Catalyst with Shayle Kann - How will the downturn affect climate tech?

Episode Date: May 19, 2022

Stock markets are in decline. Inflation is on the rise. Interest rates are up. Private tech companies are laying off workers.  Is this the long-awaited market correction that never quite materialized during the bull market of the last 13 years? And what does it mean for climate tech?  In this episode, Shayle talks to Saloni Multani, a partner at Galvanize Climate Solutions and former chief financial officer for Joe Biden’s 2020 campaign.  Shayle and Saloni place the current moment in historical context. They cover the recent wave of low-cost capital that poured into climate tech and the low interest rates that gave renewables an advantage over fossil-fuel investments.  And they dive into some pressing questions like: Are the broader market impacts on climate tech delayed? Or is climate tech somehow more insulated than general tech companies? The green premium question: Will a downturn in the market jeopardize investments in more expensive but lower-carbon alternatives to fossil fuels, such as airlines’ recent purchases of Sustainable Aviation Fuels, or SAFs? How should climate tech investors rethink their strategies? What should entrepreneurs expect in the coming years? Catalyst is brought to you by Arcadia. Arcadia allows innovators, businesses and communities to break the fossil fuel monopoly through its technology platform, Arc. Join Arcadia’s mission and find out how you or your business can help turn a fully decarbonized grid into a reality at arcadia.com/catalyst. Catalyst is supported by Advanced Energy Economy. AEE is on the front lines of transforming policy that accelerates the move to 100 percent clean energy and electrified transportation in America. To learn how your business can play a key role in transforming policy and expanding markets, visit aee.net/join.

from the studios of PostScript Media and Canary Media. I'm Shale Khan, and this is Catalyst. It is in these moments of scarcity, almost. It has not felt like scarcity in the capital markets for a while. It's in these moments that, you know, really amazing companies are born and scale, like you said. So, yeah, we just got to keep reminding ourselves at those things. This week, a check-in on the state of climate tech investing, against the backdrop of anxiety and turmoil in the broader tech market.

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Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to critical capital on Spotify, Apple, or wherever you get your podcasts. I'm Shale Khan. I'm a partner with the venture

capital firm, energy impact partners. Welcome. So in case you haven't been paying attention, here's what's happening in tech world right now. Interest rates are rising, inflation is rampant, the public markets are roiling. As of this recording, the NASDAQ, which is the most tech-heavy, broad Public Index is down around 25% over the past six months, actually even more. Right now, it's been particularly rough on recently IPOed tech companies, the majority of which are down 50% or more. And that's not to mention the SPACs, which are the DSPACs, I should say, which are performing even worse.

In the private markets, the evidence of a downturn is starting to pile up too. We've seen layoffs announced that companies ranging from Thrasio to on deck. companies are starting to shepherd cash, and stories of failed fundraising processes are starting to mount. If you ask nearly anyone in generalist tech or venture capital world, they'll tell you this looks like the long-awaited correction that never quite materialized during the bull market that we've had for the last 13 years. But what about climate tech? There, I think the story, at least as of today, remains a little bit more complicated. I'll tell you that I personally can point to very recent examples that present diametrically opposing evidence. On one hand, fundraisers and valuations

that indicate the market hasn't slowed an inch. And on the other hand, the early inklings that climate tech is, well, tech and subject to the same market forces that other tech companies face. So is the impact in climate tech just a bit delayed, or are there other forces at play that might actually keep this market more resilient than others? What should we, and in particular, what should entrepreneurs expect might come over the next year, two years, five years. Well, there's no better time and no better excuse than to have a conversation with my friend Soloni Moltani. Soloni is a partner at Galvanized Climate Solutions, the ambitious new vehicle launched by Tom Steyer to scale climate solutions. She also has experience, basically up and

down the capital stack from early stage venture to private equity, you name it. Oh, and she was the CFO of the Biden presidential campaign. in 2020. So here's Saloni. Saloni, welcome to Catalyst. Thanks for having me. It's quite a moment when we are recording right now. So normally, we don't say when we're recording the podcast, but because we're going to be

talking about what's happening. We need to time, date, stamp this right now. Yeah. Yeah. So we are recording this on May 10th, if you want to be specific, at 11.07 a.m. Pacific. Today is like day, what is it, six in a row or something like that of the Mark. tanking, basically. I mean, it's been longer than that, but we're on a streak where the public markets are really hurting. And we were already kind of entering this weird period of the

beginning of some tumult in the public markets, with inflation, all this kind of stuff. And it seems to be accelerating kind of minute by minute now. So we have a lot to talk about. But I don't want to start by talking about what's happening at this moment. I think we should start by kind of setting up what's been happening in climate tech from a fund flows perspective for the past few years, because then I think that will inform any speculation we want to make about what it means for climate tech, what's happening in the broader markets today. So why don't you set us up? Like, high level, what has been happening in terms of the availability and type of capital for quote unquote climate tech stuff over the past few years?

Yeah, I guess it's, you know, a few different dimensions. And there's sort of climate tech, and then there's climate solutions and assets more broadly, right? So I think going back for a while, we've been in a super low rate environment so that given climate is at its core a capital stock turnover problem where we need to deploy ultimately pretty low cost capital. The corpus of it needs to be in order to turn over our brown infrastructure and make it green. That low rate environment was, you know, directionally positive for investing in new assets. Just to draw a finer point on that, for an example, for folks, the sort of obvious example is like if we're going to, we need to replace a bunch of thermal electricity generation with renewable electricity generation, stuff like solar and wind, very capital intensive, but very, very low OPEX, which is particularly beneficial in a low rate environment relative to something where, like a natural gas plant, where your costs are spread more evenly between the CAPEX and the OPEX.

Yeah. And I'd say, you know, the rates that we were talking about, you know, offshore wind projects that required, you know, a massive transmission cable to be laid, we're pricing in the mid single digits. And so, you know, when you're in that low rate environment, you really are operating in a spread to that risk-free rate. And so the only reason you could have things that priced at that low over rate, which shale, to your point, they get financed up front. The ongoing payments are then just a function of OPEX, which is very low, and then interest payments. So it really was, you know, all about the cost of financing.

So that really supported capital deployment. We can talk about sort of whether, what the rising rates mean for the potential for those assets to be deployed. I think it's not as bad as it might sound based on some of the conversations I've been having. But so that was one dynamic. And then, of course, the overlay of ESG asset flows both into public fund vehicles into private fund vehicles. You can add the creation of new profiles of vehicles. Spacks aren't new, but certainly the quantity of them that were set up. And many of which were pointed at, you know, climate or ESG profile assets was, I mean, I think some of the numbers are just startling.

in terms of where we were in 2019 in terms of number of SPACs, and then where we were in 2020. I think it was, there were like over 600 SPACs raised in 2021. It was, you know, a good chunk of them were climate tech-related. So I think those were big, just there was a relative to the historical amount of capital coming into the space, there was certainly a lot of appetite for climate-related investments over the past few years. Right. So sort of flood of new capital arriving driven both by the financial profile of the assets,

the infrastructure in particular, and then also via all these fund flows into ESG funds or ESG or climate-linked SPACs or, and then, you know, talking about the private markets as well, lots of new private funds, be they big growth equity funds, raised, focused on climate, everything down to super early stage seed finance. And that's all tied in, right? We've just been in a 13-year bull market overall. So money was sloshing around. It all was risk-seeking because that's the way to earn yield in a low-interest rate environment.

And there's been this overarching trend toward the sort of belief that climate solutions have real legs from a long-term financial perspective and that it's not just concessionary capital. And it feels like that all. I'm glad you said that last part, by the way, because I think that that was sort of the backdrop of this was, I mean, not all of ESG was climate. But I think there is a broad understanding that an alignment of those principles, good governance, good social responsibility. And then as the physical manifestations of climate change become more acute and more recurring in our day-to-day lives and understanding that there is a real necessity to those solutions getting deployed that then create. creates a financial opportunity around investing behind them. And that, you know, the capital had, like you said, it was risk-seeking. It was, you know, risk-return seeking in a very, very low-rate environment, growth-seeking. It felt like these markets were, and, you know, continue to

believe these markets are going to grow massively. And so if you aren't getting paid for duration, you say, well, let me go to a place where I believe there's a long-duration opportunity and I think climate and ESG was a spot that people saw that. So let's talk about how that has manifested then. You gave one example, right? In the infrastructure world, the ability to finance a massive, expensive, not first of a kind, but first few of a kind offshore wind project for a cost of capital that, you know, I remember I was tracking solar markets in 2009-ish, and it would have been amazing. to get that kind of cost of capital for a utility scale,

just like run-of-the-mill, photovoltaic project, now getting that for kind of offshore wind, right? So that's one manifestation. What else sort of bubbled out of this wave of new capital? Well, I mean, you know, we alluded to the SPAC phenomenon. I'd say, you know, fundamentally,

cost of capital is a function of valuation of these assets, right? Like as the yield required for these offshore wind assets goes down, the valuations go up, those things work in inverse. The same thing goes with the capital raised in the public markets. And so there was clearly a appetite for, you know, just the supply demand drove the cost of capital for some of these growth companies, these early stage companies that might be pre-revenue, certainly pre-cash flow. They were able to raise money to fund those cash flow losses in the public markets,

also at very low effective cost of capital as well. So I'd say that's another, the two bookends at the spectrum where, you know, sort of the lower risk profile. Not that offshore wind is like, you know, there are obviously risks associated with, but relatively lower risk profile, you know, infrastructure-oriented things. And then higher risk profile growth companies, I'd say cost of capital for all of it went down in that, like you said, 13-year bull market, low-rate environment. Right. Okay. So that's what's been going on for a few years now, and it's made for heady times, I would say, in climate tech and climate infrastructure world, and for good reason. I mean, we should also say, I think you and I are both still, or I'll speak for myself, and then you can speak for yourself, still fundamentally a believer that this is a secular trend, not a, not a, not a purely cyclical one in the sense. We are voting with our time on that. Yes, definitely. We have to believe that. also. Hopefully we do believe it. We do. Right. So you've had what felt like a sort of, in some ways, it was like long time coming, at least from my perspective of like we had been, you know,

since the CleanTech 1.0 bust, we'd been operating. We'd have been in the desert for a long time. And so finally we like found water and then we started just chugging it for the past couple of years. But fundamentally, like we still need to drink. I don't know if this metaphor is going to hold up. Keep going. We're going to see where. Yeah, no, I don't want to go any further. Anyway, so I at least am still fundamentally bullish on the long-term trajectory of climate tech and climate infrastructure. Absolutely. You are, too.

With that said, do you think that we collectively in this world got out over our skis a little bit the past couple of years? Like, did it go too far? I think what I'd say is I don't want to tag us in the climate tech ecosystem as being sort of uniquely guilty of getting out over. our skis. I think there is a over the course of, you know, a decade plus of incredibly low rates, the desire to

find businesses that will grow and earn a return from that growth, I think, was a pretty universal desire. So you see this this dislocation in the market is not a climate tech dislocation. It's a it's candidly going from like risk on to seeing a lot

of those, you know, risk on bets pull back. I mean, you're seeing it hit everything from, you know, our tech sector to the emerging markets. You know, it's just you're seeing this rotation away from risk. You're seeing the flight to safety to the dollar and to treasuries, you know, so what you're seeing, I think, is more broadly a function of people's risk profile changing. And when risk profiles change your appetite to fund capital consumptive profile businesses, but you're seeing broadly in the market is that appetite is changing. And I think for people like us who do this every day, and we look at businesses that, you know, do need to

consume capital to grow and scale at the pace that we need them to and that they are capable of, you know, that's one thing. But, you know, as you look at the public markets, just that risk appetite can change faster amongst investors. And I think that's what you're seeing. And I think there was something yesterday about the Uber CEO sending an internal memo that said, you know, cash flow matters. And so you're just seeing for these businesses that are public, a reliance on the capital markets to fund losses is, feels scarier. And so I think that's like an overall sentiment. With that said, that of course applies to some of the climate-oriented companies that went public as well that are seeing sort of the same valuation impacts other

sector businesses are. So yeah, well, I think we'll come back to then the relationship between what we might see or are seeing already in climate tech universe relative to what we are seeing in the broader universe, because it is important. We talk about any version of a downturn or some cyclical trend away from this sector that it's not, that we take it in the context of everything is down at the moment. But first, let's just take a snapshot of what has been happening over the past few months. Can you talk a little bit about what are we seeing broadly from a macro perspective, what's happening in interest rates, what do we, what can we say about what's happening in the market in

general? And then we'll talk about climate. I mean, I think, you know, most folks are well aware of all of these things, but everything from withdrawal of fiscal stimulus to tightening of monetary policy. So raising rates. Inflation, there was a hope, I think by everyone, that it was transient and would abate. It has not. Supply chains are not getting unstuck. Even after the ship got unstuck out of the Suez Canal. We've still got backups and ports. And I think I'm waiting like a year to get a new dishwasher. You know, it's a, it's, and all of those, and then the China lockdowns have continues, which of course haven't helped. And then the crisis in Ukraine, that sent kind of commodity prices, fossil commodity prices, do a different place. So I'd say all of

those things stacked on top of one another in the macro context. It was interesting watching the markets, I would say, you alluded it's been not that long that we've been in this really choppy water, although it feels like longer than the days it has been. But it sort of was a lot of things that got added to the pile. And I think ultimately the rate rises and people internalizing what those meant after so many years of persistently low rates. And given how persistent inflation is, the reality that we're going to have to potentially do this faster than people thought, I think, as people really concerned about a hard landing, which is terrifying. Right.

Okay. So here's, I think, the fundamental question that I've been grappling with. On one hand, you have everything that you just described. The macro environment is challenging. It doesn't appear to be, you know, it's not going to get solved overnight. There is a, there appears to be some degree of a flight to de-risk things, both in the public markets. And, you know, you hear a lot of, you hear lots and lots of anecdotes now in the private markets, evaluations coming down, and fundraises getting a little bit more challenging.

You know, just sort of, you sort of feel like maybe this is a blip, but probably it's not quite a blip. So you've got that. You've also got the nature of a lot of this climate tech stuff, which, as you said, is sort of mostly earlier stage and mostly cash consumptive at this point. So those things feel like they push in the direction of this could be bad. On the other hand, we have the other things we've described, which is the fund flows that have gone into, you know, the capital formation specifically linked to ESG and climate, which doesn't suddenly unlink itself, doesn't say, well, macro environment's bad, so now I'm into fossil fuels. So there's that.

and the what I think a lot of people agree with us on, which is the secular trend toward decarbonization. And so the question is, how do these things like collide with each other? And is the ultimate result of it that climate tech looks exactly like other major sectors of the economy, say tech broadly in terms of the impacts of the macro environment on this sector? Or is it somehow more insulated because of the other factors specific to the, this market? Do we have any idea how this plays out? I mean, the short answer is no, but that won't stop us from like pontificating and guessing about it. So we're just going to take a crack. So I do think it's worth calling out, and this was interesting, that the ESG fund flow,

so there's the locked capital you alluded to that obviously doesn't delink itself in committed closed end pools. The ESG fund flows, the ones that can go back and forth, have actually been more resilient. Like, everything is down, right, but have been more resilient than conventional fund flows. Now, you know, again, this is the first time we're seeing this dynamic play out. So the reasons for why we'll see how persistent it is and then hopefully people will study it. But, you know, one could imagine that investors in ESG-linked assets have longer time horizons.

Do think more point-to-point. Do think about longer duration, what they're going to be. capital can return. And so are less fickle. It could just be that that underlying trend of a desire to invest behind where people think the direction of travel is, which is, you know, towards alpha really being created by these businesses that are aligned with climate goals, aligned with social and kind of governance objectives, is just stronger. And so whatever it is, you are seeing them be the early signs again. It's super early, right? Where, you know, there's basically Q1 data out and now we're in early May and so we'll see. But that I thought was interesting as an early

data point. To your point, the capital doesn't delink itself. The necessity of the climate-related markets that you and I spend our day staring at and investing in is not going away, not to knock some of these kind of pandemic companies that like the need for Zoom. The need for Zoom, and we're still on it, and obviously we still need it, but sort of the trajectory of growth that people had implied for some of these companies that really were necessary during a fully remote world, that trajectory feels like it's changed. And so you see valuations reset in some of those companies, you know, like the peloton, so the world, yeah, really fast. The climate crisis and the TAMs and the market development work and that hasn't changed at all. In fact, we just

We hardly lowered emissions when we shut the world down. And so the people's understanding that we need to make progress against this in the face of the physical changes we see in the world, I think, has only gotten higher. And so that's another kind of structural difference I see between kind of the stuff, some of the tech stuff and some of the things that are getting hit the hardest. There is all the consumer spending linked businesses that people say, stimulus is withdrawn, and so you're going to see structurally a demand downshift there because people were spending this money that they're no longer going to be receiving. Again, I think for a lot of the profiles of businesses that are necessary from a climate perspective, they don't get hit by some of those same kind of consumer spending dynamics.

So my deep hope and belief is that while things look tough for everyone, everything right now over time. I think the Buffett's saying is voting machine short-term markets are weighing machines in the long term. The hope would be that that does, in fact, apply. And these climate-related companies and opportunities we're investing behind will persist and continue to scale. That's not to say that the valuation kind of spillover of, you know, extremely low rates that may have caused things to get out over their skis, as you alluded to earlier won't apply, but I think fundamentally the businesses need to exist. And so capital should flow. Virtual power plants are becoming a reliable way for utilities to manage capacity,

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Listen to critical capital on Spotify, Apple, or wherever you get your podcasts. What about the green premium notion? You know, the sectors where, this is not your everywhere, but in places where there's some alternative technology that is a zero carbon or low carbon version of whatever the incumbent thing is. And that new technology, you know, new technology has the long-term promise to be cost competitive or better, but needs to get up the learning curve, I'm sorry, down the learning curve and up the scaling curve. And in that interim period, there is a green premium attached to it. I think it has felt like over the past few years, with money flowing freely, actually, that maybe wouldn't be such a big problem in some sectors,

in sectors where that are particularly exposed and where it's a big risk. Good example for me is aviation, right? You look at the procurements that airlines are making for sustainable aviation fuel, none of which is cost competitive with traditional jet fuel today, but it's happening at fairly significant volume already just with biobased sustainable aviation

fuels and then maybe someday with like electrofuels and the next generation of stuff. That type of thing is the other area that you can imagine a macroeconomic downturn would start to jeopardize. And that's where I wonder

it's going to test the resolve of everybody, from corporates to consumers to policymakers on taking real meaningful climate action because you kind of can't have your cake and eat it too. If you want sustainable aviation fuel eventually to be cost competitive, we need to be buying the more expensive stuff today. It's so, I completely agree with your concern.

It is my worry. If I have a worry, it is, we're trying to internalize an externality and make people pay for something that right now our society doesn't impose a cost around, right? So what we need is policymakers to start imposing the cost. And at least in the U.S., I think in Europe, policymakers are ahead of where we are here. But the cost was a bit self-imposed, to your point, around the airlines, right? Where corporates were saying, we're going to impose this cost on ourselves. consumers are demanding it, investors are demanding it. So we're going to make commitments, hold ourselves accountable to those commitments,

and spend to help scale some of these technologies down. The appetite to spend to internalize an externality that you're not forced to through some regulatory regime, right, inevitably through some policy regime, I think will absolutely get tested. It's something I think about a lot. I think we as consumers, as employees, need to continue to stay really vocal about how this resolve is not something that can be compromised. And I think, you know, it's interesting. So many of these things cut both ways.

The Ukraine crisis has really shined a light on the dangers and how tenuous it can be to be dependent on. I like Putin for the lifeblood of what makes your account. run. So I think you're seeing long-term resolve to develop more self-sufficient, renewable infrastructure go up. The short-term problem of just needing to keep the lights on because of the economy we've, you know, wired ourselves into is is almost impossible. And so it's making sure that everyone is keeping their eye on the long term and continuing to hold, you know, corporates accountable and continuing to be vocal about the need to not take our eye off the ball so that we're not in this situation again. But I agree. I have a, it's my worry right now.

Yeah. And I think to your point, you know, it's not like airlines, just to continue using this example, though there are a bunch of them. Yeah. It's not like airlines have been buying sustainable aviation fuel just because they feel rich and they can, right? To your point, they've been pressured to do so over the course of years by every stakeholder who's involved, right, by their employees, by their customers, by their shareholders and by their regulators or policymakers. And, you know, if all of that pressure doesn't let up, I don't see why just because the environment, the other, the global macro environment has changed that they wouldn't, you know, keep their foot on the gas, at least to some extent. But, you know, that is the sort of open question.

Yeah. And I think to your point, they're not going to keep their foot on the gas out of the goodness of their hearts, right? What we need is for that sentiment of consumers and employees who are actually just people who are also voters to keep the pressure up on the companies but then also on policymakers to actually start to translate some of the stuff and codify the internalization of the externality. I think the other piece, and this is what you and I spend our time doing. So, you know, a plug for that, which is the innovation to try to create solutions that will ultimately drive greener, faster, better, and cheaper is it feels to me, and you've been doing this for longer, at, you know, it's going on at a higher level. There's more amazing talent flowing in to try to help solve these really hard problems across industries than ever before. And so making sure people understand the land of the possible, that with the capital, that is, you know, much of which is tagged for this sector, with the talent, we actually can get there. That green premium doesn't need to persist for as long as people might perceive it needs to be. And meanwhile, you know, the upside is preserving a planet for humanity to live on, which is, you know, a pretty good upside.

And so we just need to, I think, make sure that we're connecting what innovation is creating, as the land of the possible with, you know, the kind of short-term investment required to get there. I want to talk about infrastructure. We don't actually talk about infrastructure probably as much as we should on this podcast just because I spend my days on the venture side, for the most part, and early stage sort of revolutionary tech stuff is what I spend my days on. But infrastructure is a huge part of the story here. And I know you have a leg into infrastructure world at Galvanize. And you mentioned it before. I mean, I think the wisdom, the prevailing wisdom for a long time, the whole time we've been in this low interest rate environment, as we've been concurrently

scaling up, you know, at least clean energy infrastructure pretty fast, has been, well, this, you know, this exciting ride is going to slow down the second interest rates rise because the economics, these things are really sensitive to interest rates for all the reasons we talked about at the beginning. You mentioned earlier, you think maybe the impact won't be quite as big as you might imagine. So, yeah, tell me what you see happening in infrastructure as we are now actually seeing interest rates rise and what impact do you think it'll have on the pace of deployment of the things that we need to deploy at scale today.

Yeah, so there are definitely people who are a lot better positioned to talk about the infrastructure side, but I'm going to give it my best go. We spend a lot of time thinking about if ultimately the corpus of, I don't know, if it's four or nine trillion, depending on how. who you're talking to in terms of annual spend that we need to get to net zero, a good chunk of that is going to be, as you alluded to, the low-cost infrastructure capital that only flows within a pretty narrow risk return framework, needs a lot of downside protection, needs not only tech to be de-risk, but needs input costs and off-take to also feel pretty

predictable. And so back to what I was saying earlier, I mean, I think the reality is the thing that sets the marginal cost on offtake, so take power, that's also going up. And so the reason why I think the impact won't be as big is as you think about the contracts that get struck, right? It's a function of your ultimate spread is a function of your offtake minus your input costs. And so, and one of your input costs is going to be cost to financing. But as your off-take costs are going up, too, that helps to support the economics of the project. And so there's inevitably a transition period where you're going from essentially cost of financing being extremely low to now. You know, it's a meaningful increase in kind of percentage terms.

But the off-take is also going up. And people's risk associated with using kind of the old-world inputs is also going up. Like what's going to happen to how volatile is the price of natural gas going to be? how volatile is the price of oil going to be? How do I feel instead about producing power in a way that is renewable and more predictable from an input cost basis because the sun is still free? So I think that's why I think hopefully there's sort of a risk associated now with fossil fuels and, of course, transition risk factors into that as well.

And I think there's a just that output cost is also going to go up that'll help to support the economics of the new projects we need. So if I can encapsulate then what you're saying, it's in part that like the cost of all the alternatives is also going up and perhaps even worse because in many of these cases, the alternative is natural gas. And we have like a sort of independently problematic situation in natural gas thanks to Russian Ukraine in addition to everything else.

And so whereas the climate tech infrastructure, let's just say a clean energy infrastructure, because that's mostly what we're talking about here, is impacted by the macro environment. The alternative is doubly impacted by the macro environment and a war in Europe. And so it may all just net out to be like, it affects everybody, but it affects everybody kind of equally. Yeah, no surprise. I was far better said. And it's obviously not going to magically just resolve itself.

We have a lot of capital that needs to be deployed. and it's not good that it's now more expensive. But I do think there are some of these other – I honestly think our current environment has just shown a light on what people have talked about for a long time in terms of the national security risks associated with fossil dependency. And so I think my hope anyways is some of that also starts to get priced. And so as that gets priced exactly what you said, the alternative is also expensive in ways that are almost hard to put a dollar figure on. as we look at what's going on over in Europe. So the conversation that's happening in, I think, every investment committee of every company or every firm that invests in any version of this stuff right now,

is how do we adapt our strategy to the current macro environment? Do we just continue a pace? Don't change anything. Do we slow down our deployment pace? Do we rethink valuations? Do we help our portfolio companies, you know, gird cash and extend their runway? Do, you know, all these things, maybe all of them, maybe some of them, maybe none of them. You know, it's no different now from other periods when we were entering what appeared to be a pretty shaky market.

I will say also, same conversations were being had in March of 2020 by a lot of these firms, right? And like the ones who really slowed down kind of missed out on quite a ride over the past couple of years. So maybe that happens again here, but how do you think about like when you're in this moment, that in the moment feels extremely volatile and like the world is changing underneath your feet? But actually we're playing a longer game here, right? We're investing in things that have multi-year horizons, if not multi-decade horizons. How much do you adapt to what's happening on the ground? And how much do you say, you know what? These are short-term trends. I'm in a lot. I'm in. it for the long haul. It's a really good question. It's one that I have no doubt will continue to trade notes on as an ecosystem for some time. It's funny, I've been doing, been investing for a while, so I remember going through this in 2008 and we were staring at ourselves. I was doing larger-cat private equity at the time, but similar conversations around how much should we be adjusting what we're doing in reaction to. Some of it was imposed on you.

because at the time I was working in leverage, you know, we were doing, we were leveraging things, and there was simply no leverage to be had because other actors in the system are pulling back. So I think some of these decisions will be made for us a little bit as the ecosystem, you know, at the IPO market shuts down. What does that mean in terms of if you're access to capital is more limited? What does that mean in terms of how your companies need to recalibrate burn or think about just preserving cash flow? And so I think some of that is going to naturally kind of emerge over time. I'd say being point to point is hard in times like this. I mean, so is staring at a screen and looking at all the red.

That's hard too. But maintaining point-to-point resolve is hard. I think it comes back to a lot of what you said earlier around the necessity of the markets and sort of the inevitability as we think about it. of these climate-related markets that have to emerge. They're massive TAMs. We're going essentially from no market. We don't price carbon. We don't value the transition to a great economy yesterday to tomorrow and needing to be sort of the defining principle in which we rewire everything we do. It's a massive transition. And so as that happens, these companies will need to scale massively

along with it. And so I think keeping our eye on that and also just, you know, lots of group therapy, I think, amongst those of us operating in the ecosystem will be necessary. We also all will be collectively reminding ourselves, as everybody already is doing on Twitter, that in periods of downturn are born some of the best companies in history. I saw one of the founders of YC pointed out that, like, at exactly this, the moment exactly like this is when they invested in Airbnb initially, right? Well, it's the fearful when others are greedy, greedy when others are fearful. I feel like I'm spouting true as, you know, the old adages here.

But that is, it's just easier said than done. Just feel no one wants to catch a falling knife. And so, you know, no one wants to be too early at the same time. It is in these moments of scarcity almost. It has not felt like scarcity in the capital markets for a while. It's in these moments that, you know, really amazing companies are born and scale, like you said. So, yeah, we just got to keep reminding ourselves at those things. Yeah, and we will see whether it feels like scarcity.

I will say, from my side, it doesn't quite yet feel like scarcity. Yeah, it's fair. In climate tech world, it may soon. You know, it's hard to predict. We're not quite there yet, though, I don't think. And so we'll see what this is still, we've now figured out a way to spend 20-some minutes talking about it, but have not, you know, we're not going to solve it right now. These, like, fundamentally opposing dynamics of the trends specific to climate tech, which are all

really positive, and the trends in the macro environment, which are generally pretty negative. And when those two things cross paths, what ends up happening on net? So we'll— Can I ask you a question? Because I wasn't—I wasn't investing in this space, sort of in the last go-around, and I know you've got more perspective here. Does it feel, you know, you referenced the capital that has kind of a climate, like, kind of mandate attached to it. Does it feel different because of that dynamic to you than it did kind of the last time around when the tide went out?

Yes. For many reasons, you know, and I'm like almost completely done rehashing the why this time is different from last time thing. One more time. Yeah, one more time. Specific to that point, though there was, I believe, though there was capital that was sort of directed toward what then we called clean tech, it wasn't dedicated pools of capital for the most part. It was mostly generalist investors saying, I have a clean tech strategy. We have some of that now, too, generalist investors saying I have a climate tech strategy. But in addition to that, we have an enormous amount of capital, which is dedicated and locked into,

I mean, you and I are both examples of this, right? We have to have resolve. Our funds are not going to stop investing in climate tax. We can't. It's what we do. And there's way more of that now than there ever was then. So I think it would be much more difficult for the broad swath of investors who are investing in climate tech solutions now to just sort of turn the dial off than it was then. There were exceptions, obviously.

like Kleiner had the green growth fund. But that was the exception, not the rule. And now I think it's kind of the rule. Yeah, I think that's important too, because back to that talent point of, you know, really great founding teams being able to come in and find funding for great businesses, if that goes away, if that talent spigot starts doing, I don't know, name your, you know, code a new app or something, that becomes a sort of fundamental loss. for the ecosystem.

And so, well, that's helpful. That's hopeful. All right. We'll both see how we sleep at night for the next few months. But again, Solony, thanks for joining. Thanks, Shail. Soloni Multani is a partner

at Galvanized Climate Solutions. This show is a co-production of PostScript Media and Canary Media. You can find the show on Twitter at At CatalystPod. You can also find me, PostScript, and Canary there. Want to know more about today's topics? Head over to canarymedia.com for links and more info.

PostScript is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including advanced energy, food and agriculture, transportation and logistics, advanced materials and manufacturing, and advanced computing. Gabriel Krah, partner at Prelude Ventures,

has promised to sing that list to anyone who tweets at him, at G. Krah Energy. The producer for this episode was Daniel Waldorf. Our executive producer is Stephen Lacey. Mixing by Greg Ville-Frank and Sean Marquand. The theme song by Sean Marquand. Our managing producer is Cecily Mesa Martinez. If you like the show today, go over to Spotify or Apple Podcasts and leave us a rating and review. And as always, send us feedback, questions, topics for new episodes. We appreciate it. I'm Shail Khan, and this is Catalyst.