Hi, everyone, and a warm welcome to Kinnevik's Capital Markets Day 2024. It's actually been five years since we were able to gather people both in the room and online, and we are absolutely thrilled to have all of you with us to hear about the Kinnevik of today. We will start out with hearing from our CEO, Georgi Ganev, and our CFO, Samuel Sjöström, talking about what it means for Kinnevik to be a fully-fledged growth investor. What opportunities do we see in our portfolio? How do we intend to use our competitive edge? And how do we intend to allocate our capital going forward? The rest of the day is allocated to our senior investment professionals and our portfolio companies.
We want to familiarize you even more with the people at Kinnevik who are sourcing, investing, and driving value in our portfolio, as well as some of the exciting portfolio companies that now make up the backbone of the new Kinnevik. Before we start, let me just go through some practicalities. If you want to ask questions, you can email them to cmd@kinnevik.com. There's a Wi-Fi in the room for those of you here in person, and you see the password behind me. And then just very quickly around the restrooms, you have them to the right of me, as well as outside the side door entrance. Having said all that, Georgi and Samuel, over to you.
Thank you, Torun, and warm welcome to all of you. In a world where information and markets are moving at lightning speed, it's easy to lose sight of where we're heading and why we set on this journey back in 2018. Therefore, I would like to start by zooming out. Why are we here, and what are we trying to achieve? We have a bold mission, which is as much anchored in our history as it serves as a guiding light for the Kinnevik team today. We are on a mission to redefine industries and create new categories, being at the forefront of shaping industry segments that previously did not exist. We're not merely observers of change; we're catalysts of it, aligning human progress with technological innovation, and forty years ago, we pioneered new categories in mobile telephony and commercial television.
Fifteen years ago, we shifted our focus to e-commerce and online businesses. Today, we are at the cutting edge of health and bio, software, and climate tech, addressing some of the most pressing challenges of our time. Our market focus has narrowed, and we have moved away from emerging markets to focus on Europe and the U.S. But our way of working has, however, not changed. We're still guided by our entrepreneurial instincts as an active owner and operational partner to challenger companies. We take advantage of our permanent capital structure as we invest to rapidly scale tomorrow's market leaders within our sectors. We proved that we can do it with Tele2 and MTG, with Zalando and Avito, and we're convinced that we can do it again with the likes of Cityblock, Spring Health, Mews, TravelPerk, and Pleo.
While I don't want to dwell too much on the past, I think it's important to remind ourselves of the journey that we have been through. We were clear with our priorities from the outset back in 2018. Kinnevik is a growth investor, and we will transform our portfolio to reflect this by focusing on high-growth, predominantly private businesses. We have executed on this vision strategically and carefully, starting with the merger of Tele2 and Com Hem, and the distribution of MTG in 2018. We then went on to spin off Millicom in 2019 and Zalando in 2021. A nd in February of this year, we concluded the transformation by divesting our stake in Tele2 at a premium valuation and ensuring it found a home with a strategic and reputable investor. I would like to remind you of the magnitude of this transformation.
We have distributed cash and shares to our shareholders of a staggering SEK 88 billion, representing 115% more than the market cap when we started this transformation, and almost 100% of the net asset value at the time. To put this in perspective, we are in the top five of Swedish companies in terms of accumulated dividends over the last seven years. But the transformation has not only been about finding new homes for old companies. At the same time, we have invested nearly SEK 30 billion into building our portfolio of today, and we have ensured we have remained financially strong through a turbulent period.
We enter this next phase with capital ready to invest at a point in time when valuations have normalized, when Kinnevik is the preferred investor by the best founders in our focus areas, and last but not least, when we see a significant acceleration in technology that will continue to drive disruptive innovation. But to drive this change and this magnitude in a public company is clearly more challenging than being satisfied with the status quo, and it would not have been possible without the strong support from our lead shareholders and our Board. While the transformation has been successful, shareholder returns since 2018 have been unsatisfactory. Naturally, we are at a low point today after dealing with the consequences of the pandemic. But even still, our missteps, mainly in e-commerce and fintech, have dragged down our overall returns, and we have learned a lot of tough lessons.
Let me elaborate. Drawing on our experience in building successful e-commerce companies, we invested in Oda and Mathem with ambition of building leading online grocery companies in Norway and Sweden, using Oda's world-class platform. In the pandemic, demand for buying groceries online surged, and satisfying this surge in demand and investing capital into market expansion proved to be one of our most expensive mistakes, and in the healthcare space, Babylon Health was a pioneer within virtual care already when we invested in 2016. While the vision was right, unfocused execution and a poorly timed SPAC listing proved to be lethal, resulting in complete write-off of our entire investment. I can assure you that we have learned from mistakes like these, and yes, failing companies might be an integral part of growth investing. If you don't take risk, you cannot expect high returns.
But we need to be much more disciplined in our follow-on investments and take the difficult decision to move away sooner rather than later at times. And going forward, while we inevitably will continue to fail as an early-stage investor, we will fail considerably faster and with considerably less capital at risk. Financial services, and platforms & marketplaces are no longer focus areas for us. We have adjusted our teams, our way of working, and are concentrating our efforts and resources on health and bio, software, and climate tech, areas where we hold the strongest conviction and have demonstrated the strongest returns.
We're humbled, and we've learned from our mistakes, but our successes in finding and supporting amazing companies in our current focus areas, companies that now comprise backbone of what Kinnevik is today, makes us convinced in our strategy and in our ability to generate considerable shareholder value going forward. And with that, let us now move into the present. So, what is Kinnevik today? After seven years of intense portfolio reallocation, Kinnevik has a balanced portfolio, strategically focused on companies that are positioned for long-term growth. We have three focus sectors: health and bio, software, and climate tech. Our net asset value amounted to SEK 37.4 billion at the end of the third quarter, and we have a net cash position of SEK 12.2 billion . Our portfolio is predominantly private, with 96% of the portfolio today in unlisted companies.
While we have 20+ larger investees, we have spent the past two years focusing the portfolio to our top assets, resulting in five high-performing core companies, making up more than half of our entire portfolio. We expect several of these businesses to remain Kinnevik companies well beyond the next five years. Our three focus sectors represent 76% of the portfolio value and 84% of our investments since the start of 2023. Our excitement and conviction in these sectors are underpinned by strong secular trends, such as spiraling healthcare costs, recent developments in AI, and carbon emissions that need to be abated. With a dedicated and sector-focused team, we have already proven our ability to find and support global leaders in each sector.
In healthcare, we have systematically built up our competence and our portfolio through our own analysis and market understanding, supported by partnerships with world-leading experts in the field. And the success of Livongo was the first proof point that our strategy worked, and the portfolio now includes companies like Spring Health, Cityblock, and Enveda. In software, our deep understanding of consumer behavior has been instrumental in building our conviction in companies such as Pleo, TravelPerk, and Mews before many other investors did. And lastly, in climate tech, a long-term mindset and permanent capital is a competitive advantage, considering the longer R&D cycles, the operational scaling, and the commercial lead times. Today, we have lighthouse investments across all our sectors, and you will soon hear more about our competitive advantages in each sector from our senior investment professional, Christian Scherrer, Akhil Chainwala, and Natalie Tydeman.
While creating a growth portfolio from scratch required us to invest in upwards of 35 companies, six years into the journey, we have now a select handful of companies to which our capital and NAV have gravitated. Companies where performance stands out and where we have a high long-term conviction. These are companies led by ambitious and diverse teams with long-term mindsets, executing with precision and creating new categories within their respective industries, and these five companies could alone make the success of an entire venture capital fund, but with our structural advantages, we can remain owners of them for as long as we wish and as long as they grow. On average, our core companies have grown by 60% over the last twelve months, and we are expected to maintain an average growth rate exceeding 40% in 2025.
Compared to larger public companies targeting similar markets, they are growing considerably faster. At the same time, they have good control of their unit economics, and we're expecting this group of companies to demonstrate profitability already next year. Also, they're all well-funded with an aggregate of SEK 8 billion in cash on their balance sheets, enabling them to invest harder into growth at their own discretion. To date, our core five companies have shown strong and competitive returns with an average IRR of around 25%. More importantly, we expect them to continue to compound value in our portfolio for years to come from the balanced valuations we hold them at today in our NAV. The fact that they're growing at such an impressive pace and are expected to do so for many years to come is not due to them being small businesses.
These companies are generating almost $1 billion in gross profit in 2025 and are some of the few unicorns from the pandemic who are still deserving of this title, and we are large owners of these great companies. We're active, we're influential, and typically the largest shareholder behind the founders. We also have a set of newer companies that are earlier in their growth journey. Recursion and Enveda, with an AI-enabled drug discovery, and companies such as Solugen, Stegra, and Aira, within vertically integrated climate tech, are all addressing large markets and solving some of the most pressing challenges of our time. We are carefully monitoring the progress of these companies, have strong partners that share our conviction and priorities as owners, and believe each of them has significant return potential over the next five years.
While our core companies are the positive undercurrent of the portfolio, it's among these six that we may see more extreme and nonlinear developments. And as and if our conviction remains steadfast, we will invest more capital in these businesses as they continue to grow and create value. And with time, we believe that some of them will join the core companies on the previous page. Viswa Colluru, CEO and Founder of Enveda; Martin Lewerth, CEO of Aira; and Gaurab Chakrabarti, CEO and Co-Founder of Solugen, will be joining us today to share how they redefine their respective industries. And I promise you, they will be fascinating presentations and conversations. Our mission to redefine industries and create new categories extends beyond our investment strategy. It reflects our role in the investment landscape, and we are often asked which peers we compare ourselves to.
And while having a list of similar peers might facilitate benchmarking, our model is unique. We have carved out a niche that bridges the gap between traditional European holding companies and the world of venture and growth capital. And compared to the typical venture fund, we are to them viewed as their partners rather than their competitors, granting us privileged access to high-quality deals. And for our shareholders, we offer the benefits and the liquidity, flexibility and the liquidity, even though they are invested in a set of private, fast-growing companies. And this position gives us a unique set of competitive advantages. We help build remarkable growth companies by applying a resilient, ambitious, and unrestricted partnership model in an impatient, short-term, and self-constrained venture and growth capital ecosystem. And let me explain and exemplify what this means in our day-to-day decision-making.
We are resilient to noise, and we encourage our founders to think long term. We understand that value creation is rarely linear. Take TravelPerk as an example. When COVID hit, the founder, Avi, and his team were not merely facing a slowdown in revenue. They actually had negative revenue. With the support of Kinnevik, TravelPerk raised additional capital in both 2020 and 2021, enabling the company to coil the spring in waiting for people to travel again, adding clients and product features that launched them on the growth trajectory that they are on today. We are ambitious, and we search for ideas that can redefine industries and create new categories, just like we have done in Tele2 or Zalando. We have Enveda here today, and I'm sure that you will agree that the founder and CEO, Viswa, is one of the most ambitious out there.
Viswa and his team are probing our planet's unknown chemical space for new medicines, fundamentally changing the industry. Are we early on this journey? Yes, but it's a groundbreaking ambition that we are proud to support. A nd with no constraints on capital allocation, we can invest again and again without funding duration, fund durations or other requirements, forcing us to prioritize something else than long-term value creation. Take our journey with Livongo as one example. Making our first investment in 2017 , we followed on in 2018 , and rather than selling in the IPO, we made our largest individual investment in the company at the same time as the IPO, which gave us a greater return in the end. A nd a more recent example is Spring Health, where we have invested significant capital into secondary opportunities as other co-investors have faced pressure to create liquidity in this market.
We think of, you know, in terms of decades and generations, not quarters and fund durations, and we want to build long-term, enduring, and sustainable companies, and this position allows us to be truly active owners. We are hands-on partners, engaging through board representation and operational support to ensure our companies have the right focus, the right strategies, and the capabilities to become tomorrow's market leaders. The trust and influence this creates goes well beyond any percentage ownership stake. We need to use all of these advantages to realize our full potential, but the flip side of patience and freedom can, of course, be lack of urgency. We have learned the hard way that we cannot use our capital to keep unpromising business afloat, and unlike some venture funds in 2022 who could cut the losses and start fresh, we don't have the luxury of a clean slate.
Our successes and our failures are as permanent as our capital structure, and with that said, I will let Samuel, our CFO, walk you through how we have navigated the turbulent market and how that has influenced our portfolio composition and capital allocation.
Thank you, Georgi, and good morning, everyone, so it will not have escaped any of you that our market environment has been tough coming out of the pandemic in early 2022 , and I'm sure you've all seen varieties of these very large and negative peak-to-trough figures, and as Georgi said, we've learned a lot of lessons during the last years in general and during the drawdown that this page shows in particular, but more importantly, when looking ahead, not only has these trends stabilized, and not only is fundraising and valuations back to what is arguably nothing less than normal, but the period coming out of the pandemic has revealed to us, in very clear ways, the strong potential of our competitive advantages that Georgi just covered.
That is what I would like to start off with before moving on to thoughts and plans on our portfolio composition and capital allocation. Dollar amounts going into venture-backed companies have normalized and are down by 50% since the peak in late 2021. A large share of this smaller volume has gone into shoring up companies that have been struggling to adapt. Looking upstream, capital raised by venture and growth funds have come down even more. With the measures that we've taken over the last years, our portfolio is much less reliant on fundraising markets than the case was in the past.
Our core companies have demonstrated profitability or are funded to break even with a large buffer, and those that have dared to raise capital in this environment have done so successfully, like Mews, TravelPerk, and most recently, Spring Health, all raising new financing at premium valuations this year. Meanwhile, more than half of our non-core companies are profitable. In fact, only 12% of our portfolio by value is expected to need more financing in order to reach breakeven, and the lion's share of that 12% number sits in our six new and selected ventures, and provided that they hit their milestones and continue to progress towards large and positive outcomes, we will be happy to continue to back them with our capital, and so will many other investors.
So with our companies either being viewed as attractive by this market or not being reliant on it, that things have slowed down is actually a great positive for us. Because investment processes are taking much longer, allowing us to spend more time and go deeper in our assessments, and when we've built the necessary conviction, there is less competition, and therefore more reasonable terms of investment, both for new and follow-on investments. One of the most central terms of investment is clearly valuations, and those are down, and they're down by a lot.
There's a lot of data points on this page. I am a CFO after all, but what they say is effectively this: that unlike us, some clearly prefer to kick the can and maintain an illusion that private market valuations are somehow less volatile than those in public markets, and that the value of a private company cannot go any other way than up or, at worst, sideways. But for those of you who have followed us over the last years, you know that this is not the case, at least not if you're serious about providing a fair and honest reflection of the value of your company or of your portfolio. During this downward period, we have contracted valuation multiples in our portfolio by more than what we've observed in public comparables, and by more than 70% in our high-performing core companies.
During 2024, in each of these core companies, we've had other investors price our businesses at valuation levels that support our current NAV. And in total, over the last 12 months, we've seen price transactions in 73% of our portfolio by value at average levels in line with our preceding NAV. So ironically, in a way, we've reset our valuations more forcefully and in a more transparent way than the private venture and growth funds have, even though they can communicate with their investors under the protection of confidentiality, rather than through public reporting and, and events like this. And I'm yet to hear of or see a co-investor who values one of our companies lower in private than we do in public.
Now, us biting this bullet has been painful, but more so it's been helpful because it focuses us on the right opportunity costs, and it focuses us on building strong and long-term resilient businesses rather than to optimize for short-term valuation movements. And we will continue to work towards greater transparency around our private companies and how we value them, with today's event being one of the many steps that we've planned. But transactions confirming our valuations have not necessarily translated into a tightening NAV discount. And many of you who are here today have told me that the way you confirm your NAV in an assuring way is by selling companies at your alleged fair values. And that may very well be true, but it is not a recipe for long-term value creation. Because in this type of market, successful investors are buyers and not sellers.
VC-backed exits are down 85% from the peak in late 2021. IPOs had a bit of a false start last year, and M&A has been slow and mostly revolving around earlier growth companies. The way to use our competitive advantage in this environment is not to chase exits, confirming NAV to take some short-term pressure off our backs. The way you create value in this market is, again, by being on the buyer side of the equation. So, we have therefore been actively pursuing secondary transactions, buying out co-investors in need of liquidity. And during 2023 and 2024 to date, we've invested a total of SEK 2.5 billion into secondary shares.
We've done this mainly in our profitable or well-funded core companies, and we've done it at a scale that's reminiscent of our SEK 800 million IPO investment in Livongo in 2019, and of our SEK 3.3 billion pre-IPO investments in Zalando in 2012 and 2013. Those are some of the best capital allocation decisions made by Kinnevik in modern history. We believe that in a few years from now, we will be looking back at our secondary investments into Spring in the same way. Not only has this push into secondaries increased our portfolio concentration towards our core, and not only has it meant capturing great investment opportunities in companies we know and love, it has also grown our influence over these businesses and decreased the influence of investors who may want our companies to optimize for a shorter time horizon.
But as we've told you before, having completed our transformation, we've entered a new phase of Kinnevik. In this phase, investments and funding rounds are less of an impetus. Capital reallocation will be more discretionary and nimbler, and instead, it is the operational performance of our companies, mainly those in our core, that will be the main determining factor of our success. Some may find this perhaps a bit boring. The buying and the selling is what excites many, more so than the holding, and violently swinging roller coasters can be a more thrilling ride than a steady and compounding train. But we've seen this story at Kinnevik before, some 30 years ago.
Media, stock market investors, and analysts first protested the significant investments that Kinnevik was making into then novel areas like telecommunication and TV broadcasting, and Kinnevik was pumping millions and millions of good old Korsnäs's money into loss-making new ventures. Reporting was a bit of a black box, and our share was trading at a big discount. But when businesses like Tele2 and like Millicom and MTG had proven to be steady, predictable, and cash flow generating successes, the Kinnevik board, with Jan Stenbeck at the helm, dryly noted that everyone was now finding the steady and predictable performance of Kinnevik boring, and they were missing the good old days of being able to question and ridicule more bold capital allocation decisions. And I'm afraid that a large share of our portfolio is reaching that level of success and relative predictability.
Because looking back on our core company's development since end of 2021, they have matured, but they've traded in growth for improved margins in an efficient way. On this page, which many of you have seen a couple of times before, we plot our core company's average year-over-year growth rate on the y-axis and their weighted average EBITDA margin on the x-axis. The first red marker in the top left is the average financial profile of these companies in Q4 2021, and then each red dot represents a subsequent quarter up to today's Q3 2024 outlook.
From being expected to grow by more than 150%, with 70% EBITDA loss margins on average at the end of 2021, looking into 2025, we see our core companies as a group growing by more than 40% and proving EBITDA profitability, which for these asset-light companies typically means cash flow profitability as well. And as you can see from the gray line, which plots our full private portfolio, after an initial shock in 2022 and 2023, the performance of the portfolio as a whole has stabilized. Now, growth compounds over time, and slowing down too fast can bear significant ramifications on the longer-term potential.
So, I just want to make one thing clear when you look at this chart, and that is that during 2025, we're likely to support some of our core companies accelerating growth at the expense of short-term margins, knowing comfortably that cash flow profitability is at these companies' discretion. And we're already having those types of conversations with some of our core companies now, as we discuss plans for 2025 and beyond. And that's another way in which we're different and at an advantage to many other investors in this environment. So, the portfolio is considerably more stable and de-risked relative to a few years ago, and we expect many of our core companies to invest further into growth once profitability has been demonstrated. And this stabilization and performance of our portfolio has allowed for more discretionary capital allocation here at Kinnevik.
Over the last quarters, we've dedicated around 75% of our follow-on investments in our core companies and our selected ventures. And we see this percentage share expanding beyond 90% during 2025, with a minimal drag on our capital from our non-core companies. So, when looking at our current portfolio composition, the picture is very different than the case was just one or two years ago in terms of risk profile. But in focusing our communication over these last 12 months on our core companies, an unfortunate effect seems to have been that all our other investments are treated as one big, indiscernible group of companies.
As a consequence, the challenges that we reflected in our NAV statement in companies like VillageMD and Mathem has created worries that the companies we tend to focus less on are all posing similar risks to our NAV and to our net cash position. But after the measures that we've taken over the last quarters, and the measures we took in our Q3 report last week, I can tell you with a high degree of conviction that this is not the case. Because, in fact, in the third of our portfolio that sits in companies that today are deemed as non-core, you have a wide variety of businesses. And what we've done on this page is to be just one degree more nuanced and split that group of non-core companies into two equally sized categories. The first category consists of more mature companies.
These are businesses that joined our portfolio a couple of years ago, and they've performed well, but the last two years' worth of multiple contraction has pushed annualized returns down to around 5%-6% on average. These companies are profitable. They're growing at solid rates of 15% on average. They need no more capital from us. They carry very little valuation risk, and we believe that we will exit them over the next few years when the time is right. The second and rightmost category is a more mixed group of businesses. Some are more recent additions to the portfolio, with the potential to travel to the categories on the left-hand side of this page. There you find companies like Pelago or Transcarent or Charm, who together make up 1/3 of this group.
These are early-stage, fast-growing companies with great potential to become core companies of the future. Some companies in this group are on their way out of our portfolio. These are typically companies that we have written down forcefully. We've helped them reach profitability and self-reliance, and there is a limited strategic fit going forward. These are companies that we are looking to exit in the more near-term future. To summarize, our competitive advantages have not only become more apparent over the last two years, but they've also become a lot more powerful, and they've led us to make decisions that set us up for future success and value creation.
The strength and stability of the overall state of our portfolio that we've reached now means that our capital allocation is becoming more discretionary and nimbler, and that valuation risk, meaning the risk of our non-core companies causing large and negative shocks to NAV, has diminished to a tolerable and low level. The strength of our core companies means that we have a positive undercurrent of value creation serving as the engine of NAV development going forward. With our newer selected ventures, having the potential to, in a more nonlinear way, create significant value on top of this underlying positive trend. With that, Georgi will now tell you how we can utilize our competitive advantages and the strength of our net cash position to find, invest in, and nurture new companies to join our portfolio and become core Kinnevik companies of the future.
When I hear about the dialogues we're having with founders, what consistently comes through is that our permanent capital structure and the imprint it has made on our culture is a credible and attractive commitment. Founders believe and love that we are in it for the long term, and this makes us the preferred investor for founders who themselves are in it for the long term. Our successes in software and healthcare also attracts the best companies in our focus sectors to us. Our climate tech investments are paving the way for sustainable innovation and being honored in Europe and the U.S. While the number of new investments has been low over the past two years, that speaks very little of the activity at Kinnevik. First and foremost, as an active owner, we spend the majority of our time driving value in our existing companies.
Secondly, our bar for new investments is very high. Since the start of 2023, we have diligenced more than 300 companies and elected to convert less than 1% of them into Kinnevik companies. And supporting the top of our funnel is our active partnership strategy with a network of experts in our focus areas and partnerships with niched funds, where we, as LPs, not only gain access to their portfolio of early-stage companies, but also sector experts and what's happening at the cutting edge of our focus areas. Over the years, we've seen a pattern for what becomes our most successful investments. These archetypical investments, like in our current core companies and Livongo in the past, have leveraged our strengths of being an engaged and large investor, and us pacing discretionary and unconstrained capital along with conviction and the company performance. So, what does this typically mean?
We would start with an investment of around SEK 300 million and aim for an 8%-10% ownership and governance through board representation. Five years on, as an active and engaged partner, we have invested 3x- 5x as much capital as our first ticket, in step with seeing explosive growth. Over time, our ownership has increased to around 15%, and the investment has created significant returns and impact on our portfolio, and this is an approach we're looking to replicate, and Samuel will now let you know how this has influenced our capital allocation and strategy for the coming years.
So, when we started off our transformation some seven years ago, we set a rigid plan and framework for capital reallocation and for how this transformation would unfold. But with the transformation now behind us, the outlook is different. Going forward, our capital allocation draws on our investment strategy, on our competitive advantages, and on the learnings that we've accumulated. Investment in and of itself is again, less of an impetus, and we're free to allocate capital as we see fit and as we believe will create the most long-term value. Therefore, this page lays out a set of expectations of how we believe that we will allocate capital going forward, and how Kinnevik may look like when we enter 2030 . But it is not a page of dogmatic principles that we will blindly adhere to.
One of our core competitive advantages is our unconstrained investment mandate, so it would be foolish for us to manufacture our own fictitious constraints. With that nuance, or brasklapp, as we say in Sweden, we will still want to give you a numerical sense of what to expect. So, over the next five years, we expect to maintain an investment pace just shy of what we upheld during our transformation. We expect to invest somewhere between SEK 15 and 20 billion , split slightly in favor of follow-on investments. And we expect to pace this investment with us being successful in releasing capital from the portfolio. Because we confidently expect to release between SEK 5 and 10 billion or more out of our existing portfolio over the next five years, through a mix of M&A, secondary sales, and post-IPO sell downs.
On IPOs, our conservative belief is that we will see at least three of them over the next five years, mainly in our core companies. While that will create liquidity that we might tap into, we might as well invest more capital into companies after or when they go public. We expect our core companies to continue to compound value, and that we will be able to find, nurture, and establish more core companies in our portfolio, to a point where we have around 10 core companies representing 80% of our portfolio by value. Through the aforementioned IPOs, we expect this portfolio to be more liquid and more transparent, with 20%-40% of its value sitting in publicly quoted companies.
We expect our current, more mature portfolio to deliver returns in excess of 15% per year, and we will, in a disciplined way, target medium-term IRRs of more than 25% for new investments. This would firmly place us in the very top bracket of venture and growth investors. As relates to capital structure, we expect to remain in a net cash position over these next five years, and we expect to introduce mandates to pursue share buybacks and new share issues to our capital allocation toolbox. During the course of our transformation, we've seen our NAV being priced at both 40% premiums and 40% discounts and share buybacks and new share issues will allow us to use erratic market swings for long-term shareholders' benefit. Standing here today with our stock trading where it is, buybacks is clearly a hot topic.
So let me wrap up by making a few things clear on how we view them. Firstly, we will never use buybacks to, in a short period of time, try to move the share price up or the NAV discount down. There are no precedents or proof suggesting that buybacks move the discount in a meaningful and durable way. The way to address the current discount is rather to get back to a trend of positive NAV development and to continue push on to improve the transparency of our still overwhelmingly private portfolio. Buybacks are, to us, nothing more complicated than just another way to invest into our own portfolio. However, buybacks do nothing to move our portfolio composition towards a higher return trajectory.
They do nothing to increase our influence over our companies, helping ensure that they execute on plans to create long-term value rather than to satisfy other more short-term investors' preferences. And buybacks do not provide our companies with more capital that can meaningfully improve the return potential of our aggregate investment. And lastly, they do not add new and exciting companies to our portfolio that can create value for decades. So, buying back shares is more complicated than they may seem before considering their opportunity cost. But considering our large net cash position, our NAV discount, and our strong and increasingly concentrated portfolio, of course, buying back stock is an interesting capital allocation alternative, and we expect to have them part of our toolbox going forward. But now, it's time for Georgi to wrap up our introduction and to get on with this exciting day.
Thanks, Samuel. So, to wrap up this first section of today's agenda, let's summarize in words what we want to achieve. We aim to become Europe's leading growth investor by fully harnessing our unique culture and structural advantages, by supporting the most innovative and high-potential companies in our focus sectors. By doing so, we will not only generate outstanding returns but also drive meaningful societal change. And building on the lessons from our past, we will continue to refine our disciplined investment strategy, delivering an annualized shareholder return of over 20%. And I'm very excited to continue this day by diving into our sectors and showing you our amazing companies and founders. So, Torun, let's continue.
Thank you, Georgi and Samuel, and now I'd like to welcome Christian Scherrer, our Senior Investment Director, up to speak to you. Christian joined Kinnevik ten years ago, and he has been instrumental in finding and supporting some of the amazing healthcare companies that are in our portfolio and that are also here today in the form of Spring Health and Cityblock and Enveda. First, Christian, over to you.
Imagine you're going to a restaurant. Despite your booking, you wait for thirty minutes by the door. Once you're seated, you receive a menu with no prices on it. The price doesn't even correlate with quality. You place your order, but after each course, you're asked to repeat it again. You go home, and three months later, you receive the bill, but it doesn't even say what you ate. Safe to say you would not go back to this restaurant. Unfortunately, though, this type of consumer experience is exactly what patients face in the U.S. today, and it's the reason we got convinced that healthcare is ripe for disruption. Hi, I'm Christian Scherrer, and I lead the health and bio sector. I'm also the only Kinnevik employee stupid enough to talk right after Georgi and Samuel.
You might have asked yourself why most of our health investments are in the U.S. The reason is simple: the U.S. is the dominant force in global health innovation. The country spends about twice as much on healthcare as a percentage of GDP than Europe. It's also a highly commercial market because almost half of it is sponsored privately. These dynamic market conditions led to the U.S. create over a hundred health unicorns, substantially more than what we observe in Europe. This level of spend led to an increase in life expectancy, which is, of course, great, but underneath are enormous and growing challenges. 40% of the U.S. population is obese today. That number was just 28% 25 years ago.
People who struggle with mental health, like anxiety and depression, grew from 35 million to 46 million people, and cancer cases are up from 9 million to 12 million today. The rise of these conditions happens at two to four times faster than population growth, a sobering reality. Good thing all of our health companies are touching one or several of these conditions by applying more health prevention, more precise treatment, or by developing better and safer drugs. Why do founders partner with Kinnevik in health and bio? We think three reasons set us apart. First, we have an outstanding track record. We helped create six unicorns in this space, three of which we invested the first time below a $350 million valuation. We were also a key shareholder in the largest health tech exit ever, Livongo's almost $20 billion sale in 2020.
Second, we're deeply committed to this space. We assessed well over a thousand health companies in the last 10 years. We made specialist fund investments in value-based care and bio. These help us see early opportunities before they enter our target zone, and we already co-invested in 3 opportunities with them. As Georgi said, we also have world-class advisors that help us anticipate shifts in regulatory and commercial environments. The third reason is our long-term capital allows our founders to be more ambitious and more creative. In Livongo's case, at the IPO, instead of creating an overhang in the stock, we actually bought more and doubled down, in our position. In several of our companies, we bought out smaller shareholders that were in need of early liquidity and saved our management teams from distraction.
Lastly, we encourage our founders to remain aggressive, even in the currently challenging market backdrop. In 2022, we added bio to our investment strategy. Our expansion into bio was timed with the AI revolution we saw happening in drug discovery. AlphaFold 1, which was released just a year earlier, was just one of the many AI breakthroughs we saw happening that could transform the pharma industry. Today, LLMs can annotate complex biology and chemistry. GPUs provide the backbone to pre-process massive amounts of data. As an example, Recursion's over 50 PB of cell biology data is larger than all of Hollywood's movies combined.... We are seeing robotics almost entirely automate the wet lab. This doesn't only increase the throughput; it also improves data accuracy and quality control. We believe this transformation, combined with new advanced tools like protein engineering and gene editing, will ultimately lead to better drugs.
Now, let's have a look at our investment activity since our very first check in 2016 . Three important takeaways here. First, we scaled our investments slowly as we started to understand the opportunities and challenges of building in healthcare. Second, we were investing in digital health well before the COVID bubble, which attracted over 50% new investors, many of which have left the sector again. And thirdly, we sold almost three times as much as we invested in that period, making use of the dislocation at the time. This iterative process led to us build three strong verticals: value-based care, virtual care, and bio, in which we're well-positioned to drive value over the next decade. Healthcare is a complex sector. Many startups fail even if their product is best in class.
We therefore have a relentless focus on proven business models and proven distribution channels. In value-based care, our companies, Cityblock and VillageMD, contract for shared savings and capitation with some of the largest insurers in the U.S., like United and Centene. In virtual care, our companies, Spring Health, Transcarent, and Pelago, contract for subscription and usage-based fees with self-insured employers and already landed with the best in the world: Amazon, Microsoft, JPMorgan, just to name a few. In bio, our companies, Enveda and Recursion, either develop drugs themselves or partner with pharma for milestones and royalties. In Recursion's case, with Roche Genentech, in the largest partnership of its kind globally. We're excited to continue investing in health and bio, given our unique insights into each of these end markets. It also positions us well to invest in the picks and shovels, like software and tools companies that service these incumbents.
Let me finish with our results. Since starting our health and bio effort in two thousand and sixteen, we invested over SEK 10 billion in the space. We generated a 32% IRR and already released more than SEK 8 billion in cash. We have almost SEK 10 billion in NAV remaining in the space, which is 37% of our growth portfolio today. I am very enthusiastic about the potential of our health and bio companies going forward, but they already make a massive difference today. They serve millions of patients at an upwards of 70 NPS, and for every $1 invested in their services, they save $4 in avoidable care and productivity loss. I'd say if they would run the restaurant I talked about before, you'd have a much better experience.
Our core health and bio companies, Spring Health, Cityblock, Enveda, and Recursion, now make up 32% of our portfolio, and I'm excited for you to hear directly from them today. First, from Adam at Spring Health, and after the break, from Toyin at Cityblock, and lastly, from Viswa in a fireside chat. Thank you for listening. Now, let's welcome Dr. Adam Chekroud, the co-founder and president of Spring Health. He gained his PhD in psychiatry at Oxford and later became an assistant professor at the Yale School of Medicine. He published in many publications like The Lancet and JAMA, and one of his famous papers is called "The Promise of Machine Learning in Predicting Treatment Outcomes in Psychiatry." The findings of this study created the very foundations of building Spring Health together with April. Welcome, Adam.
Hello. It's nice to meet everyone. This is my first time in Stockholm, so I'm very grateful to be here. We may make forward-looking statements, so all of the usual disclaimers apply. Spring Health's mission is to eliminate every barrier to mental health. We are disrupting a deeply antiquated and broken industry. We do it in partnership with some of the world's leading employers. We're now responsible for the mental healthcare of over eleven million people, all around the globe, and we reach those members through partnerships with organizations like Microsoft, Delta, J&J, Pepsi, Allstate, companies like that, who work with us to provide great mental health resources to their employees all around the world.
For a sense of scale, we've done over $400 million trailing twelve months, and the company's growth has been very strong. Since 2021, we've maintained a 166% CAGR, and our net revenue retention on dollar basis is over 115%. The growth has been really strong, because companies get significant financial returns from investing in mental health. And we've essentially proved that if you do mental healthcare in the right way, it can be a financially effective decision for these organizations. So I'm gonna tell you a little bit more about the clinical model and the way that we're able to deliver the best-in-class clinical results, which then drives financial savings.
But Christian already mentioned, on average, across our book of business, for every $1 that a company spends on Spring Health, they get about $4.1 back in ROI, either across health plan spend or across productivity savings. And so, there's a tremendous financial impetus for large organizations to do something about this. The TAM in mental health is truly enormous. So, we've done over $400 million in trailing 12 months, primarily selling outpatient-level services, primarily to employers and commercial payers. That TAM is about $58 billion a year. And even that is, although it's large, still only a minority of the total $240 billion that we spend on mental health or behavioral health in general in the United States every year.
The TAM is massive because the problem is enormous. One in four people will have a mental health diagnosis at some point in their life, one in five every year get a diagnosis, one in six are on an active psychiatric prescription, and the vast majority of those people do not get minimally adequate care. A majority of those people don't even get treatment at all within the year after getting a diagnosis. As a result, suicide is the second leading cause of death right now for children and adolescents, and depression alone is the world's leading cause of disability. The experience that patients go through is deeply broken. It starts out usually far too late. People suffer in silence for a long time because of things like stigma or low awareness.
But even when they raise their hand, so the time it takes to even get into treatment can be very long. So, an average of 21 days for adults, can be even longer if you're trying to find a provider for a child or an adolescent. But even if I waved a magic wand and, you know, access in itself is a big problem in mental health, but if I just waved a magic wand and gave you a psychiatrist right now, that would not be a complete solution. And that's because even great psychiatrists, even great well-trained psychiatrists operating in top clinical trial settings, they actually don't know what treatment is going to work best for an individual when they present.
Even in top clinical trials, 70% of patients do not fully recover from the first treatment that is selected by that provider. Instead, people go through this period of trial and error, this period of experimentation, where they work with the provider, they try and find the right treatment, or they kind of cycle through multiple providers to find either a provider that's a good fit or a treatment that's a good fit, which often leads to 15-20 sessions of this experimentation or essentially waste in the treatment system. The financial consequences of that trial-and-error model are extreme, right? If you have a mental health diagnosis, you're about two times more likely to leave your job, and on average, in the U.S., a depressed employee costs their employer about $19,000 per year in health plan spend.
So, there's a tremendous impetus, particularly amongst the larger and self-insured employers, to do something about this problem. We don't think it has to be that way, and Spring has developed a new paradigm for the way that we treat mental health. You can think about the innovation that happened in kind of three phases. So, if you take traditional care, either an employee assistance program or a health plan, which are the two main ways that people access mental health services, there are really two big problems with it. One is the access. It takes too long, it's confusing, the products are deeply unintuitive, mostly one eight hundred numbers that you call in and these, you know, miserable phone lines that you get bounced around. But the second is this trial-and-error problem.
Most of the innovation, all of the innovation that Georgi and Christian, there's a lot of funding that has come into mental health, but it has all been focused on this access problem. Lots and lots of solutions that get people into care more quickly. But if I give you a psychiatrist today, and they roll the dice and say: "Let's start with Lexapro," that essentially is going to drive up spend. If you get into treatment quickly, but it's not the right treatment for you, it's essentially a financially unsustainable model as it leads to, you know, much higher utilization, much higher access, but then you won't see the financial ROI as people are going through this experimentation. And so, the goal of Spring from day one was that we wanted to solve both of those problems.
We wanted to develop a user experience and a product that is very easy to use, that helps people get fast access to treatment. But it's not just fast access to treatment, it's fast access to the thing that's going to work for you. I came to the U.S. to get my PhD on this problem of trial and error, and we were the first group that showed that you could actually use machine learning to predict what treatment would work before the patient has actually started that journey of trial and error. And so essentially, we, you know, we've published this now and proven out this scientific model across over 30 peer-reviewed publications. Essentially, the way that it works is that it starts by learning from the experience of many other people.
So instead of saying: "Hey, Christian, let's start with Lexapro," it says: "Hey, let's talk to Christian. Let's figure out what kind of problems Christian has. What are his goals? What are his issues? What are his symptoms? Let's learn more about his sociodemographic background, his psychiatric history, and then let's go and find all the people that we've ever treated that look like Christian, and let's see what treatments work well for people like Christian," and we prove now that when we do that, when we train those algorithms, when we run that data, when Christian goes into one of those treatments, he's now two times more likely to get better, and he gets better about eight weeks faster on average.
Today, we provide a comprehensive mental health solution to employers, large employers, and health plans that essentially has that technology at its core. On the member side, we essentially treat the full spectrum of mental health concerns, all the way from self-guided programs or digital exercises, yoga, exercise, meditation, and mindfulness, all the way through core outpatient services like coaching or therapy or medication support, and then increasingly higher levels of service for things like substance use or eating disorders. We're also very deeply embedded on the customer side as well.
When we work with these large organizations, we don't just take over the employee's mental health programming for their employees and their family members. We also get very deeply embedded into that organization and do things like train their managers, run their disability programs, run their leave of absence programs, and take on all of their critical incident or crisis response. I want to spend a moment just talking about technology, because that's essentially the biggest differentiator that you should take home from Spring. So, Spring has purpose-built technology for each of the key stakeholders that we interact with, and we are unique in that regard.
So, I'm going to tell you a little bit about the platform that we've built for members and the platform we've built for the providers, and the platform that we've built for the employer or the purchaser of those health services as well. So, Spring Life, which is our member platform, this is the, you know, if you work at Microsoft anywhere in the world and you're accessing mental health services, you will go to this platform. It starts out with a dynamic assessment that you can complete on a phone or on a website. That's where we take a moment to learn more about you, about your goals, about your issues, and get a good handle on what kind of problem or where you are on that mental health spectrum.
We take that data and we run that against all of those algorithms to figure out what is a care plan that is likely to help you specifically get better, and then, if you do need treatment, there's a very easy-to-use platform. You actually can see one of our providers. I'm going to tell you a bit about that provider network, but there's a very expressive and intuitive platform for you to be able to find a provider that's going to be a good fit, no matter whether you want a provider of a certain race or ethnicity, whether you want a provider with a certain specialty, or specific experiences, whether you want care via video or in person, all around the world.
And it's a very, very easy system for you to be able to find that, and you can also book all of those appointments right there on the platform as well. So, it really eliminates a lot of the pain points that members had been facing around access to mental health resources. If people do need treatment, they would actually see a Spring Health provider. So, we've built our own network of providers. There's over 11,000 providers globally that all work with Spring, and we built that network from the ground up. It's interesting in many ways.
The first one is that we're leading with this technology platform, and I'm going to show you a glimpse of what that looks like, but we've essentially built this provider network really with the technology at the center, which is a differentiated model from the way that other organizations have built their provider networks, but the way that we've done this essentially allows us to have the best of both worlds in terms of a staffing model. We offer providers a very flexible work environment and work arrangement, which is very attractive to them.
The best providers in mental healthcare already have a thriving practice, and so you have to think really deeply about the value prop that we can offer to those providers in order to attract them and to get them to come and work with you. But we've essentially done that by leading with technology and developed a way of getting that kind of W-2 or that full-time provider model, getting the qualities of that model, but also retaining the scale and the flexibility and the low CapEx that you get from having a kind of a more distributed or a more contractor-type model. But essentially, it's a highly diverse network. Almost 50% of the providers in our network actually identify or are Black, Indigenous, or people of color.
It's you can get care in over 100 different languages and dialects. There's again over 11,000 providers, and you can really find any specialty, any condition, whatever kind of need you might have within the mental health space, for any age range. This is just a glimpse of what that technology looks like, but this technology is essentially raising the bar and narrowing the operating windows that providers have when they're delivering care. In healthcare in general, most electronic health records are firstly not mandatory, and secondly, even when you use them, they're very much focused on billing, and they're not focused on care, and so Spring actually built our own provider platform from the ground up that is really focused on delivering best-in-class behavioral healthcare.
100% of the providers that we work with are all operating out of this system. So, we get tremendous consistency in the operating model, and it's really geared around implementing world-class or gold standards in behavioral healthcare. You can see in this screenshot, it starts with things like a structured assessment to make sure that we have a good handle and a good comprehensive understanding of the issues that the patient might be experiencing. It's implementing things like measurement-based care, which is essentially a way of tracking patients' progress during treatment and ensuring that treatment is working and is effective. And it eliminates a lot of the back-office headaches that providers might traditionally face with interfacing with insurance, scheduling new patients, marketing to receive new patients.
And so, from a provider perspective, it's really transformative in the way that they work, and it has positioned Spring as an employer of choice, for the providers themselves. I just want to touch on one of the emergent properties that come from that technology stack. So, we actually pay providers for the performance that they deliver, and that is also unique in mental health. Mental health, you know, over the past, you know, ten, twenty, thirty years, has essentially operated with very little transparency and very little accountability when it comes to data. With Spring, because all of the members and all of the providers are operating completely within that closed system, we have a tremendous amount of data that we can use to instrument key KPIs around the provider's performance.
So, for every provider in our network, we know exactly how many of the patients get better. We know how good they are at treating depression, how good they are at treating anxiety, how good they might be at treating eating disorders. We know what the average time it takes is for their patients to get better. We know whether they write good notes. We know whether they show up to their sessions. We know how engaged their patients are, and we essentially can instrument these key KPIs around that performance and reflect that back to the provider. So, every month, providers that work with Spring get specific and actionable feedback. They get coaching on how they compare to their peers, and twice a year, we also pay out bonuses to the providers as well, based on their performance.
That clearly more clearly aligns incentives between us and our customers, where we're accountable for delivering higher value and meeting certain performance guarantees, and the relationship that we have with our providers, which essentially allows us to recognize and reward providers who are delivering the best care, and that's a strong retention signal as well over time. Those providers then get recognized and paid more for delivering better results, and then they're more likely to give more time to Spring in the future. This model has scaled like no other public company in mental health before. Over the past 5 years, as we've added over 10 million covered lives to the platform, our capacity has only improved.
Our average time to appointment has actually gone down year over year, and this is the exact opposite of what you've seen from other public company or other mental health companies that have gone public before us, where they've generally struggled to scale or capacity has worsened as they've scaled. And so, this unlock that we've created by controlling the technology across all of the stakeholders has been really transformative. The third is just that I mentioned that low transparency customers, the essentially employers or the payers who are paying for all of this healthcare, have had very little visibility into what they're actually paying for.
And because we have that member and that provider platform, we're able to reflect, obviously, in a private and compliant way, in an aggregate way, reflect that data back to the purchaser of that care, and allow them to really operate their business in a totally new way and in a much more strategic way. Organizations can use this product that we've developed called Atlas to really understand their organization in a much more deep way. For example, if you wanted to compare your retail population with your distribution centers, if you wanted to compare your sales team versus your engineering team, if you wanted to understand generational trends in your business, how does Gen Z interact with a product?
Or what is their mental health, you know, burden look like among your Gen Z population versus your Gen X population? There's a tremendous amount of insight that companies can glean from, from working with Spring, and this really helps them shape, programming and help them drive, strategy internally around a company culture. This technology is essentially giving us an ever-increasing moat around mental health. So again, it starts with that data. We proved in those original JAMA and Lancet papers that we can use that data to drive better outcomes, to build data products that help us predict treatment outcomes better, help us drive, stronger clinical and financial outcomes. Those outcomes essentially reflect a best-in-class product that we then sell to employers and health plans that helps us win more customers.
Those customers give us more employees, and family members, essentially helping us control the demand side of the marketplace, and that helps us attract more providers, and again, those providers and those members are both treating within our platforms, which allows us to continue to collect more data, continue to train those algorithms, and improve the performance of those algorithms, which we will then use to increase our outcomes in the future. The clinical and financial outcomes that come from this model are best in class, so Spring in 2022, we published a paper in JAMA, which outlined Spring's results in terms of time to recovery, where Spring had the world's fastest time to recovery. On average, a patient recovers about 45% faster with Spring than our next nearest competitor.
They themselves are still better than you would get in a clinical trial. So even if you went to a world-class academic medical center, you would still be less likely to recover and recover more slowly than you would if you engaged with Spring Health. And the financial consequences are even more compelling. Spring is the first and only mental health company that has proven that the savings associated with this model actually exceed the money that they put into the system. And this was confirmed by an organization called the Validation Institute, last year, where they found that for every dollar that a company spends on Spring Health, they reduce their health plan spend. This is the money that they're paying in the background, for employee healthcare. They reduce their health plan spend by $2.2.
And like I mentioned, you know, the hard savings associated with mental health are really only a minority. There's also this tremendous impact you can have on productivity, retention, turnover, time in the workplace, and if you include those softer savings, then that ROI goes up to 4.1x. And so, the financial impetus to do something around this, I think a lot of companies agree that it's the right thing to do and that it's a good thing for their business to offer a more compelling benefit and make it easier for their employees to engage in mental health services. But if they do that with Spring, with this better clinical model, they actually can save a lot of money too. Two slides on the economics.
One is just to explain the revenue model. So, the customers pay us essentially in two ways. One is that they we have this SaaS revenue or this recurring, fully recurring revenue where they pay us a subscription fee that is based on the size, the headcount that they have. So, if they have 100,000 employees, they pay us 100,000 times that amount per month for their members to have access to the services and access to the network. And then the second is that they also pay us on a fee-for-service basis for the clinical services that we deliver. Although that's not technically recurring revenue, it is extraordinarily predictable for us as a business.
So, you can just see on this graph on the right, on a cohort basis, we have a very good sense of what that consumption revenue is going to look like in the first year and how we're able to expand that consumption revenue on a year-over-year basis as well. You can see, based on the cohorts that we've launched over the past three years, it's incredibly predictable and increasing. And the growth profile, I mean, the growth journey has been a blessing. 166% CAGR since 2021, and that growth has been done in a very financially sustainable way as well.
Not just that it's highly predictable, and we've hit or beat our board plan every year during that extraordinary growth, but our net dollar retention is also incredibly strong, both on a gross and a net basis. The product is extremely sticky, and customers really love it. We've done it in a financially sustainable way. We have over 50% gross margin, which in our industry is best in class, and the company as a whole is break even. We have a strong balance sheet now, with like Christian and Georgi mentioned, we have been.
Now the focus is very much more around secondary transactions to clean up the cap table and make sure that we have an investor base that is really in it for the next phase of growth, even after this tremendous growth that we've delivered up till now. Moving forward, I think that I don't want to lose sight of how much growth we can get by continuing to sell large employers and commercial payers. I think there's still many years of growth ahead of us just by doing, continuing to do what we do and do it in a good way. But I just want to call out two different dimensions or two different directions through which we could expand. One is that we could sell the existing product to new markets or adjacent markets.
In the United States, only about half of the country gets the benefits either through an employer or a commercial health plan. The other half of the country gets it through a government program like Medicare, Medicaid, CHIP, individual plans, or a federal plan. We could continue to sell the existing product that we have into those adjacent markets. The second is that most of the services that we deliver are really in that outpatient space. And although that is the majority of the volume of behavioral health services that are consumed in the U.S., it's only a minority of spend. We could continue to greatly expand our revenue base if we just continued to expand the depth of the care that we deliver into the existing customers that we've already sold.
For things like substance use disorders, more acute forms of depression or trauma, eating disorders, neurodiversity issues. There are lots of things that can be treated outside of an outpatient context, like an intensive outpatient program or a facility or a residential program. And if we were to continue to expand in that direction, we would also have many, many years of growth ahead of us. Thank you very much.
Thank you, Adam. And Adam will be back together with Christian and our other companies for the Q&A. So, it's now time to take a short break for coffee, which you see behind you, and we will try and reconvene here again around eleven.
Next, you will hear from Dr. Toyin Ajayi, Co-founder and CEO of Cityblock. As a young girl growing up in Nairobi during the AIDS epidemic, she became acutely aware of how healthcare inequities of certain groups based on racial, economic, and social characteristics impact the way they receive care, and it became her life's mission to address these inequities. She has recently just become a member of the National Academy of Medicine, and she's been a huge inspiration for all of us at Kinnevik. Welcome, Toyin. Thank you.
Ooh, sorry. Thank you so much. It's such a privilege to be here. It's my first time in Stockholm. I'm so, so, so appreciative of the generosity and hospitality of everybody here, and for the partnership with Kinnevik. As you all know, Kinnevik invested in Cityblock in our Series B+ in 2020, so it's been more than four years of partnership, and I can't say thank you enough to this incredible team for their support and their deep industry knowledge that has really helped us scale and grow the business, so I'll spend my time telling you about what we are doing, who we serve, and share a little bit of the metrics and the experience that we've had so far and the trajectory ahead of us.
We're a healthcare provider, a value-based healthcare provider, focused on engaging those people who drive the highest medical spend in the healthcare system, who also happen to be the people for whom our traditional medical systems don't work. These are people with medical, psychiatric, and social complexity. These are folks who are covered by government programs in the United States, so they either are low income and therefore qualify for Medicaid, which is the sort of insurance for low-income folks, or they're dually eligible for Medicare and Medicaid, which means they have a disability, and they live in poverty, effectively. Those are the folks who drive the most spend in our healthcare system and have the most complex needs.
Our big unlock as a company was to realize that if we did a couple of things really well. The first is completely redesign healthcare delivery, so that we meet people where they are, we build and earn trust with them, we understand holistically what their needs are, and we provide them with 24/7 holistic, clinical, as well as social care. We can reduce healthcare utilization, we can right size medical spend, and we can improve quality. So that's thing one, redesign care. And thing two is figure out a different reimbursement mechanism, one that aligns our outcomes with actual value creation for these populations, as opposed to being paid on a traditional fee-for-service system, where we get paid for a procedure, a prescription, a diagnosis, and have no overall ability to capture in the value created for the healthcare system. That's what our value-based and values-based clinical model looks like, aligns incentives, takes on total cost of care risk, and transforms healthcare for these populations.
The thesis for us when we founded the company in 2017, was that there was a real gap in the market. There is a wide, wide, wide opportunity with white space, focused on value-based care, specifically for the Medicaid population. When we first started pitching investors for our initial investment, no one had seen a business that was seeking to be venture-sized in Medicaid. The sort of incoming norm or belief was that these populations were too complex, they were so transient, they were so hard to engage. People are homeless, they're struggling with, you know, working two or three different jobs. They move in and out of the healthcare system. How in the world would you capture them? Or margins were too thin.
What we were able to prove is that actually, by being the first mover in this space, by aligning incentives and creating a really, really valuable delivery model, we can create value for the system as a whole. I talked a little bit already about transforming healthcare. I'll talk more about it in detail, but we needed a new care model. It wasn't going to be enough to open a clinic that sees 30 patients a day, that gives them 10 minutes of face time with a doctor, that doesn't address all of their home-based and social needs. It had to look really different in order to drive value.
And we knew that if we could get a head start on the market with the capital efficiency of our model, we could significantly outperform and outpace competitors, driving financials and driving the right, of course, team to continue to scale. A little bit of table setting here. I won't get too much into this, because I know you all are such deeply informed investors in this space, through Kinnevik's education. But again, this is a massive, massive market, $1.7 trillion in the United States, in government-funded care. The segment of the population that we focus on, the highest complexity, is disproportionately high spend overall. It's a huge and growing market.
About 40% of these dollars are privatized, so the states on Medicaid contract with private insurers, or in the federal government programs, private insurance companies obtain insurance licenses and manage the financial risk for populations on their behalf. So, we've got a payer, which is a private company, very often for-profit, publicly, sorry, private, non-governmental, but often publicly traded. They have margin objectives, they have a financial impetus to manage these folks, and we've got a huge TAM. We also, in the moment right now in the United States, have massive market headwinds for the overall industry in healthcare that create actually really interesting momentum for Cityblock. So again, high level, but there's a few things happening at once that are really, really interesting in our marketplace, that create even more impetus for what already was a compelling business for Cityblock.
The first is that our health insurers, these private companies that manage risk and financial outcomes for these populations, are actually facing a lot of regulatory and financial headwinds. Stock prices for these companies have gone down almost across the board. Their profitability is being challenged because they're finding higher-than-expected medical expenses post-pandemic. That's driven by a couple of things. One is that health systems are more diligently billing and coding for care that they're providing, so unit costs have gone up, but our population is getting sicker. Christian sort of framed that up earlier. We're seeing higher rates of chronic diseases, of diabetes, of obesity, of all of the sequelae of an unhealthy society, actually, are showing up in the bottom lines of the insurers that have massive, massive businesses underwriting that risk.
We're seeing that, in Medicaid, the low-income populations, there's a mismatch between the acuity and the rate structure. So again, the insurers take on risk for these populations. They're not getting reimbursed sufficiently to manage that risk. And we're seeing in the disabled and complex populations, the dually eligible segment, is a massive and growing pool. Again, we have increasing numbers of people who are disabled, as well as low income, who need care. We actually are perfectly positioned for this. So over the last several years, we've been building a model to specifically address these needs. We have cost and quality control outcomes, proven outcomes, to show that when we take accountability for these populations by front-loading primary care, mental health, social services, wraparound holistic care, we can reduce medical spend.
People don't go to the emergency room for things that they could get care for in the community. They don't get admitted for 10 days or 12 days with a psychiatric exacerbation if we can get them the therapy they need in the home. And the cost savings, the marginal cost savings here are immense for providing the type of care we provide. The other thing we found is that because we have incredible engagement capabilities, that we've and I'll talk more about how the model has developed to build those capabilities, we're able to capture these patients. These companies, these health insurers, spend about $1,500-$2,000 on customer acquisition in the dually eligible segment. So they are marketing, they're paying insurance brokers, they're trying to gain market share. We retain these folks, so every year they don't churn off.
That increases their lifetime value and increases their ability to grow, and then we're seeing real opportunity to take advantage of some regulatory shifts that are forcing insurers to integrate care more effectively and holding them more accountable to quality outcomes. That, again, creates massive tailwinds for us, so that's sort of setting the table of what's happening. It's a huge market opportunity. We're the first mover. We are the largest value-based Medicaid company focused specifically on integrated care for these populations. We have a head start across everybody else. We've got outcomes that none of our competitors do have, and really huge tailwinds in terms of regulatory and policy shifts. So, what did we build? Well, we built a purpose-built, fit-for-purpose care model focused on these populations. I'm a primary care doctor.
I started my career serving folks like this in clinics, in safety net hospitals. These are populations that need something different. So, when the traditional healthcare system says, "If you have a medical need, call the doctor's office, wait on hold for a few hours. Maybe you get an appointment in five, six, seven days from now." You take a day off work, you get someone to watch your child, you go to the doctor's office, you wait in the waiting room with a whole bunch of other sick people. Maybe you spend an hour waiting, you get 10 minutes with a doctor. They tell you to do all these things that you can't possibly do, like exercise more and eat healthy and, you know, get more sleep, and then they send you home. That's the end of the encounter.
No surprise that no outcomes change. This population, that's not going to work. We're serving people who often are unhoused or marginally housed. We're serving people who have a very, very high burden of mental illness, serious mental illness, schizophrenia, bipolar disorder, major depressive disorder. We're serving people who are struggling with three, four, five, six, chronic physical health conditions. Sometimes they have medication lists as long as 10 or 15 drugs that they have to take. We're serving people who are approaching end of life and who need the type of care that will allow them to have outcomes in concordance with their wishes, to die at home, if that's their wish. The model has to look very different. You can see here the kind of level of acuity, the diversity of the population we serve. All of this says we had to redesign the model.
What we do is we start with engagement. We can't wait for them to call us or come to us, because when push comes to shove, if you have an urgent need at 10:00 P.M. on a Friday, and you are one of our patients, the easiest place to go is the emergency room, and that is the place we don't want you to be unless you really have to be there. We're not waiting for people to come to us. We built an engagement model that allows us to engage up to 70% of an assigned population within a year, and we typically get 50% of the medical spend engaged. These members who we are now talking to, we're providing care to within the first six months. That is an order of probably 10x the baseline in our marketplace.
Most health plans, when they're seeking to engage high-risk patients, get a hold of about 5%-10%. In fact, one of our competitors recently published a paper that demonstrated a 10% engagement rate. We are 7x that. We're knocking on doors, we're calling people, we're using data and analytics to figure out exactly the best time, right place, right time to get in front of them. And when we do, we earn their trust so that we can ask questions about: Where did you sleep last night? What are you going to eat? What are you worried about? What are your goals? So that we can start to provide the care and services that will drive outcomes for them. And that requires us to have advanced capabilities in serious mental illness care, in 24/7 clinical response.
If a member calls us and says they are having a clinical problem, we will get them on a phone with a provider, so with a physician or an advanced practice clinician to evaluate them. They will video visit. Typically, within less than two minutes, they are being screened by a clinician, and if they need a home visit, we send paramedics and EMTs to their home, or to this park bench where they're sleeping, and we proactively provide that care as quickly as we possibly can. Totally different way of providing care than our typical model would. We have data running all the way through the background of this. If you think about the kind of core operational capabilities for our model, it is how do we get to the right person, the right time, with the right level of care as quickly as possible?
We think about data around risk segmentation, identifying who's high risk to go to the hospital, ensuring that our teams have the decision support in place to know what interventions they should be putting in place, ensuring that they're coordinating and collaborating with handoffs and tracking data across the board. Then, really importantly, we found that trust is such a key component of our model, because if our members, the members who we serve, who we take financial risk for, don't believe that we can care for them, they're going to default to their old behaviors. They're going to go back to the hospital, and that will drive costs up in the system. To be trustworthy, you have to have trustworthy systems. The operations have to work. When someone calls you, you've got to answer the phone.
When you say you're going to do something, you've got to do it, and the system has to be iterating and learning. So we've spent a lot of time on data and analytics to enable us, and technology to enable us to actually manage the processes and transactions such that we are a trustworthy healthcare organization, which again, if you think about the sort of baseline example that is not the norm, and that's a real, real innovation for us. So, this is the flywheel that we've created to support our partners. Think about without Cityblock. Managed care organizations, again, these are the health insurers that are accountable for billions of dollars of medical risk, disproportionate amount of it concentrated in the people whom we serve: high -risk, high complexity , medically, socially, and psychiatrically complex people. These are unengaged folks.
The health plans, like I said, sometimes they reach 10% of them if they're trying really hard, but they have no direct levers to manage their medical spend. They're facing profitability challenges because medical spend is outpacing reimbursement. We're seeing that happen right now. What that means for them is it decreases their margins. They cannot reinvest in marketing, in growth, in competitiveness in their products. They start to shrink, and they are facing these, exactly these headwinds that I've described. What we offer is tools and solutions for every step in the flywheel that impacts directly their bottom line. So first is we find these members, we engage them, which means then we have leverage points on which to drive care and outcomes.
We improve their quality scores, and we improve the quality with which we diagnose and document what's actually wrong with these people, which enhances reimbursements for the health plans. So, their revenue goes up commensurate with the complexity of the population. They get paid, and they get quality bonuses as well. We save them medical spend because we are keeping people out of the hospital, providing them with lower-cost, more effective, community-based care. That creates savings to the health insurer that we share. That's our margin, but it also enhances their margin. It allows them to reinvest those dollars in becoming more competitive and growing, and that improves their bottom line and their top line as they scale their businesses. We are perfectly positioned as a solution for the plans who are struggling in this environment today to engage and manage the risk that they hold.
And what that's allowed us to do is to build a really, really, really big business, so with excellent outcomes that we're super proud of. Our Net Promoter Score is higher than 75, which in healthcare is somewhat unheard of. The typical provider, particularly providers in Medicaid, so low-income populations, think those clinics I described earlier, have an NPS of about 15. Health insurers, their NPS ranges from - 10 to about 5. We are creating this differentiated experience. The engagement rate I described to you in our mature markets is north of 80%, so give us a few years, and we have touched and are actively caring for the vast majority of the folks that we are assigned to, and that therefore have those leverage points that we need.
We've improved quality scores across the board, which translates into revenue for health plans, again, allows them to become more competitive. We've helped them improve performance on Star Measures, which is the key metric of quality for health insurers. We've reduced medical spend by 18%, across our mature cohorts, and we've retained people at 20% higher rates, so that they're able to maintain this flywheel that I described. Today, we serve 100,000 members across seven states, and so we've been growing this business with core key partners. You see the large health insurers, national health plans.
The last couple of years have been really transformational for our business in terms of growth, where we have now negotiated national agreements with three of the largest Medicaid health plans in the country, which they then use to then replicate as they go from state to state, so our speed of launch has increased significantly, and the size of the new contract launches that we're able to take on has increased significantly as well. We achieved $1 billion of revenue in 2023. We have a really rich pipeline, about $7 billion of unweighted pipeline value, which will allow us that, that traction to continue to grow. We're launching two to three new partners a year.
As I said, we're now partnered with three of five of the largest Medicaid health plans in the country, with the additional two in active conversations. We've seen 3.5x revenue growth since 2020, since Kinnevik invested, and 5x membership growth in that same time period. What this looks like for us is significant momentum. The unit economics of this business are really, really strong. The key drivers for us, low upfront launch expenses, so we don't build huge clinics. We got plenty of clinics. What we need is clinicians to go to people and serve them. So, we launch in a pretty asset-light way, which means we don't have to take years to gain maturity or to gain profitability in a clinic. We actually take on a large tranche of members.
As an example, our average deal size over the last year or two has been about $100 million of revenue. We launch that on day one. That revenue flows on day one. We ramp up our OpEx to serve and engage those members over time. It allows us a very, very quick speed to market, so we can launch a contract in four months. In an existing market, we can launch even faster than that, and we're able to saturate our markets very, very quickly. What we then are able to do is manage our operating gain operating leverage as revenue scales, and so we've seen 700 basis points of improvement in our contribution margin.
So that's our gross margin, that's the medical savings that we're able to achieve with the partner in our contract, net of our cost to serve over the last two years, and we're continue on pace to see that continue to improve. We're on path to profitability. We have plenty of cash in the bank, thank goodness, and are really, really excited about the future. I would be remiss if I didn't spend two seconds on the team, because I think this is, as you can see, a tech-enabled services business, and so services and execution are critical. The reason why we earn the right to take on such impressive amounts of risk with partners is because we deliver.
We have an incredible team that ranges from our Chief Operating Officer, who spent 30 years at CVS Health, started as a pharmacist, ended his career there as EVP, running one of their large, large, large business units. We have a retired three-star army general who was actually overseeing NATO forces here in Europe for the United States before he came to run our market operations. Our CFO has been in seat for four years. She's probably one of the leading experts in value-based care contracting now across our segment of the marketplace, and so on, and so on, and so on. Our team is diverse, highly engaged, deeply motivated.
We have been awarded just about every startup award out there, I think, for the fact that we combine both quality and delivery, a deep mission and a focus on serving underserved populations, most importantly, with a business model that is scalable and that allows us to continue to earn the right to grow and deliver for this population. Really, really excited about the future. It's been a great year for us so far. It's been a really wonderful partnership with Kinnevik, and we're so grateful for your time and really excited to continue to grow into what is a massive, massive market and a huge amount of need for the services that we offer. So, thank you so much. Thanks.
Appreciate it.
Thank you.
Thank you, Toyin, so much for this wonderful presentation. Next, I'd like to introduce you to Dr. Viswa Colluru. He's the Founder and CEO of Enveda. He grew up in South India. His life changed when his mother received a leukemia diagnosis and ultimately passed away. He made it his mission to create better drugs ever since. He has a PhD in molecular biology and was an early product leader in Recursion before founding Enveda. Viswa, please. Take a seat. It's great to have you here. You probably had the longest journey to come here from Boulder, Colorado, and when we first met, Viswa, you explained to me that we know less than 50% of the chemistry of a tomato, and if we looked at human blood plasma, we'd know about 15%. Why does uncovering unknown chemistry help produce better drugs?
Yeah, and I want to actually lead with another fact that probably most people wouldn't have guessed. We know more today about genes of random viruses that scientists uncover from the bottom of the South Pole, than we know about the chemistry flowing through your blood, and that state, and that status, is actually quite deplorable for the life sciences, but before I go on that, I want to talk about why it's exciting to uncover that, and the short answer is that all of this chemistry, life's chemistry, is made in a living cell, by a living cell, and for a living cell, by virtue of its very act of being alive. Every one of us, every organism, every cell, is alive because we convert one form of carbon into another. Plants use sunlight to take carbon dioxide from the air and turn that into sugars, fats, and proteins.
That's really magic, isn't it? And we use that to both break it down and build it back up for energy and growth. So not only is this idea deeply intuitive; it is the oldest idea in the book. It's the very origin of the pharmaceutical industry. It's the most validated idea. Nearly half of all FDA-approved small molecules owe their origin to a molecule from nature, and it is the most untapped. 99% or more of the world's chemistry is unknown to science, and that's why we're excited to use all of that to make better medicines faster.
That's great and over the last 20 years, if you look at how the pharma industry and the biotech industry approached drug discovery, they really focused on genes and proteins rather than the chemistry that our human bodies or nature produces. Why was that, and why is it now different? What allows you now to capitalize on that opportunity that, you know, this industry hasn't done over the last 20 years?
Yeah. You know, until about the 1950s , life and the life sciences were really all about biochemistry. Life was actually defined as the ability to respire, to breathe. But then what happened is, in the late 1990s and the early 2000 s, we discovered something and invented something called next-generation sequencing. And that technology allowed us to take any genome sequence and ask what the genes are and what do they do. And this gave us a tantalizing and infinite number of correlations where we could take human diseases and correlate them to genes and proteins. That became the dominant zeitgeist of the life sciences, and the industry became obsessed with trying to find chemistry for genes. In other words, we downgraded life from a fundamental biochemical phenomenon to just a tool, and chemistry as just a tool to drug proteins. So, what has changed?
In 2020 and beyond, when Enveda was founded, we can do today to chemical space and the chemical code of life, what next-generation sequencing did to the genetic code. Today, Enveda can take any natural sample and ask what the molecules are and what do they do, about thousands of times better and faster than any other technology that we're aware of, and we're excited to elevate chemistry back to what it is-
Yeah
... which is the source of life itself.
Brilliant, brilliant. I was at the introduction talking about some of the different therapeutic or conditions that the U.S. is struggling with. It would be interesting to hear what this modality is most suited to in terms of therapeutic areas. So what are the areas you're working on?
Yeah. We like to think of Enveda's focus at the intersection of three key things: large, growing markets that have a need for new first-in-class, or essentially breakthrough therapies that can be delivered in pill form, and where there is a demonstrated historical success of using molecules from the natural world to achieve breakthroughs. So for us, that occurs in the form of immunology and inflammation, neurosensory, so think pain, itch, cough, and cardiometabolic and obesity. So together, I think conservative estimates suggest about a billion lives that we would affect through big indications in this space. And what is extremely exciting is that across all of those domains, we've been able to use our platform to discover new chemistry, and with it, new and unprecedented biology to deliver real value to patients in each of these indication areas.
Can you give the audience a sense on where the company is today? What stage you're at? Obviously, there's so many different stages within the biotech or the drug discovery process and different risk profiles. So, it'd be interesting for the audience to understand where exactly you're at at the moment.
Absolutely. On the platform perspective, we've unlocked about 1 million new compounds and generated 8 million data points. To give you a context, 1 million compounds is over 3x what all of science across hundreds of years has characterized about individual molecules that make up the natural world. So that's on the platform side. On the discovery side, we have developed 10 unique molecules, shepherd them through the discovery process, and are now on the doorstep of clinical development. That is about 5x faster, deeper, and about a third cheaper than any other company has been able to achieve to date.
On the development side, we expect to hit the clinic this quarter, 4x that number next year, so by the end of 2025 , have five clinical programs, and at the end of 2026 , have shepherded at least four of them to clinical proof of concept, where any one of those molecules, if successful, will give us about a three to 5x return individually on the company's current post-money valuation.
Amazing. You mentioned before in terms of therapeutic areas, metabolic health, and of course, in my introduction, I mentioned the obesity rates. What I didn't say is that due to GLP-1s, that prevalence has already started to come down from, I think, 42% to 40% of the population, which is fascinating in such a short time, and the predictions on the market size for GLP-1s are around $130 billion in sales by-
Conservatively.
Conservatively by 2030. What's also now clear after a few years of these drugs being in market is the positives and the downsides, the cost of these. We can start to observe those data points better. What is your read of the data that's coming out of the current GLP-1s? What are the opportunities and challenges? Let's start there and then go into how you can address those.
Yeah. I think it's absolutely clear that obesity and addressing the overweight pandemic is probably one of the biggest levers we can pull in global health. I think the fact that there's about 800 million obese individuals worldwide and 1.2 billion overweight individuals makes it a market by sheer size that has not been approached by anything, maybe perhaps hypertension and hyperlipidemia combined, right? And so, to the extent that GLPs have allowed us to make a dent in that market and have shown that a pharmaceutical intervention can cause safe weight loss, is a massive breakthrough. But there's really two big sets of concerns, I would say, right now: one from the perspective of the patient, and one from the perspective of a pharma company CEO and a biotech CEO. As a patient, I know that obesity is a chronic lifelong journey.
We've all been on spurts of motivation where we've been healthy eaters and have exercised and have lost weight, but we all know that we get it back the instant we lose a little bit of willpower. The problem with GLP-1s is that they're absolutely optimized for acute weight loss. If I'm a patient, I don't want nausea at the beginning or in the middle, I don't want to lose love for my favorite sweets or whatever is my favorite food group, and I definitely don't want to inject myself weekly or monthly. So that is a big issue.
As a pharma company executive, I have to serve 800 million people, which means I have to be able to scalably make and distribute this therapy, and we already know from Novo that there are exciting peptides they're working on that they don't even talk about in their results because they cannot see a path to manufacture them, so if you put those two sets of problems together, what is a solution that will outshine and perhaps out-deliver impact and value worldwide for obesity is a safe, tolerable, small molecule that can be manufactured and distributed at scale.
Getting to the point of what Enveda is doing to it, just as we've essentially decoded the chemistry of the world outside of us, over the last year, we've extended our platform to go within and ask what are hormones like cortisol or melatonin or testosterone, which are small molecules, unlike hormones like GLP-1 and insulin, which are large molecules or peptides, and see if we could discover those. In the last six months, we've discovered six potential new hormones that can suppress appetite, regulate hunger, and treat obesity, and the best part of a small molecule is that it can be made as a pill. Not only did we discover these, our most advanced molecule shows early signs that you can take it once a day, have no nausea or taste aversion, is extremely tolerable, and can keep your weight off forever.
Our preclinical studies are very, very exciting. We're looking forward to moving the molecule into the clinic next year and get a clinical proof of concept as early as 2026.
Brilliant, brilliant, and just a very quick point as well on the maintenance piece is around the muscle mass, right? That you lose as well through the GLP-1s, and sustaining the weight loss is extremely important because if you gain the weight back and the muscle mass is still lost, you're actually worse off, right?
Absolutely. And to your point, you know, if people that either can't afford, can't get access, or don't want to keep injecting themselves, or don't want to deal with the tolerability concerns, get off of the GLP-1s, that 42% going down to 40% will get back to 42% and worse, because now those patients are more metabolically unhealthy because when you restrict calories, you lose both muscle and fat. But when you regain weight very quickly, you regain mostly fat, unless, of course, you're working out very, very hard at the gym, which is rare to do for the rate at which you regain weight with GLP-1s.
Yeah.
So I think it's as important to lose weight as it is to keep weight off for a very long time.
Yep, yep. And maybe lastly, let's zoom out a little bit as well and look at the next 10 years for Enveda. What's your vision where Enveda are going to be in 10 years' time?
You know, the genomic revolution and next generation sequencing were absolutely great, but they gave us the genetic code of life, and as one of my favorite authors says, "Genes are just information. A dead cell and a live cell have the exact same genome." Instead, what we want to do at Enveda is crack the chemical code of life and take us one meaningful step closer to the molecular understanding of what it means to be alive. The best part, along the way, and when we're at the destination, we've shown and will continue to show that we can deliver human and planetary well-being at scale.
Thank you so much, Viswa.
Thank you for having me.
Thank you. And now to wrap up the health and bio segment, we'll get Adam and Toyin on stage as well for a quick Q&A. Thank you both. Great! We'll start with you, Toyin. How do you see the impacts of the upcoming election in the U.S. on Cityblock?
Oh, my goodness,
Favorite question.
I know, we've talked about this a bazillion times. I think the short answer is, while we all have our own points of view personally, about what I would like to see the outcome to be, many of the tailwinds that I described for our business in terms of the regulatory landscape, the pressures that our customers are facing, the regulatory push towards integration of services and higher quality expectations are enshrined in legislature and policy. They won't change. It has been consistently a bipartisan push to create better and more integrated products for people who are dually eligible, the folks on Medicare and Medicaid, and we've seen that consistent push towards increased privatization of the risk associated with these populations through both Democratic and Republican governments.
We are also a state-by-state business, so on the federal level, the outcome of the federal election will have no change, I think, to our business, to be honest. On a state-by-state level, we may see some changes to eligibility for Medicaid, but again, in many of these states, and particularly the more conservative states, the red states, Medicaid is up to 50% of the population in many of the geographies in which we operate, and that's never gonna change. And so, ultimately, I think, you know, we will continue to see exactly the same trends in our market, irrespective of the outcome, although I have-
Yeah
... things I care about personally.
Yeah, and maybe a second question on the scaling journey you're on and the bottlenecks to the scaling journey. Where are they most acute, and how have you been able to remove them?
Yeah, I think, you know, contracting for risk for these populations is very complex. Effectively, what we are doing is we're taking an adversely selected group of individuals, so we're not taking the full book of business that the plan is at risk for. We're selecting people who are highest risk, rising risk, most complex, have the biggest gaps, have the biggest potential to be high spenders in the future. And then we are, together with the health insurer, identifying the right attachment point for underwriting that risk actuarially, and then the trend that we can expect into the future. It's a complex undertaking with a lot of contractual terms underneath that that are necessary to make these partnerships sticky and make them work.
Our typical deal term is about five years, so these are long-term partnerships that we've got to get the numbers right on, but we also have to get the terms right on. What we've been able to do over the last couple of years is really accelerate that process by signing these national contracts with these large national payers. So what that means is that we've actually established 90% of the key business terms, and what we're doing now is going state by state and saying: Let's actually look at the data. We have a process for actuarially pricing that risk, and we can just rinse, repeat. And so with Centene as an example, which is the largest Medicaid payer in the country, we have launched this year two massive partnerships with them.
And the time from, you know, receipt of the data to launching the cohort has gotten shorter and shorter each time. We're doing the same thing with a number of other national payers, and so that has been a big constraint for us that we've managed to really overcome. And then, you know, the market is really ripe, and so when our customers are desperately looking for a solution, and we are one of the few solutions out in the marketplace, it eliminates a lot of the other sort of barriers around inertia, and just the slowness of contracting when they are eager and motivated to get into partnerships with us.
Thank you, Toyin. Yeah, great, great position to be in. Adam, how big can Spring become?
Very simple question. I mean, look, the TAM is truly enormous. I think, firstly, the existing spend today is $240 billion a year. We have many incumbent competitors doing over $100 billion in GAAP revenue in this space. So, I think just on current spend alone, it's massive. I think it's easy to lose sight of the fact that that is growing, right? There are many tailwinds, I would say, in the mental health space. The first and foremost probably being stigma reduction and improvement in awareness. So, people, generation over generation, are certainly more open about mental health issues. They're much more aware. I think COVID was an accelerant, particularly around stigma and awareness.
I think it gave everyone a taste of something on the mental health spectrum, whether it's stress, burnout, social isolation, grief or bereavement. I think that it took mental health from a thing that people, you know, I think, either had experienced it themself or a friend or family member might have, but I think it took it from a kind of a minority experience to a certainly, like the default experience. That was certainly a big help. But then, you know, there are many other issues that in isolation, seem like a one-off, but they're actually pretty chronic. When you think about wars, when you think about natural disasters, hurricanes in the U.S.-
Yeah
... race-related tension, regulation of reproductive rights, I mean, war, right? These kind of things are seemingly one-offs or like a kind of a natural disaster might feel like a one-off, but in totality, it feels like it's a once-a-quarter issue, and these are recurrent issues that essentially generate even more stresses, even more demand and need in the population for mental health services. So I think, look, I mean, it's already a huge space.
Yeah
... and we have a differentiated solution. We've come up with a model that allows people to expand access to mental health care and actually reduce total spend. And so I think it's a compelling value prop in a space that is big and expanding.
Brilliant. And then on the financial profile, your business obviously lends itself well to public markets, given the visibility. And what can you tell us on plans to IPO?
We will be ready whenever, whenever it makes sense. I mean, the company now has a strong balance sheet, and so I think we're fortunate to be patient. At the moment, I will say that the public markets are not. Spring looks a lot like a SaaS business, right? If you evaluate us just on the financial statements, it looks a lot like a SaaS business. It's highly recurring revenue, B2B deals that are usually multi-year, you know, attractive and predictable economics. The company overall is already break even, and below the gross margin, we're very efficient on the OpEx. So, it looks a lot like a SaaS company.
The public market has not seen a company like that in healthcare, and I think that's the challenging thing because it's going to take a while before investors can move away from legacy healthcare businesses that were generally not that profitable, and even if they were profitable, it was on a tiny margin. They were generally not growing that fast. They generally had high CapEx. They generally were not selling recurring B2B deals, and they generally didn't have the same financial ROI to the customer, the end user that was paying for it. I think it will take a little bit of time for the market to for us to educate the market and for the market to become willing to see a company that looks different to the ones that they've seen go before.
Yep. Yep. And the good news is you're already doing that work today.
Yeah.
Viswa, could you help us, as investors, think about Enveda's next steps and the progress and how we should evaluate it over the next couple of years?
Yeah. I think I'll answer that in the context of what we want to become in ten years or beyond. And in 10 years or beyond, we want to be a commercial, global, integrated pharma company. So, think Lilly and Novo ideally together. So, if we have to get there, there's three steps from where we are today. The first step is to achieve positive clinical data in one or more large indications that solve meaningful problems, use that to drive down our cost of capital significantly, so that unlike 99% of our peers, we just don't get swallowed by a larger pharma company, which is the norm in the industry. Once we do that, build the muscle to go commercial in the U.S., which is the largest market, in one focused therapeutic area.
With that, that'll probably be either inflammation or obesity, so we can take on the biggest prize, and then go global. So I'd say evaluate us on step one, which is: Are we able to create exciting medicines, successfully execute clinical trials, demonstrate positive data on at least one of them, ideally multiple, so we can show that our thesis, our technology, and our team are all delivering?
We talked about you unlocking nature's chemistry earlier, and of course, people would wonder: Wouldn't this lend itself as well to other areas other than therapeutics, like agriculture or manufacturing as well?
Absolutely. Our goal is to begin where it most makes sense, where we can capitalize the business with the promise of returns, like in the pharmaceutical industry. But if you say our role and our ability to unlock nature's chemistry and crack the chemical code, is applicable beyond the pharmaceutical industry, you'd be totally right. I can imagine us making better food, us being able to track human health with much greater precision, understanding how Mother Nature makes all of the fantastic chemicals she does to turn manufacturing to be more green, and then end at my favorite point, which is to understand what it means to be alive at the molecular level.
Thank you. Thank you so much, Toyin, Adam, Viswa, it was great to have you here.
Thank you for having us.
Wonderful.
Thank you.
Thanks, and over to Toyin for the next section.
Torun.
Torun.
Y ou.
It was fine. Thanks, Christian. So, it's time to change focus, even though it feels like we could talk about these exciting healthcare companies for the full day. But I'd like now to hand over to Akhil Chainwala, who heads up our practice within software, and he will talk to us about how come Kinnevik has and owns three of Europe's most exciting software companies out there today. Akhil, over to you.
Good morning, everyone. I think it's an even tougher act to follow the meaning of life, quite literally. We've been investing in software since 2018. We've categorized it in our NAV for you since 2022, but unlike the other areas you'll hear from today, it is a business model rather than a sector per se, and some of you may come to wonder how and why we invest in this area. And the answer is linked to our fundamental view of where white spaces for value creation lie. Broadly speaking, and very simplistically, we see any technology company can cater to one of three stakeholders. You can sell to end consumers, you can sell to businesses, or you can enable merchants on the supply side of the transaction.
What we've seen over the last decade or so is signs of maturity and saturation in the consumer space, which have resulted in higher customer acquisition costs and share gains mostly accruing to incumbents. Meanwhile, we've seen explosive growth in two other areas. Businesses have been adopting modern technology tools as they move from on-prem to cloud solutions and as they cater to an increasingly young workforce. Similarly, merchants need modern infrastructure to deal with all demand, whether it's consumer or businesses. The reason restaurants don't operate the way Christian described them is they operate on cloud technology, not pen and paper or Excel anymore, as they used to. And our own portfolio mirrors these shifts. The sales into enterprises are what we call consumerization of enterprise, and the enablement of merchants are what we refer to as vertical software.
And although we show these as three distinct areas on this page, it's important to note there's a shared underpinning of end consumer behavior and sectoral trends, which is important. A hotelier that manages their operations on Mews and sells through both Expedia and TravelPerk doesn't think of these as three distinct areas. Here we've shown what this looks like across a few different sectors since the start of growth co. As you can see, consumer has seen rapidly saturating penetration, but also a lot of those gains accruing to already publicly listed large technology companies. At the same time, the two rightmost columns here have seen rapid penetration gains, and most of the value creation there has accrued to companies that used to be private at the growth stage, and in fact, have, many of whom have gone public over the last five years.
Just the logos on this page alone represent over $100 billion in market cap. Let's dive a little deeper into the two focus areas we've outlined, focused on enterprises and merchants. We have four portfolio companies, two each in each of these areas, and let's spend some time on each of them. If we could just go back a slide, please. Vertical software we find interesting because it has two inherently attractive business model characteristics. First, very high retention of merchants and stickiness, driven by the fact that these are typically mission-critical operating systems that are very complex to replace. Secondly, a potential to upsell new products and add them to the bundle over time. For instance, Shopify began as a storefront and checkout solution, and over time has evolved into a full suite, including payments, fulfillment, and marketing.
Consumerization of enterprise, on the other hand, is all about large addressable markets and bridging the gap between what you see in leisure tools and enterprise tools. The paradigm shift that happened in this space about a decade ago was employees urging their corporate employers to move away from company-issued BlackBerrys to bring your own device iPhones, with a software layer of security and permissioning on top. And ever since then, this has pioneered a wave of new businesses where you can have this bottom-up customer acquisition, product-led growth flywheel, which can actually reduce your acquisition costs because you're not just selling into a single decision-maker, but you also have employees advocating and championing the use of these newer technologies. There's been a lot of debate in recent months and quarters around the impact of AI on software.
Broadly speaking, there are quite a few concerns in the market, which is manifested in the fact that software as an industry trades at about 1/3 lower than its pre-COVID average. However, we think this masks a number of underlying nuances that actually play into our favor and let me call out two of them. One, historically, the market has favored what today we'd look on as thin wrapper application software models that relied on code as a moat. And today, with the advent of artificial intelligence, we see the marginal cost of code very quickly trending towards zero. We saw a product demo from a new investment we're considering yesterday, where they replicated one of the logos I showed you on the prior page in six minutes, live on a Zoom call.
And in that world, the market has reconsidered the durability of code as a moat, and you see that in application software being valued well below its historical averages. At the same time, the market has considered what you've heard, including from Adam, and Toyin, and others, the value of consumption-based models and value-based models that actually grow with their customers. And while you may not have the legal or contractual visibility into recurring revenue, you do have other moats beyond code, and these are typically unique inventory, proprietary distribution, and being embedded in the workflows of your clients. And as you can see, for the first time ever now, vertical software, which typically is more consumption-based or is a mix of recurring and consumption-based, trades higher than application software. The second trend I'd call out is on financial profile.
For companies that have proven out profitability, there is a scarcity of growth assets in the market today. There is no software company growing more than 30% today in the public software space, and companies that are growing more than 20% are valued 1/3 higher than they previously were. In fact, we think AI is going to be an accelerant to our software strategy at two levels. One, for our vertical software companies, it's going to increase their addressable market. Now, they can not only tap into the technology spend of merchants, but also labor spend by automating staff costs. And similarly, there will be an opportunity to reduce costs across all layers, including customer care, as you'll hear from TravelPerk later, but also product development and sales and marketing.
Given all the attractions of this space, you may wonder why Kinnevik is a partner of choice to the best founders and why we have a right to win in this space. The next slide talks about why we have been able to deliver 20%-28% IRR since inception in this space. We think, apart from our structural advantages of permanent capital, we think there are three reasons we stand out in this space. One, we have density in Europe with a strong brand name and strong network amongst the best founders. Two, we are thematic in our work around the business models I just highlighted, and we've been able to pick winners in these spaces. Thirdly, we have a deep understanding of the sectors these companies operate in.
It's no coincidence that our software companies are in three sectors: healthcare, travel, and e-commerce, areas where we built an understanding of the consumer-facing layer through investments like Cityblock and Omio. Double-clicking into a couple of these dimensions. In Europe, since the start of growth co, there have been a hundred software unicorns that have been created, over a hundred. These are typically companies valued at more than $1 billion . Today, we estimate just over 20 of them have more than $100 million in revenue, and we use that as a proxy for what it would take to deserve a billion-dollar valuation in today's valuation environment. We own three of these 20. Two further points I'd highlight: we invested in two of these three when they had less than $5 million in revenue, and we have done so while being very disciplined and concentrated.
We've only made four investments in European software. And you see a similar story play out on the next slide in our chosen business model segments of vertical software and consumerized enterprise, where there is a small handful of scaled companies in this space, and we're fortunate to have backed a disproportionately high share of all of them. Today, software represents just under 1/3 of our portfolio, and three of our five core companies. What you'll see with some of these is the archetypical model of success that Samuel laid out earlier, where we make a very high return on our first ticket, but we don't sit back on that. We actually take it as an opportunity to double down and make meaningful follow-on investments.
You will hear today from three of these four companies, Mews, TravelPerk, and Pleo, in a variety of formats, including company presentations, fireside chats, and even a discussion with an important customer. Let's begin with me handing over to Matthijs Welle, CEO of Mews, and like many successful vertical software founders, he brings what we call founder empathy for the problem he's solving. Matthijs has had two careers. He spent twelve years at Mews, but before that, he spent a decade at Hilton Hotels, where he built a deep understanding of the problem he's now solving. Over to you, Matt.
Morning, everyone. I love the stories of the different founders and how our earliest parts of our life shaped the companies that we've started building. For me, when I was five years old, I stepped foot in a hotel for the first time in Austria, in the mountains, and I realized that that was the moment for me. That was my life. I knew that I was going to be on a path towards becoming a hotel manager. Then that path worked out well until it didn't, which was about 12 years ago, which is when I had worked at Hilton for about a decade, and I ran into Richard, the founder of Mews, who was helping his family build a hotel. He said: "I'm not going to buy a reception desk because I don't like it.
I don't think it's great hospitality." And I said: "Great. What are you gonna use? What's the system? Because I've worked at Hilton, and I haven't seen a system on the market that you can use to run a hotel without a reception desk." And about a year later, he convinced me to leave my job at Hilton so that we can build this system, because he actually had done a market scan, and he said there actually isn't anything out there, and that's a major opportunity. And that really was the premise of what we started Mews on, and it became much more than just the reception desk in the end. But that really was where the journey started for us. We're now 12 years into the journey. We have deployed to about 5,500 hotels. 85 countries, so we've really very quickly expanded internationally.
Instead of going really big in one country, we said, "We need to internationalize, because if we're going to tackle hotel chains in the future, we should figure this out early on in the journey." And we're in a space with a huge TAM. So currently, we capture a small part of a massive TAM of 60 billion, and that TAM is still growing because this is only the 85 countries that we're in, but there's way more countries than 85. We've scaled to about, actually 1,200 employees. It's growing quite fast, and we've pivoted very much towards remote first, so that we can hire the absolute best talents wherever they are in the world but also drive a more diverse kind of workforce because it's generally, remote-first companies have more diverse workforces.
We're at about 240 million ARR run rate, so we're really at scale now, and one of the things that's really critical is this net revenue retention, showing that a customer will start with us and will last with us and then start to build out, start to buy more products, roll out to more of the hotels within their, within their group. Customers love us, and they love the solutions that we bring to them, and then, obviously, acquisitions is a way to accelerate some of the growth because we are an industry that moves very slowly. A lot of hotels, not our hotels, but a lot of hotels are still sitting with on-prems, a server in a back office with unencrypted credit cards, very unsecurely.
We try and accelerate the inertia that we see in hospitality through the Mews promise and then also through acquisitions. So, if you go into a very traditional hotel with one of those systems from the 1990s, that's typically what you'll see when you look over the screen. It's on-prem, on a server in a back office. Payments are taken by hand. There's 16-digit credit card numbers all over the back office. It's very scary what they do with your credit cards in hotels. It takes employees weeks to get to know these systems within actual training rooms because it is really complex, these crazy, old systems. Most of the solutions inside the hotels don't talk to each other, so a lot of the data is transferred by humans between the restaurants.
When you close a bill in the restaurant, they'll run to the reception to give that receipt so that it can be posted on your bill, because it's a closed ecosystem. So, what we did is we started in the cloud. We're obviously a generation where there wasn't even a question whether we'd build an on-prem. We started building that natively in the cloud. We embedded payments, like with an Uber, so once we've got your credit card, we don't ask you for that credit card again because we got it from the booking. So, at check-in, the most common question on check-in is, "Welcome to the hotel. Can I have your passport? Can I have your credit card?" That shouldn't happen in a hotel anymore because we can solve that with technology. We should have hoteliers talk to humans and create real great experiences.
So we basically Uberized that whole payment flow, and receipts are automatically sent, so they're no longer asked for: "Would you like an envelope with your bill?" "No, we've emailed you the bill already automatically, as and when we took the payment." And we opened up that ecosystem, so we have 1,000 integrations. We're the most integrated solution. We're at the heart of the hotel, and we put our API on our website, which was unheard of in hospitality a couple of years ago, but we just said: "Why wouldn't we put it on the website? Why wouldn't we be open? Why wouldn't we embrace integrating into other startups and technologies?" It really helped us lift off and expand globally. We think about a hotel across the real estate.
So traditionally, you think about hotel bedrooms that you have to fill with people, but actually, what about the lobby space? Could we help you maybe turn that into a co-working space? Because if you don't need a reception desk, maybe you can turn that into a co-working space and make the lobby vibrant again and make it a revenue-generating space. How about the parking? Could we connect that? Could we help you sell more parking spaces? If it's underutilized, maybe we can use the local community to connect that and drive higher occupancy. And we really think about every space. Whenever you're at a hotel on your holiday and lying by the pool and thinking, "I'd love a drink, but I wish I could find a waiter," those are the solutions that we bring.
So there's a QR code next to your seat, and you can instantly order 24/7 from wherever you are in the hotel. And we try and really think holistically about making sure that every square meter is optimized in terms of revenue generation. And the size of this market is huge because a hotel is a hotel, if you think about it. It doesn't do anything significantly different if you are in India, if you're in the Netherlands, if you're in the U.S. Yes, there's local legislations. It's quite painful in Europe to expand internationally, and we had to jump through a lot of hoops to get certified in different countries. This country is a complex one with the black box here, where every bill that's paid in cash, you have to get sign-off by the government.
So we had to jump through those hoops, initially, which was painful, but once you're there, the threshold to entry is high for other competitors, which is great for us. And if you think about our space, today, we only capture 1.5%, and we're the fourth largest vendor here, so it means it's incredibly fragmented. And that's for us to solve because we want to become the biggest player in hospitality going forward. There's huge space to grow, but there's also a huge space for consolidation, and that's where our M&A efforts come in, and that's why we do so much M&A.
We do about three M&A deals every single year, and some of those are where we buy a legacy tech stack, and we migrate the customers onto Mews, and some of it is expanding our ecosystem so that we can do more ourselves into that one ecosystem. Some markets, we're already a market leader. So, in the Netherlands, where I live, it's about one in three bedrooms that we now run on Mews. Markets like this as well, thanks to our success, locally and specifically Strawberry, who you'll meet, in a minute, we have a one-in-four ratio in the markets of the Nordics, where the hotels are run on Mews. But we're still small markets. We'd like to get into the bigger markets, where there's a lot more to shift. So, we've entered the U.S. market a couple of years ago.
Richard, the founder, now lives in the U.S. to help us grow in that market, and there we've got a 0.5 % market share, so we've got huge space to grow. But also Germany, we've seen a huge interest suddenly, because the German market has been a very slow market to adopt some of the technologies. But we've been talking to this market for about 10 years to warm them up, and we've seen a real tipping point that we reached this year, and we're starting to see an acceleration in that market, and it's really huge. Same as in France, we've had real successes, and we're starting to see that acceleration in that market. This year, we were also voted the number one property management system in hospitality, and this is voted by hoteliers.
We ask hoteliers to rewrite reviews, and based on that, they measure it. This isn't just in property management; this is across hospitality technology, that we are now the number one system. Despite the size that we have, we're seeing that customers really love the solutions that we have. We went to IDC, an analyst firm, to help us write a case study saying, "Okay, can you objectively say that a Mews hotel versus a non-Mews hotel is a business that runs better, objectively? Like, do they have a better bottom line? Do they drive more revenues?" And they said, "Yes, that's what we found from the research that we've done." And that's really powerful in our story to hoteliers, where we can really prove out the return on investment to hoteliers.
How we go to market, we don't make it easy for ourselves because we've decided to just do it in all the segments. A lot of startups start in the SMB segment and then just scale within that in one country. Specifically, if you think about the example that Akhil gave about Toast, Toast works in one segment, in one market, the U.S. and SMB, and they can scale infinitely because that's one huge market. We're in Europe, so every market has local flavor competitors that we have to go up against. And also, we wanted to reach larger hotels because that's where bigger innovation can be had. SMB is your independent hotel. Those ones come in through the website, and we convert those really fast.
We can convert them within two months and get them live within two months. Beautiful, beautiful business. Mid-market is when it becomes a hotel group, or they're significantly larger hotels. So here, we have to get them in through different sources. So, we have to get them in through the website, through integration partners, through consultants. So, there's many ways to get into these deals. They are significantly larger. They're significantly more complex in terms of the integrations that we have to enable in those hotels. But we love it, and we've slowly moved up market, and we've now started going into the strategic segments. So, you'll hear from Strawberry, with their 240 hotels we've deployed over the last two years, we've been able to really bring a lot of innovation, and then that's been a steppingstone into even larger brands.
We've just announced a partnership with Best Western Hotels in the last two weeks, and now we started seeing a real pipeline of Best Western Hotels starting to come in. But we couldn't have done that without the help of a Strawberry or without the help of the independent hotels. So, it really has been a huge steppingstone that we've been going through in the last few years. And this is the growth that we're seeing. So, we are not only a SaaS business, a software business, which is the bottom part of this chart, the white line. You see it's steadily growing, stably throughout the years. Even throughout the COVID years, we've continued growing, despite hotels being physically closed down.
Hotels were like, "This is, this is the moment to start changing." And the line on top of it is the payments, because we enable payments, we process them, and obviously, we make some interesting revenue on top of that. And you see that growth like a rocket ship that's been taking off in the last few years because we just get better at driving more automation for hotels, which they love. And that's really spiking a lot of the growth that we're seeing. And now it's about taking what we've done in payments on the transaction side and figuring out, how do we do more for hotels?
For example, if I would say to you, "Why don't you turn your lobby into a co-working space?" They're like: "Well, we don't have money." We're like: "We have a lending product," and we launched that this year, so we can say, "Well, we can actually fund you to reconstruct your lobby to make it revenue-generating, and we can provide a loan." So that's really where fintech starts to come in, when we start to diversify some of the solutions that we offer to hotels, and for example, dynamic currency conversion. The Nordics is a great market with all the currencies that we have. It's a fantastic way to help hotels make revenue from our system. Instead of we being the cost to the hotel, suddenly we have a model where we can help hotels make more money for their business. So how do we continue growing?
Because we have quite some years ahead. This is a long-term investment business. We're growing a beast, and we do that through multiple ways. So, one is really our existing customers and making sure that we do more for them, we do more with them. So, we're building out more solutions. So today, we have sub-10 products that we can offer to hotels. Next year, you'll see that go over 10. So we will deploy multiple solutions in the event space, potentially in the revenue management space, potentially in the BI space, because we're seeing in our marketplace that that's what hoteliers are buying on the marketplace and where they see the value, and we should be helping drive that inside our ecosystem because if it's in the ecosystem, we can make it better.
Obviously expanding new logos, so really pushing where we see the demand. So, we'll be doubling down on the U.S. It's a fantastic growth market. We've seen a huge growth this past year because we really focused on it. Germany is a big growth market, France, and making sure that we just do a lot more in those markets where we have infinite space to grow for the next coming years, whilst we look to expand our TAM in other territories as well. And then lastly, inorganically, we're looking to expand inorganically into new markets. So, we can buy legacy tech stacks, but also, we can look at expanding that ecosystem.
When we see something working really well in marketplace, we'll start a conversation saying, "Hey, are you open to joining us so that we can really expand the offering that we have?" But by making our tech teams work really closely, maybe we can make the product better if it's deeply, deeply embedded into our solution. And that's Mews in short, and Akhil is going to take us to the next bit.
Thanks, Matt. You mentioned the Nordics is an important region, and Strawberry is an important client, and we wanted to take this unique opportunity to not just hear from you and us, but also from Strawberry themselves on why they chose to work with you, and please join me in welcoming Kari Anna Fiskvik, SVP of Technology at Strawberry Hotels.
Hi. Nice to meet you. Thank you. I will-
Thanks, Kari Anna. You have more than 250 hotels. This, as I mentioned earlier, is a mission-critical piece of technology for you. You made two changes: you moved out of an in-house solution to a third-party solution, and then you chose Mews as a third-party solution. What prompted those changes?
I think what prompted those changes, apart from the fact that the technology was getting old, was that we wanted to center. We did it instead, under Corona, instead of sort of shutting down everyone in the company, we tried to make a new strategic process to look at where do we want to be, not just out of Corona, but after that. And we really wanted to focus more around the guests and everything that we could help the guest with, and not so much around the buildings and the rooms. Obviously, I mean, we do hotels, so the hotels are our main income, so source of income, but we wanted to be able to cater better for the guests. And there weren't really that many systems out there that was thinking more guest-oriented at that point.
They were thinking around room. Everything was built around rooms, rooms, rooms, rooms, rooms. So for us, to find Mews as a partner, and take a leap on that and not, also then deciding not to develop our own technology on that, but finding someone who was specialized in it and had a real passion for it, was definitely crucial in how we chose to design the architecture around our 200 applications that we have, which Mews is basically at the heart of, and, the guest is now at the heart of the IT architecture instead of the room.
Interesting. And what are the changes you've noticed in the guest experience over the last two years since you've rolled out Mews, and what are some of the success indicators you monitor?
There are a lot of different use cases on that one. Obviously, the kiosks that we are developing now a lot together with Mews, they're very good at getting our input, is enabling self-service for the guests and also enabling a lot of upsell, basically, so that they can be more efficient in the reception. For the large hotels, they can also then save cost on employee and personnel. For the small hotels, there are still people around. Someone has to be there if there's a fire or something like that. But it's a lot more efficient, and it's also a lot easier to connect new partners and experiences. Our strategy is towards more to explore, and we want to have a universe of experiences.
And without having, Mews at the center of that and focusing on what do the guests prefer and on always, connecting around that, it would be very hard, to get, to sell those experiences to the guests. So we're seeing a lot from everything, from efficiency, to guest experience there and then, that the things are smoother, faster, but also the potential to build on top of it, with other systems and other partners.
Maybe for the audience here, did you switch on 240 hotels overnight, or how did you roll this out?
I would say we're almost there, Matt. We almost did it overnight. Obviously, we did a test period first. It was new to... I think we were the first really big customer that you had with multi-property hotels that were run centrally, so we needed to adjust and learn, both parties, so we did that for a while, but frankly, after having done that for a couple of months, we made a program together that I think it was quite unheard of, so we migrated four to six hotels every week for a period of, was it eighteen months, so we basically, with some holidays here and there, we just moved out. It was a train of migration people, and we didn't only...
The way that our old IT architecture was built, everything was built around the PMS. So when we sort of took that out, we also had to change the POS and all the payment terminals, and all the RMSes, and all the websites, and all the data warehouses, and the spa systems, and the event systems, and basically, we changed around the CRM system, 20 to 30 systems on four to six hotels, plus the headquarters. It's been a roller coaster. It was really, really fast. Personally, I have admitted to the teams that we set that date, but I never thought we would be able to make it. We were just sort of, you know, stretching towards it. But-
We did.
We did, yeah. So, amazing journey. Definitely a bit stressful, definitely some sleepless nights and some weekends that were broken. But I think that what was unique with... Obviously, we have quite similar cultures in our companies. That helped a lot, took away a lot of misunderstandings. But what is unique with both companies is that it's sort of instead of focusing on what could go wrong, we're sort of: "Okay, but how can we do? How can we get where we want to be?" And with that mindset, I think that we solved, basically every problem that we had on the way, and there were a lot of problems on the way. I'm not going to say there were not.
Spicy conversations.
Spicy conversations, bad cop, good cop conversations. But we did it.
The good cop or the bad cop?
I'm usually the bad cop, actually.
... You are, but in a good way.
I am.
And Matt, building on that, so as Kari Anna mentioned, Strawberry was the first large strategic account. You've mentioned over the last two weeks, you're now working with Best Western and others. How have you evolved your own organization to ensure customer success, that you don't just sign these big accounts, but you also roll out and ensure they're meeting the goals they want to achieve from Mews?
Yeah, it's when you sell to SMB, you literally deploy it, and then the next person moves in to manage it, and you're golden. Then as you start to move up, you realize that conversations are more complex because they have so many integration partners that we have to coordinate with, and onboarding is complex, and then they have a train-the-trainer team on site. We started to build out a custom team and custom people that you know inside out, and you know personally because they're here every single month. Our product team would fly in here every single month to meet that head of office, because our largest customer up until Strawberry was probably 50 hotels, and they were at breaking point.
And when we started working with you, suddenly we're like, "Crap, this is not going to work." And you really broke us. But it's a good thing because it forced us to rethink how we were managing the platform, and we built a whole new product together with Strawberry, which is our multi-property product, so that from a head office point of view, if you wanted to run a summer promotion, you can just load that rate in across all of the hotels without having to log in to two hundred and fifty hotels individually. So while initially they broke us, it actually forced a fantastic change into our... the way that we structure our organization, but also our technology down the line.
Interesting. And you spoke earlier, Matt, about the, you've been in the German market for ten years, but there's been a tipping point, I think, were your words. What is driving this shift in mindset? And maybe another way to ask it is, what differentiates a client from Strawberry who's willing to take that leap of faith and is willing to be more guest-centric versus others who are not?
I wish that everyone was Strawberry. I think the mindset that we found at Strawberry, that they just embraced, "Okay, we're going to change. This is going to be painful. Let's just figure this out together," it really has been refreshing at that scale because you see that in independent small hotels who don't... You know, they can very quickly move, but to see that at scale is quite unique. What we see in the German market is that we started the tipping point when a much more traditional hotel shifted.
And when a traditional hotel chooses to go not with the IBM of our industry, but they go with the innovator, and they talk proudly about it, that's when the German market started listening and like, "Oh, okay, if they are making this move, it's exciting." And, you know, whilst I wish that everyone was Strawberry, we're now starting to get these pockets of more traditional entrepreneurs to come onto Mews, and we have to tell those stories in the right way because that's really driving a lot of the accelerated growth now that we're seeing.
Great. And Kari Anna, I'm sure you discussed not just where the product was and the minimum viable product it needed to be to launch across the portfolio, but also where the product would be over time. So, what more would you want from Mews, in terms of their roadmap and the product?
We have a backlog. I guess we always will. I don't think I want to specifically focus on one thing, but it's definitely a lot around how you can sort of what data we can get out of it to share across the different properties and the different partners we have. So the ability that you have to connect and always see that you are one part of an ecosystem instead of trying to be the whole ecosystem, I think that is very important for us, because every customer you have is unique, and some people want to build this way, and someone want to build- wants to build that way.
So I think the continued focus on that, and apart from that, I think that what we really need from Mews moving forward is that they continue to challenge us on innovation and guest experience. Cause we love to, you know, look at ourselves as an innovative company. We also have 250+ hotels and 20,000 employees, when the hospitality industry has, like, you know, a 30%-50% turnover rate. So we have so many people and so many hotels to run and train and onboard and off board, that we really have to be excellent at that.
So, for us to have a partner that can challenge us, challenge us on the way we think on innovation, how to use technology, and focus on giving a better guest experience, is maybe my main thing for you, to stay focused on that, even though you're growing.
How does that link to your roadmap, Matt?
No, I love it. Like, honestly, like, ultimately, if I can fix the guest experience, hotels will benefit from it, but it's often hard to make that investment because there's lots of feature requests on the back-office side, and it's shifting the... Don't ask us to build the features of the past, but let's think about what the future is, and maybe we don't need a report, but maybe there's another way to approach this through automation, so if I can get guests, one-third of guests to check in online, that means they don't have to go to an employee, so then maybe I don't need the screens anymore that we built for employees, and it's really approaching that challenge in a different way by focusing on the guests to drive back office automation.
You mentioned earlier, Matt, the more conservative mindset. Kari Anna, were there voices within your own organization that would say, "Go for a safer option. Go for the, 'You don't get fired for picking IBM.' Go for the tried and tested incumbents. Why do something more innovative?" Did you get that, and how did you push back on that?
We definitely did get that. I mean, we're a multi-brand hotel company, so there are a lot of different units and people and meanings, though we have less of it than a lot of other companies. But I think basically what we did very well, both of us, both our companies, was to sit down and take that concern seriously, and listen out, and try to get to the point of: what are you really scared of? And very often it's just that, you don't understand. You're used to doing things one thing, it's hard to picture how it could be differently. I think it is for all of us.
And also, of course, there's most executives these days have been through a failed IT project, and they don't wanna go back there because it's very expensive. So we had to make use a lot of time on explaining how we would work week by week to solve problems, and then we got there.
Like, I think what you did really well was a work across the organization instead of a top-down decision.
Mm.
Suck it up, this is the new system." It was, like, really taking them on board. We did a few pilots, and then we told the story of the pilots, like how much they changed and how much they loved the system. We found the innovative pilots, like the general manager, who was like, loved the technology, and let her tell the story instead of us coming in as managers and saying: "Well, you're gonna love the system." It just doesn't work, and I think it was productized in the way that we approached the cultural element of it.
Yeah. We created success stories, and then it sort of, it sold itself-
Excellent.
-I think.
I think we're just out of time. Thank you both so much for taking the time to be with us.
Pleasure.
Thank you.
Thanks, Matt, Kari Anna, and Akhil. And Akhil will be back after the break to take us through some more software companies. But I think we have probably all worked up a bit of an appetite, so we will take a break for lunch, and we will come back here, for those of you online, at around quarter past one. Thank you.
Welcome back, everyone. Could you please take a seat and join me in welcoming Avi Meir, Co-Founder and CEO of TravelPerk.
Hello.
Welcome, Avi.
Thank you. The post-lunch session.
Exactly. Avi, Georgi mentioned earlier that we doubled down on our investment in TravelPerk in 2021 when you had negative revenue. He also said you've grown a lot since then. So have you gone from a lot of negative revenue to a little negative revenue, or do you now have positive revenue?
Yeah, we have very positive revenue. So, our before COVID, so in 2019, and I have to talk about COVID, although it feels like it was, you know, many years ago, but for us, it was a big event, being a business travel company. And you know, March 2020, our product became illegal to use in most countries in which we operate. So, in April 2020, we had negative top line. And then before COVID, right before COVID, our peak revenue was 19.1, so a bit less than $20 million annualized US dollars. So, we went from $20 million, fast-growing $20 million ARR company to negative revenue.
As you can see here in this slide, we closed our best quarter at $ 200 million annualized revenue. In fact, in September, we had $ 240 million annualized revenue, so we're growing within the quarter also, pretty well.
... And what's driving this growth, Avi? 53%, business travel is not growing 53% year on year. So who are these clients you're attracting? What did they use before they came to TravelPerk-
Yeah.
because you're gaining a lot of share.
Yeah. And I actually used. I don't know if I can share. We have this opening slide, and people ask me: "Why are you pivoting to a solar panel company?" And-
We're fine with that.
Yeah, yeah, yeah, exactly. Yeah, we are. It's a new line of business. No, so jokes aside, this is actually a real customer of ours, a company called Affordable Solar, based in Albuquerque, New Mexico, which I've never been to, but there are many great companies there. And they are traveling all across the U.S. to install solar panels in industrial warehouses and big, big installations. So, the travelers don't own a laptop. They travel with a mobile phone, and this is actually 80% of business travel. So, we think sometimes, mistakenly, that business travel is the laptop class. In reality, business travel, in most of the economies in which we operate, which is Western Europe and North America for now, is composed of these small and medium-sized businesses who travel domestically.
90%, nine zero, 90% of business travel in Germany is domestic and mostly using rail. So, what we think about business travel in our industry or in our jobs is not the big opportunity. The big opportunity is the solar panel installers and the warehouse automation experts that travel during, even during COVID, obviously. So, these companies are a complete greenfield. They come from the background of not using any solution before coming to TravelPerk, and we are the first centralized managed solution that is a product and software that they're using to organize every aspect of their travel and expense.
And what does that mean? What do they get out of it through the centralization and the management?
So, how it looks for if you look at the phone, a mobile phone of the Affordable Solar expert, before TravelPerk, they had nothing. It doesn't mean they were not traveling, but they had all of these different leisure travel, holiday travel apps on their phone, and the CFO had no visibility and control over this very important spend. In many, many P&Ls, we're talking about the second or the third cost item, and the CFOs just had no idea how it's spent, why, does it comply with travel policy? So, what we did is we almost by coincidence, at the beginning of the company, we stumbled upon this huge opportunity, which is you see here in the graph, that's almost 1/2 of the total market.
So, if business travel is around $1.5 trillion globally, SMB and mid-market, especially the unmanaged side, is almost 50 %. And when they come to TravelPerk, as I said, their phones look like this, like this, and we very simply turn it into a single app. So that's the big innovation with TravelPerk, is instead of using the open internet for wrongly, you can centralize your business travel, even in small and medium-sized companies, and it was reserved in the past only to huge corporates who use you know, legacy players like American Express and the likes.
Are you selling into the CFO or the traveler, or how do you appeal to various stakeholders?
So we actually have, if you think about TravelPerk, and that's one of the elements that make it complicated to explain the business, because we have a SaaS component, which we sell to CFOs. So this is what they use to enforce, if you will, the travel policy and to get the data. They have to extract it, for example, for sustainability reporting, which we make available. It's not available by definition, if you don't have the data. So, the CFOs use the platform for reporting and travel policy compliance and cost control. The traveler uses our platform the same way everybody here would use Booking.com or Expedia for their holidays.
And the admin, what we call the admin or the assistant, uses the platform to book on behalf of others and to organize events, such as workshops or internal meetings, off-sites, which became a very big category after the pandemic. So we have three products in one platform.
One thing that excites us at Kinnevik, Avi, is that TravelPerk is an N of one company. There is one SMB travel company, there is one European corporate travel company, and that is TravelPerk. What we see in a lot of other sectors is fragmentation across geographies, across segments. Can you help us understand what the barriers to entry are? Why isn't there a TravelPerk for Spain and a TravelPerk for Germany and a TravelPerk for Italy? Why is there one TravelPerk?
Yeah, it's a great question. Before starting TravelPerk, I actually sold my previous company to Booking.com. So I created a software or for hotel management. It didn't do as well as Mews are doing right now, and we sold it to Booking.com. And through this kind of joining Booking through the acquisition, I met my co-founders and we realized something super important, which is there is a reason why Booking.com is based in Amsterdam, and it's the largest online hotel booking website in the world. And Expedia is probably. I didn't check recently, but maybe 5x smaller or 4x, maybe 4x or 5x smaller, based in the U.S.
What Booking has figured out, and if for those of you who know Booking, they know the, you know, Kees Koolen came up with a formula. The formula for the booking success was deep localization in each market. So, we took it as a principle also for TravelPerk, and we just applied to a different industry, which is business travel. Localization means obviously language, but it goes way deeper than that. So I try to kind of show as a schematic what we need to do in order to localize the product for, let's say, the German market, and we sell four verticals, so you can buy everything in one place. You can buy accommodation, flight ticket, rail, and car rental.
So all-in-one, which is very difficult to do technically and commercially. There is a reason why Booking still only sells accommodation natively. And then in order to localize for, let's say, the German market, you have to have Deutsche Bahn content, which is not. There is no API for Deutsche Bahn. You have to work with a very old way of integrating technically, and you have to make sure the VAT is claimable. So we are 21% cheaper because we can actually give you a VAT invoice that you can claim back. For most people, it's not relevant, except if you're the CFO, and I can tell you that you can spend 21% less if you use TravelPerk on a very important line item. But showing the VAT on the invoice is not as simple as just showing it on the invoice.
You actually have to go and change accounting and build on top of a very legacy kind of industry. Most of these technologies that you see on the screen were created in the 1960s and the 1970s of the previous century, and they're still running on IBM mainframe and such. So, putting an abstraction layer on top of a very old and fragmented technical infrastructure is a big challenge. And then the work you do in Germany. The principle can be applied to Spain, let's say, but it's still you have to do it. So, I think something that we Europeans get better in this context is localization, and we understand the difference between the German market and the Spanish market.
So we work in Germany, Italy, France, Spain, Netherlands, U.K., and the U.S., and each market is completely different, but we can apply the localization playbook and the technology in the same way. And that's, I would say, one of the largest competitive advantages that we have.
And I think it's a great example of what I was speaking about earlier in terms of moving away from code as a moat to having unique inventory and distribution-
Correct.
as a moat. Speaking of code, Avi, we've invested in. We know from the inside that you've invested in technology for the last five years. I think to the outside world, that's become clearer over the last 12-18 months. I mentioned earlier, your gross margins have doubled over the last 12 months. Can you give us a sense of how this magic happened?
Yeah. My CFO has this cheesy sentence that I'm going to use anyway, even though it's cheesy, and it's that, "For us, AI is not the future, it's the present." And when I say present, I mean the numbers. So if you look at our gross margin jump from 40% at the end of 2022 to. Actually, it says 72%, but it's not accurate. It's currently at 76%. So again, you see with the. We have growth within the quarter, and we'll be at 80% very, very soon. I don't, you know, just. I can already see the leading indicators for that. The impact of AI is massive.
The reality is, we began 2023, being one type of company, and we are finishing 2024 as a completely different company, and this is thanks to AI. Specifically, I'm not talking about chatbots, okay? Chatbots are a nice party trick. I'm talking something much deeper. We are solving something that the travel industry has never managed to solve, which is how you automate the back office, the travel agents. Their work is very repetitive, and it's language based. You speak in German or in Dutch to your client on chat, email, or phone, and you translate the request to change a flight to the GDS, which is this archaic system, that only travel agents know how to use. This is a language problem which lends itself very nicely to LLMs. So we are...
The technology is just perfect for us, and the fact that we have this hoarding mentality, so we kept all the data, not knowing why, by the way, but we kept all the data since the beginning of the company. I'm a nerd, so I don't know if you can tell. So, I like data, and we just collected it. We. Why throw it away? And it turns out that data is the moat. The models are commodity. We're using open-source models in different places. Data is the real moat and applying our proprietary data to the models allow us to, for example, automate. I'll give you one example. We used to have 10 people doing reading emails from the airlines because the airlines notify us about changes through emails.
So now, instead of 10 people doing it, the machine does it for you automatically in real time, and you get a new flight option from the system. This is only possible with AI. What's super interesting about it is, if you look at the bars on my slide, you see that customers are happier. You automate the human need to wait for a human to solve something for you in the back office. It's not even that you even talk to, and obviously, customers are much happier. Cost per booking went down from $22 to $8. Gross margin is close to 80%, and customers are happier. This is a complete revolution.
Did you expect this when you started in Q4 2022?
No. No, no. But we changed everything. When we saw the technology, we just changed our strategy for the whole year, beginning of, you know, January 2023, because it was obvious that we have to apply it.
Does that come top-down, or does that come bottom-up through an iterative process?
Iterative. We iterate a lot. Yeah.
You've had a fantastic run, 50% revenue growth, doubling gross margins. What comes next?
More of the same. More of the same. We are probably 0.1% of our opportunity in the current market with the current product. So we just need to be really focused on execution and keep doing more of the same without losing track of our priorities.
Excellent. Well, Avi, you say the meetings that matter happen in person.
Yes.
This matters, and we appreciate you being here in person.
Thank you.
Thank you for joining us.
Cheers.
Next up, we have what in many ways we consider to be a sister company to TravelPerk, Pleo. Jeppe Rindom, unfortunately, is traveling today and couldn't be with us here in person, but he has recorded a message for us.
So, we founded Pleo in 2015, and it all started with the pain we had experienced as leaders. So particularly, I was a CFO of a mid-sized growth company, and we wanted to run the company efficiently, and we wanted to enable the workforce to buy the stuff they needed when they needed it. And the way that happened was basically my card was shared around the office place. People signed up to subscription services, advertising, but tracking that down, controlling it, getting the documentation was a true nightmare. At the time, there was only software to solve for this, but the software couldn't really find all the unknowns. So, the aha moment really came when we found out that you could combine software with payment infrastructure. So, in 2015, we took a new approach.
We founded Pleo, both enabling payments as well, the expense management on top. So Pleo gives surprisingly effective and empowering spend management to small and mid-sized businesses. We are 10 years into the journey today. We are about 900 people, still focusing on Europe with seven core markets: UK, Germany, Denmark, Sweden, Spain, Netherlands, and France. We serve 40,000 customers, and we turn over around $150 million in run rate. So, we're in a fortunate position after 10 years to be the leader in Europe, but it's still an industry that is fairly unserved. We would argue that only a few percentage points of companies out there are using software like ours today, so there's still a very, very big unserved opportunity.
To stay ahead and grow our customer base of 40,000, we just need to be focused, and we need to be differentiated, both in terms of the offering we're bringing to market, but certainly also in terms of the experience around our offering. So, what we've been, I think, pretty good at is ensuring that we are incredibly customer-centric in terms of how we do marketing, the first touch points when we reach out to a customer, the delightful experience they have within our product, how we service them in support and customer success after that. Being very focused on that experience, I believe, is going to be a sustainable differentiator, and that's what we need to focus on. On the trade-off between growth and profitability, you could say the first seven years of Pleo has been much about the growth.
We grow a lot also from an organizational perspective throughout 2020 , 2021, and into 2022. We were lucky enough to attract a lot of growth capital during those years. Once we entered 2022, it was pretty clear that we had to stabilize. We had to drive through more efficiency, a more scalable platform across tech, regulatory, and so on, so that's really been our focus the last two years. Now we're in a much better, stronger foundation place, and we are ready to reinvest more heavily into growth. Bear in mind that this is a big opportunity. Our product is needed across any industry, basically all types of companies, all sizes of companies, so it is about winning that very substantial market opportunity, and now we're reinvesting into achieving that growth again.
We've been partnering with Kinnevik since 2018, and that was at a point in time where we had multiple options in terms of financial partners. Now, we chose Kinnevik because, well, first of all, because of Andreas and Georgi, who were operators, and that's actually quite rare in venture capital to have people that have actually been operating companies. That was important for us. We also chose Kinnevik because of the long-termness of the focus of the fund, ensuring that we had a good balance between more, let's say, classic, short-term-focused funds, but also those that could be with us for the long run. That was important as well.
While we don't have the company with us here in the room today, and I'm not gonna be able to do justice to how they would present this, we did want to share some more color on the journey that Pleo has been on over the last three years, and that journey over the last three years has been about expanding on three dimensions. They have expanded the segments they operate in. They've moved upmarket from individual proprietor-run businesses and SMBs to mid-market companies of 250 employees and above. They have expanded their product set and moved from being an expense solution to really a full spend solution that CFOs use as an all-in-one tech stack, and the way you can see that is in their net dollar retention numbers of 118%, compared to a typical software company, around 108%.
You can see it in geographic expansion, where they have moved from operating in a small set of markets around the Nordics and the U.K. to expanding much more meaningfully, especially into Germany. That's been a multi-pronged expansion drive, which has also been fueled by the significant capital the company's been able to raise, especially in 2021, and that's resulted in growth of 5x since 2021 and 15x since 2019. They have, at the same time, as Jeppe mentioned earlier, been through a period of consolidation and stabilization, and that's been driven by a couple of factors which are exogenous in nature. One, as Samuel touched upon earlier, valuations have contracted across the space, and Pleo feels this most pointedly, I would say, being most closely linked to that high-growth software universe that you see on this page.
But also coming back to a point we've discussed as a recurring theme through the day around fragmentation in Europe, where Pleo is the clear market leader with a 50% market share and more than all of its competitors combined. But it does mean they have had to invest more into R&D and customer acquisition to compete with local lookalikes in individual regions, in individual markets. We believe this period is now behind us for the most part, and as Jeppe referenced earlier, they are looking to re-accelerate and invest more heavily in growth. With that, I hand over back to Torun.
Thanks, Akhil. We are now ready to shift focus yet again and move into our third sector. And I think we all know that climate change is one of the most pressing issues of our time. And our Managing Investment Director, Natalie Tydeman, she will go into how we at Kinnevik believe that we can help to fight climate change, while at the same time making interesting investments that will create strong shareholder returns. Natalie?
Good afternoon and thank you to everyone who's managed to stay awake throughout the rest of the day. Promise to bring you more excitement and a couple more founders. To start off with, as, as Torun was saying, I don't think I need to explain to anyone in this room the importance of addressing climate action. We already this year, early this year, breached the critical 1.5 degrees of global warming for a full twelve-month period, and going forward, it is believed that it is going to be pretty difficult to not breach the 2-degree threshold as well. So that's really the call to action. That's why it's possible to build big companies in this space. But why is it possible to build profitable companies as well? There's two other tailwinds that really flow into that.
The first is that we're starting to see the energy transition really accelerating. The fundamental building blocks of energy transition, and also the pathway to decarbonization of many other sectors, is renewable energy generation, combined with renewable energy storage. And the costs of both of those have come down rapidly over the past five to 10 years, to the point where they are now cost competitive with fossil fuels. At the same time, with more and more jurisdictions now imposing carbon taxes, emissions trading schemes, and so on, there is not only a cost to carbon emissions, but there is actually a price on them.
And that rising carbon cost, combined with the cost down of renewable energy and storage and other decarbonization technologies, means that we're actually getting to a stage now where it is more cost-effective in many situations for an emitter to invest in decarbonization technologies rather than paying for emissions. So those are the three tailwinds that are coming together, and in combination, mean that the addressable market for climate tech companies is opening up rapidly. And at the center of that, and inspired by these tailwinds, we see more and more climate and top-tier talent moving into climate tech, seeding companies, building a strong pipeline of emerging climate tech companies that are our opportunity set over the next decade. So, we also are confident and excited that Kinnevik has a competitive edge in climate.
I'd put this into three core buckets. First of all, our sustainability expertise. We've developed this over many years of working closely with our portfolio companies to understand their emissions, to put together plans to remove those emissions, and to implement those plans. Lots of funds talk about sustainability, but we don't see any of our VC and growth peers engaging with their portfolio companies to the extent and with the amount of commitment that we have done. We also have very differentiated capital. The strengths that you've heard up till now about long-term, multi-stage capabilities is even more relevant in climate tech, where companies have longer R&D cycles, longer sales cycles. They have to build physical things that take longer than software, and as a result, have longer scale-up journeys.
And so, the type of capital that we have is really appreciated by portfolio companies. And lastly, we have a group of lighthouse assets within our portfolio, lighthouse assets and lighthouse founders. And combined with the network of like-minded, committed co-investors that we have, this means that we are able to have access, visibility and access on the very best companies coming to market for funding. So, two years ago, we laid out our strategy for investing in climate. We said that we would focus on a strategy on companies aligned with five key pillars. The first, we were looking for companies that were addressing large trillion-dollar markets with a very high contribution to global emissions.
We were looking for companies that weren't going to have an impact in 2035, but that could really have near-term impact on targets before 2030. We were looking for companies that had built strong moats, be that tech IP, first mover advantage, scale advantage, network effects. Companies that were deploying proven technology with a clear path to commercialization. And most importantly, we were looking for companies led by exceptional founders, who were able to marry the sometimes-difficult gap between an innovation culture and a legacy industry. And then critically underpinning all of that, we were very conscious of this point about longer scale-up journeys and have always considered it to be critical that the companies we invest in can demonstrate that they've been able to access multiple sources of financing. That means having long-term, deep-pocketed, committed equity investors on their cap table.
It means being able to access non-dilutive, lower cost financing in the form of corporate debt, project finance, asset finance, and also grant funding. We also promised that we would invest selectively and meaningfully, and we have very much sought to do that. We have taken a thematic approach to sourcing. We've dived deep into a number of different themes underneath two umbrella themes: green supply chains and energy transition. And having a dedicated team of people working on this, we've been able to screen over seven hundred companies, review about half of those in depth. We've diligenced about 17% of those. We've brought about 5% to our investment committee, and ultimately, we've ended up making five investments.
To just explain a little bit how this deep dive sourcing works in practice, I thought it was helpful to illustrate how we ended up making our investment in Aira. Given our history, our heritage in bringing utilities into people's homes, it was natural for us to think about residential energy, residential decarbonization, and we started looking at this back in 2021. We reviewed 30 companies, we diligenced 20 of them, we brought four to investment committee, and we ultimately picked Aira as the place we wanted to put our capital. The reason for that being, we had passed on many of the other opportunities because we were concerned about either a lack of scalability or a lack of differentiation or uncertain long-term unit economics.
But what got us really excited was that a lot of companies had this vision of being the core energy management system of people's homes. And when we met Aira, we found that they had that great vision. They were bold and ambitious like us, but they also were entering it in a really interesting way, starting with a heat pump, which is the main driver of households' energy bills, with a differentiated approach as a vertically integrated provider. We'll hear more from Martin, the CEO of Aira, shortly, and we also believe that that vertically integrated approach was going to result in superior economics. So, the portfolio that we have today, we believe, aligns very closely with our stated strategy. We have invested in companies, all of which addressing trillion-dollar markets, spanning agriculture, chemicals, steel, residential heating.
Those industries are very large contributors to global emissions, ranging from 6%-7% in the case of chemicals and steel, to 18% in the case of agriculture. They all have strong moats. It's tech IP and process IP in the case of Solugen and Charm. It's cost competitive position through vertical integration in the case of Stegra and Aira, and first-mover advantage and scale advantage in the case of Agreena. They're all already commercial, except in the case of Stegra, where there is a clear path to commercialization in 2026, with substantial offtake agreements already signed. We also think that the portfolio companies are true lighthouse assets within the sector. They've been validated widely across industry and across government, and they're backed by some of the very best names in climate tech investing.
Just to call out a couple of examples, Charm is actually today delivering carbon dioxide removals on behalf of the most discerning buyers in the market, people like Microsoft, Alphabet, JP Morgan. They also recently were selected as a semifinalist for the U.S. Department of Energy's Carbon Dioxide Removal Prize. Stegra has signed offtake agreements with the likes of Volvo, Mercedes, IKEA, and also been able to access substantial European funding. Solugen maybe this is a particularly interesting one to call out, cause we're going to speak to Gaurab later, has secured a $214 million loan from the U.S. Department of Energy to finance the build-out of its next facility, and that is the largest U.S. government investment into bio industrial manufacturing ever, so a huge achievement.
And all of this validation, of course, comes after deep technical and commercial due diligence, so further confirms our thesis. Most importantly, our companies are led by founder teams who have huge visions. And I love this statistic that someone calculated the other day, that in aggregate, by 2030 , our portfolio companies have the ambition to remove annually emissions equal to the annual emissions of Sweden today. So we're only two years in with the newest leg of our investment strategy, and we account today for about 10% of the overall portfolio.
Some differences you might see here versus other investments that we have, so in Agreena and Aira, we have ownership more in line with our typical position, between 10% and 15%. We have smaller positions in companies like Solugen, Stegra, and Charm, and that relates back to the point I made earlier about longer scale-up journeys, and those companies therefore benefit from having more capital, investors around the table. Time now to head over to let you hear something from our portfolio companies. We're going to start with Aira. I already talked about the investment thesis, how we ended up making the investment in Aira. Since we invested last year, we invested an initial check of EUR 31 million .
The company has developed at light speed pace. I won't steal Martin's thunder, so I'll leave Martin to tell the story. But suffice it to say, we've been so impressed by the execution and by the continued validation of our investment thesis, that we recently announced a further EUR 20 million investment alongside our co-investors to support continued expansion. Martin is not only a established builder of high-impact international businesses, but he's also a long-term friend and member of the Kinnevik family, having co-founded Viaplay with in MTG and having brought Millicom into Latin American homes. So, without further ado, Martin, over to you.
Thank you. There it is. All right. Thank you for those kind words, Natalie, and good afternoon, everyone. Super excited to present Aira, which some have actually dubbed the Spotify of heat pumps. But what Aira is all about is that we are accelerating the electrification of residential heating. We are replacing inefficient, money-wasting, and dirty oil and gas boilers across Europe, replacing them with intelligent electrical heat pump and other clean energy tech solutions. And the good and exciting thing with this is, it will save consumers a lot of money, and it will dramatically reduce CO2 emissions and drive the energy transitions. And with Aira, we are really developing a consumer brand, and we are combining that with a unique vertical integration. I will tell more about it. And we combine that with a fairly ambitious industrial strategy.
We make heat pumps and other clean energy tech available for an affordable monthly fee, removing the need for any upfront payments, and a little bit like IKEA, making this available for the many homes across Europe. There's one thing I want all of you to bring with you today, making the switch from a gas boiler to a heat pump. It is one of the most impactful changes a household can do. It is also the most affordable and scalable decarbonization technology available today for European homes. I think that is very important to keep in mind, and that brings me to this picture. This really shows what are the big emission sectors in Europe today, and to no surprise, energy generation is the biggest emitting sector. Number two is the transportation sector, which you can look into both heavy commercial vehicles and passenger cars.
But the third largest emitting sector is actually residential heating, space heating and heating our hot domestic water. It's almost as big as all passenger cars, and I think we all have heard a lot about electrification of the passenger car sector, but very little about electrification of our homes. Becomes even more exciting when you look at this picture. This shows the emissions coming from heating in Europe, and as you see, there is a huge difference between countries. Almost no emissions are coming from Scandinavian homes heating our buildings, while between 10%-20% of emissions are coming from heating across most other European countries. And why is that? Super simple explanation. In Scandinavia, we made the transition from oil dependency to electrifying our homes many years ago.
If you live today in a detached, semi-detached, or terraced house in Europe, 85%-95% of all homes, they still use oil and gas for heating their homes. When I started to work with Aira, you know, I couldn't grasp that data. I really had to make my own research, but it is true. So everyone has it, and every single year, 7-9 million gas boilers, they break. They need to be replaced. Unfortunately, a vast majority are still being replaced with a new gas boiler. But that is all to change. Many here, I'm sure, are from Scandinavia or Sweden. We know what heat pumps are, but out in Europe, people don't know so much about heat pumps. Awareness is very, very low. When you heat a home with a gas boiler and oil boiler, you burn fossil fuels.
A heat pump is a very clever solution. You basically extract energy from the outdoor air, so by inputting a small amount of electricity, you get a big amount of heating power out, so typically, if you insert 1 kW of electricity, you get 4 kW of heating power out. That means, compared to a gas boiler, you consume at least 75% less energy, and thereby reduce your emissions with minimum 75%, but actually much more, because you have a lot of renewables already today in the grid, so the more renewables you get, you get up to 100% decarbonization of the third biggest emitting sector. I think that is quite amazing, and everything we need is available, well proven. We've been using heat pumps in Scandinavia for decades. We know they are working.
But what we also know is that you save a lot of money as a consumer. Basically, every heating system today sold in Scandinavia, it's with a heat pump. It's not the case in other markets across Europe, but it makes sense to make the switch. This is a typical Italian household. Today, having a gas boiler, buying a large amount of gas, gas is cheap in comparison with electricity, making the switch to heat pump. Even though electricity is expensive, but the fact that you use so much less energy and including the cost of getting and installing a heat pump, still means that that household saves a massive amount of money, 40% for the average Italian household. That varies a bit across Europe, but regardless of country, there is a consumer saving.
And I think when we talk about sustainable and green transition with many households across Europe, I think many would have the perception instantly that it's complex, expensive, requiring lifestyle changes. Here, you get something which is easy to install for most homes, provides better comfort, saves you a lot of money, and makes a major, major impact. So, I think that's a fantastic opportunity, and you would think that people would understand this. Unfortunately, not. Penetration today of heat pumps in Sweden is 60%, and it's. It will increase because every new system is coming with a heat pump. While in the rest of Europe, we're talking about single-digit numbers, the adaptation has not yet commenced. Why is that? First of all, there has been artificially low gas prices across many countries in Europe.
We work in the U.K. today, and there, the environmental tax on electricity is actually higher than the gas price itself, and that doesn't really foster the right behavior and create awareness. Awareness is a big problem, and then when you make consumer research, getting a heat pump is cheap in Scandinavia, very expensive in Europe today. You pay between EUR 15,000 and EUR 30,000 per installed unit, and the upfront cost is a big barrier and a hurdle for consumers, and we need to fix that. Another problem is the industry today. If you start to analyze the value chain, it is highly fragmented. It is also highly inefficient. There are many great product companies. I mean, Sweden is a good example, with NIBE, IVT, and other great product companies. The problem is they never face in front the end user.
So there are wholesalers, there are installation companies, there are plumbing companies, electricians, so many middlemen, and the ones fronting the end users are the installer or plumbing companies, and they are really small companies. Take Germany, we have four hundred thousand heating engineers working across fifty thousand companies, eight persons on average per company, and the vast majority of what they do, it is bathroom, kitchen renovations, installing and servicing gas boilers, and very, very few do at any scale, any heat pump or other clean energy tech installations, so there's a lack of specialization and scale in this space, so looking at Aira, what are we doing, and what are we doing differently? We are really having a unique proposition. First of all, we have a high degree of vertical integration, very ambitious plan.
So we design our own products, and we design them with the end user in mind, which is not the case, I would, I would argue today, but we also design them for quick and simple installation and large-scale manufacturing. We are also producing our own heat pumps in our own factory. We have established a factory in Poland. When it comes to the customer-fronting activities, we are recruiting and training our own sales force for a high-quality, consistent experience. It's a great educational need for consumers. But we are also recruiting and training, and training really installers in our own Aira Academies, because know-how among consumers is low, but equally low among installers. But what we are doing is that we are upskilling existing gas boiler engineers, and you have hundreds of thousands of these in Europe.
So they go through the Aira Academy to become very skilled clean energy technicians. And then we are also providing convenient, affordable consumer financing to customers in all countries, so everyone can jump on board. And with our financing proposition, you save money from the very first day. I think that's quite unique. You are better off. You get a better product, you save money from the first day. So I don't understand why we don't have a 100% conversion rate in every sales meeting, but we're not there yet. So we make products. We manufacture products, but we don't see ourselves as a product company. We are really providing a service, a solution, creating a long-lasting and sticky relationship with our customers, and I think that's different for us. Aira is a very young company.
We announced officially Aira in June last summer, and we have been working in stealth mode for another year ahead of that. A lot has happened during the last year since we announced the company. We have acquired a few companies, one company per market where we are operating, but I think more importantly, we have organically scaled the company. We have went into three launch markets for us: the U.K., Germany, and Italy, and there, we're really making sure that we get people on board and scaling and building the company. We have also brought some of the leading and most trusted investors into Aira. Kinnevik is one of our trusted investors backing us. We have launched our own heat pump product. Many say it's impossible to do that. We have established our own factory.
We worked in close collaboration with the Volvo Group, took over one of their factories in Poland, including many of their great employees, and we have commenced manufacturing in April. What else? We have also made sure that we have consumer financing in every single country where we're operating, and we have a loan commitment from BNP of EUR 200 million to support the build-up of our finance company. That's what we're using. As we've been growing, we have attracted more and more attention from important partners, so together with Octopus Energy, one of, I would say, the leading and more innovative utility companies in Europe, a challenger brand, we have launched the Aira electrical tariff, which is custom-made for heat pump use, making sure that our customers save even more on their bills, and we have a follow-up on investment from our existing investors.
The first year, I would say, we built the foundation of the company, and we've done it with a furious speed. Now, we're entering into the next stage of the company, and I will call it our growth phase. So the money we have now, it's about to really continue to ramp up and scale what we have already begun in our three existing launch markets. I've been speaking a lot about heat pumps, but our ambition is bigger than that. In the future, it's all about energy management among consumers. The one who can optimize and manage their energy consumption will save a lot of money. On the heat pump, 40%, but if you start combine clean energy tech solutions, solar, battery energy storage, dynamic tariffs, EV charging all together, it's very interesting. Then one plus one is bigger than two.
The more you invest as a consumer in your home, the more money you will save. So consumers will spend in this area, and that's why providing an affordable and simple solution is important, and that's why we have launched the Aira All-Inclusive Plan. Awareness is low. We are really making it simple for the customer, a one-stop shop, really hassle-free consumer journey. It is complex for many customers to get on board and understand what needs to be done. We remove the need for an upfront payment with our monthly fee, and we provide a unique fifteen-year comfort guarantee, promising the customer that we will keep their home warm and toasty on the coldest day of the year. So what have we done so far?
I went through, but I think important to understand is that we have not only established and launched in Germany, U.K., and Italy. I dare to say that we have already established a leading market position in our markets. We launched our own heat pump, we launched our own manufacturing, and a vast majority of what we sell and install today are our own products, and customer feedback is fantastic. They love our product. We scaled the team, and we are not growing in the headquarters, we are really growing in the market. This is a people business, and we built a more than 1,200-strong team, people team in the markets. We've been ramping not only the manufacturing and the product and the teams, but we've also been ramping our sales.
Every single month, we are already interacting with thousands of European homes, and when we exited the month of September, our annualized revenue run rate was around EUR 100 million . This is just the beginning of the company. I think it's important to understand the size of the market. As I said before, 7-9 million gas boilers, they break and are being replaced every single year. There are very strong tailwinds in Europe. There are. I mean, there's a sense of urgency for the climate, and over the last couple of years, there is also a energy security concern after the war in Ukraine. How do you break the reliance on importing oil and gas? Everything else results in more electricity.
Strong policy tailwinds supported by bans in the future, subsidies here and now, and more and more generous subsidies as well across all countries. But when consumers understand that there is a better option, there is also strong regulatory push. It is unlikely that gas boilers will be the norm in the future. A majority of the 79 million units will be replaced with a heat pump, and when consumers understand the seriousness of the money-saving opportunity, we know 10 million heat pumps needs to be installed every single year in Europe by 2030. Assuming then that the cost of installing a heat pump is around EUR 15,000 for a customer if we do a good job, that's a market size of EUR 150 billion every single year, and that's just for heat pumps.
Imagine the market size if you start to add solar, battery energy storages, EV chargers, and the utility yourself. We're talking about one of the biggest markets. Our ambition is that by 2033, 10 years' time, or no, nine years' time, we will be in 5 million homes across Europe. Replacing one gas boiler equals taking two cars off the street forever, so 5 million, that equals 10 million cars off the street. And if you want to put that in perspective with another impact builder, Tesla, last time I looked, they have, over the history, they have manufactured 4 million vehicles. So that's why I say this is an area where you truly can make an impact. So, I leave it with that, Natalie. I think I'm over my time already. Thank you.
Great. Thank you, Martin.
Mm-hmm.
Thank you.
Yeah.
Yeah. Good.
Yeah.
Maybe one very quick question, if I'm allowed, Torun? So just to... I know that anyone who's not in Sweden is probably regularly reading the papers-
Mm-hmm
... where heat pumps are a frequent topic, and governments seem to be flip-flopping about whether they're supporting them or not supporting them. That must make it quite hard to run an international strategy without knowing what the regulatory and incentive structures are.
It's true. It is true. I think in the last 12-18 months, there has been, I would say, unclarity for Europe's consumers. So, I think some countries, they were speaking about fast-tracking the ban of gas boilers. They abandoned that. There was a very effective debate in some countries, not least Germany. In the end, they abandoned that. I think that was good. The industry was not ready for a fast-tracked ban. The effective debate made everyone aware that there is apparently an alternative to it. I think one common theme for many countries, U.K., Germany, France, is that when they remove that ban, they significantly increase the subsidies in play. So instead of working with the bans, they work with the carrot. So, take U.K. market.
They increased subsidies from GBP 5,000 to GBP 7,500 grant, cash grant to the consumers. In Germany, you went from 30%-50% in subsidies to up to 70%. So I would say that for Europe's consumers, it has actually improved the situation, but what I think is important is that you have a consistent, clear message from the industry, but also from the policymakers.
Great.
Okay. Thank you.
Thank you, Martin. Great. We're now going to switch from the pumps that heat your homes and your water to the chemicals in your home cleaning products and water treatment. We're also going to do a bit of experiment here because we're going to try to have a fireside chat with no fire and not being beside each other, because Gaurab is joining us by Zoom. Gaurab is the Co-Founder and CEO of Solugen. I have actually climbed up that, haven't I, Gaurab?
Yes, you have.
Yeah, yeah, exactly.
Yes, you do.
That tower behind him.
Yes.
Solugen produces green chemicals with a proprietary process, which I'll ask Gaurab to share with us in layman's terms shortly. We had reviewed about 15 green chemicals challenges when we met Gaurab and Sean, and we were really excited by the fact that they had a process which was fundamentally cost-advantaged, safer, and greener, and so we made an investment back in 2022, and since then, we have seen again phenomenal progress. The process that Solugen operates has been validated and refined now over a further three years.
Solugen is actually producing chemicals, which are actually bought and actually used, by customers, and, I think very impressively, Solugen, but also Gaurab and Sean, individually, have established themselves as really important players in, the chemicals industry with key stakeholders across policymakers, governments, capital markets, and so on. So, Gaurab, if we could maybe just start,
Yes
... if you could just explain to the group here, exactly how your process works, why it's differentiated, and what it enables you to do.
Absolutely. Thanks for having me here today, and hello from Houston, Texas. I hope this is close enough to a fireside chat. Let's see how the experiment goes. I think where we need to start is like, well, what is the problem in the chemicals industry that we need to solve, right? If you look at the chemicals industry writ large, it's a $6 trillion dollar industry, but it's responsible for 30% of all industrial greenhouse gas emissions, 6% of all greenhouse gas emissions across all sectors, and really the fundamental question is why? Why is that the case, and if you dig in, it's really one answer, and it's quite technical, but it's yield, right?
The whole point of a chemical process, really any manufacturing process, is to go from a feedstock to a product as efficiently as possible. But today, in the chemicals industry, the best-in-class yield that you can get is, 60%, 50%-60%. What that means is that there's 40%-50% of the carbon that is starting from your feedstock that either ends up in the environment as an emission or has to be reworked in your process to get your product out, which means more CapEx, more labor, more energy costs. These all things compound to create, that 6% number I mentioned earlier. So, what we said was: Well, what's a better way to solve this yield problem? How do we instead have, 90% yield from feedstock to product? And that's the Bioforge technology.
That's actually a Bioforge right there. What the Bioforge technology is, is it marries me and Sean's two backgrounds. I'm a enzymologist by training, and we basically said, "What if you marry enzymatic catalysis, i.e., biology, the catalyst that you find in the human body, that you find in cells, with traditional petrochemical heterogeneous catalysis?" Which sounds like a mouthful of words, but really the question we're answering is: Could there be a best of both worlds approach, where you can have high specificity and high yield by taking advantage of really two of nature's most brilliant chemical processes? And that's exactly what we did. The Bioforge technology effectively uses different feedstocks like corn sugar and biomass to convert into chemicals that you use every day, like in water treatment, like in concrete, like in agriculture.
But we do that in a way that has 90% yield from feedstock to product, and we've proven this out already at commercial scale in our Houston facility. And we're basically able to show that we can miniaturize these chemical plants. If you've ever been to Houston, which I recommend everyone do, it's the greatest city, probably in the world, I'd say.
But when you drive around Houston, you basically see these massive chemical complexes, and what we said is, "The whole point of this massive chemical complex is because of the yield problem." You don't need such a big chemical complex if your yield is better, and the Bioforge is a perfect example of that, where what we said was, "Because we can get to a 90%, and now we have an integrated yield of 96%, our footprint can be much smaller." So instead of having the size of an island for a chemical plant, that facility that you're seeing right there, that's on a 10,000 sq ft plot, and it has the same throughput as a 10,000 metric ton per year petrochemical facility. So that is really what we see as the vision of the chemicals industry is this technology.
It's what if instead of having massive facilities centralized, we can now have distributed facilities all around the world closer to the end user. The knock-on effects of which are, you don't have to transport chemicals very far. There's a safety risk there. You now have consistent supply. After the COVID's surge, we saw that supply on the chemicals industry really went out of whack, so all of a sudden, customers need consistent supply, and they're willing to pay more for that. And your decarbonization, your overall carbon footprint is significantly lower because you're running a more efficient process in a more localized manner. So, it's chemicals on demand, I guess you could say. Sorry, Natalie, that was a long-winded way of saying -
I think that was very good. We won't test anybody on this later, but.
Great
... I think that was a great opener.
Yeah.
So you've already touched on how you and Sean came to found the company together.
Yeah.
I think you met at a poker match, something very scientific and technical like that.
Yes.
It'd be great to just hear, you know, now that you're up and running, and you've turned this theory into an actual, practical, working commercial process. What's your ambition if you look 10 -15 years out?
Yeah. It's really exactly what we've done, but just doing it more frequently, right? So, like, I see a world where there's hundreds, maybe thousands of these Bioforges, right? Each of these Bioforges, the exciting part for me is that it's not a single product facility, right? When you traditionally look at a chemical complex, a chemical complex is made to produce one, maybe two products. But here, because of the modularity of our technology, being able to switch out a catalyst like an enzyme or a metal catalyst, you can have a whole different series of products for the same CapEx. That is, to me, like the holy grail of the chemicals industry, is having a CapEx that allows you to have multiple products for multiple end industries.
Where I see us going, obviously, in the next 5- 10 years, the core focus is to decarbonize the chemicals industry. We want to start with high-value specialty chemicals like water treatment chemicals, agriculture chemicals, even pharmaceutical chemicals we're looking at in the roadmap as well. But then, we want to use those cash flows to start building out a bigger base of business that starts going after things like plastics. I think that's one of the biggest challenges we're going to face in society is going to be the plastics challenge. I'm a physician scientist, and I'm looking at it from a health hazard perspective. If you look at where the plastics industry is ending up, it's ending up in our bodies.
There's a New England Journal of Medicine paper that basically was able to communicate all of these plastics are actually found in some of these organs and cause disease, so very quickly, you see that the chemicals industry isn't just an environmental issue, it's becoming a health hazard issue, so where I see the mission and really the future of Solugen is by building out these, the network of Bioforges, we will now have the CapEx, the asset base, to start going after plastics industry and polymers industry, composites industry. That's where I think the massive impact is going to be for this company.
And then now, if you're allowing me to dream a little bit, which I hope you are, in 20 years, where I see this going is, once you understand how to make the polymers, plastics, and really the core building blocks of society, then you start going into proper materials, building materials, housing materials. Any solid material that you use to live, we want to be a component of that, and that's where I see this technology able to go. We have to start small. You know, we have this core value at Solugen called Think Big, Act Now, and right now, our act now is, let's get as many Bioforges in the ground as possible, and then use that asset base to grow into the bigger markets.
Great, so maybe if we come back to the now.
Yeah.
It would be fantastic if you could share with the group here the achievements that you're most proud of, the key milestones that you've hit over the past couple of years.
Yeah, absolutely. So, man, I, I'd say the biggest one is the technical milestones. This is a really hard technology. What we've done is take computationally engineered enzymes, scaled it up, and married it with a completely new catalyst technology, in the span of five years, really. That is when we were able to do that. Our first facility, Bioforge 1, we broke ground in the middle of COVID, October 2021, before you all invested, and within 11 months, it was a greenfield site, we had a fully commercial plant. Fastest scale-up probably in the history of the petrochemical industry.
And the beauty of that was we got Houston's first, no emissions, no water discharge chemical facility, and Houston is known as one of the biggest chemical producers in the United States, so that was a big achievement for us. So, I'd say that was the first one. The second one for us was really getting the Department of Energy's Loan Program Office loan. This was a $214 million loan. It's the same loan that Tesla got for their Fremont facility. And so, the beauty of this loan was it allows us to get a lower cost of capital to scale up an even bigger version of the Bioforge that we have in Houston. We're building this in Marshall, Minnesota. The interest rate on this is sub 7%.
For a company of our size, that's actually quite a good rate. The milestone is quite monumental simply because it was 18 months of very, very thorough diligence. The DOE actually had consultants living in our operations room for 14 days, where they saw every single molecule that we made, the throughput of that molecule, the energy usage. So, they had a very deep technical diligence, as well as a very deep commercial diligence, as well. And out of all of that 18 months, they were able to stamp this project as one of their top... Actually, the top DOE loan program project that they approved in 2020 for this year. So that was a really big one as well.
I would say the other ones are just the key strategic partnerships that we've started to forge. One is with Sasol. Sasol is a South African chemical company. Their products are found in every single consumer product that I'm sure everyone in the audience interacts with, laundry detergent, deodorants, things of that nature. We struck a partnership with Sasol to have our glucaric acid molecule included in every single one of their detergent brands, so think Tide laundry. So, by 2027, we anticipate every single Tide laundry to have our glucaric acid, and it's acting as a builder in that. I could keep going.
I'm just really proud of the team overall, but I think where we're going is, we're moving at a pace that the industry hasn't seen before, and we want to be able to launch a new chemical product every eighteen months, versus a new chemical product today is launched maybe every 10-15 years. So, we're trying to compress that cycle time as much as possible, and we hope to have more achievements in the future as well.
No, it's a fantastic journey, Gaurab, and so we'd love to know what you take from that as your biggest learning.
It's. You can probably tell I'm quite nerdy and technical, and I think the biggest learning for me was really on a leadership journey. I think, you know, we're still going through that journey, and it's been quite humbling, right? You have to remember; it was just me and Sean out of graduate school. We started with a $10,000 grant from MIT, right, in 2016, and, you know, our first plant was, like, this little PVC reactor that we built from Home Depot parts. So, for us, we always thought it was the technology first. But really what we learned in the process was, that's actually, like, maybe 20% of the story.
Like, the other 80%, and this is where I, I'm really thankful for Kinnevik's support, is helping us figure out, how do we lead an organization that is so diverse, right? What you have is, you've got, you know. We, we've got people coming from Nobel Prize-winning labs, right, who are designing enzymes. At the same time, we have people that don't have high school degrees, right? And they're operating plants. They're turning valves. And the challenge and the learning that we've had is really, how do you integrate a culture that maintains that intense technical nature, but also appreciates that, like, these people are they just want to come back home to their families safe, right?
So it's this idea that, like, we can imbue this, like, intellectual curiosity to every single piece of the process, and that, for us, was, like, the key unlock. That's kind of, like, the bar for us on the hiring side: once we get people excited about the problem, independent of where they live in this value chain. When you're excited about that problem, you get the best work out of people. And so that's where, for us, we're still getting that leadership muscle kind of strengthened, but I would say it's... that's been, like, the most exponential piece of the puzzle for us.
Yeah, and we've talked a lot about how you combine within one organization that first-
Yeah
first-principles thinking alongside dealing and operating in a very traditional industry.
Oh, yes. Yes.
But maybe just one more question, because I know something that comes up a lot is, you've obviously had a lot of support from the government in terms of the Department of Energy loan. Is the upcoming election going to have any impact on your business?
... we don't anticipate it to obviously can't tell the future, don't know what's going to happen. But if you look at our project, both sides of the aisle were strong, fervent supporters of the Department of Energy loan consolidation, and that's because of really two reasons. One, if you look at it from a Democratic policy basis, we're really hitting the nail on the head, right? We are creating a lower carbon solution, rapidly scaling to support the industrial base in America. Great. Everyone wins there. And on the more conservative side, if you look at really how we're creating jobs, right? We're going into Marshall, Minnesota, which right now is a population of 10,000-15,000 people, and we're coming in and creating 200 new jobs in that site.
That, by itself, is a very exciting story for anyone on that political spectrum, because now it's showing American innovation, really entrepreneurship is creating job opportunities that we haven't seen, probably in the last 20 years. And so, for us, it's been a very purple issue, and we don't anticipate any of the, you know, political situation in the United States to, to affect our future plans right now. Yeah.
Great. Thank you, Gaurab. Thank you for taking the time to join us.
Of course.
I'll hand back over to Torun.
Thanks to some of us that have climbed the Sudapanna at Korsnäs, it feels like we're closing the circle with the Bioforges. So, I think we're ready for a final Q&A. I have on my phone some questions that have come in from the audience, so I'd like to invite the full Kinnevik team up, so we can close the day with some questions. Maybe- The first question, and something that actually quite a few people have asked, is: you talk about getting back to NAV growth, and I think that's something that we're all hoping for, but exactly how and when will that happen?
Should I start, and then you fill in, Samuel?
Sure.
I think, as Samuel showed, we have, during the last two years, seen an extreme change in the markets around us, and we're probably at some kind of all-time low. We don't expect multiples to start expanding again like crazy, as we saw in 2021, and we don't need that either, because our companies are growing at a fast speed. They're delivering strong operational performance, as we heard today, and they're improving their profitability. So just some stability in the market is actually what's needed for us to show value. I don't know if you want to go into the details.
No, but I think it's, it's just that, Georgi, stability in the market, and I think the stability and the performance of our companies with that we've seen during this quite tumultuous period. So yeah-
Yeah
... that's what's needed.
We look forward to that. You've also talked a lot about Kinnevik being an active owner, and I know that we have board seats in most of our companies, but exactly what is an active owner? How does that play out in the boardroom, for instance?
Akhil, take that.
Sure. I think to me, there's just a very simple test of that, which hopefully resonates with the founders in the room, which is: are we the first call they make when they have something important to discuss? And that is a position that is earned, and has to be deserved. One can't demand that position, but that is the position we look to get to, and it's not about the percentage we own necessarily. It is about us showing the conviction, the alignment, and spending the time, to show that these companies matter to us. More than half our time is spent on our core assets. When a company wants us to dive deep into analyzing an acquisition opportunity or something else, we will devote resource to that in a way that many other investors may not.
And equally, we are more likely to be the ones that ask them to remind themselves of their five-year, 10-year vision, even when there are uncertain macroeconomic conditions. So, through that combination of time and analytical horsepower and being committed alongside the more patient, unrestricted, ambitious approach that Georgi referenced earlier, that's how we look to earn that trust to be the first phone call they make.
Yeah, because someone has also wondered, given that what we've seen today is quite a few companies based in the U.S., and Kinnevik does not have a U.S. office or a U.S., you know, presence on the ground. So how exactly do we manage to sort of find and keep track of our U.S . exposure? Maybe that's mainly-
Christian, yeah
... your companies.
Sure. I would say two key ingredients: air miles and fast-paced Internet. I think, you know, in an early-stage investment model, like a Series A fund, I think a global coverage doesn't work. But in our companies, they often move from much more tactical conversations at the early stages to more strategic ones at the growth stage, and I think that's when we can be impactful, even in a global coverage model.
Yeah.
That's why also, I mean, just to fill in, that's why we are inclined to do earlier-stage investments in the Nordics, as Pleo in 2018, when we invested in a very early company, because we are simply closer. In the U.S., we would go for a more kind of dedicated approach when the company has grown.
Here is, again, coming back to NAV and growth and, a week ago, when we reported the Q3, we had a fairly big write-down in one particular asset, VillageMD. So how should we think about the risk there, and why did that happen, and could that happen in any of our companies?
You're looking at me.
I'm looking at you. You did the write-down.
There are a couple of reasons why we feel so comfortable around the portfolio today. I think, let's go through, like, three of them. Two of them are very specific to VillageMD, and I don't want to bog you down with the history of everything, but we became a minority shareholder in VillageMD sort of at the same time as Walgreens did. And then Walgreens acquired control of Village in 2021. That's how we released the $300 million-ish worth of capital and locking in that return. What happened later was that Walgreens and Village made a very large acquisition of Summit Health, and that was in part financed by a lot of debt.
So Village is unique in the sense that there is a controlling shareholder that we don't have in any other business, and two, that we're sitting behind a lot of debt, which is also fairly unique, and clearly the combination doesn't help either. The third reason is, you saw that category I had on the far right of the page. That combined is less than SEK 4 billion, and there's a lot of fantastic businesses in there. But then there is a, call it, a tail of 15+ companies that make up that remainder. So, it's a lot more diversified than having a lot of risk in one individual asset. So, I think those factors combined is what makes us a lot more comfortable.
Sounds good. Going back a bit to governance and team, I mean, maybe this is for you, Natalie, but we have a much smaller team than some of our sort of fund competitors and a much smaller presence. So how do you sort of prioritize team and ensure that we can work efficiently but yet stay competitive in the face of these sort of bigger or maybe at least more people-intense competitors of ours?
Yeah, I mean, it's right. We are a smaller team, and we've actually made efforts over the last year or so to become an even smaller team, just to refocus and around our strategy and our key priorities. So, we think actually that we are small is beautiful. We are very, very focused on allocating resources, whether that's our capital or our people, where it's going to have the most impact, either to create or protect value. And we are also putting up—building our platform operations, which a lot of our competitors have much bigger platform operations. We've really focused it around the areas that our founders and our teams tell us they really value.
And that has so far really been predominantly around people and office of the CFO are the two places where we found a great need, including support with M&A and debt and so on. But really, we're just being incredibly disciplined about spending our time where there's the most value potential. That naturally means that we're spending a lot of our time with our core companies, much as Akhil said earlier, but we're supporting all of our companies where we see that that's gonna be helpful.
And also, maybe to add on that, I mean, we. I said in the intro that during the last two years, we have, of course, revisited our strategy. We have changed our focus, refocused, which includes also changing the team compositions. But else, that is not only downsizing. Some people have left Kinnevik, which is a natural thing, but we also hired people. So maybe you, Christian, can say a few words on your team, with Akhil coming in, for instance, with her background, and how that has helped us.
Absolutely. Happy to. We have, we're covering, of course, healthcare, tech-enabled services, and software on one side and bio on the other, and we hired in both areas with specific profiles. On the bio side, we hired someone with a molecular genetics PhD from Cambridge, and she has been investing in the space at the earlier stages, so sees a lot more of. Has seen a lot more of the seed and Series A activity in that space, which helps us today analyze the growth opportunities we actually are looking at in the pipeline.
That was the extent of the questions we have received. It's been a long and informative day, but Georgi, maybe we just wanna wrap up with a couple of concluding remarks.
Yeah, sure. Just to start by saying thank you for coming here today. Thank you for following us online. We know it's been a long day, hopefully with some new information and also, of course, the big thank you to all the companies that have come here today. Some actually taking the flight and coming over from the U.S., which, of course, is highly appreciated, even from Boulder. Thanks, Viswa. And I think this is important to Kinnevik, to show our portfolio. As we've said, over the last years, we have been concentrating our portfolio, concentrating our focus, but we'll also kind of reshape the entire portfolio.
We've built something new, more or less from scratch, and that is something that I see as a starting point with this capital markets, to hopefully become more transparent and continuously speak about the developments over time, for investors to understand why we have such an excitement in the portfolio. So, with those words, the entire team, thank you very much for making this day possible, and hope to see you soon.
Thank you.