Raising in a New Climate

Okay hello everybody hello how are you Who wants to save the world Yes yes that's the right attitude here At the sustainability stage we want to Save the world we want to save the world With tech and that's my delight to be With you today all the way from London And uh so say hi if you're in London I'll I'll be saying hi to all the Europeans later London's still in Europe By the way despite brexit Um now we're going to have a fantastic Day today Um sustainability is more than just a Buzzword you know it's a real moral Imperative and there's so many new Startups in the space as well as Obviously the tech Giants addressing These issues we're going to shine a Spotlight on these issues and you'll Hear some fantastic panels and speakers We're going to covering Solutions Challenges opportunities so let's keep The energy High let's keep the ideas Flowing now don't worry about taking Notes because floating around there are Screens with the otter transcription on It and you can go to auto Ai and see the Trans transcription there or just use The QR code floating around that you'll See but without further Ado ladies and Gentlemen I'm going to kick things off By introducing our first panel raising In a new climate I hope you like what we

Did with that to kick things off every VC has a climate VC fund these days so Let's chat to the investors about the Current headwinds facing climate Tech We'll have Poe Bronson who's managing Director of sosv's Indie bio and general Partner Arvin Gupta whose partner at Mayfield and Libby Wayman who's partner At breakthrough energy Ventures and to Discuss to guide this discussion will be Kristen corosec who's techcrunchy's Transportation editor so please Leisure Gentlemen give a big well warm welcome To the stage Come on up [Music] All right well thank you so much for Joining us uh thank you audience for Coming I'm excited to see you all Um I've been really looking forward to This because sustainability is sort of The area that I'm most interested in Usually through the lens of Transportation but certainly uh Sustainability touches so many sectors So we have you all here today And I thought let's let's start with the Bad news you know and go up from there Maybe Um dollars flowing Into Climate Tech Startups dropped 40 percent in the first Half of 2023 according to Um I believe it was climate Tech VC So Libby

What is driving this I know interest Rates is a fun one to put out there Um but what else is driving this besides Interest rates Yeah I would say that um that rather Than uh kind of driving a steep drive Off a cliff the question is really what Happened in the last few years that made Climates so exciting and where are we Now relative to kind of a longer term Average I think what we all know is that Hard tech is hard climate is often uh Kind of Finds Its way to manifest in in Hard tech and it's a hard thing to Support with entrepreneurship for a Number of reasons that we can get into And so it's always been kind of Challenging to start a business to Capitalize a business and to see it all The way through to commercialization in The last few years we had an amazing Window for climate where interest rates Were low but that was true for a long Time before that as well and then the Public markets were also pretty elevated And so investors who were really exposed In the public market side also wanted to Come into the private Market side and And then the third major trend is that The world world has begun to wake up Again to the eventuality of climate Change the impacts that are happening Today and to the need to support Innovation and climate and a couple

Things have changed in the last year Probably interest rates are a big one Also the correction in the in the public Markets kind of and the the exposure That later stage investors have had in Public versus private and so we've seen A little bit of a pullback in the Investment landscape for climate but It's still actually quite elevated from Where it was call it five years ago so It's it's not all bad everything is Relative so we're off of the kind of All-time Highs but it's still trending Up and to the right in terms of the Longer term Trend Arvin I'm wondering if You're seeing in terms of resistance the Resistance that is there even though There is a little bit of recovery are You seeing in certain specific levels so Just at early stage or more in that Transition from early stage starting to Become into growth what where are you Seeing resistance and where are you Seeing some of the like Rosier sides of Investing right now yeah so um I think Early the earlier the stage the more Capital is Freer to flow so the seed the Precede stages are continuing unabated In essence and I think as you get up to Series a there's a lot more uh a lot More uh discernment around what to Invest in and then series B and C I Think it becomes a lot more on metrics That are harder harder to achieve these

Days and so that's where I think you Know what Libby was talking about where What are those metrics those things have Changed that's the new climate uh that We're talking about here but I think the Entire Capital stack is adjusting and The problem of climate is not going away And I think Every summer is hotter than the last we We see it uh in the data we see it in The news and I think capital is looking For these Solutions so uh I'm actually Very positive and very optimistic that There will be Capital the entire Way Forward oh no he's he's got a mic okay More precisely uh Mike on I'm gonna Chime on this a little more precisely we Did an extensive analysis three years Ago which was showing that a lot of the Climate money was being spent at Mid to Later stage and there was a paucity at The early stage now all these sea Climate funds have raised what's Happened is some of the later stage Players have taken a bath they're Underwater in late stage portfolios when They're riding 100 million dollar checks It doesn't take too many of those 100 Million dollar checks to not get spent For all of a sudden the whole thing to Get distorted and so I would say that The numbers I don't have confidence in Their accuracy per se because there was A lot of note round financings that

Aren't going into pitch book people are Big companies are being supported or Bridged I think that there's just also Like a lot sort of a data Integrity Problem here where people are trying to Figure out what to do with some Companies that often most fundamentally As a problem had a very high capex a Need to raise big checks that weren't There maybe perhaps they were expecting Project financing to come in at their Stage it didn't come in and that's Changed strategies where we look Especially specifically now at super Early stage we do precede and then on After that uh at super low capex systems So we don't run into that problem in the Future well isn't it also a problem of That climate Tech is so broad I mean What there are certain aspects within Our sectors within climate Tech that are Doing really well I mean a few weeks ago Redwood materials I don't know if I can Call it a startup anymore they raised a Billion dollars in a series D so we're Seeing money go into certain areas I Guess I'm wondering If there are certain sectors Um oh you can weigh in but I want to Hear from from both of you Um where you're seeing the most trouble Right now Most trouble you like talking about Trouble trouble okay you're throwing a

Darwin Okay uh In terms of food Tech I'll just say I Have a large food Tech portfolio Arvin Started it when he was built in Dubai And we've continued it and that is uh Pretty flat in the markets these days And struggling again with capex issues Amongst other issues uh luckily we feel Like there are other Solutions behind That Um and it's so too big of a massive Market and people luckily eat five to Six times a day so they're always Needing new products so it's still still Very investable at the very early stage And so I'll own up to that which is that We you know the late stage of that Portfolio is tough right now I'm going To let them talk about some other Sectors yeah Libby yeah I don't I don't Think it's necessarily sector by sector Although there's some kind of public Comps that color late stage spaces kind Of like food Tech is probably a good Example of that space Um but I think it's kind of back to Fundamentals are the companies in Growing markets do they have a large Capture of value in those markets do They have a great team that can execute So it's it's really Back to Basics we Have seen Redwood is a great example Companies that are very Capital

Intensive still able to bring in the Funding that they need to grow and so I Think it's also about being kind of Straightforward about what you need to Execute your plan and if you need a Billion dollars to take the next step be Upfront about that find the the Investors who Are aligned with that and what you know What what they need to see to to make an Investment and then if you can execute On a more capitalized business model Consider that but really find the Investors that are aligned with your Business model and and kind of focus on The basics For me sorry just for me the question is Less about What's in trouble versus what is working Right so what works uh Really great teams that can execute in a Fast growing Market as Libby said like That's Redwood materials in a in a in a Statement so I think across all sectors Those those companies are rising up and Accreting all the capital and so it is Going to become or is becoming that kind Of a market at the later stages so the Pre-seed and Seed are innovating the Ideas and you're getting a chance to Build teams create Market fit actually Get to some sort of commercial traction But really then the later stages are Choosing okay well these are the

Companies that really we want to put a Lot of wood behind You mentioned teams and I'm sure there Are some Founders in this audience so What do you mean by that and I would Like to hear from all of you but Arvin Since you brought it up what exactly are You looking for as an investor when you Say teams and everyone get your pen and Pads start recording because I'm sure You're going to try to pitch them later Um what are you looking for end of one Teams the best team on the planet for a Specific problem they're trying to solve And so that comes from not just the CEO Not just the CSS but the entire Organization and a mentality that you're Building a company that makes a product And a range of products that eventually Solves a sector not Here's the technology and here's the Solution and that is going to solve the Problem it's never that simple you need To cut it it takes a takes a village it Takes a company to solve these problems And so that's really what we're looking For and those are the ones the the teams Of that mentality are always thinking Where are the holes how do we get better And hiring above themselves and they Rise Well we're always looking for scientists Who've made an invention a breakthrough And we're building off of that and we're

Looking for ones that have sort of a Pure talent for very fast learning Cycles ideally a Founder would have Found a market fit you know if they're Doing fuels or e-fuels they would at Least come out of oil and gas or Something like that maybe not in fuels Particularly but you often don't get That when you're getting a brilliant Scientist coming out of a university and So you're looking for just this great Knack of learning and a dead seriousness About what and what no Inflated expectations about what they're Worth or how good they already are They're really willing to learn to adapt To the culture of a new business every Business sector has its own seasonal Cycles its own business tactics and Habits and you've got to learn all that In order to one day disrupt it so brains Flexibility over business model Business model a great question about Business model but that wasn't exactly What you asked we can maybe go to that Next because I want to make sure Libby Gets to talk about teams yeah I think You know these these two are spot on and Um maybe to just build on I think Especially what Arvin said is um you Know when when you are a Founder that Has an amazing scientific breakthrough Maybe you're a postdoc maybe you're a PhD student you're going to say well I

You know I haven't been in the oil and Gas industry for 20 years that's fine Are you able to pull those people around You are you able to not only hire above Yourselves but at an early stage can you Bring in an advisor are you able to kind Of respect that those kinds of Experiences and perspectives are really Valuable and then are you able to Communicate to those experts the value Of your Innovation and where you're Going with it and in a compelling enough Way that they're exactly that they're Compelled to spend their time with you A quick follow-up because Um you talked when you were talking About teams all of them and I do want to Get to business model as well but how Important is it for the teams to be Heavily weighted more on the technical Expertise than the business side and That'll be a beautiful segue for po to Pick up after this but Libby quickly and And Arvin technical expertise you are Looking for overweight on that for your For your teams Uh I mean it has to be there it's so Dependent on uh and and kind of bespoke To each company Um but we have definitely invested in Founders and CEOs who are technologists As background with their as their core Background and they're able to pull Amazing people around them

Um to partner with them on the business Side uh so you know some funds say you Know we don't want to invest in a Technologist as the CEO we've had great Success with doing that as long as they Have uh you know a strong partnership And all the other aspects of the company We've also invested in teams where There's a you know the founding Technologist is the CTO so it totally Depends but you just need the right Complementarity in the team and I think As Poe mentioned just the awareness the Wherewithal that you need different Perspectives and areas of expertise Arvin did you have anything more on like I mean just just to add on briefly yeah I think The technical expertise has to be there There's table Stakes right without that You're probably not talking about a deep Tech company right uh and you're talking About an execution company with no mode So now the question is where is the Technical expertise and as Libby said I Think the it doesn't matter if it's a CTO or CEO as long as the CEO's job Knows that their job is to Raise money hire the best people on the Planet uh and you know tell a great Story about the mission and get people Excited and involved And not to build the product because That's where people get in trouble you

Know technical CEOs that want to really Be the chief product officer the chief Technologist and doesn't do the job of The CEO that's where the issue comes so You know it doesn't matter where it Exists in the organization as long as Everyone's clear as to what they're Doing All right so now we're back to the Business model part No I mean like uh We say don't scale your problems if you Don't know exactly what your business Model is that's a problem don't scale it Don't get too big till you figure this Out figure this stuff out early what is Your product what are your margins what Are your economics but more importantly What is your sales cycle who really Wants this versus who might want it and Pressure test on that we're expecting All of that to be done you know really Very very well you know easily done on a Pre-seed check at least if not you know Significant traction true traction Coming off of that uh and I'm not saying On premise alone it's not just at an Idea stage you're also executing on the Technical side but Um you can speak more to you guys to Margins you're looking for and Structures that you're looking for but You can't push that out and you can't Try to take in money and grow your

Company without that getting solved Libby do you want to speak to the Margins part or I don't know if you Wanted to respond to a post that said Specifically but the business case is Also interesting to me Yeah Um I mean I think business model is Absolutely essential to think about that Going in that Um you know that dictates so much what Your financials will look like Um what kind of capital you need to Raise the kind of investors you need to Have with you on that journey and you I Think maybe you can operate for some Amount of time like as a decision tree Kind of being in the trunk of a tree Needing to de-risk a few things before You actually execute on the business Model but you know you'll need to really Very quickly not only are be able to Articulate your business model but have Some uh have kind of some backup as to Why you think you can execute on that Um so it's you know kind of the Equivalent of early sales or our Lois or Things like that if you're planning to Partner or JV or license that's just Another form of sales that you'll need To execute on and kind of what gives Confidence in in your audience and for Yourself that you can execute on that Kind of business model in terms of

Margins Um you know there's a a lot of different Ways to build a valuable company Um you know in in climate the entire Economy if we really want to get serious About climate will need to be rebuilt And so there's enormous value to create In a number of different business models And different margin profiles but again You just have to kind of take all that Math into account in the beginning And you know certain sectors get really Hypey at certain points don't price Yourself out of the market at an interim Stage if you know you're a lower margin Business model and you know you're going To have to raise more money down the Road so just try to be clear-eyed about It and and keep your eyes on the end Goal and how you're going to get there Arvin and you can all weigh in on this But I'm wondering in terms of the Climate Tech perspective when you are Investing Sometimes these are really more Frontier Type like it's going to take a while so Is your when you're looking at it is Your return on investment expectations Longer I mean are you are you more open To add a few years before you get that Payoff or or not well unfortunately uh You can't because funds are are Structured to be 10 years with three One-year extensions that's a Max there's

No it's a it's not up for debate so what You're talking about is a structural uh Issue in financing around Venture versus Other models where their time Horizon For an exit Could potentially be longer but they may Not exist so uh no it's 10 years and you Have to look at it within that lens and And make sure that you're making Decisions that fit that constraint is That the same for both of you Um I want to speak to the audience for a Second okay this is a great time I don't Want to be negative this is a great time To be doing a climate Tech startup Despite everything that we're saying Here and we are seeing advances that Look like magic compared to stuff that Was possible just three years ago what We see startups kind of underestimating Is underestrate how many other startups Are doing almost exactly what you're Doing And they also underestimate how smart The good VCS are about that entire Landscape and knowing all the technical Details so it's a lot of like sharpening That has to happen and clear slight Differentiating in crowded markets Because climatech is hot and it is Crowded and there is a hundred hydrogen Companies and a hundred carbon DX Companies and so that differentiation to Make it stand out and explain clearly

Why that will win over others is like Really really critical super early on One going back right so the time frame Is abound for funds to have to exit and Generally if the company is still going You have to sell the the shares on a Secondary Market which tends to trade at A deep discount However if your company is doing very Very well and there's a lot of demand For those shares it doesn't have to and So if you look at SpaceX there's an Example of a company that's far past 10 Years that's very valuable and their Investors did very well uh in the Venture side so I think the key is Look for business models uh and and Approaches that you can increase the Rate of your cash flows increase your Sales cycle these are things that you Could Functionally and structurally do with Your business and like Poe said with uh Really good VCS and really good uh Operators and people that understand the Business the industry figure out how to Do things that might be a little bit Different than the standard when you Have a technical Innovation that really Changes the game off oftentimes it's the Business model Innovation that is able To capture all the value that the Technical side created so there's really Two halves here Great Value capture

Value a lot of people forget about the Capture value side right Um I'm glad that you brought up the Differentiation what's kind of climate 2.0 I guess we're calling it in terms of The sharpening and the big distinction To me is aside from I guess we haven't Seen a bus yet Um as we did back in the around Circa 2008 was that back then it seemed like Startups were going after the incumbent And now it seems as you pose you Mentioned and you've all kind of Referred to as is competition within Each other and that to me seems both Really exciting and interesting because You have all these startups but also a Lot of pressure a lot more competition Um Libby I'll kick it to you first How should startups think about standing Out I mean Poe you kind of referred to It but I'd like your perspective as well Because things have changed their Sharpened they're so competitive now you Know being aware of the field in which You operate is really essential Um so being aware of what your Competitors are doing not only from an Incumbent side but Within startups as well is really Important because if an investor is Talking to you you have to like you have To understand that they're talking to Every single company in your space so if

You don't have the awareness of what Your competitors are doing and why You're so confident in your approach it Will be a big struggle for you to help Your you know potential investors Understand that Um so just gain that awareness and keep Sharpening and it'll also increase your Own conviction about your own approach Oh well the stuff we're funding today Pretty much Is trying to disrupt Libby's companies And she's really good she has an amazing Portfolio that's copies of hundreds of Millions of dollars of Revenue it's Fantastic so like that's hard you know Like it we're we're not actually Competing with oil and gas or in battery Competing with her stuff like and and People like hers right and and the VCS Know that and that's that's that's even Harder Um so what um how many checks are you Have you written this year about ish 18 18 Arvin This year new companies new companies Well one lots of follow-ons yeah one Libby yeah it's a good question I don't Have that number off top of my head Fewer companies than That new companies than last year Um we've been spending a lot of time With our portfolio and kind of Supporting our portfolio we have made

New Investments I don't have the number Off top of my head but usually more of Like follow-on as opposed to new Companies oh I was talking strictly About newcomer companies okay yeah I have way more than that in terms so 18 Is uh you've had the number off the top Of your head so what were you investing What are you investing in e-fuels E-fuels Materials that can really scale for Apparel specifically melt spawn Technology drop in for melt spawn all Materials Innovation apparel has really Been on a wet spawn and other types of More expensive Machinery Um We've done green ammonia or emissions Free ammonia we've done bio Leathers Um like we're doing uh Rare Earth Extraction out of hybrid Motors rather Than say out of the ground we're doing Uh biological approaches to lithium Extraction from diluted brines or Oil-filled brines which is called Processed water you know like the gamut Basically yeah you know the gamut like At hacks we do the battery companies Like metal light you know other other Forms of energy like the gamut the whole Thing okay well I'd like to see if There's a comparison are you both doing The gamut are you specializing In specific new Investments

The whole Spectrum Maybe Yeah we um we kind of divide the scope Into five categories electricity Transportation manufacturing buildings And food and Ag and we have worked Really hard to find what we think are The best teams and and best companies Really across the major themes in all of Those sectors and Um as we look and then the other thing That I think we've always challenged Ourselves with is why now not only for a Company but for a theme like why is you Know materials extraction for Motors Important now Um why you know we made a lot of Investments in the electric vehicle Battery supply chain a few years ago why Was that important now so I think you'll See us thinking about that a lot more Also going forward and the areas that we Invest in may change we've opened our Scope to adaptation for example Um Still absolutely need mitigation without Mitigation we're going to have a much Diff more difficult climb on on Adaptation but we're going to be Investing in some new themes not Necessarily having to check every box Across the Spectrum but some new ideas And why those ideas are important to Consider now as we think about climate Change

Yeah so I you know we invest in problems Like big big giant problems uh that are Real and cause great pain across Industries And Broadly you can divide it we have three Categories Uh it depends on how you slice things Right one is just all the all the carbon Emitted around feeding the world second Is all the carbon emitted around Building the world And then the third is all the carbon Emitted around powering the world that Roughly covers all the carbon flows Through the planet uh as it pertains to Humanity Uh and So within those are a bunch of Different sectors and then there's Problems within each that are what we Call Keystone problems and there are Various technologies that can be used to Solve those Keystone problems and one of The things that we really look for is We're people first we're the great Founders that are have an insight into Solving that Very specific tractable problem that's a Bottleneck that if solved causes a whole Range of other things to become Restructured that that's a history Making type of company okay so I have Two quick follow-ups for you so one or Two areas that you feel are

Oversaturated right now what would you Say a Poe mentioned Um like lab grown Meats but what are two One or two areas that you're seeing that Feel oversaturated gosh I don't really Know it's over saturated to be honest I'm not punting this but I'll tell you What I'd love to see okay well that was Gonna be my next question but but but I Want to put out a scenario for you which Is you talked about looking for the next Great founder and I'm wondering if you Know an area where you're seeing just a Lot coming your way but then you see That great founder are you still going To invest in them even though you feel Like there's just probably too much Competition So yeah the question is really a matter Of stage So if an area is saturated and you see a Really great founder But they're raising a lot of money and The feature set of That sector is not really understood by The customers so in other words let's Say there's like 100 different startups All with a different Version of a product trying to solve the Problem And the customer hasn't said hey this is The feature set we like and want You can have a great founder and you Could assume they're going to find their

Way faster And I would execute to that feature set But it gets hard to write a very very Large check against that if it if it's Not under well understood so that tends To just move the check into a smaller Like more seed style if the feature sets Understood or if it's a heavy Infrastructure type of investment where There's necessarily fewer players Then you could write larger checks and Things like that so it's it's not so Much as oh we won't look at something Because it's quote unquote over Saturated I'll never think that way Until the problem is solved it's not Solved but we do have a bar for when we Reinvest in that same thing because we Call it playing from behind and a lot of What people in this panel has done has Been first to Market with something you Know back in the day and if you're doing A playing from behind you're coming into This market now we sit down with the Founder and we're like you have to Understand you're playing from behind You may be hot right now but like we go Through the metrics and say this is what They had to raise this one they got to Revenue you have to be three times less Or three times faster or three times More in every single dimension in order To win if you're playing from behind and We look exactly for that so not 10x but

3x on lots of Dimensions one word each What are what sector do you want to see More from Libby I'll start with you Um That's a great question I should have Been prepared for this one but Um right now we're kind of in a kind of In a a stage where to be honest we're Just really open to new ideas I think we Feel really good about the portfolio That we've built as I mentioned kind of Covering what we think is the landscape Of things that are really important for Climate and then also identifying a few Themes that were really important for us To invest in at the time and now I think We're just in a really interesting fun Generative stage of being really open to New ideas just to be totally transparent And like brutally honest with you right Now one word each One more each well Okay okay yeah I you know It's It's something that Libby the one of the Hardest parts is just Seeing like literally brand new ideas to Mitigate climate change where It's a completely fresh and orthogonal Way of thinking uh and it just that that To me is I think the hardest thing uh But some things uh you know new sectors That are emerging that I have I haven't

Seen before uh really since this year is A lot of Uh Gen AI or Software systems for uh in like software For industry operating systems is the Way I'm terming it so like how do you How do you make Industries or entire Sectors more efficient through the use Of software and sensors and things like That and there's a lot more of that Happening uh these days so that was way More than one word way more we have to Go thank you so much audience thank you All of you for joining us on our stage Thanks guys Foreign

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