Laurits Bach Sørensen

This transcript was generated automatically (YouTube auto-captions) and then edited for readability: names and obvious mis-hearings corrected, filler words removed, speaker labels added where the speaker is clear. Passages that could not be understood are marked [unclear]; short omitted passages are marked [...]. Timestamps are approximate. The recording is the authoritative version.

Host 00:00:00

Hello and welcome to a new episode of Campus To Capital. Today we are joined by Laurits Bach Sørensen, co-founder and senior partner of Nordic Alpha Partners. Yeah, one of Europe's leading growth industrial tech funds. So hello Laurits. Thank you for joining us.

Laurits Bach Sørensen 00:00:30

Thank you for inviting me.

Host 00:00:32

Yeah, hello from me as well. It's great to have you here on this Thursday morning. And I think before we start off, could you maybe tell our audience a little bit about yourself and also about Nordic Alpha Partners?

Laurits Bach Sørensen 00:00:43

Sure. Yeah, [unclear], I went to CBS many, many years back. I would split my career into essentially two phases. You have my first part, which was really being an executive leading businesses. I've done multiple startups. I've done corporate turnarounds. I've done a lot of private equity as a CEO, as a business leader. And then I decided at 30 I didn't want to be CEO at 40. But I didn't know what to do. But I did know that I was working on some concepts that were changing dramatically the businesses that I was running. So I was very confident that I wanted to do something around that. And that's also what's coming out now as a book. But that was also the fundamental creation behind Nordic Alpha Partners. I didn't want to create a private equity fund, but when I found out what kind of power a private equity fund has to drive change, that actually drove the concept of creating that together with Rasmos and Tors [unclear]. So since I was 40 I've been running Nordic Alpha, and today we've raised more than a billion euros into the green transition. We're fully committed to where nobody else wants to go. Still today, here, seven, eight years after we created Nordic Alpha, there's a handful of growth funds that want to work with industrial technology in Europe. And it's a huge problem, a dramatic problem, because with the changes in the world today, if we don't have a coherent financial ecosystem around industrialization technologies, we are going to lose out hugely to China and the US.

Host 00:02:14

Yeah. Thank you for that introduction. So you have a very interesting thesis to everything, and so what really shaped your conviction to this non-fuzzy, fundamental based investing at NAP?

Laurits Bach Sørensen 00:02:30

Yeah. So I raised a lot of money from private equity when I was CEO. And I realized that that model is somewhat short, if you really want to create real impact. And the combination of a big conviction and 20 years experience of working very differently with how you actually scale companies was really what drove the whole idea and vision behind it. So actually mixing a completely new, way more methodic, way more operational approach to investing, and a realization that the private equity community that I was exposed to is not doing it. So that both drives huge opportunities on one side, because you can come in with something that's quite unique, but the other time it was also about actually filling a gap in the ecosystem, which has now become security policy and defense policy. And 10 years ago it was nice opportunities, but right now it's really becoming quite critical.

Host 00:03:23

So you would say that your experience as an operator really shaped the way you're running your business today.

Laurits Bach Sørensen 00:03:30

Completely. As we discussed before, what's the biggest commodity on the planet? It's money. If you as a private equity fund are coming to the market saying, "Hey, I have money," you're fighting with the biggest commodity on the planet. We don't believe money is our value prop. Our value prop is our unique approach to creating value. Our value prop is how we work with our assets. We would typically work with our assets up to 12 months prior. No other private equity fund in the world does that. We build a complete end-to-end strategy based on the toolkit. We set up multiple exit routes. We start the exit process before we actually engage in the investments. These are all very, very different approaches to doing private equity. We're not doing it to disrupt. We're doing it because it's really what is needed if you want to scale industrial technologies.

Konstantin Girst

I think talking about value creation here, I think that's a key word. And you're about to publish Nordic Alpha Capital's value creation playbook called Changing the Math. And I think we're actually coming from kind of a [unclear] here, because Julius and I, we're still very young, at the early stage, the beginning of our career. We still have lots to learn and we also think we still have lots of failures to make, and you already have a lot of experience and a lot of failures. And how did your failures and also breakthroughs kind of inspire the premise of this playbook?

Laurits Bach Sørensen 00:04:49

So first of all, I don't believe I have a lot of failures.

Host 00:04:52

Great.

Laurits Bach Sørensen

If you look at my career, I have a lot of learnings. Obviously it's not been a clean route. And I think I have this, you could say, now what? Well, most people would probably consider it challenging. I only thrive in chaos and I'm a control freak. That actually is contradictory by nature. So I've always been seeking massive change: companies that are disrupting industries, companies that are collapsing, and trying to fix that, but also realizing that the theories that you learn here at CBS, I'm sorry, they're useless. And I realized at a very young age, I didn't come here a lot because I was already a sales director at that time. I was running a 15 million euro business at HP, which was scaling incredibly fast, and it was more learning for me than actually being here. But still, when I was your age, I listened to everybody, listened to the theories here, looked at the C25 CEOs and all those rock stars. But just realizing that's all great if you're running a huge company, but if you're running a company that is in complete chaos, you won't learn it here. You simply cannot deal with the variables. You don't have the data foundation. So at a very young age, I actually started developing my own theories in order to deal with way more chaotic infrastructures. And that actually is what led to the book. That's also what led to the whole fund. I always say the first 20 years was building the full, complete end-to-end theoretical ecosystem of theories, and the last 10 years have been proving it large scale. So that is the split.

Host 00:06:29

Okay, great. And to build on top of that, what would you kind of say is the main thesis of the book? And also timing wise, why did you decide to publish it now? And why haven't you published it beforehand or down the line in the future?

Laurits Bach Sørensen

So if there's anything to talk about failures, as I said, I'm a little delayed on my forecasting. I was on this balance top 100 [unclear] list when I was 32. And here was actually the first time I announced I was going to launch a book. And it's been a couple of years since I was 32. So it took a while. To be honest, it's pretty tough to set up a private equity fund. When we set up Nordic Alpha, raised a billion DKK, it was actually the first large fund in Denmark in 10 years. So it is really, really difficult to do that, and that drew so much of my attention, and actually having time to release the book and write the book, it was simply not possible, because you had to set up the theories, the models, the whole organization, how to actually get that integrated into a go-to-market, finding assets, investing in those, scaling them, exiting them. So I think coming out with the book now is coming on the back side of a second fund that we did last year doing two billion DKK, and that just gave me the foundation now to have very, very strong empirical data on multiple assets where you deploy these theories, coming out with very, very significant results. So all in all, I didn't have the time. And secondary, now it's coming out with such an empirical foundation that the theories truly change the math. Again, you've read the intro, you can see we're not talking about just being on par. We're talking about going into an area of investment where nobody else wants to go and we're coming out with a performance in the top 1%. And that is because of the logics of this book and obviously some really great people inside Nordic Alpha that have been executing these things. So that is why. But it's also now time for us to go further. As you saw, we launched an education with DTU. We're discussing with leading universities around the world to actually get the book rooted into academia. We're discussing here with CBS. It's actually a [unclear] on one of the classes here with [unclear], even though it's not out. So we are already cooperating with CBS, not at the scale I wish. But we really want this rooted now into academia. We want you young people to understand there's a reality out there that is way more complex and way more important, just to be absolutely straight, that you should get engaged into, but you need the tools, you need a methodic approach, you need a data-driven approach to drive those results. So that's why.

Host 00:09:00

So is it difficult to, yeah, get that inside of universities, because you think that the conventional researchers are afraid that their theories are being, yeah, I don't know, disrupted?

Laurits Bach Sørensen 00:09:14

Well, I think, to be honest, the pace in academia is very slow. And of course you have a lot of people, professors here, that are specialists. They're not just going to change their perspective on things overnight. That's one thing. The other thing, especially the business institutions are to a large extent run by the big corporates. [...] And that also means that it's very heavy on corporate theory. [...] So I think those are the factors why it's not being embraced. We are being heavily embraced globally on this. So we're discussing with leading universities in the world. We actually had an Ivy League university offer to buy the education out of Europe and run it in Europe. So we know we're onto something here, but the whole idea is to give it to everybody. We're not doing this because we want to make money out of this. We're doing it because we need an army of people that have these capabilities. So it started out with DTU. It was launched earlier this year. The education, it's called the Global Reindustrialization Program, or Green Reindustrialization Program. It has the whole theoretical foundation at its core, combined of course with the technical transformation that's needed and the whole geopolitical element that we need to fix as well. So those three things combined are really going to equip the next generation of leaders to deal with the reality of the world.

Host 00:10:37

Oh, very, very interesting.

00:10:38

But don't you think that this theoretical framework kind of needs to be paired up with some practical experience as well to kind of make it work for these young individuals?

Laurits Bach Sørensen 00:10:48

That's why the book is full of real examples. So the empirical foundation is Nordic Alpha, as well as the first 20 years of my career. Hundreds of people out there are already using the book, using the theories in the book. And you cannot discuss, because the whole difference between this book and great books like Crossing the Chasm, Inside the Tornado, I don't know if you know these books, but they're bibles within the investment community and transformative business community, but you can't run a business on them. I read these books and say that's great, I can bring that to my boardroom. But as an operator, as somebody who needs to build fundamental technology strategies that need to scale into a new country every 3 to 6 months, they don't have that operational toolkit at their core. So the whole idea of the book is a complete roadmap, from creating the strategies, how to build de-risked models of scaling, how to operate them based on AI patterns, and then how to actually set up the cycles of successful value inflection, how to maximize on that position to drive exits, to drive more attractive financing infrastructures. But the whole idea is the creation, de-risking, management and capitalization on hyper transformation, hypergrowth, and that as such does not exist.

Host

So I mean, could you maybe then give a concrete example of what one of these toolkits looks like in practice? Maybe we can draw an example on the BCSA model.

Laurits Bach Sørensen 00:12:13

Sure. It's a company, a German company we invested into, Wiferion. They managed to stabilize inductive charging. It was invented by Nikola Tesla 100 years ago. You probably have it in your cell phone on your desk at home. That is inductive charging while you're charging. They were able to do that at industrial scale and get that stabilized. So they came to us saying, listen, we can do this, great, and they had five customers. And we asked them, is it BCSA? So is it better, is it cheaper than the alternative? And what is the alternative in industrial? It's a switch solution. So like you have a robot at a factory, it would go park in the corner and sit there on a switch solution. If you could wireless charge it, it would then be able to charge while being in operation. Obviously better. Was it cheaper? They said no, no, it's twice the cost of a switch solution, but it doesn't matter because IKEA can save 30% of the robots. Okay, great. Are you selling to IKEA? No. So that's the issue. I'll come back to that. Simpler. Is it simpler to integrate? No, it's twice the size, but it doesn't matter because IKEA can save 30% of the robots. Yes, but they can't use the current ones. Correct. Because you can't swap it out. True. Available. Was it available? Yeah, we do it ourselves. We produce it ourselves. Okay. So you want to sell to IKEA, being 10 engineers, saying that we'll do the support on the weekend. It's not going to work. So it was definitely B, but it wasn't cheaper, it wasn't simpler to adopt and it wasn't available at scale. So we said, guys, you need to fix this. They went back, so this was in the strategy process, said okay. So you need to have something that costs the same as a switch solution, it needs to have the same size as a switch solution, and we need to outsource it to a leading technology supplier.

00:13:43

So they came back, said okay, we can do this, we can actually create these things, but we need to buy a thousand entities up front. I said that's fine, doing that. It took 9 months and then they were BCSA. Boom. 3 years later, 33 countries adopted across all automotive factories in Europe. Really 120 platforms. There were 19 other companies, 20 companies also investing into this, that were eradicated. And it's a very, very good example. They scaled from being a tiny startup to 70, 77 people. And then Elon came in on the side and he bought the asset from us, which I wasn't too happy about, because I actually want to keep those kind of assets inside Europe, but he needed it for his robotaxi, which obviously has no people inside of it. So he needs wireless to charge that. So that's a very good example of taking a technology that has 20 competitors. They become BCSA. But it's not only about that, because they would most likely have won anyway, but the adoption of this technology, because it was BCSA, just happened. Because can you imagine somebody having a robot today saying, I would want it to be charged in the corner for three hours and come back into operation, if you could wireless charge it at the same cost?

Host 00:15:04

Yeah. Most definitely not.

Laurits Bach Sørensen 00:15:06

Exactly. Which is why, if you look at the first 10 customers they won: Volvo, BMW, Volkswagen. You won't believe it. Like nobody wins that kind of customers. But Daimler could just put this into the robots at the factories and they didn't have to go park. The part you see, they were doing this enormous pull, and because they were BCSA across the full value chain, everybody could see the value. If they were BCSA, they wouldn't have gone into the robot, because they'd have to completely design new robots from scratch, and more or less the robot manufacturers are not selling to the industry anyway. So you have to convince a full line of people in that supply chain. So that's a very good example of how you can completely change the world in three years.

Host 00:15:47

And maybe what would you say, which of these four factors is the most underestimated one in general, if you look across your portfolio?

Laurits Bach Sørensen 00:15:54

So what you're being taught here is the BC.

Host 00:15:56

Yeah.

Laurits Bach Sørensen 00:15:57

So everybody says, hey, you need to be BC. They tell people, if you're just better and cheaper, or have a better business case, you will take over the world.

Host 00:16:05

Yeah.

Laurits Bach Sørensen

But people are forgetting, with new technology, if you're not simpler and available, to be able to adopt into that value chain, it's not going to happen. So I think what is revolutionary about the BCSA model is not the top of it. It is what we call the adoption level, the two lower ones, that you need to understand. If you're bringing new technologies into a value chain, nobody will buy it if they're not able to adopt it easily, independent of how valuable the proposition. So it's a very good example of what you're being taught here and what you're missing if you're transforming technology.

Host 00:16:34

No, it makes a lot of sense and it's quite eye opening, unfortunately, but that's just how it is. So you're focusing on industrial tech, which is, yeah, obviously a very capital intensive and also slow to scale industry if we compare it just to fast growing SaaS companies. So why did you decide to do that when others just chase these SaaS multiples?

Laurits Bach Sørensen 00:17:03

It's because it's difficult.

Host 00:17:05

Okay.

Laurits Bach Sørensen 00:17:05

And because if we don't do it, we're screwed.

Host 00:17:08

Mhm.

Laurits Bach Sørensen

So the world is going into the largest transformation we've ever seen. The geopolitical reality now is completely changing the world. We spent 150 years from the second industrial revolution to set up a globalized infrastructure where things are being produced in China. Value chains are global by nature. Energy is produced outside Europe, brought into Europe. New geopolitical reality. We need to change this in 25 years. US, China, Europe need to completely re-industrialize. It's a $215 trillion US dollar transformation. Alone in Europe, we need to spend 15 trillion. You come from Germany. Last year, you saw how Germany came out with a 1,300 billion package to reindustrialize Germany. That's 10% of what Germany needs to do. 10%. And just to put it in context, we're talking about spending more than 100 times in 25 years what the whole cost of the second industrial revolution was. That's how crazy this is. At the core of that is industrial hard tech: semiconductors, it is e-mobility infrastructure, it is recirculization, material recovery. It's all hard tech. This is a transformation. The technology companies that will drive this transformation don't exist today or they're in the early phases. If the financial ecosystem doesn't drive this change, it won't happen. And this is where Europe is so far behind, because we're actually super bad at doing this. First of all, investors would rather do SaaS.

00:18:39

Why? Because it's easy. I get it. This is super difficult. The policy ecosystem around this is super difficult. And we're not one federal state; we're 27 states in Europe that need to come to agreement, which means that Europe's federal budget is 3% of the US. 3%. We have the same kind of budget if you go to sovereign level, but only 3% of that is actually coordinated from the EU side. So how do you change industrial value chains? How do you actually do that from a policy side? Because if you're not able to do that, you won't attract the financial capital. So that's why we did it. We need to be part of that solution. That's why we're doing educations. That's why we're telling all our competitors, do what we do. Look at all our cases. Read the book. We're trying to draw everybody into this battle, because if we don't succeed in this, I can tell you Europe is going to be in a very bad shape, and we are losing very, very fast right now.

Host 00:19:32

So what do you think, next to scaling up industry-based investments, what do you think is missing to kind of turn the prior industrial know-how that Europe was at least known for back in the day? What else needs to change to convert that into having more Europe-based, globally dominant companies?

Laurits Bach Sørensen

Well, there are multiple things and we can dive a little further into it. So I completely agree Europe has many of the winners of the second and third industrial revolution, but a lot of them are also dying now. 13% of the people working in Europe work in the automotive industry. 13%. Just think about it. How do you think that's going to happen? It's going to be really, really bad. So we need to learn from China. Really, China is not at war with Europe. People think that. They don't care. They completely reindustrialized China and actually did what we have to do. Do you know why they did it? Do you think China did it because they were green?

Host 00:20:28

They just want to be ahead.

Laurits Bach Sørensen 00:20:31

They want to be safe. So they want to be resilient. They were afraid, scaling their country, they could see that it was super dependent on oil from the Middle East, and if you had a conflict with the US you would not be able to fuel the growth. So they re-industrialized in order for them to be self-sufficient. Here's a couple of funny facts. China now leads 57 out of 64 most critical industries in the world. They control 80% plus of all critical materials from a production standpoint. They take more patents than the rest of the world combined. They commercialize 300% more than Europe. Just to give you a couple of facts, they're really, really coming very, very fast. Take wind turbines. 50% of all wind in the world is installed in China. 40% of all PV. The first two decades, the first 20 years of this century, Vestas was the globally dominating wind turbine player. Now they're number five. China installed 500% more wind last year than Europe. We're talking a complete eradication of what's happening in the world. And in Europe, we have more federal budget in 28 from EU [unclear]. Do you know that? So first in 28, we have more budget to do what China did the last three years [unclear]. So it's going really, really fast, what they're able to do. And again, looking at some of my other podcasts, you hear about introducing the concept of hyper transformation. So hyper transformation is the four variables you need to fix if you really want to lead industrialization, and what they're able to do. They consist of really setting up the policy infrastructures to create the new value chains.

00:22:01

It is really adopting industrial level technology that is new into value chains. Then it's dealing with the capex intensities of these value chains, and then there's hypergrowth, the hyper transformative power of these companies. So if you take something like the EV industry, what has China done? Well, first of all, on the policy side, you need a big infrastructure. So they said if you want to do a building in China, you need to put up two power chargers. [unclear] best infrastructure. Good. Okay. So that's in place. Then you need to have the big players go into this industry in order to actually go and build new platforms out there. What is the most expensive part of an EV car?

Host 00:22:42

Battery?

Laurits Bach Sørensen 00:22:42

Exactly. So if you control lithium, or the majority of lithium, if you just subsidize that, which means you just took out the biggest cost factor for people to enter into this industry, then you heavily subsidize the adoption of EV. So these things combined, just think about it: biggest home market, best infrastructure, and you're subsidizing the most critical cost component. What happened? Boom. All the biggest Chinese companies went into the EV industry. The biggest automotive company or factory in the world is Xiaomi. They did cell phones 10 years ago. So that's how they did it. What did we do in Europe? We tried to let the private market do this transformation, did subsidies, but it's completely misaligned across regions, which means that if you're in [unclear] in an EV car, you can't drive to Spain. It's going to be one hell, you know. So this is what they're really good at. And obviously they are a dictatorship in that sense from a policy side, but they're thinking about the different parts of the ecosystem. Oh yeah, maybe one last thing. They're fueling dramatically into really early stage technology platforms. So they're spending $1.5 trillion US, funding 2,200 specialized VC funds, and they're completely specialized. And if you want that money from the Chinese, you need to have a structure where you have corporate sponsorship, you need to have a hub with a specialization, and you have private capital, which means you're getting these unique funds that have an edge, and then of course super integrated into the transformation of these new value chains.

00:24:13

That's how China is doing it. So we need to do something similar in Europe. And as I told you, later today I'm going together with some politicians to try to see how much we can get these things kickstarted. And we're also talking a lot to the EU, all the way up to von der Leyen, in order to talk about how to use the hyper transformation roadmap as something that we can use from the political side or the policy side, all the way to how to fuel and catalyze financial concepts into the financial ecosystem in Europe, because we still do have a big muscle. We have 15 trillion US of pension fund money, but they don't want to invest into this in Europe. Only 0.2% goes into venture.

Host 00:24:49

Well, I mean, I think the European automotive industry is a bleeding giant. I mean, Porsche, I think this summer Porsche reported 97% year-on-year revenue decline. But then when we talk about Chinese EVs, I mean their rollout in the European market has not been as impactful as initially expected as well, to give that to the European automotive industry.

Laurits Bach Sørensen 00:25:13

No. And again, Europe doesn't have a great EV infrastructure. So that's probably a big factor. They are subsidizing to give them a huge advantage going here, both on general subsidization and also, of course, on the lithium value chain. So yes, but we're also still buying European, but they need to catch up. The problem is, I have a Mercedes and it costs three and a half times a similar Chinese car. And it's just crazy. And if I look at the specs of a comparable Chinese car, I'm very old, so you used to have these cars where we compare cars, like specs, I would lose on every single variable to the Chinese car, and it's three and a half times as expensive. That's the problem, because the value chains are inefficient. So that's why they're bleeding. I think still European EV cars are super cool. But they will not follow the race down. And if we actually explode the EV infrastructure in Europe right now, let's say they did like in China, we would probably just create a platform for Chinese cars. So the best thing Europe could do right now is actually stop the EV adoption until Europe gets the things in place on the EV side.

Host 00:26:27

I mean, yeah, it's quite a clinch that we're in here in Europe.

Laurits Bach Sørensen 00:26:34

And it's not to take, like, there are positive things out there as well.

Host 00:26:40

No, but definitely, I mean, we as Germans, we definitely know what you're talking about there, having it on the news basically every day.

Laurits Bach Sørensen 00:26:49

Of course. Look how many people are employed in Germany. So 13% is Europe, but I think it's more than 13% in Germany [unclear] that is working directly or indirectly in the automotive industry. So this is serious and they need to find something to do if we don't fix this.

Host 00:27:03

No, I think for sure. I mean, we're both from Munich. So it's literally a running joke that every single person either works for Siemens or for BMW. And yeah, but I think that also just links back to that there's just a great need for capital investment from the governments to support the industries here.

Laurits Bach Sørensen 00:27:20

Yeah, sure. But again, if you put money into a company that is not competitive... We need to put money into BCSA, because with BCSA, and you have a question later on economic sustainability, then you transform the world based on market drivers. Do you think anybody would choose [unclear]? Wiferion again, by the way, a southern Germany company. And again, the best industrial innovation in the world we see is southern Germany. It's just incredible, because that's also a positive side of the industrial identity you have down there. You're actually taking out some really, really nice companies that are coming out. We need to invest in the ones that are BCSA. They eradicated that industry not because they're green, but simply because they're better, cheaper, simpler, available. Nobody on earth, there'll be 6 million mobile robots launched every year by 2030. Do you think any of those will not be wireless charged?

00:28:08

Of course, you know. So that's what we need to do. So we need to be careful. We shouldn't be funding stuff that doesn't survive and then we never let it die. But the problem you have with Europe is you're not creating new giants. And I think this is the problem with the financial ecosystem, that we're not able to [unclear] platform where we can take those great innovations coming from southern Germany and build corporates. I was hoping to sell Wiferion into Bosch or Siemens or a big German corporate who would be able to take that wireless charging, have it become the standard of Europe, but they never returned our calls before Elon Musk took out the asset.

00:28:42

And that's how fast, and he was, you know, he [unclear] when we said we want this, and he said yes, fine, here's the money, get lost. I can tell, and said what he said, boom, and then it's like, okay, and boom, it's gone. So we were actually able to split the company, so the industrial side actually went to a German company called Puls, because he wanted the EV side. So we actually were creative in the process. He didn't care about that side. So we did capture some of the business to still stay in Europe. But the IP, the core part of that, should have gone into a German corporate.

Host 00:29:12

But that just also shows how, yeah, how frightened or how safe the Europeans always are compared to the US or China. They just take the risks and then of course it will pay off eventually. I mean, you will lose some investments, but the ones that really go off, it's basically the J curve, right?

Laurits Bach Sørensen 00:29:35

Think about what happened in China. [unclear] giant on the EV side, they will die, half of those companies. Just think about being in a company saying, if we are not more innovative, if we're not better cost, if we are not faster, we will die. Imagine we had that in the corporates in Europe. Do you think that would change decision-making? So I grew up in the IT industry and I grew up with that mentality. If you're not first, if you're not faster, if you're not better, die. Because it's such a fierce industry, and I was doing this in the '90s, in the early 2000s, and that just brings a really, really high sense of urgency that brings innovation to the edge, it brings the best people into this. We need to wake up in Europe and start to realize that this is what's happening. They will die. So we need to have that culture go into this and we need to have the financial ecosystem be that fueling factor to support it.

Host

So you just mentioned the term economic sustainability. So how does that really differ from, yeah, the classic ESG or greenwashing?

Laurits Bach Sørensen 00:30:37

Yeah. So it's completely different. So last year we won Impact Fund of the Year worldwide, and I said I hate that award, because we don't want to have the word impact, because we've always hidden that we're green. We are an SFDR Article 9 fund. We were actually SFDR Article 9 compliant or eligible since 2017, even wasn't ratified in 21. That makes us the first one. Why? Because we fundamentally believe we have to do this without talking about it. We didn't raise these funds to just be, hey, look, we're doing green, so you need to give us green money. We fundamentally do it because it is the right thing to do. And under that, we don't believe in subsidies. We believe actually in the policy to fuel the creation of new value chains, but within that we need to have fierce competition for the best technologies. So economic sustainability is simply just the green transformation happening on market drivers. So it's non-subsidized, of course policy wise, but it really means that the companies that are taking over the world are better than [unclear], like Wiferion is a very good example. So we didn't invent the concept, but I have still to this date not heard anybody else talk about it. I did a big article in European Business Review years ago. Nobody's talking about it. Why? Because the people going into green, it's all about impact and decarbonization and all these things, and they're doing it, minimum, just because they really fundamentally believe in this, and the other side is because there's great money to be raised there. But we shouldn't be talking so much about it.

00:32:07

And that's also why the program is called Green Reindustrialization. But essentially all reindustrialization is green. It's batteries. It's new ways of producing energy. So at the core of that, it's all green. So you don't have to talk about or use the green road. So essentially, what's happening right now, that's why China took the leadership on green technologies. They didn't do it because it was green, but because that's the only way you can re-industrialize. So that is economic sustainability, and I wish we had more focus on that and how to actually fuel market transformations on technologies that are supporting the green transformation.

Host

I think you now shared a lot of perspectives on outlooks and what you kind of think needs to change or what needs to be focused on more to improve efficiency and also to improve scale within Europe, and also longevity within industrial companies. [...] I think it's actually a very good point, is that we lack certain toolkits and skills that actually are kind of needed to be there and to drive change and to have an impact. [...]

Laurits Bach Sørensen 00:33:37

[...] [...] So really understanding how does the business world work, all the general dynamics of doing that. But just understand, if you go run a company, you cannot do that on macro. You need to do it on micro, and you need to understand that when you really drive change, and if that's what you want to do, you need to have a different toolkit, and you need to understand that you cannot just take that corporate infrastructure and pull that over that company. It will die. So you need to accept that decision making, dealing with variables, taking chances alongside that is completely different. I will say you as a generation are way better than mine. In my generation everybody talked about going to the big five, going to corporates. I worked at HP, like, work at HP, the biggest company on the planet. I was like, okay. And everyone said, "Wow, your life is set." My life is going to stay at HP my whole life. You know, people spent 20 years getting into this company. And I think when I speak to young people, you're way more eager to go and take chances and go seek the boundaries of what you're able to do. And I'm just going to say, the capabilities you have at your age, [unclear], plus then how [unclear] and naive you are. Use that now to take chances. Go out there. Before you have a big expensive house, go take chances. Also, this is where you're going to learn. I learned a lot from HP, being in this super dominant company, but what I learned the most was being at the edge of change.

00:35:07

Really being out there alone at the front of that battlefield, just fighting giants and fighting change, and everything was on fire. So put yourself in those positions, if, by the way, you want to thrive doing those things, because of course there's still many great corporate settings, and going to the big consultancy companies or going to KPMG or going to great, great companies. They're not going to change the world. They're not going to change the world, and they fit into the ecosystem, but they're not the drivers of the change. So of course it comes down to what you want to do as a person, but I really, really want to encourage this generation of young people to do that early and don't listen to the old ones. Really, just go with your stomach and go fail now, before you have a house and a wife and a lot of things. Now you can work 60 hours a week and then still go party. You won't be able to do that at my age. I can promise you, you have to work 60 hours, but then you sleep. So that would be my teaching to young people. And in Denmark we have this, like, balance guitar 100 [unclear], which says you're 35, and I said it's funny, 35 should be like 25, but 30. Why are we waiting until 35? Because there's a general impression that until you're 35 you're young. Come on, you're not. If you haven't done lots of stuff before you're 30, you're probably getting pretty set. So really go do that. That's what I'm telling young people, and you can cope with more than you think.

Host 00:36:38

Yeah. I mean, I think we're really, really taking that into account, and I mean, I think we're both people that always try to take initiative, and also the people we spoke to before were telling us, yeah, similar things. So I do believe that being disruptive, or, yeah, taking initiative is one of the key factors for success. So not just going line by line through the textbook, right? So you've spoken about de-risking hard tech and changing the capital stack. What does Europe need most? I mean, we talked about this very intensively before, but is it better policies? Is it bolder capital, or is it deeper operator talent, or a combination of all three?

Laurits Bach Sørensen 00:37:36

All three.

Host

Okay.

Laurits Bach Sørensen

[unclear]

00:37:38

And they're almost equally important. So if you don't have the right tools and understandings, like Sun Tzu said, no war's ever been won without understanding the battlefield, and right now we don't even understand what's wrong.

Host 00:37:54

Okay.

Laurits Bach Sørensen 00:37:54

So that's why we're introducing the concept of hyper transformation. And that's why we're spending a lot of time trying to inspire the EU, KfW, lots of huge entities in Europe, saying listen, these are things you need to look at if you want to risk mitigate. And by the way, these are tools that allow you to actually then deal with the risk when you're scaling these companies. So we need better tools. We need talent. We need people engaged in this. So we need you guys to go out there and fight on this battlefield and take the chances to be part of that change. And then at the core of that, the financial ecosystem: if we don't create better policies across the different European countries on industrialization, you will not attract market capital. So we need to be better at ensuring, as we establish new value chains, that the people that are investing into those technologies can rely on the policies actually coming into place. So to give you a very good example here in Denmark on hydrogen. Denmark came out with a hydrogen pipeline ambition for 31, Germany 28, which means you wouldn't have capital efficient distribution of green hydrogen at the same time. What does that mean? The hydrogen industry in Denmark more or less collapsed. And I think this is a very good example, and we were heavily invested into this, that when you don't have that coordination on these things, and that's just such a key factor, because if you're taking green energy and producing hydrogen, you need to be able to distribute it to a German factory in order to decarbonize that.

00:39:24

But it has to go through trucks or [unclear]. There is no market for it. So I think the policy side needs to be better at ensuring coordination of the establishment of these value chains, like China is doing, like the US is doing. Can you imagine a state in China saying, "Oh, by the way, we'll be three years delayed on that pipeline"? It's probably not going to happen. Or in the US, a state. And then on the financial side, some funny facts: the European pension funds sit on shooting power of 15 trillion US. They invest 0.2% into risk investment, venture, risk revenue. So the US invests 400% more than Europe. If they go and do geopolitical battles on this, we'll be lacking 75% of that investment capital. And so the US is investing more risk capital than Europe is doing. That's not very good. So we need the pension funds engaged. We need the private equity funds to take on the kind of risk appetite that we have, and need to go in there with the talent, with the methods, and then it is the biggest opportunity the world's ever seen. So there's great return possibilities, but they need to step out of that comfort zone of doing SaaS or classical rollup games, and engage in industrial transformation. So it's everything we need, combined.

Host 00:40:45

But is that because people only see the return after the capital for like 12 months, or I don't know, why is that? There has to be a reason for it, right?

Laurits Bach Sørensen 00:40:54

Yeah, but it's very easy. If you're dealing with these four factors of hyper transformation, that means it takes longer.

Host

Yeah.

Laurits Bach Sørensen 00:41:01

But the cost profile is also deeper, which means, it's very basic, you're going to die in that green tech valley of death. So if we cannot compress time going through that valley,

Host 00:41:13

Yeah,

Laurits Bach Sørensen 00:41:13

the free market will not be able to deal with it. And this is really, really the main problem. When you launch this, there's an article out on hyper transformation and navigating the route to reindustrialization. You should probably put a link in, really, and here you can read about it and really how hyper transformation is the biggest challenge for Europe.

00:41:31

China is compressing it.

00:41:33

They're providing enormous access to capital. Just one other factor: in China, if you're doing industrialization technology, the banks insured 1.75 interest rates. Look at Northvolt. They did 15 billion US. I think they borrowed 56 billion of those [unclear]. Imagine the CFO the day the interest rates in Europe went from two to 5%. I said that was not a good day. So if we're not able to take those variables out, and it's pretty nasty to deal with those things. And really, if you look now at the drought on exits in Europe, money is not flowing back now from private equity because of the interest rates, which means their ability to actually transact the assets, because a big part of the value creation that they're putting in there is gearing on the capital, but they can't do that because of the interest rates, which means they cannot bring the asset to a position where they can agree on the transaction value. The problem is huge, because the pension funds are not getting money back, because there are no exits happening because of this. So there are many things in the ecosystem. Can we deal with this from the policy side? No. There are many barriers in the EU political system that don't allow you to subsidize interest rates on these things. But it's probably time for us to get together, because we can sit and agree it's not possible. But then I can also tell you what's going to happen. We need free market capital inside this challenge, and right now they don't want to go there.

Host 00:42:58

So I mean, when we talk about what needs to be done to kind of help European industrials to not fall into a huge competitive disadvantage, and we talked about the automotive industry earlier, to kind of provide our audience with a kind of future market outlook: do you have any other industries in mind that you think are currently facing or are about to face an inflection point due to supply chain reshoring, digital tools or regulation, for example?

Laurits Bach Sørensen 00:43:26

So from a positive or negative side?

Host 00:43:28

Please give me both.

Laurits Bach Sørensen 00:43:35

I think most industries are under transformation. If you just look at something that of course is a huge risk, it's not tied down to industrialization, but it's tied down with something that is driving a lot of efficiency, which is AI. So AI is super critical, that we don't have our own platforms. Imagine if the US and China say, you can use ours, but we need access to all the data. What are we going to do? Can you imagine that happening?

Host 00:44:01

Probably not.

Laurits Bach Sørensen 00:44:02

Yeah. No. Then what do you say? Then we won't use it, or good luck then. No.

00:44:07

So of course AI is something, and of course a lot of initiatives are coming out on that side. And I think this is something, if we don't do that, it's going to be a huge limiting factor. But I think in general, if you look at energy infrastructure right now, again, talking about Germany, Germany I think shut down 26% of your local energy need from nuclear

00:44:33

over 15, 20 years, in order to buy it from a country that we're not at war with. This is an industry that we simply have to transform, and for two reasons. First of all, we cannot be funding countries that we are at war with. But the other thing is that the energy cost in Europe is too high. We need to bring that down tremendously. The energy cost in Europe is twice the cost of the US and three times what it is in China. Can you imagine what that means for the European industrials? So we need to completely reshape the energy production infrastructure. The good thing is we actually have the ability to do this on green technologies. Denmark is a prime country. I think the green energy mix now is 80% plus. But it does mean that we need to get hydrogen value chains. It does mean we need to get better storage infrastructures in Europe. So I think that's an industry that has to go at a big pace, and, to be honest, something where European technology companies will thrive, because this is a must-win battle.

Host 00:45:36

For sure. And I think if we get the chance to fix these kind of backend problems, this will also have a positive spillover effect to kind of front-end consumer goods companies.

Laurits Bach Sørensen 00:45:47

Of course.

Host 00:45:47

Yeah.

Laurits Bach Sørensen 00:45:48

Energy is one of the biggest drivers of inflation.

Host 00:45:51

Exactly. And I think this is really great, because you provided us and our audience with a lot of non-textbook, but very relevant, real world insight. So I think this is a good learning opportunity for everybody listening. And every time we have a conversation with one of our guests, before we finish off, we always have a small dedicated section where we kind of want to give some takeaways and advice for our audience. And I mean, we kind of talked about what you kind of want to see in the next gen and what you kind of think is necessary for them to learn and to pick up. If you could give our audience one principle right now they should pick up from the moment they wake up tomorrow morning, before they grab their coffee, and that kind of just flows and incorporates into the way they go about their daily life, what would that principle look like?

Laurits Bach Sørensen 00:46:42

Don't listen to rich white old men. Believe in yourself. Seriously, I really, really feel an edge to change with young people. Trust that. Do it early. Don't listen to your parents. Don't listen to these people you believe are idols out there. Go lead that change and do it at a young age, really. And just be critical. [...] [...] But understand that change, this is a battlefield description. If you really want to have weapons, you need different things. And if you really want to give war, step onto the battlefield. So that would be my final remark. Please do that. And be careful who you listen to, and get out there.

Host 00:47:29

I think this is a very, very insightful closing note. So yeah, Laurits, thank you so much for joining us today. It was very, very interesting. So maybe before we close it off, could you tell us where our listeners can follow your work and maybe also learn more about the book?

Laurits Bach Sørensen 00:47:50

Yeah. So go to changingthemath.com

00:47:53

with a dash in between, and here you will have details on the launch and everything, but also go to my account, my LinkedIn account. Go follow me there. There's going to be a lot of news out there. We're now negotiating with publishers. So there are some very interesting publishers that we're talking to right now. So we expect it to come out early next year. And then go follow Nordic Alpha's work. [...] [...] We've hired the first people now that came out of that, just very recently. And just remember, coming to Nordic Alpha is not coming to any private equity fund. You will be thrown into things at a very young age. A good example, Yen here from Nordic. He had to stop his main assignment for his master's because he did the Spiri exit process with me. And seriously, he did that with me. He was managing the whole structural element with management. He was sitting negotiating with me six hours on the day before Christmas, and we did a 1.3 billion Danish deal. And he actually, he has a tombstone before he even finished here. And seriously, he did that, no problem. And what was he, 25, 26? And it is something very few people will experience. You can do this. So go seek what we're doing, and going into this industry is not going into private equity. Think about going into the companies. We have another one, [unclear], also from here. He just took on a job in one of our German entities now after studying

00:49:24

and actually working with us. So he's going to go down there and really drive that change together with that company. So there are many options to do this. [...] See if you can get into that little loophole. And then I hope to see you out there.

Host 00:49:40

Great stuff. And guys, you can find all the relevant links in our show notes. And thank you so much for tuning in. As usual, we're back in two weeks. And yeah, until then, check out our socials, check out our LinkedIn, check out the public spaces of Nordic Alpha Partners and check out Laurits's LinkedIn as well. And yeah, thank you so much, Laurits, for coming in today. I think this was a great conversation and yeah, thank you so much.

Laurits Bach Sørensen 00:50:05

Thank you. Thanks a lot. Bye.

Host 00:50:06

Awesome.