done a lot of nature tests, risk and dependency, which is another area which is still relatively new and exciting. I’ve looked at a company that does climate litigation; it builds technology to help people bring lawsuits for climate justice.
We've seen so much of the same stuff for the past four years that I'm just so excited to see something new. I'm much, much more likely to take a call when we haven’t seen [an idea] before. So many things you've already built a thesis around — and it's hard to convince someone who's spoken to 20 companies doing the same thing that you're going to do it differently.
Why do you think so many founders end up doing the same thing, all at once?
Honestly, I’m not sure. But I think the main thing is that the problems still exist. To some extent, the change hasn’t really happened. Take food; we’re still not eating more vegan food, even if we have all of this research into the field… It’s happening at such a slow speed that people keep coming up with solutions. Some of them will work, but to some extent we think that there’s a reason that these 10 or 100 companies that came before haven’t figured it out; whether it’s because of activity or policy changes or behaviour change…
I also think that when people are at the start of their climate change journey, a lot of the same type of solutions tend to emerge. They're like, ‘Oh, we need this, and we need that.’ And they're not really aware of what's happened when people have tried before. I've noticed for a lot of first-time founders, their first pitches tend to be in the carbon market — how do we do this, and then turn this into tokens or sell these credits… That's the first thing a lot of people think of when they start really getting into it. From there, things evolve, and people start really going into other types of problems and realising what kind of solutions they could be bringing to the table.
Where do you stand on investing in hardware and climate infrastructure?
We are able to do them, and we are willing to do them. But I will still say that candidly, probably 70% or so of our portfolio in fund one are in software. And the reason for that is that when we started, we were one of the first climate funds in Europe, and we very much wanted to prove that you can have the same return in climate as you can in any other VC fund. This is a huge thing that we're still hoping to prove to our LPs — and it's looking really good for our first fund, it's performing really well so far. So we were a bit more worried about making investments that weren't so obviously VC-fundable — which is a lot of hardware. We don’t believe that software alone will solve all these problems, of course not — but we were also very set on proving this point to LPs. We have to have the returns to get more LPs to invest in climate, it is not enough to just have the impact; we have pension money, we have a lot of money that just needs to be returned, and they need to have a good return on it.
In fund two, it’s hard to say where we’re going to end up — it depends on our deal flow — but I think we’ll be more likely to make bets that we probably would’ve been a bit worried to make three or four years ago.
When you’re having conversations with LPs these days compared to five or so years ago when you first started talking to them, how has their view on investing in climate tech changed? Is the impact investing question still such a big one — or have investors gone beyond that and accepted that this is a big sector with big potential returns?
I remember when we were fundraising for our first fund in 2019, I feel like the main thing we were talking about was, ‘Can you make money in climate? Is climate tech the same thing as cleantech? Is it going to fail like cleantech did?’ And we were really trying to convince people that you can make money in this sector. Now it's like, ‘How do you compare to the other climate tech companies? And how do you win these deals? And what happens if all of these generalist funds do more climate tech?’ Fundraising is completely different. There's so much interest from LPs to put more money into this space right now, so I think we're in a really, really good spot.
How strict are you with your LPs; do you check that there’s no oil money, for example, in the fund? Are you able to be more selective or do more due diligence on LPs these days?
With the first fund, we definitely had some conversations around this. There were a few LPs where we knew the source of the money, we didn't have to do a lot of research, it was pretty well known… and we decided to not take, for example, oil money, or take money from family offices that had really bad reputation in terms of where they had made their money. So anything that we felt was just very uncomfortable for us we did turn down. But we didn't dig very deep, to be honest. We were also three first-time GPs, raising a first fund in a sector that people in Europe hadn't really been closing any funds in… We just weren't in a place where we felt like we could ask a lot of questions. And we were very happy that people were considering putting money into climate at all.
But when we started fund two, we were very, very conscious of this fact. We set up these value alignment assessments that we did with each of our new LPs; essentially it was an hour-long interview that I did with each, where they first sent a lot of background reading on their funds and their setup, and we talked about anything from the source of the money to how they intend to use it, to what ESG policies they have themselves in house, to understanding the investment team and how they're kind of set up, etc. Then we used that to make decisions on who we wanted to work with. And we were incredibly fortunate to be in a position where we could select our LPs, as we had a lot of interest for our second fund and we were able to select those who were the most value-aligned with us.
I think that if you can be that selective, it is part of your responsibility to make an impact and to actually ask those questions. We have had some of our LPs who have set up policies, and really asked us, ‘How can we learn, how can we get better?’ and then we’ve referred them to other people who have done incredibly well, and they have worked on these things. So we're seeing change, and we're happy that we can be part of that change, with our LPs, and not just with our portfolio. I feel like people often think that your portfolio companies are the only ones that we can impact and nudge — but I think you can do it both ways.
How has Pale Blue Dot as an organisation evolved over time? What were some of the things that you didn’t realise about running a VC fund?
I don't know if we realised anything about running a VC fund, to be honest, when we started; I feel like it's all been learning. If you look at what we pitched in 2019, and who we are today, it's been a huge change.
Last year, we did a learning trip — myself, Hampus [Jakobsson] and Joel [Larsson] went to London for a week. We interviewed the 10 funds that we looked up to the most, just trying to figure out how you run a fund, and how do you do this in the best way possible? I think we had 130+ pages of notes.
The more we talked to people about how they run their funds, we realised that you can streamline and run a pretty small solid fund. We don't want to be the biggest climate tech fund, we don't want the most money and the most people and the most investors; we just want to be the best. So if we're smart about how we run the operations of the fund, we can have a really solid base with fewer people. We've done some restructuring and really tried to build the perfect foundation for ourselves since then. So I think one big learning was that you don't have to scale to be the best, you can just be more focused.
Since setting up Pale Blue Dot you've also had two babies. How did you manage running a fund and taking maternity leave?
You just make it work, to be honest. My daughter was born in 2019, so she was with me while we were fundraising for fund one — she was with us for all the LP meetings, she flew to Luxembourg with us… Some of those LPs had never had babies in their offices. And it was so interesting seeing how they reacted. Some of them were super apologetic and just said, ‘Hey, I'm sorry, we don't have any baby changing rooms’. Others were kind of scooting and rolling their eyes, like ‘How dare you come in with a baby and breastfeed in the meeting?’ It was a really great test for us to see who we really wanted to have on board, and who we wanted to work with.
When I had my other baby, I took six months where I was off most of the time — but I also offered to keep my portfolio, and one day a week I worked and then I met Joel and Hampus for lunch a few days a week with him, and I came with my son to the office when I needed to. Of course, I could have fully taken that time off, because I do have two really supportive partners, and we are in Sweden, which is very progressive in terms of parental leave in general. But I didn't want to — I felt like I got enough time with him and I got enough rest. And I also like having him with me and you know, showing him what it's like.
For the first two years, my son was with us at our founder offsite, and all of the founders have met him — and the great thing is that other founders have since brought their babies to our founder offsites. I think it’s great that people see that; that this is part of life. I’m not so hard on splitting work and family; this is my life. I’ve made a conscious decision to be okay to bring my kids to a board meeting, or breastfeed at an LP meeting, or [at a conference]. I want more people to feel like that’s good and acceptable, and that’s needed for more people to feel welcomed in the tech community. So, if I can help show that, I definitely will try to do it.