Introduction
An innovative venture fund that gives investors access to revolutionary climate technologies
Nucleation Capital Fund I, launched in 2021, is an evergreen venture fund vehicle designed to enable more investors to invest in deeptech types of climate solutions that can solve climate change and restore the health of the climate. Investors can access our subscription portal online to review the fund materials and to select the amount and the term of their subscription.
Nucleation’s unique thesis—to invest in ventures innovating next-generation nuclear and carbon management technologies—emerged as a function of the growing promise of these two nascent tech sectors in the face of continually growing emissions. Sadly, both sectors have beeen largely being ignored by other climate investors as either taboo or too risky. Nucleation’s founders chose to combine their complementary experience and skill sets, knowledge and networks to de-risk these two very critical “deeptech” sectors through a curated portfolio. By deploying as a non-traditional venture fund, the team is able to make their fund accessible to—and affordable for—more of the types of investors who recognize their promise.
Investment Approach
We only invest in true climate solutions
Our goal is to invest in the best ventures deploying the best technologies that can have both the greatest carbon impact and provide the greatest return. Nuclear power—with the highest EROEI of any type of energy—is naturally at the top of our list. We bring considerable knowledge and expertise to this space and we seek to focus on finding the ventures with the best prospects of success. We recognize that nuclear is “unpopular,” yet we believe that unpopular solutions that actually work will produce better returns over the long term than popular solutions that are not all that effective.
Nuclear energy’s longstanding unpopularity creates something of an information arbitrage opportunity. Those who have a better grasp of the benefits provided by nuclear energy, find the technology extemely compelling. Best of all, with hundreds of ventures seeking to raise venture capital to accelerated their growth, this is one of the first times that investors have ever had the opportunity to invest in nuclear innovation. These innovations pose not just similar benefits to the nuclear we’ve seen before but significant improvements that promise to accelerate production, deployment and improve efficiency and operating performance.
Many of those who oppose nuclear also oppose the use of carbon capture tech. They worry that carbon capture will give cover for the continued use of fossil fuels. While that is clearly a risk, it’s an easily addressable hazard. Unfortunately, people will demand reliable fossil fuels until a cleaner reliable solution—like nuclear—is widely available. Until then, we need to improve upon our ability to capture carbon emissions, so we can minizing emissions during the transition to 100% clean energy and eventually use the technology to draw down the emissions already unleashed in the atmosphere and causing forced heating.
Nucleation’s focus on a narrow subset of contrarian technologies has a few additional benefits. We don’t overlap very much with any other climate funds. Also, given that a majority of climate investors are making staggeringly incorrect assessments about both nuclear and carbon capture, there is far less competition for deals. This enables Nucleation to improve our prospects by investing at more down-to-earth valuations, not inflated by excessive demand.
We invest broadly across a narrow climate thesis
We seek to diversify as much as possible within our narrow thesis. Accordingly, we invest across other available dimensions in an effort to reduce risk and diversify the timing of returns. We invest in both primary teams, such as reactor developers, but also secondary sector participants, such as supply and support ventures that are vertically-integrated teams, which are helping to build sector capacity.
We are also agnostic about technology and geography. We will consider and evaluate fission, fusion and subcritical reator designs, radioisotope thermal generators, and other emerging technologies. Geographic diversity entails some added risk but can also introduce significant market and regulatory advantages, that can enable us and our portfolio to benefit from differing political and funding processes, public attitudes and regulatory approaches. Across these dimensions, we look carefully at speed to market, realistic estimates, and evidence that the venture has a resourceful, talented team aggressively pursuing non-dilutive capital and developing revenue streams, partnerships or business models that can support long-term visions and development timeframes.
We are also stage agnostic. Pre-seed and seed stages, while highly attractive because of their low valuations, are often still in the science experiment stage. Even those early teams with viable technology, typically raising a Series A, have a lot longer to go and much more execution risk before they can achieve liquidity. Series B and C have much higher valuations but they’ve put a lot of their technology risk behind them and are correspondingly closer to achieving liquidity. Each stage involves risks and trade-offs but no stage is innately better. Accordingly, we diversify across venture stages as a way give us a larger denominator and more chances to participate in the best ventures we find within our thesis sectors, helping to reduce risk and improve fund returns.
Understanding Venture Investing
Venture’s higher risk/return profile
If you are one of the 15 million or more accredited U.S. investors with earnings over $200,000 per year or investable assets over $1 million, the 2012 Jobs Act made it easier for you to invest in angel and venture capital deals. Yet, the availability of affordable investment vehicles lagged because high fund formation and closing costs kept fund minimums high, which limited venture fund access to investors with many millions in assets. Fortunately, that’s changed.
Today, new technologies are making participation in venture capital funds affordable for more. Even though venture capital remains a high-risk/high-return asset class, lower formation costs can reduce minimums. This means that millions more investors can participate and put less capital at risk and so not worry if it is lost but still have the option of earning an extraordinary return. This trend is helping to democratize venture investing, so that it isn’t just ultra high net worth and institutional investors who are able to allocate funds to investments with incredibly high upside potential.
The data shows that investors with greater allocations to venture capital and other types of private equity generate higher returns than those with no allocation to those asset classes. According to Cambridge Associates, private equity and venture capital investments were found to be more profitable than U.S. public equities over the last five, 15, and 25 years, for a number of reasons. This has contributed to increasing levels of allocations to private equity by institutional investors. Lack of affordable investment options and need for liquidity have limited the ability of accredited investors to participate at a comparable level.
Venture capital is a long-term “buy, hold and help” investment
Venture capital funds acquire preferred equity in private ventures. This means that they acquire a right to an illiquid share of stock. This illiquidity involves extra risk but is also a component of why private equity often generates higher returns. Growing companies face many challenges but the distraction of market forces on the value of their stock is not one of them. They are able to hunker down to build enterprise value, usually recruiting their VC investors for guidance, advice and other types of support. VCs often serve on the board and will frequently re-invest in later financing rounds, both to protect their equity position from becoming diluted, and to help the company raise more capital. A good working relationship between a company and its experienced investors can make a significant difference in whether a company succeeds or fails.
Growing a successful business takes time, expertise, capital and often luck in terms of market timing, so the standard term for most venture funds is ten years. Venture investors must be in it for the long term, and some investment partners stay engaged in ventures well past the end of that ten year period. The reward for successful venture capital investors comes after the company has built considerable value. They collect their return when the company is acquired, merges with another company, or goes public through a public offering of its shares, called an Initial Public Offering (IPO). These transitions are “liquidity events” and are key to a venture capital fund’s ability to return proceeds to its investors.
Nucleation Fund I Mechanics
Venture capital terms, reduced minimums, online operations
Nucleation Fund I functions much like a traditional venture fund but, because we use an online technology platform, we have lower costs and lower capital requirements. lnvestors are able to set the terms of their funding—the amount to invest per quarter and number of quarters—to suit their preferences and portfolios. Our online presence means people everywhere can find out about the fund and apply to participate—so not a function of who you know. Our quarterly subscription model provides funding predictability (in contrast to traditional funds which issue irregular “capital calls.”)
Participation in Nucleation’s Fund I starts at $5,000 per quarter. Investors can participate for one or more quarters, and can expect to see an average of one deal closed per quarter. For an 8-quarter subscription, the investor will get an allocation in anywhere from 8 to 10 deals. Subscribers should select a funding level that they would like to see be the approximate amount invested per deal. They should select the number of quarters that reflects the approximate number of individual positions that they would like to hold of ventures in thse sectors.
Billing, fees, costs, cancellations
The AngelList platform automates and simplifies many aspects of the fund for both investors and fund managers. Subscription and quarterly funding are quick and easy. Once an investor applies through the portal, AngelList verifies their accreditation status. If approved, we can accept their application to participate. They then are assisted in setting up a direct connection with the bank of their choice.
The rolling fund provides a simplified investor portal and LP obligations. Most importantly, the subscribed amount is the only funding obligation: there are no added capital calls for fees or extraneous costs (as there are with a traditional venture fund). AngelList provides LPs with a client portal and, as custodian of the funds, manages the accounting on behalf of Nucleation. When we are ready to fund an investment, AngelList reviews legal docs and issues the funding directly to the venture. They also control the payment of fees to the GP and distributions of proceeds, providing an added layer of protection and security for investors.
Nucleation charges standard venture fees but also provides discounts for longer-term subscriptions. We charge a 2% management fee and a 20% carried interest fee (“2 and 20”) on a standard 4-quarter term. For subscribers selecting an 8-quarter term or longer, we provide a 25% discount on our management fee. Carried Interest (“carry”) is an incentive fee that is only paid to us, the General Partners (GP) when returns generated exceed the total principal amounts paid in by the investors, i.e., the Limited Partners (LPs) for their full term, and serves to align LP and GP interests.
Since launching in 2021, Nucleation Capital has limited costs funded by our LPs. We have paid all fund formation costs ourselves and we have also covered all of the ongoing platform fees charged by AngelList for our use of the platform each quarter. While most GPs pass the AngelList platform fee onto their LPs, we don’t. We have always paid that fee ourselves. (NOTE: AngelList is posting warnings that their platform fee is increasing. Please ignore that: with Nucleation, you do not pay that fee, we do! We have always funded that fee out of our own pockets, and we expect to be able to continue to offer this reduced-cost pricing for investors in Fund I, even after the fee is increased starting in 2025.
Communication, fund reports, tax reports
Nucleation Capital’s platform enables us to communicate with our LPs directly and securely. We answer your individual questions and we share fund-wide news. We provide a summary report on each of our investments as soon as we are able. Platform communications are stored and maintained by AngelList for the life of the investment and made accessible to each investor through their personal AngelList account and investment dashboard.
AngelList also provides customer service to LPs on issues ranging from billing and cancellations to tax reporting. AngelList automatically uploads the requisite tax reports that LPs need for their tax forms each year.
Investing in Nucleation Fund I
If you are considering participate in Fund I, we’re happy to meet via Zoom to be sure that we answer any questions that you may have. You can join one of our upcoming webinars or we are happy to schedule a private meeting. Please use this link to schedule a meeting.
Alternatively, if you are ready to apply for Nucleation Fund I, you can do so through the below link. The link will take you to our online subscription portal at AngelList where you will have access to all fund documentation. The interface walks you through each step of the application process. Note: If you run into issues, we are happy to help. Or you can get email support from our AngelList support team here.