Nordic Alpha Partners secures EUR 150m for second greentech fund

The fundraise has already surpassed the total volume of commitments that the GP secured for its debut fund, which held a final close in 2017 on EUR 126m.

The GP plans to continue its fundraise throughout the rest of 2023, after which it will “focus solely on building greentech giants”, said Bach Sørensen.

It aims to reach “critical mass” for its fund model, which will be at “around 1.5x-2x the size of Fund I”, meaning that it will continue to bring on board additional investors, he said. The fund has a hard-cap of EUR 300m, he said.

The firm has seen “strong interest” in its model, according to Bach Sørensen. This is not only since it is a “green” strategy, but because “our model for scaling industrial greentech is different from the typical growth strategies,” he said. “One of the biggest problems for the EU is there are no greentech growth funds – there are lots of early-stage funds, but you need to scale to bring these companies to the big, established buyout funds.”

Bach Sørensen spoke to Unquote sister publication Mergermarket in September 2022 about this funding gap, as reported.

The firm believes in “economic sustainability”, which refers to the use of free-market drivers to propel the “green transformation”. This should delay the need for carbon capture investment, Bach Sørensen said.

Although the firm has been fundraising in a challenging market, its only limiting factor “has been making sure that we have the capacity and the right team for the next fund,” he said. “A lot of investors are not moving very fast at the moment, so we’re very happy we have reached this point with the fund. It’s a tough environment, but it works in our favour that people are looking for green investment models to deploy into.”

Nordic Alpha Partners Fund II is an Article 9 fund under the EU SFDR. Separately, the firm’s debut fund has now abated 859,000 tonnes of CO2 and its portfolio is on track to remove 2.5 million tonnes annually by 2026, he said.

Calpa Partners is advising on the fundraise.

The average revenue growth ratio in Fund I is 78% CAGR, setting it well above the 40%-plus mark that NAP classifies as “hypergrowth”, Bach Sørensen said.

In addition to its fund first close, the GP has completed the first strategic exit from its portfolio this week in the form of a sale to a “large global corporate”, he said, adding that the deal gave the company in question an enterprise value based on an 8.8x revenue multiple, following revenue growth of 2300% over the investment period. He declined to disclose further details.

The GP’s debut fund facilitated the raising of around 30% of the public capital that has been raised in the past two years in Denmark, Bach Sørensen said. This was achieved via the IPOs of astroturf recycling business Re-Match (which was taken private by Verdane earlier this year) and green energy transition-focused Green Hydrogen Systems (GHS). NAP brought GHS from a EUR 3.5m valuation to a EUR 450m valuation and from 10 to 300 employees over the course of its investment, he added.

Investors
The fund is backed by limited partners (LPs) including Allianz Global Investors, Unigestion (which has invested via its Emerging Managers programme), Copenhagen Infrastructure Partners and the European Investment Fund, Bach Sørensen said.

“A lot of money is flowing in the direction of greentech, but LPs need to find a way to deploy in line with the risk factors,” he said. “The track record that we have around green investments generated LP interest, and the relevance of what we do has really exploded.”

Investments
The GP’s debut fund made 10 deals, whereas Fund II expects to make 15, writing tickets starting at EUR 5m and going up to EUR 15m-EUR 20m, Bach Sørensen said.

“We want to be able to deploy more capital into the second and third investment rounds for the companies we back from Fund II,” he said. “And we also widened our geographical focus from Denmark and Germany to the Nordics and Germany where we will establish office. These are the leading hubs for green innovation.”

Fund II’s first deal was its investment in Sweden-headquartered solar power specialist Sunroof, Bach Sørensen said.

The firm begins to work with its portfolio companies well in advance of striking a deal, targeting companies with revenues of EUR 2m to EUR 20m that it is convinced will deliver “hypergrowth”. “We want to work with our companies three to nine months before we invest, preparing them for the hypergrowth phase – if you want to scale a company from as low as EUR 2m revenues to EUR 15m-EUR 30m over a few years, you need to prepare them,” he said.

“GreenTech means we’re talking factories, working capital, complex supply chains, building exec-level capabilities like CSO and CTO, and being much more operational as an investor,” he added. “It also means we get proprietary processes.”

For NAP to invest in a business, it must be involved in the development of “key technology impacting the green transformation”, he added. “We aim make this technology better, simpler to adopt, larger scale. We focus on early growth companies, meaning that the product is stable, you know that the value proposition is working, and you understand the value chain well enough to know that it is working.”

NAP takes stakes ranging from 25% to clear majority positions in its portfolio companies, always acting as lead investor.

The firm sees several hundred deals per year, including a significant number of inbound approaches, as well as approaches from early-stage investors who want to bring the NAP team in when their companies can scale, Bach Sørensen said. “This also means that we are more likely to get discounts.”

To date, the GP has invested in themes including wireless charging, e-mobility, sustainable farming and 3D printing.

People
Nordic Alpha Partners – Rasmus Lund, Troels Øberg and Laurits Bach Sørensen (senior partners).

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