Vargas Holding: Creating juggernauts that are solving big decarbonisation problems

TL;DR

• Despite tens of billions of dollars being invested into climate tech enterprises every year, the financing of businesses which provide decarbonisation solutions needs to scale up, and fast.  

• In Sweden, Vargas Holding is tackling some of the hardest to abate sectors through its portfolio of companies it has started up from scratch during the past decade.  

• Starting out in telecoms, Vargas now has five enterprises on its books which are addressing decarbonisation challenges in industries spanning automotive, steel, heating and textiles – some are being operated in partnership with huge brands such as Volkswagen and H&M.  

• Vargas takes a hands-on approach to its five-step process, which is to identify, validate, finance, launch and scale businesses.  

• The group seeks to rewrite the rules of industry, its willingness to take risks and move at extreme speed making it stand out from other investors.

The detail

Unprecedented levels of investment are required to complete the energy transition and decarbonise our largest-emitting industries.  

While policymaking and government spending will be crucial, many of those working on the frontline of the energy sector feel that, ultimately, it will be the private sector that will do much of the heavy lifting. If net zero objectives are to be met, and the climate crises to be contained, it is going to be down to the entrepreneurs and investors willing to take risks and steer the ship to keep it on course.  

That’s easier said than done. A few weeks ago, I looked into the current state of climate tech investment and some of the companies which are making waves after being backed by the investment community.  

At a macro level, the numbers are big but stagnating. According to BNEF, climate-tech companies raised more than $50 billion in VC and private equity funding across more than a thousand deals in 2023. Sounds impressive, but it actually represents another year of declining investment, with PwC citing geopolitical issues, inflation and rising interest rates as key factors holding private markets back. 

The message is simple – we need to invest more in businesses which are solving climate change problems.  

I’ve already explored the story of Watershed, a trailblazing tech firm which has just raised another $100 million as it seeks to provide tools for businesses to properly track and understand their emissions.  

We need more Watersheds to emerge and grow. The founders appear good, honest people who have a real sense of get up and go about them – proven by the fact they went from scribbling on a whiteboard in a bedroom to building a near-$2 billion company in a few years.  

Looking to Scandinavia  

But even the Watersheds of this world would not be where they are without the resources and faither of the investment community.   

In Sweden, Vargas Holding has been in the process of creating Watershed-style companies for a decade.  

I’ve been keeping a close eye on them for a good while now and am rather awestruck by the company’s CEO and story. Carl-Erik Lagercrantz is the man at the helm, an IT and telecoms expert by trade with more than 20 years of experience working at the likes of Telenor and BT’s Nordics business.  

In 2014, he met with Harald Mix who, along with Stefan Jansson, had been discussing the need for superior reserve power among telecom companies – a solution which was not only smart, but also sustainable from an environmental and cost perspective. Lagercrantz, due to his experience in telecoms, was identified as the perfect fit to lead the venture as CEO, with the initial business case being built around power backup solutions based on lithium-ion battery technology. 

Vargas was thus born. Today, the group is made up of entrepreneurs and investors who build companies that solve real decarbonisation problems and take leading positions within their respective industries.  

Their ambition and drive are admirable. Like Watershed, Vargas seeks to decarbonise 1% of global emissions by fuelling the development of solutions in hard to abate sectors. To do that, they think big and act fast – now, the group has five pioneering businesses that make up its portfolio.  

So, how have they got to this point?  

Before I go into the timeline and story of the five companies, it is important to note that Vargas takes an extremely hands on approach to its investments. It is a long-term investor and active owner of the companies it builds, its process comprising five key steps – identify, validate, finance, launch and scale.  

To deliver on these journeys, Vargas has designed a greenfield model for building competitive and commercially viable companies from scratch. Central to this is getting them involved with large-scale projects, vertically integrating them into their sectors, and operating with a model that puts customer collaboration front and centre.  

Starting in telecoms 

Let’s get back to the story. In 2014, Vargas started out with Lagercrantz as CEO and Mix as Chairman, with Jansson taking charge of the group’s first business, Polarium (a role he has held ever since).  

In a nutshell, the company offers comprehensive and eco-friendly turnkey energy storage solutions powered by lithium-ion battery technology. These innovative systems enable customers not only in the telecoms industry, but also in the industrial and commercial building sectors, to optimise their energy usage and power management.  

Headquartered in Stockholm, Sweden, Polarium has manufacturing facilities located in Mexico, Vietnam and South Africa. To date, the company has successfully completed over 440,000 installations across more than 70 countries around the world, spanning all continents and climate zones. It now has around 500 employees on its books after growing at a compound annual growth rate of 75% between 2018 and 2022.  

A roaring success, the idea behind Vargas’s next business was conceived during a Polarium meeting.  

In operating and growing Polarium, the company observed first-hand how Europe was reliant on battery cells from Asia which carried a large carbon footprint. Given the rate of electrification across the region, coupled with added political impetus being gained off the back of the Paris Agreement, Vargas decided to explore the possibility of building a European business which produced lithium-ion battery cells. 

In 2016, Northvolt was launched. Its mission is simple – to make oil history through the large-scale production of green batteries.  

Once again, growth has been rapid. Just eight years in, Northvolt is poised to become Europe's premier battery manufacturer with gigafactory facilities in Skellefteå, Sweden, and Gdansk, Poland, in addition to an R&D centre in the Swedish city of Västerås. The growth doesn’t stop there, however, as the company also has three more factories in development, situated in Gothenburg and Borlänge, Sweden, as well as Heide in Germany. 

Crucially, Northvolt has a blueprint for the world’s greenest battery. It has committed to powering its factories with renewable energy and has embraced circularity within its production and battery recycling processes. All of this leads to an 80% reduction in carbon emissions compared to cells made using coal power.  

In terms of numbers, the story is equally impressive. Since producing its first battery in 2021, Northvolt is now eyeing annual production that equates to 150GWH of cell output by 2030 and has a secured order value worth some $55 billion. $14 billion of that is from Volkswagen, with which it has engaged in a major partnership after selling its joint venture share in Salzgitter to the German automaker.  

To help fulfil this huge pipeline, the firm also secured Europe’s largest green loan issued to date – a $5 billion package which will help to expand its circular gigafactory in northern Sweden  

In a similar way to how Northvolt was conceived during a Polarium meeting, Vargas’s third venture came from a realisation that its current business could drive a broader decarbonisation impact.   

Indeed, swapping out combustion engines for electrified motors is just one piece of the puzzle when it comes to decarbonising the automotive industry – the use of steel, for example, accounts for around half of the emissions associated with building a car.  

A notoriously hard to abate sector, steel became the natural next target for Vargas. Together with Volkswagen, it created a business case for green steel and launched H2 Green Steel in 2021.  

Aiming to revolutionise the industry, H2 Green Steel is poised to deliver the world's most environmentally friendly steel at unprecedented cost-efficiency. The company is slated to begin production in 2025, with plans to ramp up to an annual output of five million metric tonnes by no later than 2030. 

Notably, H2 Green Steel has already secured off-take agreements for over 10 million tonnes of product, a testament to the robust customer demand for sustainable steel solutions.  

From heating to textiles – what’s next? 

Companies four and five are new ventures which seek to take on two entirely different decarbonisation challenges.  

Launched in June 2023, Aira seeks to remove reliance on gas grids for residential heating, which is the third largest contributor of carbon emissions in Europe. It is also a costly exercise, with consumers having to spend significant sums of money on gas and oil boilers, many of which are inefficient.  

To address this, Aira is developing a complete home energy system that is based around a smart heat pump that operates on an affordable fixed monthly fee. The company is initially targeting Italy, Germany and UK markets and seeks to serve five million homes within the next decade, this anticipated demand to be fulfilled by a production facility in Wroclaw, Poland, which will begin operating this year.   

Syre, meanwhile, was also set up in 2023 and is on a mission to decarbonise the textiles industry though mega-scaled textile-to-textile recycling. Launched in partnership with clothing retailer H&M, its central product is a circular polyester which promises to match the quality of the virgin material while reducing emissions by 85%. Syre will start production in North Carolina, USA, during 2024 and has plans for 12 giga-scale production plants to be up and running inside 10 years.  

A decade in, it is clear that Lagercrantz and the team behind Vargas are not messing around. They most certainly fall into the category of doers, moving well beyond conversations, buzzwords and theories by putting plans into action and making things happen.  

From automotive and heating to textiles and steel, Vargas is tackling the challenges around decarbonising some of the hardest to abate sectors head on. It will be fascinating to see where they target next. 

— Lew 👋

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