Greg Lindsay: I want to start from the proposition that innovation itself is perhaps to blame for our current predicament. The physicist Geoffrey West, for example, has demonstrated how cities scale spectacularly – at the cost of an accelerating metabolism which must be “solved” until the next crisis, which in this case is climate change. One school of thought is that we’ll innovate our way out, and life will carry on as usual. The Green New Deal proposes something different – a political solution calling for wartime-level mobilization. What are we trying to change? And is the startup/VC model the way to change it?
Shaun Abrahamson: A lot of what we’re trying to solve is patching the remnants of hundred-year-old decisions, whether it’s the power grid, roads, or even how to plan cities. They’re all stuck in a paradigm we’re beginning to revisit now. Knowing the costs of maintaining our huge network of roads, should we fly more, or just maintain better roads? I’m optimistic that some of these changes are big enough to offer a path – especially renewable energy.
Greg: But that’s a problem requiring literally trillions of dollars, along with cultural change and political will. Is the venture model really up to that task?
Shaun: It’s still the most useful way to take a potentially new solution and get it into the market at scale. I don’t think it’s nearly sufficient. For better or worse, Urban Us is the best we can do assuming little or no policy support. We try to make investments that would work without it, but will work better with better policy down the line.
If you’re trying to generate returns for limited partners [LPs], what they care about matters a lot. And most of them cannot reconcile competitive market returns with public benefits – it seems you’re leaving money on the table. What message does that send? That it’s better when you externalize costs? That’s what many LPs seem to think.
Deborah Conway: Agree. That said, I think you are going to see a lot of shifts in venture-capital models. Take corporate VCs, for example. A lot of how they are judged is on strategic return. The question is how do strategic returns for corporate LPs align with better policy?
David Zipper: In my view, the Green New Deal is a reaction against technocracy. It’s striking that it’s built around justice rather than cost-benefit analysis. For example, carbon pricing is missing. Maybe that’s the right thing to do, but it questions the relevance of how startups and venture capital play into it – because a lot of how they think is along the lines of internal rates of return, and so on. It’s striking to me that whole way of thinking is maybe not as central as simple ideas of right and wrong.
Robyn Beavers: The question is: how do we eliminate fossil fuels quickly and effectively? A lot of people think technological breakthroughs are required, in which case R&D and venture capital is important. But there’s also the application of existing technologies using different business models and investment strategies, whether it’s traditional infrastructure finance or other approaches. I think there’s room for everything – let’s start now knowing it will take five or 10 years for some of these things to happen.
Greg: Shaun, when you started Urban Us, you tried to quantify startups’ potential impact using carbon emissions as a KPI. What inspired you to adopt CO2 reduction as criteria for investment, and what were the challenges?
Shaun: We started by looking at C40 policy, which assumed that if you put together enough studies around carbon emissions from mobility and buildings etc, you would at least have a road map. The question was: how do you build the things that go on that roadmap? If you ask the incumbents, they just look at each other, thinking, “I just borrowed a bunch of money to build another coal plant – I have zero incentive to think about this until I’ve paid it off.” Investors were really confused by the idea that your investment thesis would cover benefits and generate returns. It made fund-raising tough.
If you look at our internal memos, it’s still one of our main filters. For example, at some point Robyn will be able to show meaningful changes in buildings’ energy consumption – will it be 100? 1,000? – and see the profile of a new utility taking shape. A big chunk of that will link back to reduced CO2. But I bet Robyn has her own roadmap for that.
Robyn: It’s happening. There’s definitely an inflection point in electricity networks, which is where we’re focused. Everyone’s accepted the fact that distributed networks are a thing. It’s just a matter of how you realign rules and markets and frankly, it’s a land-grab moment – a lot of folks are trying to protect their positions or vie for new ones.
David mentioned the Green New Deal earlier, and I think it misses the procedural aspects of all this – the in-between stuff to solve these problems, like evolving utilities’ monopolistic business model or ensuring all the layers are in sync. It’s not even technical. It’s the result of great technological advancement, but doesn’t understand that. And now it’s just a big food fight.
David: I wonder if the Green New Deal takes a different attitude that we don’t have the core technologies available and that government has a role in doing the basic research without expecting a monetizable return. I believe that more government research spending could lead to more investable startup ideas down the road. I wonder if other folks feel differently, though.
Shaun: I think the role of governments is refereeing the food fight, which is happening in legacy markets that were never meant to be disrupted. The pension funds putting money into the energy sector need government to intervene and say, “I know you’re supposed to get a predictable 30-year return on a coal plant, but not anymore.” That’s a fundamental issue and has nothing to do with innovation. Yes, people are going to lose money, but everyone’s going to be happy because it’s the right thing to do.
Greg: I want to come back to your point about investing in a policy vacuum, which strikes me as untenable when it comes to climate change. We shouldn’t ignore the different speeds of these shearing layers – we should be figuring out how to better align them. Robyn’s nodding.
Robyn: For most of my career, I’ve been focused on technical and business innovation, but now it’s policy. Better coordination across the city, state, and federal levels is needed more than ever. I’m working with the real estate industry, and eventually you’re going to have all these big players in the room demanding market changes, so there will be more voices challenging the status quo. That’s all good stuff, but it would help if there was some acknowledgement this is coming, so regulators and policy makers are prepared.
Shaun: People want this to be a moonshot problem – put a bunch of smart people in a place and let them build something. We’re dealing with a more complex system. There are very few people who can even explain how cities work! We try to ask, “how do cities work?” then figure out ways to make them work differently, which leads to very, very large stranded assets, whether it’s real estate, infrastructure, diesel plants… The rocket-science part of this looks trivial. Apologies to rocket scientists.
Greg: The failure to grasp that complexity has produced a $100+ billion ride-hailing industry that nominally replaces your need to own a car, but at the cost of massive congestion, vast collateral damage to public transportation, and terrible labor practices. Is that a failure of the model itself?
David: In mobility, it’s not always clear the net effect of VCs has been positive. The billions of dollars poured into ride-hail forced many taxis to improve, and may have led some people to get rid of their cars – myself included. But it’s hard to feel good about investments that lead someone to dump tens of thousands of vehicles without warning on the streets. Cities are getting smarter about strong regulations piloting new solutions before they scale – which may be bad news for VCs, but good news for residents.
Julie: It’s not a model failure. Ridesharing has fundamentally transformed mobility in cities, and we have to take the benefits (reduced rates of car ownership, myself and David included) and try to mitigate the drawbacks (increased congestion). We need thoughtful regulatory action to ensure a balance. For nearly a century, cities have been built to accommodate a car-centric model, which includes allocating significant space for parking. Ridesharing has opened the door for new mobility services, including micro-mobility.
Robyn: There was great investment in energy moonshots 10 or 15 years ago, and that should keep happening for leapfrog moments in say, nuclear or anything else that can change a paradigm. The reason policy is the last piece to catch up is because a lot of great R&D and commercialization work has already happened and is ready for primetime today. I think that could be a neat thing to highlight, right? Keep resetting the goals so that we always have near-term and long-term options. It’s not one or the other. We can have both because the research paid off.