This Week in Startups - Investing in down rounds (VC School) + The Lightsmith Group Co-Founder Jay Koh (Climate) | E1431

Episode Date: April 10, 2022

Another Sunday edition of This Week in Startups! In VC Sunday School, Jason answers a question about investing in down rounds (1:54)from "Noti Gang" member Bob Gee. Then, Molly has a great interview with Jay Koh (12:16), an investor at The Lightsmith Group about how he invests in the climate landscape (20:41), cautionary tales from the first climate investing wave (32:13), and more. (0:00) Jason intros today’s episode (1:54) VCSS: Has Jason Participated in a down round and what were his lessons? (11:00) Coda - The All-in-one doc for teams, get a $1,000 credit at https://coda.io/twist (12:16) TWiCS Intro: Molly’s interview with Jay Koh (19:10) Intercom - Get advanced Intercom features and Early Stage Academy at a 95% discount https://www.intercom.com/early-stage (20:41) Overlooked areas in the climate landscape (ie. supply chain management) (30:28) Microsoft for Startups Hub - Apply in 5 minutes, no funding required, sign up at http://aka.ms/thisweekinstartups (31:45) Are there areas venture should steer clear of when it comes to climate? Check out The Lightsmith Group: https://lightsmithgp.com/ FOLLOW Jay: https://www.linkedin.com/in/jay-koh-164130/ FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Okay, everybody, it's another Sunday edition of this week. And startups, first up, we have an impromptu VC Sunday school. Molly and I took a random question from Notie Gang member Bob G on the live stream. And it was supposed to be a Notie only moment. But it was so good, we thought we had to share it with you. Now, if you want to join the Notty Gang, that's the Notification Gang. And you can see myself and Molly answer questions live. You just go to YouTube.com slash this weekend.

You click the subscribe button on YouTube and then right next to it is a notification bell. Every time we go live, you will get a notification. And then Molly has a great interview with Jay Coe. He is an investor at the Lightsmith Group. He's been investing in climate startups for over two decades. And he was one of Molly's first contacts in the climate space. It's an amazing interview. Stick with us. This week in startups is brought to you by Coda. Coda is the all-and-one dock for teams. If you've got a stack of niche workflow tools or if you're buried in docs and spreadsheets, Cota is the doc that brings it all together. Startups can get a $1,000 credit,

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Learn more and sign up at AKA.m.s slash this week in startups. Hey Jason, have you ever participated in a down round? If so, what were your lessons. Sure, I have a couple of times. Usually what I'll do is if the founder has done a great job executing with the founders and they're doing it down around and I still believe in them, I will try to be supportive. If they have not been communicative, maybe they haven't executed particularly well, well, then my job is in a capital allocator is to put that money and give it to the founders

who have. Okay, so let's just start with that, right, Molly? Yeah. We have a pool of capital. Yeah. after we make the initial investments, we have a reserve in that pool of capital, and we wanted to go to the best performers

in our portfolio for that fund, let's say. Now, that doesn't mean we want to be callous and not support founders who've had a rough go of it. So if they had a rough go of it because of COVID or something that's not their fault, and we still believe in the founder and they got a bad beat, and they've been communicative, sure,

we might participate in a modest way. And almost always, the companies that, get into down rounds. A majority of cases, historically, they do not wind up returning to the level that companies that have up rounds.

This makes total sense. If the company's been doing well, they have up rounds, you're better off betting into a good hand than betting into a bad hand. Right? So if you have aces and the flop comes down, ACE 10, 2, like, or Ace 10, 7,

you know, you're feeling like you want to put more money into that hand. Whereas, you know, if the hand was King, Queen, and the flop came down to six. Jack, you know, you're like, why am I putting more money into the stand? I got to hit a runner runner. So it's like, you're basically, it's longer odds.

So I have done it. We try to be disciplined. We may put a small amount of money in. And one of the mitigating factors is because we're high profile, if we're on a cap table, people will say, Molly, what's Jason doing? And so for me, I always am cognizant of because we're higher profile people want what to do. And we will say, yeah, we're going to support it.

Our fund is not designed to do bridge rounds and down rounds, but we will put in a little amount of support. I wouldn't say token amount of support because it's still 25 or 50K typically, so it's still a lot of money. But we like to be supportive. And it's signal. Right. If the founder hasn't given updates and they haven't been communicative,

then it's sort of like it's a little bit easier of a decision for us to make. Like they kind of ghosted us. They never asked us for help. They didn't keep us informed. Well, then why are we putting more money into that situation? because it's going to go bad again, and they've already told us, they're not going to tell us it's going bad,

and they're not going to ask for help. So I guess we will stand pat. This is why many funds, Molly, will stand pat and only do rounds where there's a new investor pricing the round. Many venture firms, I would say, dare I say the majority, tell this to founders,

we don't do bridges, but we will protect our pro rata or go super pro rata or participate in rounds when a new person values the company. there it is. There you go. You know, the dynamics of down rounds is a good topic. It's a great topic, especially for right now.

Yeah, there may be some of them. I like a flat round. I'm a fan of the flat round. If you raised that $20 million, company doubled revenue but didn't triple, so you're growing but not high growth. Well, you want to have 50% of revenue and you're at $20 million and, you know, it's a year later and you have seven months of runway. Yeah, you top off for an extra million at the same valuation.

and you just call it a series, a seed extension or a series A extension. No harm, no foul. You topped off the gas tank at the same price, even though you traveled a little bit of a further distance. It seems fair. The market changed a little bit on you. Everybody feels fine about it. Are flat rounds and down rounds, and I'm stealing this from Nick, but are flat rounds and down rounds viewed the same by BCs? Like you're saying, if flat round is okay, very different.

Flat round is very different? Very different? A flat round could be a savvy move to top off your gas tank. Build up your dry powder. It would be the equivalent of, you know, listen, I'm, if you think about this, like, we're flying the plane to a destination and we're halfway across the Atlantic. And we've got enough fuel to get there in all likelihood. But somebody drops in with one of those, you know, mid-air fueling systems.

It's like, how'd you like another thousand gallons at the price you paid when you left Tito Borough? That's a private airport in New York. That's be shown off. I'd say, yeah, sure, why not? We'll take it. Maybe we hit some headwinds going into, you know, Charles de Gaul. We got a little extra fuel.

We got to divert and, you know, go to London Heathrow or something and circle for a bit. Okay, we got a little extra fuel. So it's looked very differently. If you are issuing more shares, you know, and lowering the share price, you know, giving warrants, whatever it is, yeah, that's looked at as the company's damaged goods. Something's wrong with the plane. You lost an engine. The engines burned too much fuel. you're not piloting it correctly.

So one is the pilot's fault, the CEO's fault, the founder's fault, just to give you candidly what VCs will say behind closed door, the founders didn't do a good job, anticipating, executing, raising money when the market was hot, whatever it is.

And then the flat round, they said they're going to actually put into the bucket of savvy. Mature founder realizes, hey, not, you know, every time you hit up, you get up to bat, you don't hit a home run. But if you get a walk,

walks as good as a hit. I mean, that's what my coach told me. Literally, when I was in baseball the first year, the coach was like, hey, I, Jake Al, just lean in a little bit with your left elbow when they release the pitch. I was like, oh, is that how you swing the bat better? He's like, no, that's how you get hit with the ball.

That's your best chance of getting on. And I was like, explain that to me. This is what I'm like 10 or 11. He's like, because you don't know how to hit the ball yet, but you're going to be great next year. So what I want you to do right now is lean into it. So literally, I became a master of getting hit with the ball and took pride in it to the point at which the rep admonished me one time because the first pitch I went like this and I dipped my shoulder and it dismissed me. And the guy called timeout.

He pulled me inside, listen, I know what you're doing. You can't lean into the pitch. You do it again. I'm throwing you out of the game. So then I was just like, just a little help out of the game. Of course I can do with it. Now I'm just stretching. I was the master of getting it.

I was money ball 20 years before. So I think it's a money ball move. You know, like when you think about it. Yeah. How is the original Jason, the original flopper? No, seriously. I literally had, you know, that Trey Young, like, oh. You know, oh, Trey Young getting that call.

Yeah, listen, those are the rules. You play by the rules. The rules are flat around good. Good. Flat around, great. Mature move. Because you know what? You're the VC. Think about what just happened, Molly. You're an existing VC. You got a million dollars in the company. The founder just put another million in the gas tank at the price you paid already. What are you thinking? Fine? Why? Why? Why is it fine for you as the VC? Oh, sure. You just invested at a $20 million valuation. If it comes to you a year later, says, hey, I got this offer from this other VC to put a million dollars in. Are you cool with me putting it in at $20 million? You know, things haven't been great. They've been good. They've been okay, sometimes good, but obviously we're not great and we're not going to just get a series A right now at 100 million posts. What is your thinking in game theory?

I mean, I suppose I think that what I'm hoping is that it's a historic storm, right, on your flight route that sort of upset you a little bit and that those conditions are not going to last forever. So it's better than the alternative. It's better than raising in a down round or closing down. and I lose all my money. Now you got it. That last piece is way you got it. Yeah. And so like this sounds like away for me to keep my money,

especially if somebody else is putting in the million bucks and not me. I'm like, great. That's the real. Okay. The company is doing okay, but not great. Yeah. And somebody else is preserving my valuation from the last round and they're taking the risk. Yep.

That, see, it took you a minute, but you were like working through, but you got there. It did take me a minute. I know I was like stall, stall, stall. I got it. You got it. If we're in a poker game, right? And like, I'm just. drawing to a flush and the other person's raising and then somebody whispers in my ear, I'll call.

I'll call the $1,000 for you. And then if we win, I get a portion of the pot. You'd be like, okay, right? I don't have to take the risk. I don't feel too strongly about this hand. I was going to fold and you just paid my call for me. Great. Let's keep going here.

So you bail me out basically. It's like you're getting bailed out by another group. So it's wonderful. So that's how you think about it. Okay. Okay, so there's an ad hoc Sunday school edition. We just saved 20 minutes our schedule this week. Got that in the can.

Got that in the can. Efficiency is one of the main components in startup success. Everybody knows this. You've got to be efficient. That's what Coda is all about. Cota is the all in one doc for teams. Text and tables live together in the same document. And this helps any team collaborate more efficiently, especially remote ones.

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Codda.io slash TWIST. Okay, next up on this week in climate. This week, Molly sits down with Jayco, an investor from the Light Smith group. Jay was one of Molly's first contact. in the industry. It's an awesome interview. Stick with us. Jayco is co-founder and managing director of the Lightsmith Group. Thanks for coming on this week in climate startups. Thanks so much, Molly. Great to be here. So tell us about the firm, because the Lightsmith Group, to my knowledge, is the first private investment firm that focuses on resilience and adaptation. Is that accurate? That's right. By a number of different analysts, they suggest that we're the first dedicated private equity or private investment firm focused on climate.

climate resilience or adaptation. So Lightsmith is focused both on reducing greenhouse gas emissions, which we track in our investments, but really dedicated to looking at the effect side of the climate change problem. So what happens with risk and impact gets more complex because of climate change? Talk to me about this is actually adaptation and resilience is how I came to this topic, as you well know, because you were one of like, I think my first sources at Marketplace when I started doing this reporting, because it sort of comes down to what I epitaphys. titled how we survive. Like it's, you know, is grounded in the reality that there is change baked in and pain

baked in and extreme events baked in and that we have to sort of respond to that on lots of levels. I think that's absolutely right. And the latest shot across the bow from the IPCC6 report about a month ago now was that, hey, look, one and a half degrees is kind of the table stakes now. And it would be extremely difficult to achieve that politically and technologically. And it's a very unpleasant place to live in. We're at 1.1 degrees now.

We have gigafires. I don't know if anyone's called something a gigafud yet, but if they haven't, I'd like to trademark that. I'm sure that's going to be a thing or what will describe something in the Midwest sometime this year, unfortunately. We've seen that in, you could have picked your continent to get flooded out of last year with tragic loss of life. And so this is now the increasingly new abnormal, I guess. How has the, when did you form? So we launched the firm at the end of 2016, really the beginning of 2017, where we started to develop the background to the strategy at Lightsmith of focusing on tools. So our idea was as the problem of climate change increases and becomes more complex, what are the tools that are out there that can help us to understand what happens to

and manage risk and impact in the agriculture sector and the water sector in transportation and energy, even in health care, in infrastructure, and real estate everywhere else. And how has the landscape and the conversation around adaptation and resilience change? Because I know the overall spending is a tiny fraction of what we spend on mitigation. And for a long time, there was kind of a philosophical resistance to the idea of adaptation because it might have taken attention and money away from trying to fight emissions overall. Absolutely. There are three things to think about in how adaptation has or hasn't changed.

One is climate is now a thing in the investment landscape. So two years ago, Mal you were looking at this, I think a long time earlier than that as well, climate change was still considered to be, in the United States at least, something that is a long-term problem. This is like 2100, no polar bears, fewer coral reefs. And, you know, we'll get around to that. What's happened in the last 14 to 16 months is I think over $40 billion has now suddenly been raised for climate investing in private equity and venture capital and other areas, which is wonderful to see.

That being said, it's still less than 8% on the adaptation side of all climate investing that's currently tracked. And according to the climate policy initiative, less than $500 million in adaptation and climate resilience. So we've gone from 5% of public and private investment around adaptation to 8%. So that's good. The UN Secretary General last year wants it to be 50%. We're way far away from that. And we're only at the very beginning of private investment, private equity and growth equity investment and venture capital investment in resilience and adaptation. But you just raised, if I'm not mistaken, $100 million fund. We have Lightsmith announced $186 million final close of our phone. So double.

what I said just about, mm-hmm. So we're excited that we've got some great partners in that fund and have already begun making investments. And $186 million is not a tremendous amount of capital, but at least it's a first step towards what we think will end up being, you know, a multi-hundred of millions or billions of dollars investment opportunity. How are you focusing your investments now? I mean, you said you sort of initially started out in risk assessment and those tools.

Has that approach changed at all? They're more, I mean, you know, as long as we've been talking, it's basically been like, kind of like it is now, actually, where I keep joking that there are three climate tech investors for every startup, but there seems to be sort of money chasing solutions. Are you finding more solutions? We are finding more solutions. And so our broad idea, which was to say, look, there's categories that we would call climate intelligence.

Now, most of the companies that we talk to or have historically talked to at Lightsmith don't call what they do climate change anything. They're supply chain management companies or agricultural analytics companies or digital mapping companies or catastrophe risk modeling and weather modeling companies. But all of those types of technologies are already analyzing the risk and impact that now becomes a lot more complicated. And we originally mapped about 20 different areas of the economy that we thought would be relevant to how climate change will affect all of society and the economy and are focused on these kind of six areas. So the other two are resilient food systems and water harvesting and water efficiency technologies. But the set of potential investment opportunity unfortunately just keeps growing. So one thing that we've been looking at most recently is air quality monitoring and environmental monitoring.

Five years ago, sea level rise and Hurricane Sandy were the giant kind of poster children of what would happen as climate change starts to occur. And you didn't think childhood asthma was a climate change. thing. That it turns out if you light all of California on fire every year, or a half of Australia, or parts of Europe, or parts of South Africa, then you increase dramatically the amount of smoke particular in the air. You enhance the impact of other environmental pollutants, particularly on disadvantaged populations. And older people, poorer people, children, have a dramatically different experience of health. And I think health is going to be one of the most important impacts we're going to see. And healthcare diagnostics becomes a really interesting

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hosted by our friends at Aircom. Can't wait. Sounds like a great time. Yeah. Which area do you think is the most overlooked when it comes to, I mean, clearly, I think that that connection between health care and climate has not been well understood. Are there other areas like that that you think are sort of very overlooked or that we're sort of just now starting to realize our climate stories?

I think one of the areas you might not think of initially is supply chain management. So supply chain management, and what does that do with climate change? Well, if you, again, have giant fires in the Pacific Northwest or you freeze all of Texas for 10 days, you can't deliver personal protective equipment on rush orders to deal with the early part of COVID, and you can't distribute vaccines when the economy's frozen. So technologies that can help us dynamically reroute shipments, manage logistics, and transportation in an increasingly complicated environment are going to be very important ways that we actually adjust and continue to adapt to climate change.

And then the other side of it, I think, Molly, as you and I've talked about before, you know, climate change isn't just like risk, risk, risk forever. That's certainly the first point of contact and dealing with the potential humanitarian impact is really important. But at lightsmith, we think climate change also creates an enormous opportunity on the upside, for the development of new technologies and new products or different types of services that really provide a better outcome that also help you adjust to and be resilient to the impact of climate change.

Right. I mean, adaptation and resilience involve a lot of investment. Like, you have to redo your infrastructure, redo your house. There's a lot of things that go into that at the state, city, country, and even individual level, right? And it feels like there are thousands, hundreds of thousands, millions of companies in there. Absolutely. I mean, one example is, you know, we made an investment in source global, which makes solar-powered hydro panels.

These look like solar electricity panels, but they generate pure drinking water. One of their major projects last year with Navajo Nation, only 30% of people in Navajo Nation have access to pipe drinking water. And that's kind of a tragedy that's compounded when you have to go pick up big flats of water, bottled water. bottled water in the middle of COVID. So they deployed their panels, which look like solar electricity panels, but generate water in the remote communities within the Navajo Nation. And for the first time, you have a local 100% sustainable, renewable source of drinking water at your house for 10 to 15 years. So that's a better outcome, right? It's not simply building resilience to increasing water stress and drought.

it's giving you a distributed solution that's local, that's 100% sustainable. So there's upside there. It's not just, you know, let's build a CWall another foot higher and hope that things will only be 5% as opposed to 20% worse. Right. It's like not literally but metaphorically regenerative, which is a word I'm starting to hear a lot more in these conversations. I think that's a better word than better. That's the best thing we've called. Like, we think it's just better outcomes.

right? But I think that that's the opportunity. It's like 4G, right? To extend my metaphor even further, we had the internet and it was great. When we got 4G, we got a mobile economy that had not previously existed before. And there's a possibility that if we can make ourselves more resilient, then we will have more energy to put into economic development of various types. But also, if we create better outcomes through those products and services and developments, that then we end up with potentially a better society. Definitely. So if people are thinking about things like nature-based solutions, so instead of building a giant sea wall, maybe we build a park that can deal with flooding. And all of a sudden you have a greener, healthier part of your city that also helps to protect you and not just more cement and having to build more cement on top of more cement.

Yeah. Another thing about you, so people who are not watching the video won't realize that you're wearing a tie right now and that every time we talk, I have to think about my outfit because you're always very, Natalie. dressed, which is one of the reasons I think of you is sort of the anti-Silican Valley. Another reason is that you are founder and chair of the global adaptation and resilience investment working group, which works directly with the UN, right? Is an official partner of the UN Secretary General's A2R Fimate Resilience Initiative? You're like the anti-Silican Valley in many ways, not least of which is you are engaging with global governments. Tell me about this.

So the global adaptation and resilience investment working group. It's a long name, by the way. Everything I just said, I was like, I'm exhausted. Yes. So I pronounced it Gary because I'm a kid from Chicago. Other people pronounce it Garry. Gary sounds like a guy you met on St. Patrick's Day. That's better.

That's not better. I think it's friendlier. But it's a working group that's now 501C3 funded by the Kresge Foundation and States Street Global Advisors Foundation. And its real mission was to say, okay, let's take real investors like pension funds, like asset management, housing. like investment banks and regular normal investors and put them in a room with climate experts, with governments, with risk management experts, with credit rating agencies, and talk practically

for the first time about what happens to the value of your investments when the physical impact and risk of climate change starts happening. And then what are the opportunities that are created to invest by the need for resilience to climate change? So it's met about 46 times in the last several years here and produced a few investor guides which are designed to be read in a taxi to answer the question of like, what do I think and why do I care about this problem

and what question should I be asking about how I'm making investments, whether I'm an individual or whether I'm a large-scale pension fund that's paying attention to how teachers can retire. That, by the way, is that's the sign of a guy based in New York. It's designed to be read in a taxi. That's right.

As opposed to Uber. And I'm sorry, a what now? But I do think, I sort of want to dig into this conversation with you because I think, and this is not to say that, you know, my colleagues in the Valley and in the San Francisco Bay Area are not talking about sustainable development goals and that they don't have some awareness of ESG reporting. But there is a different mentality, I think, when you're engaging with the UN and big investment partners. And when you're out here like, we're just going to invent a silver bullet. And, you know, it's going to be an expert. X and we're going to make it all go. Yeah, I think, so I have to confess, I lived in the marina, the silliest part of San Francisco

for a number of years, and worked in the Transamerica building doing Generation 2.0 investing in wireless before color phones were a thing. So I was a tech investor in that part of the world for the Carlaw group many years ago. And my partner, Sanjay Wogley, is based in San Francisco. So we do have an angle and a perspective on the tech world. And I might actually show up without a tie on Molly if I ever met you on the West Coast. I know it's BizDev Blue and-I wouldn't recognize you. I'd be like, who's that guy?

Totally. I'm trying to pretend it's still 2019 and people were ties. But I do think that both approaches are really important. So our approach at Lightsmith is to focus on growth stage companies. So companies that already have customers, already have technology and commercial products, because we don't think there's a lot of time left. So if you're already mapping wildfire risk and selling to utilities to help them manage their networks, we want to help you scale even faster.

There's certainly a need for new technology that's even better to model wildfire or to model flooding or model parts of how food production is going to change going forward. But we're focused on the growth stage. Now, in that other area, in the early stage tech area, I think, that there's, you know, no part of the world more dynamic than Silicon Valley. And we're looking at companies actively there right now as well. One challenge that we think was a lesson of the climate 1.0 or Clean Tech 1.0 experience is how quickly you can take those technologies and get them adopted, particularly by utilities or by large-scale corporates or by government.

And so, you know, our strategy of looking at companies already have that engagement and helping them scale is our preferred approach here, but we also think we can help companies with great technologies access and get their company, their technology deployed more quickly. When you say a lesson of clean, do you mean that it took too long to get those technologies adopted or that they were adopted more quickly than you thought? I think it took way longer than people expected to sell into those markets. So you might have had an amazing technology in battery science, but to get your yourself into the automotive supply chain back then took a lot, lot longer. If you had, you know,

intelligent water metering or intelligent utility metering, those things delivered efficiencies back in the 90s and will continue to deliver efficiencies. But if you don't understand how utility procurement works, you have a very long road to travel. Right. And so finding folks, you know, we've been focused at Lightsmith on platforms that have an understanding of how that works and then helping then to partner with technology companies to help bring their technology to the people that need it as quickly as possible. By some estimates, over 90% of startups will go out of business in year one. That's why Microsoft created the Microsoft for startups founders hub.

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any founder. And it's not about who you know. Any founder at any stage can get up to six figures of value by signing up at AKA.m.s slash this week in startups. Once again, aka.m.s slash this week in startups to get six figures in benefits right now. Yeah, what are the parts? I mean, now I think there's a growing conversation about what are the parts all over again. there's a growing conversation in this space about what venture is good at and what it isn't, but at least with some learnings behind us, you know, like are there areas that venture should just steer clear of when it comes to climate because we just can't be impactful fast enough or, you know, or what should we not waste our time on in search of the most impact?

I think the cautionary tale piece of it from the Clean Tech 1.0 experience is a lot around being thoughtful around capital expenditure, right? So if you have software, which is awesome and scalable, you know, write once and then copy many, many times, then that's a great approach that can be deployed quickly and innovation can happen very quickly in that area. If you have a novel manufacturing process that requires, you know, $100 million to deploy the first factory and prove that it works, then it's a very different scale of investment that you're talking about. Now, that being said, you know, the venture and growth landscape has also changed, where there are much larger players that are out there now that are willing to invest in larger check sizes to scale those technologies. And we've seen the kind of, I know, third reel of the SPAC film come and go, where people were really excited about bringing those companies quickly to the public market. I don't know how that movie will end this time around or what the next Netflix season is going to look like in SPAC world.

But I think really being careful and thoughtful about how your companies consume cash and how much of that is going to be required for capital expenditure is a really important distinction between where you are in the venture stage versus growth investments or more mature investment strategies. Is there some truth, though, or some pain in the idea that if we all fund a bunch of SaaS dashboards that like maybe we're not going to contribute that much. meaningfully? Well, I kind of wonder what the Molly Wood 2024 person coming back in the short time machine would think about telling us right now. Because what you've had is in the last, again, like 14 to 16 months, you know, $40 billion of capital with the word climate attached to it. A bunch of that is in much larger cap funds and a bunch of it is in like very early stage climate tech. So when all of those climate tech funded startups get to the next round in about two or three years, who funds them at that point is a really interesting question

and what the world looks like from a competitive standpoint, from an investment standpoint, is also a really interesting question. So we are growth investors at Lightsmith. We're looking at companies between five and a hundred million of revenue. It's a pretty broad range. So we could be a target to shoot for. So if you graduate from the early stage startup range, we're there to help you really go global, really to scale, really to position robustly around adaptation and resilience to climate change. And so we're one of the players that is, you know, eagerly mapping and looking to new technology companies and investors so that we can track their progress and be the people that can be helping them scale at that point. But I don't know if we're in the same

range of capital company as very early stage climate tech or very late stage renewable energy type investing. So I think that part of the landscape will be created. We're happy that other people will hopefully join us in that part of the investment pathway. But I think you could see a tremendous number of the same kinds of early stage climate investments all come to the next stage of financing all at the same time. And the question is how many people will be. be able to have follow-on investment at that point. Right. So are you saying there aren't that many of you? There aren't that many firms at that growth stage right now? I don't think we've seen as many as you've seen launch in the climate and the earlier climate tech state and the much larger cap

buyout style climate investment oriented funds show up. So I think there is at this point still this area of growth equity that hasn't been as heavily competed. And then again, you know, that's in broader climate, which has always been focused on what we would call mitigation or reducing greenhouse gas emissions, really important. And not in our area, which is adaptation to climate change or results to climate change. Right. The effects of climate change side of things. Why aren't there, do you think? Why are, why is there this sort of mid-stage gap in that level of funding?

I think there, there's probably two reasons. One is there has been in this idea that. Climate is a totally new thing, right? Like climate risk is like aliens landing on the Earth risk. It's a risk that we've never seen before. It's going to be totally different. And I'm glad that people are calling this basket of risks, climate change risks, and saying it squarely

because it's really important to mobilize everyone around this on the investment side and on society side. That being said, our view is climate change risk isn't aliens landing on the Earth risk. It's existing risk. It's existing sets of situations and challenges and problems that are now going to become a lot more complicated. So if you thought that climate change was a totally new thing, then you would say, okay, we need brand new technology to start to deal with it.

If you thought climate change affects all kinds of existing things, then you might take, as we've said before, more of a McGuire approach, like what's out there that we can use right now to help us begin to solve the problem right now? You know, how do we manage fire risk right now? That is going to be supersized to manage it as those risks become supersized. We don't have to start for the first time to think, oh, geez, have we ever thought about wildfire before? Have we ever thought about flooding before?

Have we ever thought about drought affecting agriculture before? So I applaud folks that are innovating and investing in early stage technology. We absolutely are going to need that. But I think there's also a whole range of companies that we're running into in the growth stage that already have a lot of these technologies and customers that should just scale a lot faster with capital. And so that's what we're doing. So should some of the early stage folks that I'm talking to like peel off and start raising more money? Well, I think there's, if you could write a prescription here for the, because this sounds dangerous. It sounds like a lot of

turtles are going to be running toward the sea. They're going to get picked off anyway by birds, right? Because a lot of them aren't going to make it. And then heaven forbid, they're going to get to a sea that doesn't have any fish in it or whatever turtles eat. I think. the fish. But yeah, but no, but I think that. Why don't I know this? I think the landscape will. I think the lands,

now I'm thinking about what I know about finding Nemo and that's about my... I'm shocked at the lack of knowledge I have about turtle diets. So I think, I think that the capital we raised as the opportunity goes there. I just think that it's useful to think about what the ecosystem has to look like going forward. And so, you know, we think there's a great opportunity in growth investing in this particular next phase of climate or the effect side of climate change. And I also think what we're beginning to think about is this idea of a climate 2.0 approach, meaning, you know, there's been a lot of activity around net zero commitments, companies, investors, governments, saying we are going to operate at a

zero emissions level or net out the emissions that we're generating into the environment. We think that That's a great target and a great objective to get to. But in order to reach that target, you need to make sure that that net zero objective is resilient and deals with the fact that climate change will keep happening. So, for example, if you thought you're going to reach net zero by planting a whole bunch of trees, that's great. But you better plan for those trees to exist in an environment where there might be a lot more fire or a lot more drought or a lot more pestilence. So you make sure that your investments in capturing carbon through. trees are offsetting carbon through trees don't go up in the same fires that will destroy stuff that's not designed to help solve climate change.

So making sure that adaptation resilience is part of how we think about all of climate investments or all investments is going to be really important. Climate change isn't like a tail of two islands, one which is reducing greenhouse gas emissions and the other one which is like dealing with the effects of climate change. We're going to live in one future and that has to be both a low carbon future or we will have really, really bad problems and one that's resilient to climate change because we're going to have some scale of problems I've already seen right now. Yeah. And then finally, before I let you go, where we know that there is always a lemming effect

and investors love hype, where are we, what do you not want to hear about anymore? Like, where are we maybe wasting a lot of time in capital when we could be a little more creative are risky? That's a great question. I think what's great is that renewable energy has come an incredibly long way, and electric vehicles have also come an incredibly long way, too. So if, you know, you got in your time machine, went back to 2007 and said electric vehicles are going to be a definite thing, and solar power will be the cheapest form

electricity on the planet, you would have probably laughed yourself out of the room. And those two things I think are now, I think, well accepted by a lot of investors. And so there's a ton of capital piling into renewable energy. And that's great. It's probably not going to have the same kind of venture capital type of returns that you might have seen in the first or second wave of innovation, but it'll have good returns for the type of projects that you're doing. So I think it's great that we're deploying that kind of capital.

I think if you're looking for external normal returns, they could be generating areas like adapting to or building resilience to climate change just because we're going to have enormous need there and there's still only 8% of anybody thinking about it and less than $500 million of capital focused on it. So with Lightsmith's $186 million, we're beginning that and we hope a lot of other people will begin to think about that too. That also being said, I think you can't stop innovation, right? So we're going to need all kinds of different types of technologies.

I would hope that people would begin to look at some of the other effects and the other impacts and considerations around climate change. I think, for example, human health will be dramatically affected by climate change. And planning for that and thinking about it is going to be a pathway to a much better future for ourselves and our kids. And I don't think that's been as focused on as could be. And I think you'll see hopefully more capital going that direction. Yeah. Awesome. What's your check size and where can people find you?

We can be found at lightsmith GP.com. And we at Lightsmith are investing $15 to $25 million checks into growth stage companies. And we can scale up to $40 million plus with co-investments. And we're looking for folks that can help us to understand risks and help manage risks that are being impacted by climate change. And welcome folks at the early stage. We can track you and welcome folks. folks at the growth stage so we can back you. Look at that.

You even have like a little rhyme ready to go, J. I just, I just, Dr. Seussed that right there for you, Molly. Really? Write that down. Luckily, we recorded it. So you can. Excellent. Come back and write it down later.

Jayco, thanks so much for the time. It's great to talk to you. Thanks so much, Molly. Appreciate it. Hey, everyone. Producer Nick here. I want to tell you about the SaaS Syndicate. If you're a founder of a SaaS company with a product and market,

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