CLIMATE TECH’S TIPPING POINT

September 23, 2020

On the heels of a backlash in the venture industry, 2020 started out with leading voices in tech, like a16z or USV, evangelizing the investment opportunity in companies addressing the climate crisis. As COVID-19 has revealed the societal fault lines of environmental justice in the US, the chorus of ‘climate tech’ investors has grown louder, anchored by a $2B commitment from Amazon.

Whose strategies will prevail, and what does this mean for entrepreneurs? What will this mean for traditional ‘impact investing’? Can frontline communities expect to see any benefits as they grapple with extreme weather events, deep unemployment, and the worst public health crisis in a century?


5 Key
Takeaways

Miriam Roure

Hello everyone, and welcome to Climate Tech’s Tipping Point, a conversation about climate tech investing hosted by URBAN-X during Climate Week NYC. My name is Miriam Roure. I am the program director at URBAN-X. For those who don’t know us, we are a venture accelerator for startups re-imagining city life, built by many and the venture fund Urban Us.

Miriam Roure

I am excited to present today a panel with not one or two or three, but four female climate tech investors who will discuss the status quo and future of climate investing. As the title of the event indicates, we believe we might be at a tipping point. A tipping point in terms of awareness leading to action; a tipping point in terms of climate tech becoming more mainstream; in terms of climate policy and legislation being written and passed; in terms of the private sector taking the issue into its own hands and we have seen with most big tech companies announcing projects to become net zero or other in the next 20 years. With that said, tipping points come with their own inherent risks and uncertainties, and those are, I think, the ones that we are going to be discussing over the next 60 minutes, and hopefully addressing those head on.

Miriam Roure

We are going to be reserving 10 to 15 minutes at the end of this hour-long event for questions from the audience, so feel free to share questions through your local chat or Q&A on Zoom. And with that, I would like to introduce our moderator for today’s event, Sophie Purdom. Many of you might know Sophie as the writer of the popular Climate Tech VC newsletter. While she has been hard at work to address climate change since her early days as an undergrad at Brown, Sophie has tackled climate change from the policy perspective when she coauthored Rhode Island’s first climate change law [inaudible 000543] investor perspective when she launched the first university ESG fund at Brown’s endowment, and as the co-founder of the ag tech startup, Kula Bio.

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Miriam Roure

Hello everyone, and welcome to Climate Tech’s Tipping Point, a conversation about climate tech investing hosted by URBAN-X during Climate Week NYC. My name is Miriam Roure. I am the program director at URBAN-X. For those who don’t know us, we are a venture accelerator for startups re-imagining city life, built by many and the venture fund Urban Us.

Miriam Roure

I am excited to present today a panel with not one or two or three, but four female climate tech investors who will discuss the status quo and future of climate investing. As the title of the event indicates, we believe we might be at a tipping point. A tipping point in terms of awareness leading to action; a tipping point in terms of climate tech becoming more mainstream; in terms of climate policy and legislation being written and passed; in terms of the private sector taking the issue into its own hands and we have seen with most big tech companies announcing projects to become net zero or other in the next 20 years. With that said, tipping points come with their own inherent risks and uncertainties, and those are, I think, the ones that we are going to be discussing over the next 60 minutes, and hopefully addressing those head on.

Miriam Roure

We are going to be reserving 10 to 15 minutes at the end of this hour-long event for questions from the audience, so feel free to share questions through your local chat or Q&A on Zoom. And with that, I would like to introduce our moderator for today’s event, Sophie Purdom. Many of you might know Sophie as the writer of the popular Climate Tech VC newsletter. While she has been hard at work to address climate change since her early days as an undergrad at Brown, Sophie has tackled climate change from the policy perspective when she coauthored Rhode Island’s first climate change law [inaudible 000543] investor perspective when she launched the first university ESG fund at Brown’s endowment, and as the co-founder of the ag tech startup, Kula Bio.

Miriam Roure

Sophie now runs her own consulting firm, C6 Solutions and is moving to the investor side of the table with Collaborative Fund, where she will be investing in early stage climate tech startups. And so with that, thank you, Sophie. The floor is yours.

Sophie Purdom

Amazing. Thank you, Miriam. Welcome, everybody. So glad to be talking about this on a Wednesday. We’ve got an amazing group of panelists here to share their thoughts on climate tech investing with you, trends. Where it’s been, where we’re going. I’m really happy with this group because we all come at this from a slightly different perspective but have a shared goal in mind and with no further ado, we’ll get right into that in the panel. But first, I want to take a second to introduce everybody and share some short bios, so you understand where their perspective is coming from.

Sophie Purdom

First, we have Shilpi Kumar, who is a venture partner with Urban Us, which is an investment platform focused on urban tech and climate solutions, where she invests in early stage companies and supports teams on customer development and product strategy. Before Urban Us, Shilpi worked with Filament, VTF, First Round Capital, and Village Global. Thanks for joining, Shilpi.

Sophie Purdom

Next, we have Lily Bernicker, who is a principal at Collaborative Fund, which is a seed stage venture capital firm focused on technologies that sit at the intersection of for-profit and for-good. At Collaborative Fund, she spends most of her time on opportunities related to health care and climate tech. Prior to her current role, Lily worked in management consulting and at an accelerator based in Washington, D.C. Thanks, Lily.

Sophie Purdom

Last but absolutely not least, we have Amy Francetic, who is the founder and managing general partner of Buoyant Ventures, which is a new venture fund focused… Which is based in Chicago and invests in digital climate solutions for energy, transportation, agriculture and the built environment. Amy’s career spans over 20 years of high-technology entrepreneurship, private equity and research. Interestingly, Amy also previously founded and led Energize Ventures and Clean Energy Trust. So thanks so much for joining us, Amy.

Amy Francetic

Thank you.

Sophie Purdom

All right. We’ve gathered the panel. We have a great topic. Let’s get right on into it. So from our bios, we all call ourselves climate investors but I think we come at it from slightly different perspectives and we define what climate tech and climate investing slightly differently. I think there’s no better way to define our approach than to start talking about it. I know that you all love your portfolio companies equally, of course, but maybe we can start by picking one each for now to help us understand your fund’s approach to defining climate investing. Who wants to kick us off?

Shilpi Kumar

I can go first. One of the companies that I’ve been working with that I’m really excited about is actually currently in the Urban-X cohort. It’s called Climate Robotics and they are building autonomous Biochar robotics systems that create Biochar onsite on the same land where the biomass is located. This has previously been… Biochar has been studied for a really long time. It’s previously been a bit too expensive as a method for liable carbon capture and for soil improvement because of the costs and emissions associated with the transportation involved.

Shilpi Kumar

At Urban Us, we’re interested in Climate Robotics for their ability to upgrade blighted land and degregated lands for municipalities but Climate Robotics actually also has a really direct benefit for farmers and ranchers as an alternative to agricultural lime and soil emitment. We often like where there is both a benefit for governments and for businesses and other stakeholders involved. It’s been so great to work with Jason and Morgan, and so I am excited to share that as a kind of good example.

Sophie Purdom

That’s a great example and the team is fantastic there as well. Anyone else? Amy, Lily?

Amy Francetic

I’ll go next. Sure. Well, I’m so pleased to be here. Thank you so much for including me and for pulling this panel together, and just very excited to share some time with you amazingly accomplished and interesting women. The company that I wanted to mention was Raptor Maps. We just made an investment in Raptor Maps and it’s a very good example of our thesis because it is a software company that is using their artificial intelligence and machine learning expertise to analyze footage from drones to help large owner operators as well as independent engineers working on utility-scale solar to really optimize the solar system.

Amy Francetic

So using their technology, they can help identify when repairs are needed. They can help owners figure out how to build more solar on a site. And then most importantly, they’re trying to create a system of record, which will keep track of every event, as well as performance data on that asset; which is extremely valuable when institutional investors come in and want to purchase an transact with those owner operators for that system. We expert that there will be a lot more institutional capital coming into the renewable space. Someone that has a software solution that can make that easier for folks and can attract more capital to us is really having a very positive climate impact.

Sophie Purdom

Fantastic. Also, love the Raptor Maps team. This is a great group so far. We should build a portfolio together. All right. Lily?

Lily Bernicker

Sure. The company that comes to mind for me is the first business I invested in when I joined Collab. So basically, two years ago. This is what I thought venture investing would be like. When I started investing, as Sophie mentioned, I was consulting before and so this was the dream deal for me and it was actually a little bit of a stretch, I think, from what we typically considered our bread and butter at the time at Collaborative because it’s a deep tech investment in a cultivated meat company and we’ve invested in a decent amount of bio engineering and synthetic biology platforms that are engineering alternatives for food and bev, but this was the first one in meat. We’ve been working with them for two years.

Lily Bernicker

It’s been really special to work on a moonshot like this. But at the same time, it feels uniquely inevitable in many ways, which is something that I think we look for when we invest in climate. We look for opportunities whether they’re market pressures or consumer demand shifts that are coupled with fundamental changes and enabling technologies that make this possible for the first time. It’s a breakthrough technology that benefits a lot from a lot of the cost reductions in genome sequencing and gene editing, and bio processing and it’s a super exciting business and wonderful team, so that’s been a bunch of fun.

Sophie Purdom

Amazing. Great. Well, that worked particularly well. We have a little bit of hardware. We have some digital, and we’ve got some consumer across the Biochar, solar, and alternative meat. I think that’s a really sound example of our slightly different approaches but still driving home for a similar level of impact on climate, which makes me wonder across your funds, do you go so far as to define impact metrics in evaluation and due diligence or are you confident enough that you’re addressing climate change just by being careful around selecting the sub-sectors that you look at?

Amy Francetic

I’d be happy to jump in because we absolutely have a really clear lens that we use to evaluate the potential impact of the companies that we would invest in and we are adhering to nine of the UN Sustainable Development Goals. We’ll be measuring impact along those lines and that’s also an important part of how we hope to build a portfolio that has a broad as well as deep impact. Everything that we will invest in is screened for that. And then, we require our companies to give us an annual report that sort of demonstrates defensibly what their impact is and we’ll roll that up in the portfolio for our investors.

Amy Francetic

The other thing we really care about is diversity and inclusion. The other thing we’re looking for are diverse founders and CEOs and if the team does not have a diversity and inclusion policy or strategy in place, we’ll work with them to try to create that. So that as they build their team and their board, they’ll be actively sourcing more diverse candidates. And then, we do require reporting metrics on their progress towards those goals.

Sophie Purdom

I’d love to hear more about when you say you require an annual report on impact for the portfolio companies, can you give us a teaser of what kind of metrics might be in there?

Amy Francetic

Sure. Sure, sure. So for in the case of Raptor Maps, we will measure how many megawatts of solar for instance they have on their platform; and from the beginning of the year to the end of the year, how many additional megawatts they’ve added and then we kind of roll that up. We’ll have that report. It’s a simple metric that is very much aligned with their business anyway, so it’s not something additional. We’re not looking for this additionality for their technology, do something additional. We’re really just trying to measure how much solar they are actually working on. And then, we will be tracking that growth over time and also trying to understand and to make sure that our thesis, that they are helping to do more and more solar and more transactions with investors that that comes true. So that’s part of what the metric is about.

Sophie Purdom

Super helpful. I could keep bugging you, Amy, and I’ll ask if you think other investors are requesting similar data or I could go ahead and ask Shilpi and Lily if they’re doing the same. Are you guys asking portfolio companies for impact metrics?

Shilpi Kumar

Right now, we’ve been much more diligent about narrative alignment. Our primary interests are whether products or services can make an impact on greenhouse gas reduction, electrification. We think about increased resilience and improved quality of community density and this has a lot to do that we have this urban focus as well, but we do also track how investments link to the sustainable development goals and we’re starting to incorporate the Project Drawdown’s categories for sources and sinks, which I think is a really valuable framework. There are some specific metrics that would work across but I think because we’re doing a lot of systems level upgrades, we’re not always tracking direct to the same types of impact metrics as other climate groups might be.

Sophie Purdom

Really well said. For those who might not know much about Project Drawdown, could you double-click into what that is and how you’re aligning your assessment of the portfolio to those categories?

Shilpi Kumar

Yeah, absolutely. Project Drawdown is a really valuable institution, I think, to the whole movement. They’ve development a framework with the hundred most promising climate solutions across multiple categories. So food, agriculture and land use, industry, transportation, buildings, and they align their categories as being able to reduce the sources for emissions as well as supporting the sinks for where we can sequester some of the existing atmospheric carbon. They also make a big point to… Ways, all the different solutions about improving society and health and education. They did a really great Climate Week event actually on Monday and are flush for resources if you check out their website.

Sophie Purdom

No doubt. You can spend a whole day in there or six months as I did myself, so a great resource. A great resource. And honestly, I’ve seen it on the other side and maybe you guys have also witnessed this but lots of talent that’s pouring into this space right now goes to Project Drawdown almost first to take a look at that massive list of potential opportunity areas and decide if they want to align themselves and their career with the most quantifiably high impact area or potentially that’s just a laundry list of ideas that might be particularly attractive to them personally. Thanks for explaining that. Really cool that you’re connecting that in with your impact metrics.

Sophie Purdom

All right. Lily, so I know this one is a little bit different for you all because Collaborative is inherently a generalist fund. How do you think about measuring impact?

Lily Bernicker

Yeah. So yeah, we actually had a very long team discussion about this yesterday across the portfolio. The short answer is we don’t have a threshold, like BV would have around like it needs to be a gigaton before we consider making the investment and that’s both because, as you said, Sophie, we’re a generalist fund. And so while we’ve been mission-driven for a decade, the problems that we solve are so diverse that we don’t have a standardized framework that we can apply across those businesses.

Lily Bernicker

I would say specifically in climate, we have backed so many pre-commercial companies because of our mandate. It’s really broad. We can do hard tech. We can do software. I think the way that I think about the businesses we invest in is there’s kind of two buckets. One is around accelerating mainstream adoption of existing technology and the other one is funding development of new technologies. And especially in the most recent fund, a significant proportion have been in that bucket of [inaudible 00
2055] tech. There is nothing intermediate, I would say that we can measure in terms of megawatts added to the grid or emissions avoided but I think it’s something we certainly consider and we can discuss with every company and internally as a group but it just hasn’t made sense yet; both because of the stage that we invest and the type of investments that we have to make in climate and because it’s a pretty broad mandate.

Lily Bernicker

I would say that as a philosophy, we look for opportunities to drive exponential improvement and that’s something that we believe is required to achieve the level of scale that we need urgently to avoid [inaudible 00
21
42] by 2050. We look for opportunities where the megawatt difference or the emissions avoided are massive and that’s also related to a massive step change in performance that’s going to drive adoption beyond improved sustainability profile. That’s a little bit about how we think about it at the highest level.

Sophie Purdom

Thanks. I’ve heard your partner, Craig, talk about this pretty succinctly as the villain test before. You’ve probably heard this story many times. Do you want to give us the 20-second version of it?

Lily Bernicker

Sure. The way that… I think Tesla has always been the example that Craig likes to use for the villain test, even before we had such a big portfolio in climate. But basically, it’s the concept that regardless of the positive environmental, socioeconomic impact, it’s just the better sexier choice and that’s why people adopt it. I think there are certain industries that we like to look at in climate where the villain test isn’t there.

Lily Bernicker

I’m excited to talk to folks that are doing more in infrastructure and industrials, materials, where we feel like there is not the market pressures that you see with oil and gas majors struggling with stranded assets and looking for ways to diversify or the cost-competitive requirements of renewable sec or consumers demanding more sustainable food. And so, without any of those pressures and without a strong regulatory framework, which I think we’ll get into later to drive a change, the villain test is like do I want this more? Is this a better option, not just on cost, table stakes, but on performance? Would a person who is only looking for their own personal gain choose it regardless of the positive impact? So [crosstalk 002341].

Sophie Purdom

Perfect.

Lily Bernicker

Not the succinct way that Craig describes it but that’s a little bit how [inaudible 002346].

Sophie Purdom

All good. We’ll have to brainstorm with everybody who is listening in today, what a good example of a character would be. I’ve heard it described as the Mr. Burns test before but I feel like we need a climate-focused one and it would be great if we had a female villain as well, but anyway.

Sophie Purdom

All right. We’ve got a mix of hardware, looking at you, Shilpi, and digital, looking at you, Amy, pretty specifically focused investment perspectives here. Amy, you go so far as to say you’re investing in digital solutions to climate change. Help me out. Where are they separate? Where do they inherently link together, and chicken and the egg? What comes first?

Shilpi Kumar

Well, I can…

Amy Francetic

[crosstalk 002434] Shilpi. Go ahead.

Shilpi Kumar

Okay. Well, I can start. I think our perspective is that moving towards a zero-emission economy requires major changes to physical systems. So buildings, roads, water pipelines, semi-trucks, not to mention carbon capture and storage and power generation. I’ve been working with hardware startups for most of my career and more than 50% of the Urban-X portfolio has some type of hardware in the stack.

Shilpi Kumar

While a lot of investors are really afraid of it, there is actually venture capital that’s been deployed in hardware for since clean tech and over the last 20 years. I think that to say that it’s a building block, it has to come first, maybe it is oversimplifying it. I think in each aspect and each sector of industry, there’s an aspect where hardware is playing a layer for either getting new types of machines and mechanics in place; and also, for the IoT censor systems that are collecting that data and enabling new types of operation.

Shilpi Kumar

We’ve also made quite a few investments that are software-based and based on using this new data and information and optimization engines to reduce lags and identify areas for where even the new charging infrastructure is going to go and where it could best be used. I think hardware does add an additional risk dimension. Suppliers, manufacturers, having to do distribution; but it also tends to require more equity capital than software companies. I think that there is a way that at least from an investor perspective, looking across both sectors is important even if you’re only going to make software investments or large-scale hard tech investments because the way that each sector is moving forward, there’s going to be both aspects that are going through rapid transformation.

Amy Francetic

Yeah. I would just say that when we did… To define digital to us, means software and hardware that is capital-efficient that can be scaled up immediately and added immediately as a solution, and can also include new business models that have technology or web or mobile as part of their fundamental offering. That’s how we define digital.

Amy Francetic

Just as Shilpi said, looking at the proliferation of low-cost sensors that can capture unique data that gives some of these companies a real information edge for what they’re doing with their algorithms to be able to ingest unique data that gives them something better to work with than what’s publicly available. And then, to be able to offer insights or a solution to a customer that is better than what they could get on their own.

Amy Francetic

In the case of Raptor Maps, they’re collecting data from a piece of hardware, very frequently from the drones, and they’re putting this into their system. That gives them that unique advantage that they can use to help the solar owner operator or engineer to operate that system more cost-effectively and more productively. We see that a lot with different kinds of hardware sensors being used in agriculture to capture data from the farm or the field, or to capture information along the supply chain from the farm to the store to the customer.

Amy Francetic

And so oftentimes, there is some kind of device that is being either relaying tracking information or something regarding the health of that food product or that animal product. And then even in the case of infrastructure, we’ve been looking at companies that put sensors inside pipes in municipal water infrastructure to understand what’s happening in those pipes. Because ironically, the municipal water agencies don’t really know what’s happening in those pipes until the water turn support somewhere else. So when it turns up in people’s basement or in the streets, or backing up out of the sewers or being dumped into the lakes and streams, they’re using those sensors to capture that information but their real product offering are the insights that they’re delivering to the customer from data.

Sophie Purdom

Thanks. Shilpi, you mentioned potential need for different types of equity coming in to… What I’m getting at is lots of these hardware plays are expensive and they take a long time to develop and to roll out, and venture is a very specific asset class that works for very specific types of business models at a very specific point in their lifecycle. What other asset classes do we need, are we missing, do we need to see more of to meet this call that we’re reading about daily from the IEA, the EIA, all of the other policy institutions are calling for an all-hands-on-deck approach? What other asset classes do we need to see around the table?

Shilpi Kumar

Yeah, absolutely. I think I can speak to what Urban Us is doing. But first, I’ll lead with that there have been lots of solutions from both a federal government, Departments of Energy and Departments of Transportation. Big grants coming from even state funds into doing deployments and testing in the field as much as they can. A lot of the companies that we’ve seen already… Before raising any venture money are coming in with $500,000, $1 million of investment from government funding.

Shilpi Kumar

I think in addition to that from the other side, we’re seeing Walmart, Microsoft, Amazon deploy billions… Literally, billions of dollars into climate and they’re not focused just on venture. They’re focused on debt and credit, and they’re looking at alternative asset classes to put… As Lily was talking about, how can we scale out these opportunities? What assets are ready for deployment and scale? That’s one aspect of what’s needed, I think on the later stage. On the early stage, how can we actually bring venture debt and credit opportunities even earlier in the lifecycle; which is something that Urban Us is doing.

Shilpi Kumar

We’ve been working since 2014, 2015. After the first 50-60 investments, it became really clear that there needed to be alternatives to venture equity. So we actually are currently raising, about to close a $100 million credit vehicle to come in earlier and be able to support physical companies and actually companies that have some need for project-based financing or underwriting of customer contracts; being able to fulfill these really big impact projects even earlier in their lifecycle rather than being completely diluted and needing to raise $50 million, $100 million in venture equity to be able to fulfill the opportunities that they’re finding.

Shilpi Kumar

I’m really excited about that. I think it’s… I read this article. I would I could reference the author but it says like debt is coming, and I think it would be worthwhile for other co-investors that we work with to start adopting that as a mindset, especially as they’re getting deeper into climate tech.

Lily Bernicker

Yeah, I love a lot of that. Is it okay, Sophie, if I jump in [crosstalk 003215]?

Sophie Purdom

Please. That’s why I awkwardly paused.

Lily Bernicker

Especially, your point on the power of procurement from big tech companies or Walmart’s announcement now as well, I wish we were seeing it obviously at the federal level. I think beyond [inaudible 003237] grant funding coming [inaudible 003239] level, like procurement and these massive organizations that have significant energy needs and run huge systems that are highly admitting them getting serious about just committing to purchase at a significant scale in such a way that you can use that almost as collateral around scaling up through your first commercial facility is amazing and something I didn’t necessarily think two years ago we would be seeing the way that we are. I think that’s really exciting.

Lily Bernicker

I think your point on the gap from lab or R&D scale to venture-ready is something that we still see. For us, I think we think about investing in two discreet types of risks, either technical or business model risk and there are a bunch of businesses that we see where there isn’t even a proof-of-concept. There isn’t a [inaudible 003335] risk that we can even wrap our arms around. I think I still see a decent amount of room there, either for really flexible philanthropic capital or [inaudible 003346] grant funding to bridge that gap.

Lily Bernicker

And then for us as a generalist fund, I think one way I think about doing my job is helping to de-risk some climate-related investments for traditional tech investors. It’s not going to be a fit for everybody. [inaudible 003404] don’t work for everybody. Expertise isn’t necessarily there but the extent to which we can play a role in saying like, hey, this meets our returns standards, which we know are the same as you all’s. We work with you on series As and consumer software, now we’re bringing you this and we believe that this fits with your return and portfolio construction needs. That’s something that we hope generalist funds can contribute to this fight since we’re not always the experts in the room. But certainly, I think we have similar standards and similar incentives as big pools of private capital that haven’t necessarily committed in a big way to venture funding for climate. So [crosstalk 003450].

Sophie Purdom

Yeah, so almost helping prep the follow-on from generalist. Yeah, interesting. To that point of generalists entering the ring here, it’s pretty obvious that there’s been an upsurgence in the number of climate-specific funds that have entered the arena over the past 12 months. Are we seeing the same volume of capital from the generalist side pour into climate tech; or said another way, what’s it going to take for climate tech to go mainstream?

Amy Francetic

Well, we are seeing in our thesis, a lot of the funds that our software investors coming into this space and that’s actually really validating. The deal we just did, Raptor Maps, we co-led their series A and data point ventures in Boston, which is a fund that is mostly focused on enterprise software was the other big investor in that round. We’re really encouraged by that. We like the fact that it can bring in capital that clearly has a return objective. I think that that’s the other message to the investor world is that we’re all driving for returns here. This is not charity. This is really like we are all driving for if you’re a venture fund, venture returns or PE shop, you’re looking for PE returns in this. I think that that’s also kind of an evolution of what’s happened with ESG investing, that the big investor community has recognized that if you’re screening out some of these very fossil fuel-intensive or carbon-intensive investments, you’re getting better returns automatically in the public markets. And so, they’re starting to see that as well in the private sector, in venture, that that screen, that positive screen for solutions that are going to be more aligned with climate solutions, a resilient future, sustainability, are going to outperform those that are heavily dependent upon fossil fuel industry. That’s to me, a big signal that you’re seeing institutional investors coming in.

Amy Francetic

You’re seeing traditional generalist funds, software investors coming in, and I think that the key thing we have to keep in mind about it going mainstream is that it’s still to really be an investor, at least on the energy side of climate, to be knowledgeable about what it takes to build a company in the energy sector, you have to have knowledge of policy and energy markets, and it’s really not for someone who’s casually involved in this sector. It would be very easy to misread market signals in the energy space if you’re not really knowledgeable how regulatory change could affect your business or you’re also not knowledgeable about what it takes to actually influence outcomes that will benefit you.

Amy Francetic

You have to sort of be in the game, and it’s really, really hard to do that from the outside if you don’t really know how to pull some of these levers to your benefit. Because if your company isn’t doing it, their competitors absolutely are thinking about it. I think that that’s a consideration that we’re excited to have more capital come in, but I think the mainstream… I think needing some expertise is really, really necessary to be successful in this space.

Sophie Purdom

Shilpi, thoughts there? Just to seed it a little bit further because I think this is really interesting, I’ve heard it argued that just like what you were saying, Amy, you really have to marry the space rather than date it.

Amy Francetic

Yeah.

Sophie Purdom

It’s complicated. There’s science risk. There’s regulatory risk. There’s early stage risk. There is business model risk. The list kind of goes on. This isn’t for the faint of heart. You can dabble but if you really want to play, you have to invest a lot in understanding all of the systems and the interconnectedness there. That’s just a fun quote. But then on the other side, I’ve also heard that the mainstream investors… Not to put them all in one massive bucket, but I’ve heard that they’re kind of waiting for some large exit success stories. Tesla being one of the few of them that’s highly oversighted. I get quite excited when I see longer term exit opportunities like the long-term stock exchange finally come online where we’re valuing long-term thinking and I get excited maybe too much so by the resurgence in SPACs, which are albeit many of the remaining issues with them is a valid exit opportunity for some of these more challenging climate tech later stage companies. Does any of that resonate for you, Shilpi? Does it matter how these companies stick the landing, or do we still need to be focused on the earlier stage?

Shilpi Kumar

Yeah. My experience is definitely in earlier rounds. I think there has been a resurgence in interest in this year. I had just spent the last five years more in an operating role, and so working within these company, we were going through seed, series As, series B rounds. Fundraising is so hard. I think just to speak for the founders, okay, so there’s lots of headlines. There’s lots of people saying they’re looking at climate tech and attending demo days. I would still say that there is a lot of resistance to actually undertaking the risk. I think even… You start speaking about exits, I have some hope from the Blackstone and these big corporate reports and adding ESG to every agenda, and I think that that could have even an effect on a Monet and the quality of the companies that we’re investing in at an early stage becoming actually meaningful business units or having meaningful contribution or exit value.

Shilpi Kumar

I think that the proof is in the pudding part for lower risk and later stage investors. In this new chapter of it, I think there is still a lot to be proven. I think that as early stage investors, there’s a lot of work to be done on also guiding the teams towards sustainable business models, making sure they’re hedging against relying on corporate offset as their pure business model; or there’s some ways that you can say like let’s make this actually a solid business that solves a problem in a real environment that there’s profitability to be found here rather than just saying there’s tons of money going into climate tech. It doesn’t matter what our business looks like because someone is going to invest because I don’t know if I want to build a foundation there if I’m a founder.

Sophie Purdom

Absolutely, yeah. To your point about the shifting floods of capital, now there’s a lot of conversation happening on the corporate side and action, I would argue less so, actually negative on the governmental side and somewhere neutral-ish on consumer. I’m talking about the past six months or so. Has that massive swing of the pendulum over to the corporate side affected your individual interest levels in more of an enterprise sales model, or has it not gotten there yet?

Shilpi Kumar

I can speak really quickly about this. I’ve been looking at so many companies that do have some way to sell carbon offsets to these corporate buyers. I think Stripe did a really big favor to creating a model for it and sort of putting their money where their mouth was really early. But I do think for a founder, looking at that as a revenue stream, there is so much uncertainty. I am excited as a citizen of the Earth and for all of these corporates to be committing to zero emissions. One of the things that I was really excited by is Microsoft released a report with CDP on how they’re enforcing this on their suppliers and bringing forestation and water security and carbon to tracking amongst the suppliers because I think on the industrial side, that becomes a big missing gap, right? What’s behind the lens of what a consumer cares about or trying to individuate responsibility, which I think is really a huge step.

Shilpi Kumar

I think for the companies like what we’re investing in, I still think that that villain test is a great way to frame it. What is the motivation driving this, and is it for being on the sustainability page of their site or is being on their P&L? I think what side are you actually coming at with these corporate commitments, and yeah, I think that the realist in me wonders how deep the pockets of the PR go. I agree that there has been a lot of action, so I am hopeful but I think navigating it and building a company model around it and trying to design for profit is something that we encourage.

Amy Francetic

I think the real area, so I agree, Shilpi, that how much of it is being driven for business value versus PR value, right? I think that that’s a question but I think what we see as a real opportunity that’s emerged in the last few years is the interest in measuring climate risk. So because these businesses are suddenly realizing that investments they have made are not well-positioned to be successful in the long run, so they’re not adaptable to climate change and there’s a lot of risk associated with that and they’re now very interested in measuring that risk and trying to use that measurement to guide their future investing opportunities; that’s a pure business value.

Amy Francetic

That’s not for PR, nothing. That’s people saying, oh my gosh, I’ve got all these mortgages in areas that are going to be flooded repeatedly or going to have wildfire risk and this is a bad business decision, or I’m underwriting insurance and I can’t underwrite insurance with these models that exist that are 40 years old that are no longer relevant. Those are purely being driven by business value and I think that that from the enterprise value standpoint is a real opportunity for a lot of these great technologists to help these big businesses, these investors, governments, municipalities come up with a more accurate measurement of that risk, so they can invest more thoughtfully and more successful in the future and so that they can also be part of the solution moving forward. I think that’s a very sincere business interest.

Shilpi Kumar

Yeah, I definitely would agree with that. I think one example I can give in our portfolio here is One Concern, which has actually been around for a while and is touted in this sector; they model risk associated with earthquakes and water, and insurance companies are investing heavily in flood modeling as a new product for them. It’s like this whole new market opportunity in flood insurance and first responders can use this, real estate owners and citizens are obviously impacted. I think one example of how this happens is One Concern opted to work with local governments and first responders, even though there is much longer sales cycle than working with insurance. If you have these multiple stakeholders and you can try to see where you’re getting headway, it’s also, I think, some of the technologies, the impact of them could die on the vine because they’re selling only within one commercial group rather than now One Concern, I think they announced this year, they’re doing a deployment for the whole country of Japan, which has massive impact.

Shilpi Kumar

I think finding ways that you can balance this business interest and commercial interest with also the full value of the platform that you’re developing and trying to de-risk it for the municipalities and governments, and first responders, and public entities along the way is something that our portfolio, we’re really dedicated to because it’s difficult to invest in gov tech and civic tech opportunities as an investor. But often, these solutions are really meaningful if they’re being given to all types of entities.

Lily Bernicker

Yeah. The only thing that I would add is we’ve seen a ton of, I think, carbon counting platforms that are meant for enterprises and clearly this is an existing industry with a lot of consultants and I’m seeing more people-driven solutions and software-driven solutions. I think there is a lot of excitement there. I would say to make the impact of these corporate commitments super effective beyond protecting existential risk to their supply chains or their physical assets, it’s going to give [inaudible 004811] better sense, I think, of where their carbon is. I think we’ve seen some exciting startups take that on but I don’t have a good sense that a lot of the largest most highly-emitting players know exactly where the carbon is, and so I think that’s also going to be a prerequisite.

Lily Bernicker

I don’t know if that sale happens now as part of my large-scale commitment to zero emissions or that happens when we’re closer to a price on carbon but I think that’s something that is certainly starting to happen. I don’t know if there are scaled up solutions yet that meet these enterprises where they are and help them actually rip parts of it out of their supply chain and put in zero emissions or low emissions alternatives that are not actively at risk of climate events. So that’s one thing that we’re looking for and there is a lot of activity, but don’t know if we’re quite there yet in terms of guiding really high-impact corporate investments in their own internal operations.

Sophie Purdom

Brilliant. Awesome. Shout out to the post that Miriam just shared of. Please audience, keep sending in questions. We’re doing an active Q&A and I’ll start slipping them into our discussion here. So as promised, we had a question from Jeff asking about the role of federal policy and funding, and how much that plays into investors’ decisions to invest in certain technologies or whether at all. And thanks, Jeff, for calling that out. We’d be remiss to not mention that we’re in the middle of a presidential election. One question that keeps bugging me late at night is how much does the office of the president matter when it comes to early stage climate tech investing if at all? That’s supposed to be provocative, so please run with it as you would like.

Amy Francetic

I think we’ve been waiting for tailwinds for a long time and I think that the president’s leadership on this is really important because it does provide overall support for the industry. It provides support for those big customers. The businesses no longer have to be doing it only to be a business leader, that if they had some support at the federal level, it would give great tailwinds to the industry. It also really matters on our standing internationally to have a leader that validates that this is a big issue and a big problem, and that we’re going to do something about it.

Amy Francetic

I think we’ve just been really… It’s been really painful not having more leadership on this issue. Not only for what it means to people’s health and safety but internationally as well as all of the innovators that are working on solutions, they want to feel like they’re doing something important that has meaning and that is valued by the highest office in the country; not something that is being brushed aside or belittled or actively being challenged. I think we’re in desperate need of some leadership and tailwinds at the federal level and from the White House.

Shilpi Kumar

I think the reversal of conservation protections in a big way that it actually is making the problem bigger, maybe not necessarily always a direct line to should I invest or not invest in this company but in terms of that outcome. I think a really tangible way is the potential deployment incentives, tax incentives, rebates, subsidies, grants for renewables, electric vehicles, charging infrastructure. I think that the onus of that public capital to be expediting a lot of these solutions and the adoption and encouraging it is something that we talk about all the time. We’re just like how would this company take off post a Biden/Harris election, and would it be impacted the other way? I have to say it does impact it, even at the earliest phase.

Lily Bernicker

Yeah, definitely devastating, what’s going on and what the current administration has done. I would say from an investment perspective to our [inaudible 005246] in terms of [inaudible 005248] as a business model, that’s often how we see it in terms of the assumption is this business model will work if there is a price on carbon. We can’t make investments like that right now and I think even under Biden/Harris, there is not going to be universal pricing on carbon and I think that’s [inaudible 005305]. I think right now, we invest assuming we won’t get any help and that is unacceptable but that’s the world we live in. And so frankly, we don’t pay a ton of attention to [inaudible 005320] We do think a lot about… Especially in California and other massive energy markets and massive governments that have big procurement budgets, like what’s possible at the local level? We’ve seen a bunch of leadership since the decision around Paris and we do think through those opportunities.

Lily Bernicker

But for us, when we’re making an investment decision, we at this point don’t give a ton of thought to federal policy because there’s not really that much there to [inaudible 005350] or impact them more negatively than they already are. We don’t think about it a ton, but we do definitely focus on regional politics.

Sophie Purdom

From a more positive wishlist type of perspective, the Biden/Harris campaign is largely credited with having the most comprehensive or intensive climate plan of any U.S. presidential campaign ever. So from that massive document and lots of news that’s coming out, what policies or promises get you individually the most excited?

Lily Bernicker

I can start. I was a really big fan of ARPA-C to the point earlier in terms of bridging the gap between lab and commercialization. I think that’s a huge win and specifically around de-risking [inaudible 005446] technologies and something that will actually meaningfully affect my professional life. Super excited by that and I think just at a high level, we’re super excited to see it done by sector because I think that’s often how we’ve seen the most effective subsidies deployed by buildings, by ag, things like that. I think the structure of the plan was also really thoughtful and hopefully will lay a really effective framework for efficient deployment of incentive and regulatory pressure on some of those highest emitters by sectors. I thought it was great. I was happy to see it, fingers crossed.

Shilpi Kumar

Yeah. I think it’s been great to see how the other campaigns and the climate experts from the other campaigns have commented on the Biden/Harris campaign and able to sort of infuse the best of the best together and that kind of gives me a lot of hope. I think for me and this is sort of specific to the urban thesis as well is all of the plans for transportation and electric vehicles. I think as we’ve seen historically, things like highways and roads are something that the federal level can make a big difference for, so we can go through a much more rapid transformation. I think being able to prioritize EVs and electrification, build out a robust charging infrastructure; also, buses, transit, dedicated bike lanes, pedestrian. We’ve seen the pandemic actually accelerate the city’s need for a lot of these. And so, being able to get the resources out there and actually also create the jobs in a way that create a safer, cleaner, more accessible transportation ecosystem.

Amy Francetic

Yeah, transportation is the category that is the largest emitter right now. I think that that can have tremendous impact, accelerating us to electrified transportation and even looking at hydrogen for fleet vehicles, I think is all very positive and can make a big difference. I’m also really encouraged by the commitment to research funding. We really have had the research budgets decimated over the last four years. So seeing a recommitment to ARPA-E and other research budgets that can really inspire the next generation of entrepreneurs and scientists to move forward and to have some stronger federal support for their research to me is really exciting as well.

Shilpi Kumar

I also want to encourage folks to read the House Climate Action Plan that was released, I think earlier this summer. It does a really good job of prioritizing low-income communities and communities of color for clean energy investment, and maximizing both the access and the financial outcomes of putting new infrastructure into place. It’s like a 400, 500-page report but every single page is centering these communities and climate justice. I think that I was surprised to see it, but really relieved also.

Sophie Purdom

Absolutely, yeah. At Climate Tech VC, which is the weekly newsletter that my team and I pull together, we dove into that 400-page report and tried our best to summarize. And then, we were very happy to see that week after week, there’s more and more pile-on into that and into all of these other policies. It’s been keeping us busy. Feel free to follow along if you want to watch our digest there because it’s an awful lot to go through in addition to your day-to-day jobs as investors or operators.

Sophie Purdom

Great. It seems like lots of other people in the Q&A are agreeing very much so with the need for increased R&D investment in clean energy, de-carbonization, electrification. And then, Adam here mentions, how are you working if at all with accelerators, incubators, national labs on sourcing investments? Maybe to broaden that a little bit further and tie it back, ARPA-E, ARPA-C, seeding, innovation; where do you go for sourcing, broadly speaking?

Amy Francetic

Yeah. Well, I helped to start Clean Energy Trust, which is in the Midwest, which does this across the Midwest. In the course of starting that organization and running it, we got to know all the leading accelerators and honestly, they’re doing an amazing job. What Urban-X is doing, what New York [inaudible 005912] is doing, what Green Town Labs and Elemental Accelerator, the sophistication that these accelerators have created along with folks that are funding but also incubating and starting businesses. Honestly, the universities are doing a terrific job too, so just making your rounds. When we got started with Clean Energy Trust in 2010, very few universities had seed funds to support their student and professor-led spin-outs. And now, nearly every university has a seed fund and so they’re doing a really terrific job as well as providing some of that early stage capital.

Amy Francetic

We just try to do our best to stay in touch and go to those demo days and help evaluate applications for funding and for participation. And then, through our alma maters or whatever universities that we have relationships, being able to be available to those new companies to help them think about how to get plugged into that incubator network, Clean Energy Trust actually funds a lot of student-led businesses as well, as do a number of the other accelerators. I think that’s really important is to keep filling the pipeline with those great ideas and helping them along the way. And as a venture fund, we really couldn’t do what we’re doing if somebody wasn’t constantly filling the top of the funnel with new ideas and that’s really a critical role that all of these high-quality… Powerhouse in San Francisco does a wonderful job too, especially in our area in the digital space.

Amy Francetic

We’re very fortunate that this category of organizations didn’t really exist 10 years ago, and now we have so many good one across the country and they need support too. They need support from the federal government, from corporations, from individuals. Most of them are nonprofits, and so they’re always raising money and doing a lot on a shoestring budget, so it’s important that we can figure out a way to keep them vibrant and healthy, and growing.

Sophie Purdom

Well said, Amy. Well said. Well, we need to leave time here, so Miriam can take back the mic and share a little bit about one of those leading organizations in keeping this space healthy. Thanks for giving us the floor here, Miriam. Appreciate it.

Miriam Roure

Thank you. Thank you so much. Thank you, Sophie, Amy, Lily, Shilpi, for sharing your experience and thoughts with us on this important topic. It’s been a great discussion and I was tracking all the questions. There are so many that we didn’t get to. I’m sorry. We’ll communicate those to your speakers, so that they can reach out to if there’s any direct links there.

Miriam Roure

But in any case, yeah, I guess, before we wrap up [inaudible 010157], we are looking to make 10 investments in the next two months and applications for our next cohort close on October 8th. If you do know of any startups in the climate urban tech spaces, please reach out to us or let us know simply by directing them to our website. We have a virtual open house coming up on October 1st and our biggest event of the program, or demo day cohort eight on October 15th.

Miriam Roure

So with that, I want to thank again, our speakers. I want to thank you guys for participating and we hope to see you very soon. Thank you.