This Week in Startups - VC Sunday School: startup investing in a down market + Emily Kirsch of Powerhouse Ventures | E1373

Episode Date: January 30, 2022

Jason says, "fortunes are made in the down market and collected in the up market." In today's VC Sunday School Jason and Molly discuss how a down market impacts early-stage investors (01:45). You will learn: 1. Risks to VC fundraising when valuations are down 2. If your investing process should vary depending on market conditions 3. How a down market impacts future returns 4. Why founders should have 18 months of runway 5. How founders can turn a down market into an advantage Then, Molly chats with Emily Kirsch, Managing Partner of Powerhouse Ventures for a This Week in Climate Startups segment (25:53). Emily is a climate investor and they discuss: 1. Why Powerhouse is focused on software 2. Climate change's potential impact on GDP 3. How financial tools enabled the solar revolution 4. Regulations impacting climate investing 5. How different climate tech investors work together 6. The imbalance between climate tech founders and companies (00:00) Molly and Jason intro the show (01:45) VC Sunday School: how a down market impacts the early-stage (05:45) Risks to VC fundraising when valuations are down (09:37) Should investors standards change depending on market conditions? (12:24) Bubble. Get one month free of a no-code plan at https://bubble.io/twist (13:53) How a down market impacts future returns (18:55) Why founders should have 18 months of runway (21:21) How founders can turn a down market into an advantage (23:46) Jason and Molly intro Emily Kirsch (24:34) Coda - The all-in-one doc for teams, get a $1,000 credit at https://coda.io/twist (25:53) Emily Kirsch Managing Partner of Powerhouse Ventures (29:11) Why Powerhouse is focused on software (34:31) Fellow - Sign up and get $1000 in credits at https://fellow.app/twist (36:16) Climate change's potential impact on GDP (37:50) How financial tools enabled the solar revolution (39:58) Regulations impacting climate investing (44:17) How different climate tech investors work together (55:24) The imbalance between climate tech founders and companies Check out Powerhouse: https://www.powerhouse.fund/ventures FOLLOW Emily: https://twitter.com/emilykirsch FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood

Welcome everybody to the Sunday show. It is VC Sunday School and this week in climate startups. Today I talked to Emily Kirsch, who is the managing director of Powerhouse Ventures, investing in climate tech startups. Aren't we all? However, Powerhouse Ventures has actually been around a very long time as far as these things are concerned. And it was, in fact, a twist guest on episode 614 way back in 2016 and a panelist at a launch

event that same year. It's a great interview. And we can't wait to get to catch up with Emily. She's a great get, so congratulations on that. But first, Molly has some questions about investing in private companies in a downturn. When the stock market crashes, what is it like for private market investors and companies? So we're going to go over that in our first up VC Sunday School segment. It's going to be an amazing show.

Stick with us. This week in startups is brought to you by. Bubble empowers people to design and launch their own apps, marketplaces, or tools without needing coding seals or pricey engineers. The first 500 listeners will get one month free on any of Bubbles paid plans from $29 a month up to $529 a month at bubble.io slash twist. Coder is the all-in-one dock for teams. If you've got a stack of niche workflow tools or if you're buried in docks and spreadsheets, Coder is the dock that brings it all together. Startups can get a $1,000 credit at coda.io slash twist.

And fellow.app is a game changer for all your one-on-ones and team meetings. Eliminate time-wasting meetings today. Go to fellow.dop slash twist to get $1,000 in credits. All right, everybody, welcome to V.C. Sunday School. This is where I, as an 11-year investor, give some advice and answer some questions and mentor. I take her to church. We go to church. Molly and I, and we pray at the altar of capitalism.

Right now, oh, Molly's world friends are just like, what happened to you, Molly? Your work friends are like, oh, Molly. They really are. They're just like, who are you? And also a little mild blasphemy to start the day. You free market monster. No, you're using the free market to solve a big problem in the world, which is climate and sustainability and all that important stuff. So let's get right to it, Molly.

Well, you've been thinking this past week and we've been DMing and talking. about the down market because the stock market has been correcting a bit. What's your question for me this week? Yeah. And if you saw our interview earlier this week with Alex Wilhelm from TechCrunch, we talk about the IPO market, what the future looks like for startups. And I have a very practical question about how this affects our business, but I'm going to put it in personal terms, which is like, do I have the worst time ever,

timing? Is this a bad time for me to have come to venture? Quite the opposite. Great. The down market is where fortunes are made. They're collected in the upmarket. I started my career as an investor investing in the down market after the great recession in 2008.

And I looked like a genius because I invested in Uber and Robin and all these other companies, which grew through the down market, into the up market, went public, and then you collect at the height of the market. That is the ultimate timing if you can do it. So if in fact, this is a crash and a correction, if it's clearly a correction, if it winds up being a crash, your timing would be perfect because. let's talk about the fundamental nature of a startup company. I talk about this all the time, so it's not going to be news to anybody.

But a startup company is a product that is made by a team that hits customers. And then that flywheel gets going. So let's break down each of those three in a down market. So if the market is down, let's say a market crash, the stock market's at half, unemployment is high, and people are a little bit scared, and it's a recession, right? So we'll just pretend that's what's going to happen in 2022. I don't think that's what's going to happen. But for the sake of debate, let's say unemployment is high.

The stock market is down 30, 40, 50%, 50%. And people are a little bit scared for the next year or two. What happens to a startup's product? Well, nothing. They're making the product in their office, in their lab. It has no impact. You can build a great product independent of the stock market. So if we define the crash as the NASDAQ lost a third of its value,

and the Dow lost a third of its value, would that impact product creation? No. Would it impact your team? Well, maybe. And the impact would be there would be more team members available because there would be more layoffs and the price you'd have to pay to hire that team would be lower

because it wouldn't be as much competition if it was in fact a crash. So typically the companies that do survive in a Dow market have lower salaries and more talent available, especially because some of those people would have started their own company. So your CTO, your CMO, your director of sales, they might have started their own company, but because the market's correcting, they're too scared or there isn't that opportunity because there aren't as many investors, so therefore they go work.

So you have talent consolidates in a down market to the winning ideas. And then finally you have customers. How does it change for customers? Well, there might be less customers. They might have less money to spend. But generally speaking, if you're a B2B software, and you're a startup, you don't have that many customers. It's not like your Netflix at scale or Tesla at scale,

and people are saying, you know what, I'm not going to buy a car for the next three years, or I'm not going to go on vacation. I'm going to do a staycation. So because you're so nascent, you don't really need that many customers. So again, it doesn't really impact you that much. That is the lens for the startup.

Questions? Does it become harder for you the startup to raise money, though? Do we in venture capital have less money? Okay. So, generally speaking, venture capitalists are always raising funds every two to three years, sometimes three or four in the old days, now it's two or three. They raise funds. And the people who are giving them money are really rich people who have been through cycles

before and they invest through cycles. Now, you may lose some of the looky lose, the first time fund managers, the first time LPs, because they're licking their wounds. Or maybe the check sizes will be smaller. So instead of putting in a million dollars, as a high net worth individual, they put in $250. But they still know they need to put money to work, and they're looking for where to put money to work,

and they know that fortunes are made in the down market and collected in the up market, as I always say. So, yeah, it might extend the amount of time it takes to close a fund. The fund might be smaller, but funds will still get closed, just not for new fund managers. So that ease at which new fund managers were starting funds, that could be more difficult for established fund managers, probably very little difference.

Great, all good news. And then I wonder how I, how does it start to impact diligence? Like right now it's right now money is falling out of trees, right? And so everybody's sort of acting like, I don't have time to give you the bank statements or like, you know, I have people beating down my door. I would imagine that in a downturn, you have a higher possibility of investing in companies that like you can you can be tight as right. and not lose out on deals as a result. So there'll be the velocity in which deals get funded will slow in a down market, and people will be more cautious,

and they'll look for more traction. So all of that will be true, and valuations will come down because people will see the outcomes come down. So if they look at Coinbase or they look at Airbnb or they look at Uber and it's not trading at its all-time highs or Peloton came back down to Earth, they'll say, okay, the outcome for this company that looks like Peloton, is not, you know, 50 billion, it's $8 billion. Or the outcome for GoPuff and Instacart is somewhere between door dashes and Uber Eats and what Postmates went for.

So they actually will look at the outcomes and then say, okay, well, how do I make 100 times my money or 50 times my money? And those early stage valuations will come down. It just takes a little while to reach that level. So we're not seeing them plummet right now, but we are seeing people slow down and think before they bet. Does that make sense? They're thinking a little bit more before they bet. And the idea that like a diligence request would be like, nobody else is asking for diligence will go down because the person who is the founder

will need the money. And they don't have some dopey, you know, 50 dopey angels who put in money in a party round and nobody checks if the company's incorporated or has any lawsuits against it. Like literally, if you're 50 angel investors putting in $25,000 each to, you know, raise a million bucks or more for. a startup and nobody's diligence in it, nobody's reading the docs. There might be some funky stuff in the docs, and nobody asked, you know, in basic diligence, has the company been sued or has anybody threatened legal action and have you received any legal letters? That's how we phrase it,

you know, professionals when you do diligence. Not only have you been sued, because we could find that in public records, has anybody threatened to sue you? Has anybody sent you a legal letter on behalf of their counsel? Or has anybody orally, you know, former employee, IP holder, threaten litigation. But in a hot market, you're right. Maybe people will not even ask that question, or there's a number of funding sources that are party rounds, and the founder is so hot,

they can just raise and people will take that risk. So people's risk profile changes in a down market. They do get more conservative. I want to get back to the down market, but for as long as I have you, and it's here we are in charge. In an up market, I mean, one thing I have noticed already in the almost a month

that I've been here is that, our standards don't seem to change. And I like that. Our standards are high as a firm. We don't tolerate those shenanigans or at least we're like, okay, well, great. If you don't want to give us, you don't want to participate properly in diligence, then we don't want to do the deal. Is it hard to or was it hard early on to resist that?

Like when you're in a really hot market and things are really competitive, you know, even I fell into a little bit of the like auction frenzy where it was just like, well, everybody's in on this and I have FOMO. Yeah, here's the thing about FOMO. to be successful, you do not need to invest in every unicorn. You need to hit one in your career. So this would be as if in the NBA, you could hit a full quarter, a half court shot,

and get the title for the year. That would be like a weird rule, right? Like if I could pass the ball to somebody under the opponent's bat, under your basket, and you do a full court shot, and if you hit it and don't hit the rim, it's nothing but net, you win your championship. Like, there's like a weird rule like to this game.

So if you happen to come out and you're the early investor in Coinbase like Gary Tan was, and you hit that half-court shot, you're made. And it makes no logical sense that there would be a rule like that. But that is the nature of what we do. Therefore, you don't have to hit everything and you don't need to have FOMO. And once you realize this game is rigged in favor of people who have discipline and invest consistently over time and who take the work seriously, you can then take that approach.

So that's what I told my team. Let's pick how we like to work. Let's look at the process. Let's define a process and let's stick to that process. And the process for us is we back builders. If the person who is pitching us doesn't actually build the product and they don't have people in the company who build the product and we've never met the builders, it's not a company for us, not for our firm. We like builders because all the success we've had is come for people who know how to build great product. That's a great starting point.

And then when do we invest? what we like to invest when they have modest early traction or they're a serial founder. Okay, great. Anything that's not that, we can say, you know what? We'll wait for the next round. And we're high profile enough. And we, yeah, we're high profile enough. We provide enough value.

We increase the chances of a startup's success. And we can say that to a founder. Like we're going to increase your chances of success and lower your chances of failure. And if you can look a founder in the eyes and say, listen, if we're your partner, lower chance of failure, higher chance of success, and we're going to go to war with you, then, but we want to wait till the next round, they're going to make room for you.

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Which is great because then you, if you have an MVP, yeah, you can start meeting with investors. And you can start getting feedback from customers. And that's how you win in startup land. So, Bubble utilizes drag and drop elements in their visual editor so you can go from an idea to a launchable product in days or weeks, not months. Heck, it takes your months just to find one developer. Bubble handles all the boring stuff, like deployment and hosting, so you can focus just on your product and your customers. Bubble has over 1 million users and enables over $1 billion in business volume every year.

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And in fact, Bestie, David Sacks tweeted earlier this month when exit prices are great, entry prices are lousy, which of course, right, if everything is like the valuations through the roof, it costs a lot to get into a round. But he says, when entry prices are great, exit prices are lousy. This is a riff on my classic line, which is fortunes are made in the down market and collected in the up market. If you invested in coin-bys, tweeting each other all the time. So that's what's happening here? Well, no, I mean, it comes from spending hours a week together talking about and, you know, debating our strategies.

Yeah. Right. And the issue he's had and I've had over the last year or two is like, this valuation makes sense. And if it doesn't, you know, sometimes you got to pass. And sometimes you feel like you're overpaying. I don't mind overpaying, but I would like there to be some basis in reality or logic to the overpaying. Right. If you were to overpay to stay, you know, at an incredible resort during the Super Bowl,

you'd be like, well, it doesn't make sense to stay at this five, this, you know, Ritz-Callton and pay $1,500 a night for two nights and pay $3,000 when it's normally $500 a night. But you'd be like, but it's a Super Bowl. So there's a reason why I'm overpaying because I'm here for the Super Bowl. It's going to be dope. It's going to be a once in a lifetime experience. So that's like, I'll overpay for a certain experience, a certain company. If it's like, okay, their first 10 customers are spending twice as much this year as they did last year.

Okay, good. That's a reason to overpay. Or they have this like incredible management team that formally worked together at Uber and they know growth. And the growth team from Uber left to start this new company. Okay. that makes sense. Yeah, I'll overpay for that. So you should have a reason. I think you have to have a reason to overpaid. Not other people overpaid. That's stupid. I think. So have a reason.

There must be some risk. Maybe it's not even risk, right? But it's clear that the way funds operate, it's sort of a series of windows. Like you have invested at this time, returns come in at this time. And that at some point, the window is going to include a time when you invested during a bubble when things were really hot. And valuations were just high because they're set by the market. So even if you didn't overpay at that time, there is still a risk that your return when you get to the end of that window could be lower? It's possible.

Here's what you wanna do. As best as I can tell, 11 years into this, and having as a journalist live through two cycles. So I'm a three-cycle guy now, I kind of see it. I think you consistently invest in great companies. When they are proven themselves to be great companies, you try to put as much money as possible into it. So you keep investing.

So you're riding your winners. Then if the market is really hot, over the last 18 months, we've spent more time helping our existing portfolios raise money during this hot market than investing in new companies. So before you got here, I had a conversation with Jackie and Ashley, two of my top lieutenants, managing directors here, who are your peers, right? The three of you are my three managing directors. I said to them, listen, the market's crazy hot.

It's hard to get in these deals. people don't want to do diligence, and these prices are crazy high. We're still going to invest. But can you ask, I asked Jackie, who's incredible, Jackie, just ask every company if they're raising, planning on raising, if so, when. And then if they're confused about it, have a conversation with them about how wonderful a time it is to raise money. This was 18 months ago. Then I said, Jackie, every meeting we have with our team, our staff meeting on Wednesday, I want you to present to us which of our companies are raising at what stage.

And she started sharing that metric. So if you go into the weekly charts, you can see over the last six months how that charts changed. It's been out of our, we've invested in over 300 companies, let's say, 200 are active. It's been 50, 60, 70 companies are raising money right now in the last 18 months. And then they keep raising at higher and higher valuations. That's good for us, especially if they're raising large amounts of money because then they reduce the risk of ruin and they get closer to being default alive. So my belief was in a hot market, sell shares of your company, and get your existing companies cashed up, and then on the priority list is investing in new companies. So you can just change the priorities.

Yeah. In a down market, we're going to want to invest in more companies, and we're going to want to own more of the winners. So it's like a gambling strategy. You know, like if you play poker, play good cards, good starting hands. So that's always good advice. And play late position is always good advice. because you get more information. And getting up from the table with chips when you're up is always better than leaving when

you're down. So we sold small percentages, 10, 20 percent of our ownership in unicorns early. Some people would be saying, oh, you sold too early. But walking in a win, you know, it's only 10, 20 percent of your returns. That's a pretty good idea, I think. That's everything I can tell you. And then finally, I love that. Let's do a little fan service for startups because obviously we have a ton of founders listening.

And we have Notties in here. So if Nodys have one or two questions, maybe we'll take some news. And we have Nodies in here who are loving this segment. I'm glad to see that. We all get to learn together. But for those founders, how does this change? For example, should your runway be a lot longer? I always like to have 18 months of runway in any company I run.

So if you look at launch our fund, we always have something like that. Why do I like to have that? Well, I don't want to have to make a knee-jerk reaction and lay off talent if the market hits the skids. I would like to have plenty of time to make that decision and keep my talent here. Because most of the skids last six to 12 months. You got 18 months of runway. You have enough altitude to land the plane safely if you needed to. Right.

And you have a, or if it was a car, you know, you've got enough space around you to stop the car, right? You're not tailgating somebody. So I think 18 months is always the right thing. And you can, if you feel like you're burning too much cash in the market is correcting, you could lay off some people. and lower your burn. I don't know if that's the right thing to do right now, but I like to stay at 18 months. Then, I think being focused on being default alive in Paul Graham's parlance, which is, can you get to profitability on the money you have in the bank? Can you get to profitability on the

money you have in the bank? If you have a million dollars in the bank and you're burning 250K a month, you're not going to get magically 250K in revenue, you know, by month five to hit break even. Now, if you're burning 50K a month and you have a million, in the bank, well, you've got 20 months to get there. If you're making 10K a month right now and you double it every six months, you'll easily get to that 50K, you'll be default alive. So there's some recognition of, can I get to default alive, aka also known as profitability, that is wise for founders.

And then the companies that are in favor will move from potential to performance. So you'll see investors give greater value to quote. Quality revenue, as we talked about with Alice Wilhelm on the show, we talked about IPOs. That same quality of revenue will become more prominent, your frugality, your efficiency. All of those things will become a topic because people will realize you can't raise as much money as frequently. So therefore, the money has to go further. So just a little discipline goes a long way in a down market. In fact, we are really starting to see this become a hot topic right now because everybody's having all the same questions.

Jason Lemkin tweeted, downturns are an ally if you have more than 24 months. of runway. You push on even harder while they play some defense. So start to use your money as a moat. Just like in a poker tournament, if somebody has a huge chip stack and you have a small one, you raise, they're just going to re-raise you every time and put you to the test. Because if you go all in and they can put you all in 20 times and they have a third chance of winning, they've only got to put you in a couple of times before they're almost guaranteed to knock you out. You'd have to get very lucky. So a competitor, let's say it's go puff and they had a, They had like seven or eight of these competitors.

If GoPuff has a billion dollars in the bank, well, they don't have to worry about those competitors. And in fact, they could do things that might be considered anti-competitive, like figure out what three markets are the most profitable for their competitor. Go into those markets and give everybody discount codes. I'm not saying Uber ever did that. But I may have heard some people say that maybe they did give discounts in markets where our competitor was strong.

We work. We work. Yeah, like we work could go. into a place where they know some, you know, you know, um, office sharing place is doing really well. And they can have a better office space and charge less for it. Put that person out of business, gain market share because they have a big chip stack. And what does that person do?

They have to then react and lower their prices or lose their customers or they could go to everybody in your building and say, hey, if you move to we work, we'll give you six months free rent. And then those people start breaking their leases. So there's, you know, or you could do it with drivers. You can go to the drivers and say, hey, if you do a hundred, hundred rides with us, we'll give you a thousand dollar bonus. And there was all these ride incentives, you remember?

Driver incentives. 100%. Those driver incentives, you know, I think were a big reason why Uber just absolutely dominated Lyft for so long when my guy was running it. And this is how you murder. I listen. Do we have any questions from the notice? I mean, yeah.

I'm from the murder capital of the world. If you're disciplined enough to use your money as a moat, you're going to be doing a great job no matter what. We murder for capital. And I feel like that goes for funds and startups full, right? Like, the lesson is the same. Tight is right. In every market where they weren't number one, in billion-dollar loser, they did what I explained.

So let's get to this Emily Kirshan interview. I got to hear this interview. She's great. I'm so jelly. I'm so jelly that you got to interview her. I had no idea you knew her. I would have invited you. No, I feel like Sundays you got to stand on your own.

And it's like it's got to be your passion. Well, you know. Good news about Emily. She's a fellow Oaklander. So if you feel like making the track, we can all go out to drinks. You got a great Chinese food restaurant, I think, because I'm in love with Chinese food in Peking Duck. If we can find a great East Bay Chinese food restaurant, I'll come out for Peking Duck. All right. It's a challenge.

All right. Here she comes, though. Any of that. Emily Kirsch, we'll do, we'll do it. We're going to Oakland, Chinatown. It's a good. Oh, I'm coming out. Let's do it. Let's do a Sunday DIM something.

We'll go. I love Sunday DIMSOM. Totally. Bring the New York Times. It'll be great. Done and done. All right, next up, Emily Kirsch from Powerhouse Ventures. It'll be a great episode.

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So Coda works right out of the box. It's totally customizable. And you can create a wiki or a knowledge hub for your team. You can onboard new hires quickly. and you can adapt fast to any major or minor changes in your business. What Coda can do is exciting. But what's even more exciting is what startups can do with Coda. So here is an amazing program for startups they've created.

They're going to give you $1,000 in credit. I kid you not, $1,000 in credit right now if you go to coda.io-tw-twit-a.i-o-slash-twist. Emily Kirsch, founder and CEO of Powerhouse, thanks for coming on. Hello, Molly. I'm so excited to have this conversation with you. How's week, is this week two, week three? This is week four. I'm halfway through week four.

I'm almost a month in. Yeah. And I mean, I've given up on the idea of sleep and no, and sanity. No, it's so exciting. I mean, you know this from what you do. Like, it is just thrilling. It's so fundamentally optimistic. I've talked to companies that are trying to solve real problems.

I've talked to like bonkers, moonshot companies. I've sort of said like my first yes. my first know. I mean, it's all happening. It's thrilling. Congrats. It's so exciting. And you're right. It's the climate crisis is so daunting. But when you get to work on solutions every single day, it gives me and I think everyone who gets to work on solutions a sense of hope and optimism that otherwise I think would be really hard to have. I think it really would be. I actually feel really grateful that I get to, I mean, it's wonderful to talk to founders anyway. They're just a positive force on the world and they're trying to make real change

almost in, you know, no matter what they're doing, but particularly around the climate crisis. And it is, it is like a great way to combat anxiety, climate anxiety. For sure. Yeah. This is podcast. It's like therapy. Totally is. Exactly. We may be crying later. We just want to warn you now. But hopefully not. I'm a prior, so I'm ready at all times. Me too. Oh, we're doomed. We're doomed. No, we're saved. Or we're saved. Exactly. It's going to be phenomenal because it's going to be happy tears of hope and joy. Exactly. Exactly. And that's our like title for our episode. So Emily, tell me about Powerhouse. You're the founder and CEO of Powerhouse and the managing partner of Powerhouse ventures. What are those two things and what is the difference? Sure. So really high level, Powerhouse is an innovation firm that works with globally leading corporations to help them find and partner with and invest in and even acquire the most innovative startups in clean energy, mobility and climate. So that's,

the company, Powerhouse, and then Powerhouse Ventures, the fund, we back seed stage startups, building innovative software to rapidly decarbonize our global energy and mobility system. So I know we share that kind of software focus between the funds. When did the Venture Fund start? Was it spun out of Powerhouse the company? It did, exactly. And it was June 2018 when we started investing. Okay. So it's funny because that is not that long in an objective number of years, but in terms of investing in climate tech, which is super hot now, you were like, OG.

For sure, for sure. Powerhouse is certainly kind of OG in the space, having been around for nine years, which even that feels like nothing. And to some who have been in the industry for decades, it is. But to others and so many who are new to the industry, it is a long time. And the fund as well, we will end the first fund with 26 portfolio companies. So, yeah, we've been busy for that time. Yeah. Tell me about that software focus.

That is, I think, sort of the question for climate tech investors, right, is like, are you software focused? Are you meat space? Are you deep R&D? What made you pick that lane and how has it turned out? Yeah, definitely. So the energy and mobility sectors represent the technology and infrastructure backbone of a carbon-free economy and energy and mobility together constitute over two-thirds of GHG emissions in the U.S. and climate tech solutions. are not only needed to combat the climate crisis, but also they're tapping into this massive market opportunity, and I think that's why we're seeing so much new capital flow into the space. In terms of quantifying the market opportunity, according to Morgan Stanley,

the investment opportunity of global net carbon emissions to get to zero by 2050 is about $50 trillion, $14 of that in renewables and storage, and $36 trillion in decarbonized transport and tech. So high-level software aside, just massive, massive market opportunity. In terms of our focus on software, I'm sure you've found this already, there's basically two camps. There's the people who say, we already have the technology we need. It's about getting it to scale globally as quickly as possible. And you do that with software and financial technology and business model innovation.

Right. There's another camp that says, we're never going to get there with existing tech. It's about breakthrough technology, you know, 10, 20 year path to commercialization stuff that's really hard and really capital intensive to build. anyone who tells you that it's one of the other and one is right and one is wrong, I'd say they're not very informed. There's a lot of hot debates on social media, and we need both. This is a both and in terms of powerhouse ventures, we fall relatively into that former camp of most of the technology, 80 to 90 percent of the tech we need to reach 100 percent decarbonization in the electricity sector. It does exist today. And with the right financing software, we can get these technologies to scale globally as quickly as possible. And so that's where we play in the market.

We don't take tech risk. And we're very complementary to the funds like Breakthrough Energy Ventures and others that are willing to take that long-term risk and invest in the kinds of technologies that we do need to ultimately address the climate crisis, which isn't just about mitigation. It's about getting carbon out of the atmosphere and utilization and things like that. So yeah, so that's the breakdown. For people who are also new to this, talk about the technology that do exist, those existing technologies that, you know, it's about deploying. It's about electrification or simply sometimes just plain old solar. But tell, you know, give us some examples of what those technologies are versus some of the technologies that people would really like to event. So the most recent portfolio company that we announced is called finite.

and they are a platform that's been built to simplify the sustainable investment process, enabling everyone, so people like you and me, to invest in sustainable assets through a family of public funds. So they're very squarely in the fintech space. And by financing real assets like Rooftop Solar, their platform empowers investors, including individuals, to drive measurable, actionable impact for as little as $500 while maximizing returns. But sustainable investing is pretty broken. So of the 850 ESG ETFs. So you're saying that ESG is broken and I was going to actually jump in and say define ESG

for us for people who are literally noobs. Totally. So environmental social governance, it's three categories that corporations, you know, companies big to small are thinking about in terms of the impact that they have. So not just the environmental impact, the social impact. So the communities they work in, the communities that they, you know, benefit or harm, in this case, benefit, and then governance, you know, who's on the team, how are decisions made, how can equity be built into each of those areas? So, good question. And as you're investing, I mean, it's been interesting watching

the evolution of ESG as a concept, right, and as a metric, because there isn't a lot of accountability, it seems. There aren't a bunch of standardized metrics. And I wonder how as an investor, you balance, you know, making sure that you're investing in companies that are walking the walk as opposed to trying to attract capital with the right language. Yeah, great question. When we're in diligence with a company, we want to know what impact they're having and

what impact metric they use to determine the impact that they have. So there's another debate in the industry, which is what type of impact can we track accurately and how should we report it? And there are some who say this is all about GHG emission, greenhouse gas emission reductions. That's the thing that we should quantify and aggregate and track across portfolios. And there's good reason to do that. But there are other philosophies and we fall into other camp that says it is really hard to do that accurately. And that doesn't take into account things like resiliency or adaptation, how we're adapting to the the climate crisis, which are going to be really important, are today important investment

opportunities and solutions to have that have no GHG emission reduction benefit but are still worthy of consideration. And so at Powerhouse Ventures, we, for each portfolio company, we report on an impact metric that is specific to that company. And so when we're in diligence, that's what we're evaluating is, is that impact specific to how they operate? Gotcha. Listen, time wasting meetings are brutal. You know the ones. There's no agenda, there's no takeaways, and there's no accountability. Waste the time for everybody, right? And that is infuriating when you're the boss and you're paying everybody's salary. Three, four, five people, they spend two hours in a meeting, nothing gets accomplished. You know what that is? Five people

times two hours is ten hours of your money. Ten hours wasted, cumulatively. Well, after selling his last company, Aidan Mirzai, swore he would never attend another meeting without a clear agenda. He adopted a motto that I used as well. No agenda, no attenda. That's right. I don't see an agenda in there. I'm not going. So Aiden and his co-founder's built a tool to make meetings productive and delightful for everybody involved. It's called fellow.app. And it's simple, beautiful, and it helps you stay organized. It's a meeting productivity platform where teams can collaborate on agendas,

track key decisions, and hold each other accountable for action items. Somebody's got to be responsible, right? Who's a single-thread leader here? It's a game changer for all of your one-on-one's and team meetings. You'll never have to attend another meeting without knowing exactly what the purpose is, who is doing what, and what the outcome is. What is success? Are we defining success in this meeting? Is anybody in charge?

Is there an agenda? My God, don't get me started. You can solve all these problems by just going to fellow.app slash twist. Fellow. App slash twist. F-E-L-L-O-W dot app slash twist, and you'll get $1,000 in credits. Yeah, they know you're going to love the product, so they'll put $1,000 in credits in your account. join companies like Shopify,

Lemonade, Warby Parker, and thousands of others who are already using Fellow to make their meetings delightful. That's fellow.app slash twist and get $1,000 off. Okay, so then back to the technologies that are fundamental and need deployment

and need incentive. Tell me a little bit about those and then we'll talk about some of the like moonshot things that we're seeing in the rest of the industry. Perfect. So yeah, another example also in the fintech space, a new investment called Sust Global Sust. they are transforming complex climate data into granular financial signals with what they describe and we agree is best in class data integration.

And so what does that all mean? As you know, the climate crisis threatens to decimate the financial system. So we're not currently properly assessing its impact. The financial industry certainly isn't. But the world stands to lose 14% of its total 85 trillion in GDP if temperatures rise beyond 2 to 2.6 degrees Celsius by 2050. So that is scary. It's not all doom and gloom, though. You said that so casually.

You know. I want to repeat this, 14% of global GDP. Yeah, yeah. By what, 2100? By 2050. You know, 2050. Oh, good. Yeah, yeah, not that far away.

But again, not all doom and gloom. Accurate and actionable climate data has the potential to accelerate economy-wide change and economy-wide decarbonization. And so Sust delivers this real-time climate data that allows, its users to determine the risk of climate change to their assets and seamlessly integrate it into this platform to help inform decisions today that can have an impact on whether we cross that line or not. Right. How much does policy play into, I want to come back to financialization because I do think creating those financial tools, you know, this is something that actually,

you know what, I'm just going to start there because I'm already down this road. Creating those financial tools, I don't think people realize necessarily from either an investment perspective or even just sort of an understanding climate crisis. That's how things get solved, right? Measuring risk, creating investment vehicles, financializing. That's essentially how the solar industry has been built in some ways by, you know, packaging up solar leases and selling them like a bond. And this is your whole world. Like I love that you brought this up because this is why everyone, no matter what industry you're coming from or what you've done before working in climate, your skills are applicable, your knowledge is applicable. You're a perfect example of that,

given what you can say. That was the marketplace stuff right there. Yeah, exactly, exactly. So agreed. I think policy is absolutely critical. You know, I think sometimes there's this hubris and venture capital where it's like, oh, we don't need government, get out of my way and let me make smart decisions. And that's BS. Like if you, if you work in this industry, your job has been enabled and created in part by policy that, that, you know, started 40, 50 years ago as it relates to solar in the United States. And now we're seeing the need for that same kind of incentive to be applied to industries that are harder to decarbonize and not as far long as the wind and solar sector, for example. So things like shipping and aviation, industrial processes

like cement and steel, food and agriculture, carbon capture and utilization. These are all things that have a longer path to market, haven't received as much investment historically, haven't received political or financial support from the government, but things like home heating, heat pumps, heavy industry, like these are all things that we have to do to address the climate crisis. And investors are certainly playing a really important role and they're not waiting for government, but we also, if we're going to do this, we need every option to accelerate solutions, including regulatory ones. Right.

Like if the SEC came along and said to every company of a certain size, you have to measure risk and you have to report that. That is now a regulatory requirement. Then all of a sudden, you have created a market for a lot of risk metric tools. That's, it's such a good point. And coming back to Finite, Finite spent two years working with the Securities and Exchange commission to achieve approval to build sustainable fund investing in illiquid assets. poor people like you and me. That was not previously available to us. It was only reserved for

large institutional investors. And so their inaugural fund, it's called SolarX, S-O-L-R-X, enables people like us to benefit from these real assets that, unless they had advocated to SEC for that change, still wouldn't be available to us. But with that capital, like put all that capital use in real projects, that is what moves the needle. Right. Tell me more about why that solves, the problem that solves. We're saying ESG investing is broken. How is it broken and how can it get solved by, for example, one of these portfolio companies? Yeah, definitely.

So, yeah, currently 850 of the thousand funds that are labeled ESG ETFs that were added in the second quarter of last year, so 850 of those out of the 1,000, they're not new funds. They were existing funds that were relabeled as ESG to kind of, as you were alluding to earlier, kind of like a little greenwashing, a little like, oh, let's just check the box that we're offering this. And only two of the top 10 largest sustainable ETFs included renewable energy development at all among the top five holdings. And so there's this sense that, you know, yes, the market is trying to meet the demand, but not with real new solutions that make a difference in the climate crisis, but rather just. rebranding, which rebranding isn't going to get us there. And so that's why I think things like finite are so interesting and why we invested is because it gives people like us and all of your listeners a chance to invest in real renewable assets, maximize returns in a way that we couldn't do previously. We didn't have the same option as institutional investors. Right. And then hopefully

incentivize, of course, creation of more renewable energy because renewable energy is just one of those basics, right? One of those DNA of climate crisis. Like, yeah. More of that, please. Yeah, well said. And it also, it seems like you have invested in several companies that help people monitor and maintain assets, right? I'm seeing Ensemble Energy, Raptor Maps, Overstory, AMP up. A lot of this really is about risk management.

Is that fair? 100%. Yeah. Yeah, no, that's exactly right. And I think Overstory that you mentioned is a really good example. So Overstory uses machine learning to interpret satellite imagery. and climate data in order to monitor the risk and impact of vegetation, so trees and stuff like that, on power lines.

Because here in California, we now have a fire season. You know, I grew up here. I've been here my whole life. Fire season was not a thing. It is a very real thing now. And we're seeing that proliferate across the country. These once-in-a-lifetime events are not, no longer once-in-a-lifetime. They're every year.

And so we can use data. We can use software. We can use technology that Overstory is built to say, say, we don't have to run trucks and helicopters to inspect power lines, which is really expensive, and utilities don't do it. And when they don't do it, vegetation encroaches on lines, they start fires, and then a lot of people die. And so companies like Overstory are playing a really important role in using the latest technology,

using satellite imagery, using things that weren't available to us even a few years ago to play an important role in the industry. And utilities are not only seeking these solutions, but they're being forced to adopt them because of the harm that they've caused. Right. We could have a whole long conversation about harm and utilities in Northern California in particular, but maybe that's for a different show. Maybe.

Once you start to build up a portfolio of risk management, for example, once you really start to have hard metrics, I am fond of saying that you cannot manage what you do not measure, tell me how that starts to feed into the ecosystem overall, like when you're working with a breakthrough energy ventures that might be trying to come up with a next generation technology. You know, talk about how creating this ecosystem feeds maybe technological breakthroughs that you and I might not be able to write checks for now for some reason, but that can build on the work that you're doing. Yeah.

I mean, I think part of it is knowing what we're each good at and knowing where we fit in in the ecosystem and then playing to our strengths. And that's something that I think I've learned. I continue to learn more and more over time. And as I grow in my career, is like, what am I really good at? What am I bad at? And in the case of powerhouse ventures,

what are we good at? What do we know a lot about? And the stuff that we don't know about, leave it to someone else. And so when we invest in companies that are taking that approach of get existing proven tech to scale globally as quickly as possible, we can then be complemented by those, like you said, like breakthrough that are working on harder tech solutions.

that are going to have a 10 to 20 year past commercialization, and that's okay. That's, that's the risk that they're taking. I think it's the complementary nature of both and each focusing on that, which we know best that gets to the solutions that we're all ultimately striving for and just choosing the lane that we think we can excel in. Did that answer your question? Yeah, definitely. I mean, it does seem like it's about building, you know, it's about building a foundation of solutions on top of each other. And if like breakthrough isn't, doesn't have to worry about community solar. Yes, exactly.

Then they're not, it's like, great, look, put, just plow that money into whatever bonkers solution you're coming up with. Exactly, exactly. Tell me, so I neglected to mention at the top that you are also the host of a podcast, what it takes, because you're doing this like tried and true formula of like using the podcast, I assume for deal flow and promotion and outreach, but also it is an incredible repository because I have found in this very brief time

that it feels like there are lots and lots of climate tech investors and not as many. It's like maybe for every one startup, there's like three to five climate tech investors. And you have created this delightful directory of like almost all of the companies, it seems like. Thank you. Tell me about the podcast and how you're finding, you know,

both sources, people to be on the podcast and how you're using that to impact deal flow. Yeah. Thank you for the podcast plug. I love the podcast. By the way, W-A-T-T. Guys, it's so clever. What it takes. Thank you.

What it takes. Exactly. So, yeah, we came up with the podcast at a wine bar in Oakland. This is like five years ago. So pre-pandemic with Shell Con, who's at a fun called Energy Impact Partners now. But at the time was at Green Tech Media and on the energy gang. and we release episodes monthly. I don't know how you do this every day.

Or I know in your case once a week, but between you and Jason, like every day is insanity to me because we just do one a month and that already feels like a lot. But once a month. You can't hear it right now, but there's producer tears just flowing over a slide.

Somebody's crying. So yeah, once a month, we talk to a founder of one of the most innovative companies in the climate tech space, and they tell the personal stories of how they built their business, their upbringing, their risks, their failures, their breakthroughs that are transforming our world. It is very personal in nature because we know that that's what everyone can relate to. Whether you're a wonk or not, we want to make these stories accessible and

inspiring to people who are deep in climate and people who are just climate curious and starting to dip their toe in. So we featured people like the founder and CEO of Sunrun, Lynn Jurich, that the company now has a, I think, eight or nine billion market cap. Co-founder of Tesla, Martin Everhard, Andy Karsner, who's at Google X, and now on ExxonMobil's board as an activist shareholder. Donnell Baird, the founder and CEO of Blockpower, Van Jones, who's a mentor of mine and CNN commentator and just got a $100 million grant from Jeff Bezos, so he was in the news recently for that. But he was a pioneer in green jobs, and that's what we spoke about.

So anyway, I feel incredibly privileged to get to speak to some of the biggest names in the climate tech space and hear about what's made them who they are and what have they learned and what advice do they have for people that are starting companies or fundraising. And it's just it's so much fun. So yeah, for listeners who are interested in those personal stories, definitely encourage you to check out the podcast. Well, now I feel like I have to ask about your personal story because, for example, you did work with Van Jones. it looks like for about six years, doing workforce development, climate policy, valid initiatives focused on clean energy. Talk about your background and then how you ended up where you are. So yeah, definitely a lot of credit to Van. So I met Van when I was in undergrad. And now, you know, I think a lot of people now see him as this voice of justice for our country. But when I met him,

he was not, he didn't quite have the platform that he has now. None of us did, Emily. None of us did. CRN, I don't know if I ever will. But he started nonprofit, and I worked with him just out of undergrad doing the work that you were talking about. Worked as a community organizer, which I think before Obama ran for office, everyone was like, what is that? And most people still say that. But that was a role that Obama also had early in his career. So I take pride in it.

But yeah, the organization that Van started focused on criminal justice reform, environmental justice. He and the org pioneered the concept of green jobs. and the clean energy economy. So like you said, I spent almost five years there. And Van was friends with Prince, the music icon. And Prince wanted to do something related to clean jobs, in Oakland. And at the time, a colleague of Van and mine

was starting a startup to help finance solar on nonprofits and community-based organizations. And Prince was like, that sounds great, that's it. I want to help get it started. And so with a grant from Prince, the startup got off the ground. I got to work with them on their pilot. I loved it. It was my first exposure to working with a really early stage startup.

And I just thought, like, this is it. This, you know, you can work on the best policy in the world. But if you don't have businesses to build the solutions, then your policy is going to sit on a shelf. And so in working with them, I realized there must be, you know, how many other companies like this are out there? Is it, you know, dozens, hundreds, thousands, tens of thousands. And if they could all tap into corporate connections and investor connections and other founders, how much more quickly could they accelerate their solutions than if everyone was just kind of working in their silo on their own.

And so in 2013, I quit my job at that nonprofit to start Powerhouse initially to be that hub of innovation and entrepreneurship. And then over time became what the company is today, which is an innovation firm that works with corporation. So our clients include utilities like Annel that have deployed. more renewables in any utility in the world and oil and gas companies that are working on their transition like BP and tech companies like Google, Asian conglomerates like Marrabenny Power, DNV, like people who have said, I know I need to change if I'm going to stay in business and

stay relevant. And I know that that change is not going to come entirely from within. Like, I know I have to partner with innovators and startups to stay relevant and to stay ahead and to stay a leader in this space. And so they come to us and they're humble enough to say, like, we know we need help. Help us find the startups that we need to partner with and invest in and bring in house so that we can continue to be the leader that we want to be in a decarbonized world. That's a pretty great. Hold on. But did you get to meet Prince? I never got to meet Prince. No, that was, yeah, that was rough. But Van was really close to him and, you know, friends, close friends, until Prince died. But I just, I love that to this day. I mean, what a remarkable origin story.

Yeah. And credit to him. Like, you know, he, when we were working with him, you couldn't talk about it. He was so humble that he's like, not only do I not want you to talk about it, you can't. Like, this isn't about me. This is about the work. And to this day, when you drive around Oakland, if you're on a freeway and you see a solar project on like a church or a nonprofit, high chance, high likelihood that it was funded in part by Prince. That's like the best thing I ever heard. Isn't it awesome? I mean, I remember when he died, I don't want to derail us completely, but I remember when he died, Van Jones telling that story about how a lot of times when he would show up in a city, because I was one of the dumb dumps who did not go to that last show up in Oakland, that a lot of times when he would show up in a city, it was because he was doing some kind of philanthropic or community development work there. Yeah. And it just made me wonder, like, what also happened, the weekend that he played? Yeah, yeah, exactly. He was, yeah, and you're exactly right. He did this kind of secret philanthropic work all over the country. And it's a huge testament to who he is and the fact that it can live on in the power that's being created that helps these great organizations put more resources into the great work that they're doing in the community. It's something that was part of the foundation of my career and has stayed with me.

And it impacts how I think about, you know, DE and I and community impact and things that are important to us as a fun. Yeah, that is super cool. Yeah, I forgot to mention at the top that you and I are fellow Oaklanders. So we're driving, we're driving by all the same solar projects. What you were just saying about powerhouse is so interesting because it's a lot of this is in some ways about creating markets and policy can help do that. But of course, something to buy helps create a market. But you really have a symbiotic relationship between the company and the ventures. And you can, I mean, that seems like a huge advantage to be able to essentially say to a portfolio company like PS, we can also be your customer.

Yeah, exactly. No, you're exactly right. I think what's so unique about powerhouse and powerhouse ventures is the structure, the network that we share and then the brand and a lot of funds for a long time, they were like, we're so secretive. You can't access us. You have to know someone. And I'm like, okay, good luck. If that's your strategy for deal flow. But in our case, you know, leveraging things like the podcast that's had over a million downloads and having a social media following of, you know, tens of thousands of people across multiple platforms. and just being out there, like being the fund that when you're starting a company, if you're early, you know, your seed stage, your software focus, like we want to be the go-to and we want to add so much value to our portfolio companies that they're the one saying, like, yeah, you should work with powerhouse venture. So I think between the structure, like you said, of having powerhouse the company and the fund work side by side and share knowledge and insights and relationships and then the network of, yeah, corporates and investors and leaders and decision makers across the country

and increasingly around the world is something that we love making available to our portfolio companies because it's a win-win. Yeah. Speaking of the ecosystem, what are your thoughts about this moment we're in right now, where there is all of a sudden the opposite of an exodus, a huge influx of people wanting to be climate tech investors or, you know, I mean, I think, like, I am proud that at launch, we're bringing climate tech investing to a pretty mainstream firm,

right? Like a fund that doesn't have this history, isn't a niche. How do you feel about this expansion of the ecosystem? Like lots of tourists like me coming in, isn't a net positive? Do we all have a lot to learn? Yeah, I think, I mean, generally speaking, very positive.

The influx of capital that we're seeing is so long overdue, and we're seeing the impacts on our day-to-day lives of it being overdue, you know, like the very real impacts of the climate crisis that we're seen in the deep freeze in Texas and the fires in California and, you know, all the other weather events that shouldn't be happening. That influx of capital, like, yeah, it's about time. So I think my general sentiment is like happier here and work with or hire experts such that you're making really good informed decisions and, you know, partner with funds that have been doing

this for a while and co-invest with them and track what they're doing and and and then learn, you know, build, build your own knowledge base. And, you know, and not to say that like, oh, we know so much about the industry, it's changing so quickly that all of us like, do though. Yeah, you do. Thank you. And that's a fair say thing to say. Thank you. And I think it's important to recognize the like, yeah, the industry's changing quickly. So as you're learning about what's happening, so are we and then learning alongside each other at the same time. So, yeah, I would say, yes, capital's welcome. I, hope the new investors and especially the big the big funds that are starting to more in the

space, you know, make sound technology decisions because that was one of the the downfalls of the one point O clean tech wave that didn't work out as well, but also the market dynamics are so different now, you know, now almost everywhere around the world, wind and solar are cheaper than fossil fuels. So it's just we weren't there, you know, 10 years ago. Let's, as Jason would say, let's unpack that a little bit more, though, the idea that if we, if there are a lot of high-profile whiffs. What's a whiff? And, you know, misses.

Just like, yeah. Yeah. It's an anatomotopia. There is that risk, though, right? That people could come in, not do their diligence, that there could be, God help us, a theranos of climate tech. I mean, I'm sure there are, really, right?

Yeah, I know, I think you're, especially with the SPAC market. Like, there's, there is a lot to be wary of, And that's why I think having that expertise and access to that expertise is so important because, because, yeah, we certainly don't want many of those in the space. And at the same time, like, this is a risky business. And most of the investments we make, you know, it's fair to assume that most, if not many, are going to fail.

And that doesn't mean that we don't do the work. It just means that, you know, we operate in a way that takes that into account. Yeah. But if you're here, be humble. Absolutely. Yeah, absolutely. Before I let you go, what is one startup that you wish existed?

If you could order up an investment opportunity on a plate right now. I know, I'm springing you on this one. What do you think it would be? I mean, Jason calls it request for startup, RFS. I love the idea of having, in addition to finite and solar X and their fund that's investing in kind of real renewable assets. I love the idea of an index fund that is enabling people like you and me and everyone who gives a damn about climate to invest in an index fund that is truly fossil free. We have not seen that yet in the market. And I think there's an opportunity for it. And we're looking for and starting to see some solutions in that space. So I hope there's more to come there. Love it. Consider that your climate request for startup. Everybody out there. Bring it to us. Maybe we can co-invest. Emily Kerr, CEO. and founder of Powerhouse, host of and managing director at Powerhouse Ventures and host of the

What It Takes podcast. Emily, thanks so much for the time. Thanks, Molly. This was really fun.