Good afternoon, everyone. Welcome to day two of the Sidoti Small Cap Conference. I am Aashi Shah, an analyst here at Sidoti. With me today, I have Innventure Inc. It trades under the ticker INV. I'm happy to welcome Lucas Harper, Chief Investment Officer, and Roland Austrup, Chief Growth Officer. We have about 30 minutes today, including the Q&A. If you have any questions, please submit them at the Q&A section at the bottom of your screen. With that, Lucas, I will let you take over.
Great. Thank you so much. We appreciate everybody's time today. Just as a matter of agenda, I'm going to give a very brief overview of the Innventure model, and then Roland Austrup will take it from there. To jump right into the Innventure model, essentially, Innventure is an operating company that operates a conglomerate model where we launch wholly owned new companies in strategic collaboration with multinationals, where we're the founders, funders, owners, and operators of these companies. What we're doing is we're working with these multinationals in strategic collaboration to focus on technology solutions that have been either invented or adopted by the multinational, where the technology solution itself is outside of the core operating mandate of the company in terms of what it is they do from a day-to-day perspective.
However, the technology itself is underwritten by both Innventure and multinational as a highly valuable technology that provides immediate and highly compelling economic value to the end client the moment that they have that technology solution in their hands. Innventure finds this to be critical when launching a disruptive technology solution where you're looking to change economic behavior. As we think about decisioning on technologies that we're going to move forward on, everything that we do falls under the underwriting to our Closed Loop Model. Our Closed Loop Model has four core aspects to it. The first is that each technology is unique to the multinational that we're dealing with. They have either invented it or adopted it, and we shouldn't see it replicated on the street otherwise. The second is that it's a fully developed technology, meaning it's been funded beyond the proof of concept.
There's a well-developed patent family in place, and we quite often will set up a tailored technical solution with the multinational, certainly in the early days when we're building and scaling the company. The third is that the technology is based upon the experience of the multinational. We use their history and understanding of the marketplace, their R&D data, their market research, et cetera. That's all the starting point for us to evaluate a technology solution, the unmet market need that is intended to solve, the uniqueness of the technology, and how it's uniquely solving that unmet market need, and understanding how working on all that together with the multinational as a strategic collaborator creates a long-term sustainable advantage for Innventure and for that specific company. The fourth piece of the model is really the closing of the loop.
It's the multinational catalyzing early adoption of the technology, which can come in many forms: vendor relationships, marketing support, et cetera. That type of structural support is hard to replicate for any typical new company. Really, the center of the bullseye for us is that they want to be one of, if not the first customer, and/or a channel to the marketplace otherwise, so that we know what adoption of the technology should look like, who's interested in it, who wants to pay for it, what they will pay for it before we launch that specific company.
Really, the entirety of our process is around reducing as much risk as we can so that we can reduce that risk down to the operating risk of taking a technology solution that is in pilot form and getting it to full commercial reality to take advantage of the interested offtakes that have been identified through the multinational relationship. We ultimately think that this is a better risk-adjusted basis to launch companies, sort of this ecosystem to increase the likelihood of success. These launches are fairly amoebic launches from our team. We are, again, the founders and funders and owners and operators of these companies. We are investing in our team, in our companies, et cetera.
There are some cases where a technology solution, sorry, might be so far downstream that we bring in an operator, which we did with our data center cooling business in Accelsius, which Roland will elaborate on. What is important to understand is that our model is not around making bets on technologies. It is not around making bets on particular sectors. It is 100% focused on the strategic collaboration with the multinational to understand what it is that they have either invented or adopted and why. We use that as the starting point of all of that analysis to determine whether or not we want to get into that business. We take an operator's mentality towards evaluating these businesses because, again, that is exactly what is going to happen. We are going to found a company from scratch. We are going to fund it.
We're going to own it and operate it and build it going forward. To this point, we've launched four companies on our platform. Both PureCycle and AeroFlexx come from a relationship with Procter & Gamble. Accelsius was bought from Bell Labs, who's owned by Nokia. Refinity is a new recycling technology that we've launched. The technology came from VTT, the Finnish lab, but the collaborator on that technology is Dow Chemical. Again, kind of focusing on the better risk-adjusted basis, you're going to get early-stage economics because you're coming in and taking advantage of the founder shares that we are launching these companies with, where we're launching them at almost a zero basis.
We're launching companies at what is much closer to a B round when you think about we know who launched the company, why they launched it, what the market opportunity looks like, who wants to buy it, et cetera. We're skipping over $30-$50 million of capital spend and three to five years of development time to launch a company that already has that technology solution in that pilot form. Again, we think that this is a better risk-adjusted basis to launch these companies. It has resonated so far with institutional investors who might be investing through strategic asset allocation profiles.
They'll see this as potentially a better way to access early-stage venture, where we will essentially be demonstrating a laddered portfolio of companies that we have launched over time that we are the founders, funders, owners, and controllers of, but being able to do so through an operating company model in a daily liquidity format. Similarly, retail or other opportunistic investors who like disruptive high-growth technology type of ideas that have historically only been available to larger institutions through long lockup vehicles, this provides them access to those types of technologies, again, in sort of that daily liquidity format. That, in a quick mouthful, is the Innventure model and some of the companies that we've launched, but I will turn that over to Roland Austrup. Roland.
Thank you, Lucas. I'll just summarize a little bit about what Lucas commented on, and then I'm going to talk a little bit more about Accelsius. I mean, the best way to think of Innventure is as a public operating conglomerate. I always like to point to a gold standard out there. There's a company that trades on NASDAQ called Roper Technologies, and everyone knows Berkshire as well. The reason I point these out is that companies that are operating conglomerates that can show high earnings per share growth tend to trade at valuations that are at a premium to their net asset value. Really, that's our goal at Innventure, to be able to demonstrate that we can create value and repeat that value creation by systematically launching companies every few years that all have an S-curve of growth.
If you can stack that kind of S-curve of growth of the companies you launch, you have the potential to create high compound earnings growth and, by doing that, get a premium valuation. As Lucas mentioned, if you think of Innventure in the long term, it is really a unique business because it is effectively a look-through of Innventure a few years from now as we are going to look like that laddered diversified portfolio of VC to PE investments of the companies we created. That is the best way to think of Innventure in the long term. Accelsius is really the catalyst today to Innventure's business. We went public in late 2024, and we chose that timing because of the growth rate that we saw in Accelsius.
Accelsius is a great business, in our opinion, because it's addressing a critical problem today that has a significant tailwind behind it as well. We all know the growth of data centers and generative AI. I've heard it coined as the fourth industrial revolution. It's certainly a very, very significant secular trend. The problem is, if you look at the roadmap that NVIDIA has put out for the Blackwell and the Rubin, a quick study reveals that there's a missing critical infrastructure, and that's the infrastructure technology to cool that generation of chips. That's what Accelsius is solving. Today, 98% of legacy data centers are still cooled with air conditioning. Data centers going forward will be moving to single-phase water, but there's a quick realization or going to liquid, I should say.
The initial instantiation of that was single-phase water, but there's a quick realization that that's not an effective long-term solution. There are two key problems. One, of course, is that water and electronics don't mix well. If you have leaks, you're going to destroy servers that are increasingly expensive. There's a cost to water. Secondly, water will not be able to capture the heat in the forward generation of chips. It has a limited utility that's probably less than two years. The industry really needs to jump to two-phase cooling. By two-phase cooling, what we mean is that we're using a dielectric fluid, not water, so it doesn't damage the server, but that fluid vaporizes when it comes into contact with the heat source and can capture a much greater amount of heat. This is an exciting story for a number of reasons.
In part, the plumbing that the industry is investing in to go to liquid, i.e., to go to single-phase water, is the same plumbing and infrastructure that's needed for our technology. That groundwork has been done already, and no one has to make an additional capital investment. The second part that's exciting is that there isn't an increased cost. In fact, there's a cost savings if you look at the water damage in going to two-phase cooling versus single-phase water. There isn't a requirement for a customer to make an additional technology to adopt this. There are really only two companies offering two-phase in the market today, and one of them is Accelsius. We think we're in a very good position. I've often used the analogy of a gold rush and selling picks and shovels to the gold miners.
If you look at the type of cooling solution that's needed, there are very few players. Again, there are two players out there that can offer that solution, us being one of them. We think we're in a very good spot where there's a critical need in the industry. There are also very compelling reasons beyond the critical need to utilize Accelsius' solution because there's a significant cost advantage. Right now, data centers spend a significant amount of money just to cool the data centers. We can reduce that energy cost of a data center by about a third by switching from air conditioning to two-phase cooling. Another way to look at it is that the money that's being spent on energy to cool can be repurposed to processing more data.
At the same time, when you go to two-phase cooling, you do not have to have those heat sinks above the servers, so you can densify your racks. Not only can you repurpose the energy that is going into air conditioning to cool chips to process more data, you can populate your racks with more servers to process the data. There is a tremendous economic benefit to operators to adopt this technology. There is both a critical need and an economic incentive to compel adoption. We think we have a strong tailwind behind Accelsius, and we think that is going to be another proof point for Innventure. The first proof point, of course, being in the first company we created, PureCycle, which we probably invested about $10 million of our own dollars into that business and took it public in 2021 at a $1.2 billion valuation.
We've distributed all the gains out to the shareholders in that. That's still currently trading at about a $2 billion valuation in the marketplace today. Lucas, I'll turn it back to you.
Yeah. I mean, I think what we're trying to convey in Accelsius is that I think if you look at Innventure's value today, it's really driven by understanding and evaluating Accelsius as a current opportunity. That has a tremendous amount of tailwinds behind it. We're starting to see it ramp from an announcement perspective of clients, if you will. To Roland's point, it's really one of the first to market with this innovative technology. We're really operating in a format to try and make sure that we catch the wave of adoption as we see that occur in two-phase directed chip cooling. We do that by breaking the market down into four kind of distinct areas. One is with the large OEM manufacturers.
We've announced a deal with a large OEM manufacturer, but not the specific name for their own competitive reasons because they're getting ready to launch a new product, and we want to let them take the lead on that. The second piece is with large contract manufacturers, which is how you then work with hyperscalers and other large players because they're going to want to understand how you can keep up with their level of demand. It's through those large contract manufacturing relationships that we'll be able to do that. The third is with colocation providers. We've made announcements around Telehouse and other folks where we've made implementations into their innovation centers, which are their centers where their clients come through. They show them all the parts and pieces working and moving, and then they can make orders from there.
The fourth sector, as we've broken it down, is sort of AI as a service. We've made announcements around Nordic and other folks that we're working with in that particular area. As you think about how we're implementing, it's selling to those different integrators and contract manufacturers, et cetera, that are working out with the marketplace so that as their clients are adopting, we can catch that wave. We can focus service models to those integrators, if you will, while at the same time we've kind of built the product to be able to be easily handled by level one smart hands that exist in data centers today. Again, we think that the early value that you'll see in growth from Innventure is really around where Accelsius is today and the tailwinds behind that.
Over time, as we continue to launch more and more companies, we will expect to have other types of companies that will grow based upon that similar model effect, which we think should create that kind of high-growth conglomerate model return profile, which is what we are looking to provide to investors. With that, I will turn it over to you for questioning. Thank you.
Thank you so much for doing the presentation today. I would like to remind everybody in the audience, if you have any questions, you can submit them at the Q&A function at the bottom of your screen. I will start with a few of my questions. You mentioned the Closed Loop Model and a disciplined capital allocation approach. How do you prioritize funding across your portfolio companies, especially when there are a few companies who are entering the revenue generation phases simultaneously?
Yeah. Please, Roland, go ahead.
No, go ahead, Lucas.
We try to take a disciplined capital approach across each of the underlying companies to understand what it's going to take to get them from initial seed stage to generating revenue, what that timeline, capital allocation, and profile is going to look like, and then understand what that, as they are getting to cash flow generation, the timeframe from that to occur where you might need more temporary mezzanine type of private lending or other financing structures to help them get through to where you can then bring in more efficient capital. In short, we believe that handling the seed through the B-round off of our balance sheet will allow us to get each of these companies to generating cash flow.
Based upon the closed-loop model, the types of clients that we have around the table and understanding what the distribution and profile of making sales and generating cash at each of those company levels will look like, what our ability to then finance growth from there. We will look to handle a majority of the funding from the Innventure balance sheet, so we maintain that majority control position, if you will, but we certainly will always be open to different strategic investors to come in at different reasons and for different reasons and at different times as we grow and scale these companies.
Okay. You are currently working with three multinational partners. How are you thinking about your partnership capacity? Do you have any internal thresholds for how many concurrent launches you want to do before there is an operational strain or dilution of focus or anything like that happens? Is there a number that you look at, or how does that work?
Sure. Again, you're correct. We're working with three multinationals today. I think our goal is to launch approximately one company a year under this model based upon the uptick that we've seen in the volume and velocity of the number of multinationals that we're dealing with and therefore the number of technologies that we're looking at. It's much more for us important that we're hitting the model than falsely trying to hit a specific cadence. There could be scenarios where we launch two companies in a year. There could be scenarios where it's longer than a year to launch one.
For us, it's really important that we stay disciplined and make sure that even if we get down to the one-yard line in launching a company and then we see something where we determine it's not the right company to move forward with, we can be disciplined from that perspective. We will continue to add to the number of multinationals that we're dealing with. We'll continue to add more companies to the pipeline. I think, again, about that one-a-year cadence on average is what we think we're going to be able to achieve on a go forward basis.
Yeah. To the point about strain on resources, we follow a very disciplined approach in evaluating the technologies. It's very much you have to assess the opportunity first and the size of the market. Is there competition out there? Will we have a moat around this? We have to do a technical review of the technology solution itself to see if it actually does solve the problem. We go through the quantification of the business model. There has to be a compelling economic value proposition to the customer and enough left over for us to have a margin for it to be an attractive opportunity. The point in all of this is that it's a very systematic approach, and we do believe it's a teachable model. We believe we can scale up.
We have scaled up over the last few years as we've expanded our relationships to include Nokia and P&G. I think when I joined, and Lucas can correct me if I'm wrong, when I joined Innventure in 2021, we had about 10 or 11 employees, and we're now around 30-some odd. It is a scalable model, but we think we can get efficiencies. Even with our model today, as you know, our past cadence has been about once every three years. With the team we have in place now, we could operate at a higher cadence. That is why, as Lucas mentioned, we'd ideally like to get to one a year. We believe we can do that without increasing headcount or putting strain on infrastructure. The strain is capital, of course. That is the thing that we'll have to make sure we can manage.
Right. My next question was on capital and cash requirements. What is your current runway in terms of liquidity, and how do you see yourself assessing the dilution risk versus the need to aggressively scale?
Yeah. We have not put out forward-looking statements to this point on runway, but what we can say is that the operating model that we have in place is intended to run Innventure from an evergreen status as our companies mature and we are receiving cash flows off of those companies at that time. We will need to raise capital between now and then to get to evergreen status. We closed going public with $150 million, roughly, of financing at that point. We have closed additional financing since, and we will expect to do more. We do have the ability to raise capital, sorry, at the operating company level should we determine that is the right way to execute. I think we will be able to use a combination of those mechanisms to continue to finance Innventure on a go forward basis.
When you're launching companies under this closed-loop model where we understand who wants the technology, what they'll pay for it, and we understand the timeline of what it needs for us to get from where we are from a proof point to actual full commercial reality, that allows us to set a capital discipline on a company-by-company basis.
Yeah. I think I'll add to that a little bit, Lucas. I mean, I know there's certain information we can't provide because of material non-public information and guidance we haven't given, but I can characterize certain things. A lot of companies, and I've seen this. I've been in the asset management and venture industry for many, many years. One observation I've noticed is that many operating companies just assume that if they do a good job, the capital markets will be there to cooperate. The real world works differently than that. We knew that. Innventure knew that. That's a big reason why Lucas and I are there. We have significant capital markets background. We recognize the importance of building a strong capital markets team within the company so that we could solve those problems.
Again, without giving forward guidance, I can certainly look back, and you can say that we have very successfully raised capital for the parent company Innventure, for our operating companies in the A and B rounds, for funds that have invested in to do the A B rounds of those companies. We have a very disciplined capital market strategy that's meant to dovetail with our capital needs. That is part of the process of why we went public. We recognize that long-term success is going to come by being successful at creating good companies and consolidating those financials to be able to self-finance your future growth. Now, we have to get there. We're on that ramp to get there. We definitely have a capital markets team and strategy internally that's well connected with the industry.
We're very mindful of that, and we very much have, and we intend to continue to stay ahead of the bow.
Got it. Thank you so much. Thank you. I just have a question that's Accelsius-specific now. Can you tell us, can you walk us through the product development roadmap? You recently announced the 250 kW multi-rack system. Now, with everything, the data being used so much, NVIDIA has just announced their chip sizes and how they're going to increase. Can you talk a little bit about the product roadmap and how much additional capital investment is needed to move up the power density rack?
Sure. Some of that would require forward guidance that we just have not put out yet specifically on Accelsius. What I can tell you is that the technology is testing out further ahead of any other technology in the marketplace that we are aware of from a per-kilowatt compute power that is able to cool. If you go back to your high school physics class, it is the evaporation that happens in the two-phase direct process where it turning into a vapor is a very efficient collection and release of that heat energy. Actually, the hotter the chip, the more efficient that our solution works. One of the things that we really focus on is making sure that the company is going to be the best company to drive that solution, not just the best technology.
In part of that, the company is always focused on what do we need to do from an R&D perspective to continue building out, and they refer to it as future-proofing the technology to stay well ahead from compute power and our ability to cool. There has been a big focus on that. There has also been a big focus on supply chain, sort of dual source from North America. There has been a big focus on customer service, both in the way that the products are developed so that they can be serviced by kind of tier-one issues by smart hands in the data centers themselves, as well as providing the tier-two and three servicing capabilities to the large VARs, the large OEMs, the large distributors, etc., of these solutions. That is kind of generally how we are thinking about it today.
Again, to your specific question, we just haven't put out specific guidance on how much we're going to be spending to grow the company going forward.
Yeah. The roadmap is iterative. I mean, as Lucas mentioned, we haven't announced the one OEM relationship because it's related to a new product launch. We had to design something based on their providing guidance for the roadmap. They're providing guidance as to what they need, and we were able to basically then design what it is that they wanted very quickly. We absolutely do have a deliberate product roadmap. When an industry is changing, you have to be adaptable as well, and you have to work with the parties in the industry to understand what they want and then show your ability to design what they want. The capacity and the heat removal capacity that Accelsius can provide, as Lucas mentioned, we're already testing well beyond what our current product lineup is in the market with.
Okay. I would just like to end by asking if you can sum up the value proposition for investors who might be looking to invest into Innventure.
Yeah. Again, the value proposition is that we believe this is a better risk-adjusted basis with which to access early-stage venture. We think you need to look no further than Accelsius today to understand the value behind Innventure today and where that can be growing because of the significant tailwinds that are behind that company and that specific technology solution. Over time, we're going to continue to provide value, in our opinion, by continuing to launch more and more companies under this closed-loop model where we're partnering strategically with the multinational to launch kind of high-growth disruptive technologies under this format.
I'll just add to that slightly, which is saying the same thing that Lucas said, but slightly differently. I see two really compelling sources of value. One is in Accelsius itself. You can look at that and say, "Where is this industry going? What is the critical infrastructure that Accelsius is able to provide? What is the size of that market?" We believe there's incredible value in that story alone. Beyond that, though, is can they do it again and again and again with their process? It's that there's the value of Accelsius today, and then there's the value of the model that created not only Accelsius, but PureCycle in the beginning and the ability to systematically do that again.
Got it. Thank you so much for spending your time with us and sharing your story. I would also like to thank everybody here listening and spending time with us today. Thank you so much. Have a good rest of your day.
Thank you.