Interview with Olga Paxson and Dan Matthies

Dan Matthies is the co-founder and CEO of Reaction, a global partner community and venture fund invested in solving the toughest global problems. Olga Paxson is the Head of the Reaction Think Tank. They share a vision for a world where innovation can measurably improve more lives, and create more value, in less time. We asked Dan and Olga about new avenues for the future, success factors for startups and how to scale their value and impact.

As a global community and venture fund, Reaction has been working to solve the world's most pressing problems since 2019. In a nutshell: What do you do?

Dan Matthies: At Reaction, we are committed to solving the biggest challenges of our time: environmental sustainability, global health, and education equity. Our mission is to improve the lives of a billion people within a decade by scaling innovations. There will be more innovation in the next ten years as there was in the last 50 years. With our two venture funds, our global community and the Reaction Think Tank, we contribute to ensuring that these innovations enter the markets that they can help most.

What is the role of financial capital – especially for young companies – in innovation for the benefit of our planet and our future?

Dan Matthies: There are more important factors than financial capital. Many people believe that the most successful entrepreneurs are those who raise the most money. We disagree. I was particularly struck by the TED talk given by American investor and fund manager Bill Gross, founder of Idealab. Of the five factors he mentioned for the long-term success of a startup – timing, team and execution, idea, business model and funding – funding was dead last.

What is most important for the long-term success of startups?

Dan Matthies: Clearly, timing. If a company enters a declining or stagnating market, even if they have a revolutionary solution to a problem, the risk of failure is greater. In a fast-growing, large market such as energy transition or climate technologies, the chances of success are better. In addition to timing, the team, idea, and execution are also important. To scale innovation, particularly those that cannot be scaled via the internet or smartphones, you need the right contacts in the target market at the right time. Being able to access a global network is a huge key to success.

Speaking of the energy market: Many interesting technologies and innovations are being developed and tested by green tech start ups. How attractive is it to invest in such companies and where are the opportunities and risks?

Dan Matthies: The main risk, also from an investor's point of view, is that a company runs out of money and stops operating. For example, 70% of start ups do not make it to Series B, at which point a company begins to transition from proving its solution to scaling its business. Venture capitalists are experienced in assessing risks and opportunities in advance to make good investment decisions. The right investment partners can also help companies to gain market traction.

Risks and opportunities are not static. A company in the early stages with no revenues faces a much greater risk than one in the later phases, and its chances of success are lower. Risks and chances become more obvious along the way. Let us take Tesla as an example: Today, investors hardly fear that this company will run out of money. But in its early days, Tesla was one of many new electric car companies. Each of these companies had the chance to take the market, and the risk to fail – which most did.

No one wants to invest money in a start up with a business plan that does not work out. How do you check whether a collaboration is promising?

Dan Matthies: In our experience, the most effective way is to ask potential partners or customers if they would benefit from the start up's solution or service. Our global partner community is a great help here. After all, climate change is a global problem that affects every industry and every region. Helping founders make connections at this level can have clear benefits. This is one of Reaction’s greatest assets.

Put yourself in the shoes of a green tech start up: How would they be able to convince you as a potential investor?

Dan Matthies: For us, it is gaining confidence in the team’s ability to execute. What are the next important milestones? How will they be achieved? And how detailed are the steps to get there? A start up needs a clear plan and path to deliver both value and impact. The classic argument that there is a trillion-dollar market and that only a small percentage of it could generate immense revenues in the future is neither convincing nor defendable.

The role of technology and investment in the success of the energy transition is undisputed. The Think Tank of Reaction is also trying to move things forward. Olga, how do you go about doing that?

Olga Paxson: There are also non-financial ways to save the planet. This is what we are working on in the Reaction Think Tank. People need to be made aware of the problem and be convinced that they can effectively counteract it. This kind of thought leadership does not necessarily have a financial component in terms of investments by Reaction. We want to provide thought leadership and look beyond our own horizons and individual companies.

How exactly are you going about this?

Olga Paxson: Our goal at Reaction is to improve the lives of one billion people in a decade by scaling innovations. The think tank currently has three initiatives to achieve this: The "Impact Currency" initiative aims to direct more money to impact investing. In the context of "Green Inflation", we want to create more awareness for climate change and the additional costs if we do not invest money today. And with the “Impact Menu” initiative, we want to ensure that investments are implemented in the most effective way.

What is "green inflation" exactly?

Olga Paxson: With the concept of green inflation, we have developed an indicator to illustrate the need for climate protection measures. The urgency of preventing an environmental catastrophe is a hot topic, but lack of clarity weakens the motivation to solve the planet's environmental problems now. So we thought about how to better illustrate the costs of delaying climate action. We came up with a new idea: using the time value of money as a measure. This could indicate – ideally as an annual percentage – how much less an inflation-adjusted dollar will do for the environment in a few years’ time compared to the same dollar today.

Finally, a question for both of you: From your point of view, what are the important issues for the future in the context of green tech startups? Do you see any particular trends at the moment?

Dan Matthies: One current overarching goal is to eliminate the “green premium”, as Bill Gates called it. Consumers often have to pay more for energy or products that are produced in an environmentally friendly way. But most of the world's population is either unwilling or unable to pay this premium. There is a lot of potential for innovation here.

There will also be a strong focus on energy transition. More and more of the things we do on a daily basis can be powered by renewables, hydrogen or perhaps even nuclear energy – and we need to make these technologies accessible and affordable to the masses.

Another topic is alternative materials and the circular economy: for example, the production of cement, steel, or plastics. These materials could be produced and sold at or below market price using environmentally friendly methods. These are very important issues.

Olga Paxson: In the Reaction Think Tank, we will soon be launching a new initiative on this last point, specifically on plastics. At the moment there is a lot of focus on carbon and how to replace it in the context of climate change mitigation. However, plastic waste is still more in the background. Harm created by plastic, especially microplastics, is comparable to that of greenhouse gas emissions, but fewer people are focusing on true alternatives to plastic. This is the reason for our initiative. But I do not want to reveal more about it yet ...