This Week in Startups - VCSS: Year in review + Valerie Shen of G2 Venture Partners | E1641

Episode Date: December 18, 2022

Molly and Jason celebrate the last VCSS of 2022 by reflecting on what Molly has learned over this past year. (1:24) Then Valerie Shen of G2 Venture Partners joins Molly for the final TWiCS of the year. (36:38) (0:00) J+M Kick off the show (1:23) Molly reflects on her first year as a VC (10:58) MicroAcquire - Sell your business with no fees at https://try.microacquire.com/twist (12:29) The founder/VC relationship (18:30) Learning how to be a VC in a downturn (20:13) Crowdbotics - Get a free scoping session for your next big app idea at crowdbotics.com/twist (28:05) The art of patience + getting to 100 meetings (30:34) Top VCSS episodes of 2022 (36:38) Valerie Shen joins Molly for TWiCS (40:43) The history of G2 Venture Partners and  Valerie’s role (51:38) Climate Tech is becoming more popular (1:01:28) Investable climate tech solutions FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

Okay, everybody, welcome to the final Sunday edition of this weekend startups for 2022. And we thought it would be an interesting thing to do for the VC Sunday school segment to have Molly talk about her first year as a venture capitalist. Yeah, it happened. We, of course, also, a thing that was pioneered as part of my first year here at launch this week in climate startup. So we have one last interview for you. And I'm excited because it's one of the big dogs, like one of the OGs of climate tech investing. G2 Venture Partners, which of course was a spin-out from Kleiner's billion-dollar green growth fund, and of course, John Doer being one of the pioneers of this space.

So it's really like kind of a perfect way to end this weekend startups. Perfect bookend, yes. Yeah, there you go. It's going to be a great show. Stick with us. This week in startups is brought to you by Microacquire. Microacire helps startups find buyers. They'll help you start conversations that can lead to an acquisition in just 30,

30 days or free at try.m.microquire.com slash twist. And crowdbotics. Great ideas can change the world. And crowdbotics is the fastest way to turn those ideas into code. Get a free scoping session for your next big app idea at crowdbotics.com slash twist. All right, Molly. DC Sunday School is coming to an end year. You're finished your freshman year and you're going to be a sophomore next year. sophomore year coming up. How was your freshman year? I gained 15 pounds. I partied so hard. I ran up tons of credit card dead. I failed. I'm just kidding. I told you to stay. I told you. Stay away from the waffle station in the cafeteria. He did. He was like never go to the buffet. But did I listen? No. No. Yeah, we thought we could do a fun VC Sunday school kind of learnings and surprises.

And then also asked our producers to gather some of the favorites because our audience has loved this segment. I have been so surprised by how many founder meetings I've taken where they've referenced it, talked about learnings from it. Yeah. So I think it's not the table is interested, you know, in their, uh, in their partner and how their partner is making decisions, I suppose. Yeah. I think it's just been super, it's really been interesting. I mean, of course, it's been really fun to learn in public. And then also, I think it's really been useful for our audience. But yeah, so I wrote up some brief, like, learnings. And I got to say, like, my number one surprise is how much I like. it. Okay. Say more. What is it about this profession, you know, in your first year that

you really have found interesting, joyful, and then maybe you could compare it to your previous gigs as a commentator, host, journalist. Yeah. I like, I mean, I think the primary part that I like about it is somewhat similar to journalism in that it's different every day. You know, It's this massively wonderful variety of founders to talk to different ideas, different ways that they're constructing their businesses. So it's got this, it's just exciting for a person like me who has a butterfly brain to get to have these varying conversations all the time and to be learning so much. That fire hose of knowledge is just like the by preferred way to be living. So that is very exciting. But compared to journalism, it's, and I've said this before, like, it's not cynical.

And that's not to say that we are relentlessly. And if anything, I've spent the year learning to be potentially less positive about everyone I talk to because like every new VC, like I felt I did the exact same cliche and wanted to invest in everyone. So reasonable. Yeah. You know, like I guess I'm not going to be that different from everyone else who comes to this job and gets excited about everything. But even when we, but when we decide not to invest, it's not like it's not really. rooted in skepticism in this kind of, it's not a tear down. No.

Right? It's like, I did the math. Yep. I applied fundamental thinking. Yeah. Yes, I evaluated the founder, but most of the time, we just did the math. I mean, one of the top learnings for me was the math, the way to think about the ownership percentage and the valuation, the potential return, and just putting everything through a totally

different lens. Like, that's just been a real shift in thinking for me. You're placing a bet. And so placing a bet is different than, you know, hey, this person is somebody I like or this idea is an idea. I like. I love. You could love an idea. You could love a founder. You could love a product, but you could hate the deal. You could hate the bet, right? And so I would like to bet. I would, I wish I could wake up every day and they said, oh, you know, you could bet on this movie, this musician, this painting, this painter, and it could have the returns of venture capital. And the truth is that's just not the game we're in.

We're in the company building game. Not all the companies are created equal. So I think it's, that's an important lesson. You know, sometimes when people play poker, they want to play every hand because every hand does have potential. Oh, what if I hit the next three cards perfectly? but that's not how you would play poker or any other things. So you got as Annie Duke would say the famous poker player, she has a book,

who's very good, thinking in bets. So you're now starting to think in bets. Hey, I'm going to place four, five, six bets a year. I'm going to do that.

And over 10 years have 40, 50, 60, 70 companies I have selected as a venture capitalist. You know, I have to pick the best amongst all the ones I mean. I don't get to invest in all. I just wrote that down on my envelope,

which is getting pretty full after a whole year of like little notes. Yeah, a little notes. Yeah, no, I think that's that's 100% true. And adopting and applying that mindset, which is different from like a patron mindset, right? There are ways to support a business or arts or movies or whatever it is. But yeah, thinking in bets, I think was probably my sort of top learning, which on some level I expected, right? I told people very often. I'm not super worried about my ability to understand business models or evaluate founders or even, even, um, correctly anticipate a market. Right.

But I said, I'm worried about the math. And that turned out to be the biggest thing, not, not how to do the math, but how to think in math. We had many discussions here about things like the total addressable market, the pricing of the product, the cost of the. cost of the goods being sold, i.e. hardware businesses versus software businesses. So the business model really matters.

The market size matters. You know, and everybody likes to say it's about the founder. And to an extent, that is true. But, you know, if you force a founder to run a dry cleaner, you know, I don't know that they're going to turn it into Google. It's not possible, right? So you just have to, there's, there are, sometimes founders will pick something. that is just not venture fundable.

We see that all the time. Or we see something that, you know, the founder is going to have to learn a lot of hard lessons because they might have some very strong ideas or beliefs and maybe we can see something they can't see. And then sometimes we don't see what they see and we miss the bet, right? And so nobody's perfect.

Nobody bats a thousand. The goal is to have a process. The goal is to learn and to get lucky. That is the nature of the game. Right. You have to get lucky sometimes. And, you know, sometimes people get lucky with a 50x, a 500 X or a 5,000 X. All of those result in a good career.

That actually is a good setup for one of the surprises. One of the things that sort of surprised me was the extent to which, and I mean this with all love and respect. Founders are winging it. Like, especially first time founders, right. Like at the early stage and first time founders, I in the beginning, I think, went into every meeting assuming some level of almost equal expertise. Right. And then over the course of the year, realized every founder is doing it a little bit different. There isn't some like playbook that they all read.

I mean, we are making that playbook for them week after week with the founder university podcast. Like it exists. Strategy advice, yeah. Super tactical strategy advice. But in the absence of that, people. are constructing their businesses in all different kinds of ways. And so, you know, I would, so like small examples would be not every founder has a data room. Crazy.

Not every founder knows how to do accounting. Not every founder. I had one conversation where I said, what are your margins? And they didn't know what I meant. Yes. So what you've also learned here is it's not like there is a founder school, dare I say, university. University, perhaps. where the absolute fundamentals of running a company are taught.

It does not exist in the world or it did not, and now it does. And I just want to say for the people who are watching live, these poor people. These poor people. It's a kid, isn't it? And he fell and he lost his board. And now they're having to carry it up the hill. Yeah. This happens sometimes.

Oh, peanut. I've been there. You go for the deep pow. They're going for the deep pow. And they go for the deep pow. or sometimes those boards they can get lost this four feet of powder out there

for people who don't know I'm up in Tahoe and we set up my new studio and we decided we would take this crazy risk of moving from the movie theater which was fine but then I was in the movie theater

producing podcasts for you all and then the kids couldn't be in the movie theater and it was creating a little tension in the household so now I literally put in my bedroom my studio and I'm looking out on the mountain

and you get to see the mountain as well so you'll see people ski I told people on a call yesterday. And you really want to look this up because this is comedy, this poor two people who I assume are a parent and child are just struggling trying to walk up the hill. And they keep going down. Oh, that's amazing. Well, I mean, YouTube.com slash this weekend or I think Spotify, you can just click and turn on the video now. And there's a separate feed on iTunes. This is something the Apple podcast, sorry, something the podcasting industry has to be standardized, which is the ability to just switch between. between video and audio. Anyway. By the way, if you do go to YouTube slash this weekend, we have made a playlist of all the Sunday episodes.

Oh, great. So there is a nice little playlist that has all the VC Sunday schools. Great. And all the This Weeking Climate Startups. Yeah. So good way to get caught up on some of those. Micro Acquire is a startup acquisition marketplace that cuts out everybody in the middle. Basically, that means they're going to help startups get acquired efficiently.

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info at try.mikroacquire.com slash twist. Once again, try.com microacquire.com slash twist. And if you want to list your company, go to the same URL. Okay. So this was something that was shocking to you. You thought, hey, you'd have the filmmakers show up and they knew how to use the camera. They knew how to use the lighting. They knew how to do sound. They knew how to write a screenplay. They knew how to direct actors. And the truth is, in our business, people are learning on the job. They're learning as they go. They don't know what insurance is. They don't know about board meetings. And so it's something we, as venture capitalists, in the industry, we can be of great service. And that's why we created founder university. Founder. University, you can join it. And also, we do things like board meeting

training, right? And so different VCs, different investors will do different levels of training. I'm curious, post-investment. And I know you did about five of these investments this year. Congratulations for about $2 million. It's good first year. We'll see if you can double it next year. That's my plan. That's a plan.

And it's hard to find. It's a new vertical, right? This is a new. Although there have been, you know, sustainability companies and energy companies for a long time, climate is just starting to get a large number of entrepreneurs into it and a large number of investors. So I'd say it's still very early days.

for this, but post-investing, what have you learned? Have you had any lessons post-investing in terms of helping companies or, you know, what happens after you make the investment? Yeah, I think that is where a similar version of the founders are winging it. Yep. Learning has come into play, right? It's like, okay, you've been funded at anywhere from $100,000 to almost a million dollars. Right. And there are huge chunks of this that you're still figuring out. That's where I have seen focus. a thing that we talk about constantly

become a very specific issue for founders and have had to kind of say like, hey, maybe X-Nay on this side quest. And are you really, are we sure about that? And it's been a matter of kind of figuring out what permission I do and do not have to offer that guidance.

And realizing that it is actually our job of to be like a little bit, bit of a parent because they're wing in it. Sometimes people are uncomfortable with the coach or parent analogy, but if you have been in business for 30 years and the person is in year one, pretty much you want to say big brother, big sister, parent child, sense, Paduaan, Jedi, you know, whatever I want to say, coach, player, player coach. There are going to be, in the best of cases, things that a VC, a VC,

or a former founder VC or a former journalist VC has seen in the world that could help a first or second time founder, somebody who's got only a couple of years. And also you're outside the business. You have some objectivity. And we've talked about how to say things to a founder. If you're investing in the right founders, they should be open to having vibrant discussions.

I'm using the word vibrant as a nice way of saying intense. They could be intense. They could be contentious. they could be drawn out. But let's just say, you know, real talk. You got to be able to have that real talk. And you don't want to be the director because they have to, you're not, you might be a backseat driver, obviously.

So I like to phrase it as, hey, do we have product market fit yet? And it's like, yes, we do. I'm like, okay, so every month we're growing 20%, 10, 20%. It's like, no, we're not. So let me ask the question again. Do we have strong product market? So you see, I'm kind of leading the witness. I know they don't have product market fit, but I'm walking him through my thinking.

Okay, so we don't grow consistently. So maybe there's a lot more work to be done here on product market fit. And they're like, yeah, actually, yeah, actually when you say it that way, J-Cal, I kind of agree. Okay, great. I noticed the side quests, the three of them, the podcast, the nonprofit, and the micro fund, you asked me about starting. Until we have product market fit, can we put those maybe, or have you considered putting those on the not right now list?

And you can just make a not right now list, things you want to do in your life. And you can just put those there so you don't forget them. And so you know that they're important to you. Put them on the not right now list. And then let's get product market fit because you've got how many months of runway left? Oh, 14. What do you need to show in order to convince new investors, not me, because we made our bet? but what do you have to show new investors to get them to invest?

Do you think? I haven't thought about that. What do you think? This is how you can have a conversation that isn't, you're not growing 20%, don't do anything until you grow 20%. If you try that with a child, we all know what happens. You can't tell a teenager like, you know, don't use your iPad. It's like, okay, have you done your homework?

Like I had this with my daughter recently where I was like, you missed a couple days of school here, summer school is going to be something you're going to have to start thinking about getting ready for. So this summer, you're going to miss four or five weeks when we're maybe out with your sisters doing stuff and your friends are out because too many days off means you might not pass a class. You go to summer school to catch up.

And then my daughter was like, what? It's like, yeah, that's kind of how it works. Like, yeah, it's a thing. I had it. So anyway, you know, that's true. That's what second year will be for you. Your sophomore year will be a lot about. being on the boards of companies and, you know, helping companies that come to and say,

hey, you remember you gave us some money? We ran out. And you're like, okay, you give us more. And it's like, uh, no. Maybe not. We, our investment team couldn't get there. We don't invest in bridge rounds. You have to get new money to mark this round. And so we're going to stand pat. It's tough conversation. Job is not easy. Well, that's, I mean, that's what so, I, I am certain that I will look back and say I was profoundly lucky to be learning this. profession when a downturn arrived. Same more. Because there have already been a whole new slate of things to learn because of the

conversations we're having now that the fundraising environment has completely closed. Yep. Right? That like investing has shut down in some ways. It's much, much harder to raise. We already operated with, and I tell people this all the time, that when they ask me, like one of the, you know, what is your biggest takeaway from going to work at launch and going to work for Jason?

I always say that the rigor with which we do our jobs is incredible and makes me proud to be here. Like we are a rigorous firm, right? I'll say like, I've seen people bring us a deal where every one of his friends is on it. And it's like, it's the hot new social game in town. He'll be like, that valuation makes no sense. No, we're not doing it. Like discipline. We have discipline as a firm.

It's a good thing to have discipline. It's a great thing. Yeah. Have some thoughtfulness about it. Now, that doesn't mean you can't get frisky once in a while. I am a fan of, you know, if you want to take some wild swings at bat, you know, and you earn it because you got a great track record. Yeah, sure.

You can, you can, like, what do they call it in a basketball game when Steph Curry, like, takes a shot like five feet behind the line after we hit three in a row, takes a logo shot. A logo shot? He checked. Is that what they call it? A heat check. You know, like, I just hit three in a row. Okay.

screw it. I'm going to take one from the logo. Let's just say exactly how hot I am. You're like, yeah, go for it. All right. Great ideas. Often fail in the planning phase and a vast majority of successful plans utilize the existing best practices. This is especially true when you're talking about software and apps.

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and they're going to give you a free detailed build plan. So here's what you do. CrowdBotics.com slash twist. That's crowdbotics, V-O-T-I-C-S dot com slash twist to get your free scoping session. But we have rigor. Yeah. And then we're now saying to companies, you need to have the same rigor and our expectations are going up also.

So then now the conversations about valuation are totally different. The conversations about what's happening to companies is totally different. The advice that we're giving is totally different. And it's just a, it's like we took an already rigorous process and are adding another layer to it. And that is a whole next level learning that, you know, if I had come in 2020 or 2019 and just been like rolling through the bubble, I would have learned a lot. But now I'm going to learn even more, even faster. You would have learned the wrong lessons, which would have learned. It would have been like, we would have a conversation like, oh, my God, this deal's closing so fast, Jake Hal.

Oh, it closed. We missed it. We missed it again. And they just had another up round and we missed it. And we would have had a 10x in six months. And it's like, and now the company's out of business. Okay. So.

But actually that we missed. We missed FTX. We missed Luna. Oh, no. You know, we missed. We worked last round. Whatever. You know, we missed our nose.

You can sometimes missing is like a gift. Like sometimes missing is winning. it's a really patience is on my list as a learning. I'm not saying I have learned it, but a part of learning patience has been having to overcome my journalistic instinct to get there first. Like I have, I hate getting beat.

As a journalist, I always hate getting beat. Or I hate it when I wrote a story and then it shows up in the New York Times like, oh my God, look at this story. And I'm like, I wrote those stories six months ago. Yeah, exactly.

There's this journalistic competition. in me that I have had to overcome in terms of learning patients about startups. 100%, like 100% I will come to being like, I'm a cowgirl ride. You want to win. It's all good. Those are good qualities to have. And patients also very good. A lot of times you've had companies come to you with crazy, you know, expectations.

And they didn't hit them. They came back and they had different expectations. Or they had more discipline. Or they went out of business, et cetera, et cetera. And then even when you do make an investment, you have all these expectations. And then it still fails because seven out of ten fell. So now you'll even be like, wow, even when I did make a bet, I lost. It's like, ooh, you got to get used to losing a lot of hands with the hope.

And this is where on a, you really have to reprogram your brain. I think the human brain is not constructed to appreciate the power law. And it is, that's why the power law, and they write. books about it or the Pareto principle exists. And when people learn about the Pareto Principle, they talk about it. Oh my God, 20% of people pay 80% of the tag. It's oh, my God. 80% of people get 20% of it. You know, it's like, everybody freaks out about the Pareto Principle and looks for it everywhere in the world as a mental model. And the reason it's a mental model is because your brain doesn't naturally understand it. The brain doesn't naturally understand that

all this losing can be made up for by but one win. But one win. And that in your career, if you keep up at this pace or a slightly faster one, 100 companies you invest in 95% of your returns will be in two of them. And you don't know which two. I'm going to talk about humbling. You know, be humble. Yeah.

Be humble. Very important. Did you have? I'm also excited in year two to, I have taken every meeting this year. Business model be damned. Why not? I will continue to probably take more meetings than I should, but I also am starting to realize like which business models we prioritize, which business models work, which ones are likely to be

investable. And so I hope, because generally I was surprised by the ratio of meetings to investments, right? Like it's a small number overall of the meetings that we take as a firm that we end up investing in. Yeah. And then I think and, hope that in year two, that ratio for me will, it'll still be a small number compared to the meetings, but that all, the meeting use will be more efficient. You'll have more inbound and you'll be able to say, oh, we don't invest in this category. Yeah, we don't invest in this region. We don't invest in this business model. We have an investment in this one. So over time, you know, when somebody emails me and they want to do, you know, a hardware device, they want to make the best,

you know, security camera ever, I'm like, that's pretty. high bar because we invest in one that didn't work out. And we see ones for $30 on, you know, Amazon. We're three for a hundred. So we kind of know what to expect here. And then all of a sudden, Deep Sentinel comes along and they say, yeah, it's not the camera. It's we have live operators watching your camera. When somebody goes there with facial recognition, we know if it's you, your wife, your kids, or a new person. And if that new person is your gardener, you can then tag them in the system. And we know it's the gardener. But if it's somebody else, we'll have a conversation with them over a two-way speaker.

And then we'll let them know we're calling the cops if they're breaking the window and they need to get out of there. So live cameras from Deep Sentinel was like, oh, it's not about the hardware. The hardware is like just an enabling part of this. It's really about the service of having live security guards watching your cameras 24 hours a day. Right. Instances and, you know, calling the cops when they need to.

So you start to really, again, build mental models and support. And you will narrow your selection. meetings will have a higher hit rate in terms of investability over time. Reputation is part of that too. Now, we are very open to meeting with a lot of people because I never, one of the tenants of

our firm, other firms have different approaches, obviously. I'm like to invest only in second time founders, so I'm only one to invest in developers. You get the idea. It's never underestimate anybody. I think you underestimate people at your peril. Everybody's awkward when they start. I like to not underestimate anybody. If I had

choice, take the 20, 30 minute meeting for our firm or not, take the meeting. Yeah. When that company fails, if it's super obvious, oh my God, this founder has picked the social coordination app. Remember that one? Oh, you know what's really hard? Yeah.

I need to go out with your friends. And it's like, yeah, yeah, people are hard to coordinate. And it's like, I have an app that'll solve that. It's like the app is not a software problem. It's not a human problem. The human problem is literally every year, you will have a dozen people say, this is the app where everybody plans their vacation together, everybody plans their weekend out, and it never works.

Right. And we get why it doesn't work. That app is called iMessage. It's iMessage. And it, you know, I message is as frustrating. And they always have eye message in the deck. I message,

you see, have you ever had this experience? You're like, yes. And it's like, wouldn't you like to have this? And you're like, yes, I would like it to be easier. So great problem.

Yeah. And then it's like the solution is, get all your friends to download this app. And then stack rank there, you know, what they want to do this weekend and da-da-da-da. And then split the bill. And I'm like,

okay, so I just made everybody fill out a form and do work to go out this weekend. I'm not going to do that. Sorry, no. So anyway, over time, you'll get better at that. And that person might realize it and then come up with something that's a breakthrough. Right, exactly. Like, the 20-minute meeting has mattered because the other primary learning for me,

like early, early, early on, President Mike Savino was like, oh, if you want to be a great VC, have a hundred founder meeting. Yeah, that'll get you there. It's so true. I actually haven't, I'm working on a LinkedIn post that's sort of like, you know, job one, year one job review or whatever. And one of the things I want to do is at count up how many meetings slash pitches overall, including our accelerator and founder, founder you pitches. There were because, oh, my God, that, like, simple thing is so true because the more you have, the more you start to like, the more you start to have the moment in the meeting where you're like, oh, I know where this is going. Yep.

And I don't. And I never want to like, I don't want to get cynical and assume it's going to go there. But like now patterns are emerging. Sure. Or I could be like, ooh, that's a really small market. Or, ooh, that's project based revenue. Or, you know, like I hear myself saying these things and thinking them now and I'm like, I'm learning. If Bob Eiger has been in the entertainment industry for a long time and somebody says,

I have a great idea for a TV show or a film and it's a love story. And it's like, okay, love story. Yep. I produce 16 of. those on the last decade. Yeah. And it takes place in outer space. I'm like, okay, yeah, I got those.

And there's a twist. I was like, okay, here are all the classic twists. You know, they have the mental model. They know it. That doesn't mean they're not going to film, you know, what will be, you know, then Star Wars for a new generation, the Star Trek for a new generation, the Sopranos, the Goodfellas, I mean, the Godfather, the casino, like you can just stack all the different prime family dramas that.

have existed in cinnamon film. And yeah, that doesn't mean we don't want to make a new one. Right. I could make another one, but it's got to be good. But what's the twist, right? What's your service on top of the camera twist? Like, give me just a little extra. Yeah, exactly.

Absolutely. Yeah. All right. What were the top episodes? Were there episodes that you look back on and you say, hey, just whip through these real quick that people can then go look at them themselves. But anything you think that were interesting. Well, I will add quickly that this week in climate startups was a whole other vector, right?

There's our learning organization. and all of that. And then there was doing these 50-odd interviews all year long. Like John Doar, Albert Wenger, Jason Jacobs from my climate journey, some of the climate VCs who got me interested in the space when I started reporting on this, Seth Bannon from 50VC, Jayco from Lightsmith. So I also got to have all these incredible conversations with investors and founders. I learned among other things that mushrooms are the future. So just a phenomenal, like it's a, you know, it's a dual track job.

And both of those tracks, like, just fed my brain all year long. So top episodes, I have the producers pull this. Now, we do have to acknowledge, and you made this point that maybe the interviews added to the traffic here. Yeah. But these are just YouTube views. These are just YouTube views.

We went and picked like the top three. Yeah. So just in terms of top views, we don't have to go over the views because it's also on podcasts and clips and everything. Exactly. But it's hard to tell because you also get the algorithm. But it still means something. It still means something.

And I'm just looking back, I was like, these are actually all really great, these are great topics. One, why some VCs won't invest in first-time founders. It was episode 1528. Very important. Kind of got to that like founders are winging it question. Sure. Why VCs care about ownership percentage. And this is when we did our like bet sizing, I think, or showing kind of the, and that, again, like thinking in multiples. Right. Ownership percentage leads to this multiple. And then if you get this multiple and then you own this much. And my son and I now play a really fun. We play the math game.

Like, figure out the valuation on the fly in the car on the way home from school. That's what freaking nerds we are now. And then focus, focus, focus. We talked about the self-destructive traits of BCs and founders, how like your own confirmation bias plays in as a VC. Yep. And as a founder. And it was super interesting.

Somebody, you know, I had tweeted like, hey, what do you want us to talk about on the show? And somebody said self-destructive traits of VCs and founders. And that's a long list. Yeah. It's a long list. People are their own worst enemies at times. Yes.

Definitely, I always keep that in mind. Is are, you know, are, am I the villain? Am I the problem here? You got to make sure you're not your own blockers. So definitely watch that one. Yeah, that's a really good one. Well, great answers. Going to conferences instead of building products and delighting customers.

I mean, when you see the exposed brick in the lobby. Yeah. I like a good junket too. I get it. But if you're in year one, of your company. You don't have product market fit.

You haven't earned going to a bunch of speaking gigs unless you go to that speaking gig and you calculate I'm out of the office for 72 hours.

It costs $4,000 and I got 10 leads and we converted to and our average customer lifetime value is 4,000. So if I can just

keep one of those two, it was worth it. Okay, yeah. Then you have to compare that to. Well, if I did, you know, four phone calls a day with customers.

And I did 12 customer calls, would that have been a better use of time? Because then, you know, I got 10 leads going live, but I got 12 leads staying home. It would probably be even more, right? So whatever it is. You just, you have to be thoughtful. And sometimes people are reactive and they don't think that their time is precious. Your time is precious. There was just a founder university episode on time boxing, making decisions.

by Kelly, who is co-leading founding university with Presh at our firm and founder.orgia to read it to hear it and they'll put a blog post up about it as well. It's so important for you to be ruthless with your calendar. You came in pretty ruthless and you got even more ruthless. So that was always been like that.

I'm a murderer about my time. Successful as a human being on planet Earth. But my lord. Your time is your, this is my lesson to everyone. Your time is unobtainium. it is the most precious substance in the universe. No more of it will ever be created. Nope.

Counting down. Waste it. Don't waste it. Don't waste it wisely. All right, listen, it's been great. Congratulations on your first year. You have Don Julio tonight on a Friday night. Thanks for the shot, man.

And do, well, you know, thank you for joining us. Sincerely, the year on the podcast, it's been a lot of fun for me. It's really fun. It was great to do the podcast alone for all those years. having you here for the last year. It's made it great. Make it more fun, you know? And I'm trying to have more fun.

And, yeah. That's what that hell behind you's all about. All right. And we have one last. I try to do the executive program. This is what I do. I tell them, start my meetings. I do two hours in the afternoon, start my meetings at 420.

Hey, oh. Yeah, hey, oh. I do that joke every call. And so I'm like, it's 420. Never gets old. It's time to take a meeting. It never gets old. Jokes get funnier.

the more often you tell them. That's just true. That is the core tenet of a dad joke, of a dad joke. But the mountain closes at four. So if I get that last run in at the top of the mountain to get back to the house, to get the boots off, and then my hair's like crazy from the helmet. Coming in hot to everybody. I'm coming up, wah, hot toddy or some buttered rum, you know, hot chocolate.

I like that you could make it 430, but in service of the joke, you can't. I don't. I tell Heidi, 420. All right. Let's all enjoy this next interview. All right. Today's This Weekend Climate Startups episode actually has a fellow VC joining me, not a startup, but an investor.

Valerie Shent is a partner in C.O. at G2 Venture Partners, which is a venture and growth investing firm focused on emerging technologies that drive sustainable transformation in these really traditional industries. They're really trying to like, it's sort of the climate. tech version of, you know, find an industry that's still using fax machines and clipboards and modernize it. That's what they're doing, except in the sustainable way. And G2 Venture Partners is big. It is a firm that spun out of Kleiner Perkins in 2017 by its billion dollar green growth fund partners, David Mount, Brooke Porter, Ben Cortling and Daniel Oros. Previously, Valerie,

herself was an analyst at Kleiner Perkins Green Growth Fund. She helped the team found G2 and then went back after going off and getting an MBA at Stanford University, like you do. So Valerie is really good at this and we're going to have a great conversation coming up right now. Valerie Shen is a partner and COO at G2 Venture Partners, which is a venture and growth investing firm focused on emerging technologies, driving sustainable transformation across traditional industries, Valerie. Welcome to this weekend climate startups. Thanks for having me. Excited to have this conversation with you. How do you feel about that description of what you guys are doing and how would you make that more specific for us?

What is G2VP really focused on? I think the description is pretty good. I hope you probably got it from something that we wrote at some point. What we're really focused on is the idea that there are a lot of technologies that have been created for all sorts of use cases, from consumer purposes to people just tinkering around on their own to commercial scale processes that can be applied to more old-school industrial sectors that traditionally have been analog, and ways that make these sectors a lot more efficient, which is good for the bottom line, makes those companies more profitable, but is also great for the environment because we're working in sectors that tend to be very

resource-intensive and heavy asset. Can you give me some examples of investments you've made that have transformed some of those old industries? Yeah. I think the best example would probably be in the transportation sector. So in transportation, you have a world where we used to have everyone driving their own vehicle, which had an internal combustion engine and was only used 4% of the time. And we're moving towards a future where vehicles should be connected, electric, shared, and autonomous.

And all of these different trends work together and help each other out. One of our examples in this space was in Protera, an electric bus company that we invested in way back in the day. And the idea there was we believe that transit buses and commercial vehicles were the segments of transportation that would electrify first. And the idea is they have big fundamental economic advantages over diesel engines because these are heavy vehicles that would have taken a lot of gas to be powered and are driven a much higher percentage of the time than individual people's vehicles. And therefore, they would probably be the ones that would go electric first. So we invested behind this thesis more than 10 years ago, helped the company, through a number of different processes, help bring in Daimler as a strategic partner, which ended up becoming a great partnership for the company.

And Protera has since transitioned from just making electric buses, towards also making electric power trains, and just expanding their business and helping with electrification for the sector overall. Perfect. And then we should go back to the beginning here and say that G2VP is a firm that spun out of Kleiner Perkins in 2017, as part of its by, let's see, and raised, it's a billion dollar fund, right? And growth partners, David Mount Brook Porter, Ben Cortling, and Daniel Oroz originally funded out in 2017.

So it's continuing that kind of legacy that, of course, John Doer created. That's correct. So the history of our firm is our partners came together at that green growth fund that you mentioned at Kleiner Perkins. Billion dollar funds started in 2008. Initially, we were investing just in clean energy. But then very quickly realized that solving the climate challenge and also just great investment opportunities are not just in energy, but rather in a broad range of sectors, including

transportation like we just discussed, but also food and agriculture, industrials, logistics, manufacturing, and expanding to those sectors. In 2017, we had finished investing the Green Growth Fund, and that was when we decided to spin out and create G2 Venture Partners as a separate firm. So raised our first fund in 2017. that was a $350 million fund. Last year in 2021, we finished investing that first fund across 15 companies and then raised our second fund, which is $500 million.

And that's what we're investing out of today. Gotcha. And you were at the Green Growth Fund before, right? You were an analyst before becoming a partner at G2? That's correct. I worked with the team at the Green Growth Fund in the last year that we were there before spinning out. So doing a lot of the initial setup work for creating G2 as a new firm.

And then what's your category within this larger thesis? Do you guys do you break it out by like beats as we say in my last job in the journalism world? We're very collaborative in how we work. So I think this is actually something that's quite unique about our team where we kind of have swim lanes in terms of what sectors people are more experts in. But almost every sector, we have multiple people at the firm who would be considered experts. So there's never one person who. who's the person who gets to make all of the decisions in a space. Every deal that we have, there's at least one lead partner and then also a catalyst partner, who's the assigned devil's advocate to bring additional thoughts and insights into that investment decision, but then also for the life of the investment to always stay close and be a sounding board for the lead deal partner. And that's all to say.

So as a result of that, there's not, you know, the transportation person or the energy person or anything like that. So I'm the chief operating officer of the firm, and a lot of what I do is helping the firm run as an entity. So things from recruiting and managing our HR processes to fundraising, LP relations, and then also a lot of our work around impact, ESG, what it really means to be working in climate and how we should be thinking about impact measurement and reporting. And how do you think about that? What kind of measurement and reporting do you do? Because these are, like you said, it's heavy industry. I would imagine it is the kind of thing that you can measure in tons and gigatons, I hope.

Exactly. So we think about it as both the quantitative pieces and the qualitative piece. On the quantitative piece, by far the most important metric for our limited partners is the carbon emissions piece. And because our companies are really working in these heavy asset industries often, we're thinking about it as what is the carbon impact of the product or service that the company is producing? We don't worry so much about their internal operations. So what people think of as scope one or two emissions in terms of is the company using the right lighting to make sure that they are saving emissions on their own office space? Are they helping people carpool to work?

Things like that we think are important. But by far the more important piece for our company is what are they producing and how are the companies that are using their products or services saving carbon emissions? We also care a lot, though, about just the impact story behind it or what we think of as our impact thesis for how is this going to facilitate a version of the future that is cleaner and greener, even if that individual company, it's hard to attribute a carbon savings to it. So an example here would be LIDAR for autonomous vehicles. We believe that a future of transportation with autonomy is going to be much more sustainable than one without, in part because autonomy facilitated. shared vehicles, it facilitates electric vehicles, it just facilitates fewer accidents and more efficient driving. It's hard to say today that each unit of LIDAR that you sell for an autonomous

vehicle has X number of tons of carbon emissions. But because it's part of that whole picture, we believe it has strong impact. And part of our impact reporting is to tell those stories so that everyone understands. And then do you consider that more of a narrative, it's a narrative challenge, it sounds like you're really trying to put the storytelling behind it to understand. Because I think we have moved in recent years into this realization that if, you know, the sort of first round of climate tech investing was really focused on solar, that there are a lot of different ways to kind of slice the bologna. A lot of companies that bologna feels like an unfortunate climate analogy there somehow, but I'll come back to that. But a lot of companies that wouldn't like a LIDAR company

or even a meat alternative company that wouldn't have been obviously a climate company now clearly fit into that lens, but it could take a little explaining. Exactly. We think that that piece is actually quite important, just expanding the lens of what might count as climate tech. When we started working together as a team in 2008, it was just energy. And then we added all of these different sectors over time. We recently started looking at the carbon markets, you know, potentially looking at

carbon accounting or carbon offset companies. We've also been looking at the future of work because we think that a lot of how we work really impacts the emissions of our work and the things that we're doing. We've also started looking at retail and e-commerce. Just clothing is a 10% emitter in terms of carbon in the world. So that's another sector where if you can clean it up and reuse clothes or somehow encourage people to not buy as much new clothing, that can be pretty impactful. And these are all sectors that we probably would not have been able to tell you in 2010 would be in scope for us. And I think that in 2030, there are going to be sectors that we would consider climate tech that we don't know of yet

today. So continuing to push the boundaries and making sure that the things that we're investing in have a true impact story, but being willing to expand beyond what might be initially what you think of as climate tech. I mean, it's kind of exciting in some ways, especially I think since you get to invest in your thesis encompasses the physical world in such a distinct way, that it's almost like you can look around a room that you're in, because of it's, really every company at some point now is a climate company or should be, right? Exactly. I think there's a piece that is really important in what you just said, which is we don't

think that maybe 10, 20, 30 years from now, there's going to be a separate group of climate tech investors versus non-climate investors. It's almost like everything is related to the internet these days, whereas back when it first started, there was a group of separate internet investors. I think that there are many sectors within climate tech where having the expertise and having the networks and having worked in the space for a long time is hugely important. But I think that increasingly, we're going to see a blurring of the lines between climate tech investing and non-climate tech investing.

On the piece you said about physical stuff, one thing that we like to joke in trying to describe what we invest in is if it somehow touches on something that you can drop on your foot and hurt yourself, then it's probably in scope. It's physical stuff. Companies that we invest in might be software, they might be hardware, they might be software-enabled hardware, very just different business models, but ultimately they touch on something in the real world. Or in the case of pro terra bus that could drive over your foot, which hopefully will never happen,

yeah. Hopefully never. Talk to me about the challenges and opportunities in that kind of physical world investing because there are, I think, plenty of BCs now and plenty of climate tech investors, and I'm one of them who are saying, like, that is really hard. Talk to me about how you sort of determine which of these categories are investable, even when they're in really hard spaces that might burn a lot of money up front. The piece that you just mentioned, burning a lot of money up front, is one of the core aspects for us.

We typically invest. You look for that. You're like, yes, please. Well, I don't know that we're looking for that specifically. So where our fun plays is typically starting around Series B to Series D. We're investing in companies that have a product or service that already works. So they've already built the pilot project. They're definitely done with R&D.

They've found some amount of product market fit. They have a handful of beginning customers or sometimes many customers already who have tried the product and we can talk to these customers and confirm why they love it. So in that way, we've already avoided the uncertain R&D that might cost a ton of money and really have unpredictable timelines and total capital needs. Got it. They will have burned through my money by the time they get to you. Your money or maybe research money from the government.

We think that the new inflation reduction act is very powerful in our sectors. It actually doesn't substantially change the course of action for most of our existing companies or the companies that we are investing in today because the companies that we're investing in are already a little later stage. But what it means is there will be many more companies in a year or maybe two years, three years, that will be in our investable space because they'll be able to have taken this IRA money and done that initial R&D to get to a point where it makes sense to commercialize. I think, yeah, I mean, I think you raise a really, really big point,

which is that we have found ourselves in recent years with all of this money rushing into climate tech investing and this sense of urgency at a place where it may not be appropriate of her early stage venture to be funding pre-commercialization technology and that there is now this kind of really important layer of R&D, government-funded R&D, that can de-risk technologies before it gets to the public sector, whether early stage or later. Exactly. I think the government piece is very important. I think there are also funds like Breakthrough Energy Ventures where they have a longer time horizon.

They may or may not necessarily need to make sure that every investor. is going to return capital and they can help with a lot of that early stage funding. We've invested in companies where breakthrough did earlier rounds and got them to a point where we're now comfortable. So we think there's room in the space for all sorts of different types of investors. How do you think about as you see this space expanding, like G2V, obviously Kleiner was at this for a very long time. G2VP has been around for a really long time, relatively speaking, in the climate investing space. How do you think about what you're seeing now and this kind of moment that we're in that's almost like a bubble within the larger investing

world? There's definitely a lot of interest right now in climate tech. So if you compare what's happening today to what happened even not that long ago when we were first raising our fund in 2016. Back then, green was almost a dirty word. You couldn't say it because if you said that you were a green fund, there were limited partners who were somehow scared away and assumed that it meant it was definitely concessionary returns. Right. So way less LP dollars that were interested, way fewer relevant companies or people that wanted to work in the space, but also less competition. If we saw a company that we were interested in, chances are we were the only VCs that were talking to them or had any expertise in the space. If you fast forward to today, we are constantly

getting inbound from limited partners who are excited to deploy money in the climate tech space. and for whom having impact and being able to make money is both something that they realize is compatible with each other and something that's really important for them, right? Especially if you're looking at family offices or people where the younger generations are taking over and really care. So large influx of money, you're seeing that with all of the new venture funds that are being created to focus in this space. There's also an influx of companies that are playing in this space.

There's a lot more opportunities for us to look at. we now screen more than 2,000 companies a year compared to just several hundred probably when we first started. And then also a lot more talent looking to go into this space. We're also getting calls all the time from classmates or younger students that we mentor or people that we've worked with for years that are saying, I really want to work on climate. So they're starting companies or they are the people that entrepreneurs can hire. And so there's a lot more happening in the ecosystem, a lot more opportunity. I think there is also a fact, which is that now we are seeing some amount of competition. When we see a deal, we're no longer the only ones that want to do it. And what that

means for us is we're really taking our industrial network and the expertise that we've gained over the last couple of decades and using that to convince entrepreneurs why it's important to work with us. And there are a lot of things about climate tech that still make it different than what you would think of as traditional purely digital venture investing. And I think one of the key pieces is the extent to which you really have to work with the old school industrial players. So often when you think about starting a company like Facebook, this is a totally new space where you're just coming in and creating something new. Whereas if you think about innovation in energy or transportation or logistics and manufacturing, generally you're not doing something

from nothing and just going off on your own. You're working with the old school incumbents, either as partners or they're your customers or your collaborator. So having expertise and having experience working with them and having that network is really powerful. And I think that's a key piece of what we believe makes successful climate tech investing. Can you break that down a little bit more unpack? Give me some examples of what you mean when you talk about working with these old school industries. Like if you were to fund an all-electric high-speed race, they'd have to work with Amtrak? Like, is this a network you have that you can connect founders to?

So maybe let's talk about an example, Luminar. So one of our companies, they make LiDAR for autonomous vehicles. I know them. I've been to that funny castle. Oh, fun. So Luminar, for example, when we first started thinking about this, this was maybe about five years ago, we had a feeling that LiDAR was going to be an important piece

of the autonomous vehicle question or solutions, but it was unclear which company was going to win because there were several dozen players that were interested in trying to create LIDAR solutions. So what we did was we talked to a few dozen players in the industry, and this is the auto OEMs who would ultimately be the ones that are purchasing LIDAR. This would be experts in the space who have worked at various different LIDAR or autonomy companies. this might be suppliers, other people throughout the value chain. And then we asked them, are you going to buy LiDAR? Is that a piece of your autonomy solution?

Everyone said yes. And then what exactly do you need for your LiDAR solution? And they gave us metrics around cost, around quality, around weight, around the type of technology that they were going to use. And through that, we were able to map out all of the companies that existed in the space, Luminar was the only one that was meeting the metrics that we were. had specifically heard from the auto ODMs and other more old school industrial players were what was needed to win.

I get it. And then post investment, we were able to take these strategic relationships and help make introductions that would lead to partnerships for Luminar and for some of our other portfolio companies. And then that's the value add after investment. Combined with the expertise and resources that we have for diligence, we think is a pretty important piece to climate tech investing and why it requires all. of that industrial network.

Right. Okay. That makes perfect sense. Yes, of course. Like a diligence and a support network. And then making and maintaining those relationships in industries that could potentially see you or your companies as like a danger or competition. Yeah.

I think a very good example of that is in the utility space where there's a lot of different players that are trying to disrupt utilities in various ways. But the ones that are going to be the most successful are probably ones. that are not trying to come in and say, we're going to take over the old utilities and we're going to try to make you obsolete. I actually don't even know how you would possibly be able to do that, but rather ones who have figured out a way to partner with the utilities and having experience, having worked with utilities over the decades, selling them various different solutions, that's pretty helpful for the portfolio companies as they're going off and doing this on their own.

How do you incorporate that strategy, if at all, into your hiring and how are you making those contacts when you need new ones? Because there's also the part where sort of like new disruptive climate technologies are being invented. Like you wouldn't, again, have thought the meat industry was at risk from a climate tech company. So a few things that we do. One is we have a number of these industrial strategics as our limited partners. So, for example, Daimler, Shell, Mitsui, ABB, they are investors in our fund, and then we have active dialogue with them. So we're learning from them all the time.

We're introducing them to companies that could be relevant and interesting. They're introducing us to people in their network and their various peers, and that network sort of grows over time. I think another big piece is we're quite active board members and engaged with our portfolio companies. So if we have a company that's selling to dozens and dozens of utilities, through that process, we're also going to develop relationships with perhaps new utilities that we didn't previously know. And of course, we're going to introduce the company to utilities in our network. So that then expands our network so that when the next company comes along,

that might be selling a different product to utilities. We now have a broader set of connections that we can help them with. And then we're also going to get some new connections through that process. Yeah, that's a really, really good secret sauce in some ways that it would be easy for you to share because it's going to be really, really hard for other companies and new investors to do that work, that legwork and make all of those relationships. Yeah, it is hard to replicate. We love that there's more involvement and engagement in this space, but we also think

there's something special about having been in the space for two decades, that even if you are an awesome investor, if you're coming new and to. working on climate, it's just never going to be exactly the same. It's also just really valuable because I think nobody wants to see it. Like one, I think we all want to start seeing exits that prove these theseses and continue to sort of like support the amount of money that's coming into climate tech. And also there's a possible, there's a possibility that some of that new money coming into climate tech investing could make some bad decisions. And we don't want a like a bad PR. cascade to result from that. That's really important, right? Because in the first wave of clean tech,

what a lot of people call Clean Tech 1.0, there were a number of great companies that were created and invested in. So Tesla is one example. We also have one in our portfolio N-phase, which makes microinverters for rooftop solar systems turning DC electricity into AC, most valuable solar company in the world now, been through a lot of ups and downs. So there were definitely quite a few winners in that space. But then there was also temporarily at least a narrative that climate or a clean energy is where you lose a lot of money. And I think that caused a lot of harm for a while where a lot of people left the space and companies were struggling to get funding. So the worst thing probably that could happen with this wave of people who don't really have climate tech experience coming into

climate tech is if they invest in companies that then somehow taint the general vibe around the space. I don't think that's going to happen because I think that there's enough awesome climate tech companies that are going to survive and are going to thrive. But that was, and that's definitely still a risk. Yeah, absolutely, especially now that there's a lot more attention on it, potentially. Yeah. Tell me what you think is, I've been sort of trying to ask all of the investors that I have on a two-part question. One, what do you think that, what do you think is particularly interesting, exciting and investable in this category. And then two, what do you think we're maybe wasting some time on? One thing that we really want to make an investment in is the carbon accounting space,

or more broadly, ESG tracking measurement. There's just so much talk right now about measuring what matters. And we all believe or agree that carbon and impact and ESG metrics really matter. And we've looked at a number of different players in the space. And they all have various strengths and weaknesses. There doesn't yet seem to be a consensus on what exactly is the right tool going to look like. What exactly does everyone need? What are the standards going to be? But I believe that within the next decade or two, there's going to be some amount of standardization, almost like we have standardization around financial metrics. And the companies that can be built around helping that happen and then helping all the other people sort of fulfill those requirements, that's going to be a pretty powerful system. This is my obsession. Welcome to my actual daily obsession. And to your point earlier about trying to figure out what are going to be the metrics for

success. Yeah, that's a tricky one. Well, I look forward to hearing what you decide. I know. Exactly. Yeah. Let's just talk after. We'll talk offline about this.

Sounds great. Because yes, I totally agree. And then what do you think? There's always a lot of fish swimming in the same direction in VC generally as an industry. Is there anything that you think you're going to let everybody else handle? One thing that probably falls in that category is hydrogen. We have looked at a lot of different hydrogen companies. And I don't want to preclude us from ever making an investment in this space.

but we have not yet found anything where the unit economics makes sense, especially when you think about transportation of just people and goods across land. So like a hydrogen powered vehicle, it's hard for us to see how that's going to scale and be profitable. And there seem to be a lot of people that are interested in the space. We get a lot of pitches related to hydrogen, but we're so far a little bit skeptical. If I could have picked two answers to those two questions, those would have been the exact same ones, Valerie. Wow. Well, I'm glad for mine.

I'm like, okay, I feel validated. Maybe it means, though, that our answers are two consensus to be relevant or unique. But let's see. I don't know. I still see a lot of money. We were just talking about how I think it's like only 13% of all of these climate dollars have gone into measurement and metrics thus far. as this kind of like new, you know, 2.0 boom has been happening. And I'm like, really? That feels like a lot of blue sky for me and for you. There's, there's a lot of blue sky.

There are a lot of companies being created in the space. So I think that the benefit of this is there are a lot of people trying a lot of different things. And there's no shortage of options. What there's a shortage of right now is consistency and standardization. So I hope that that's going to happen soon because right now there's so much time wasted, right? Like we have limited partners who all give us different forms to fill out around impact because these are their honest attempts at coming up with what is the best data to measure. And then in order to try to gather that information, we send requests to our portfolio companies who then tell us that they're getting five different requests from five different VCs who are all asking for different information.

And then you just realize, you know, of course people are annoyed about measuring impact and carbon because they have to do it so many times. Imagine if they had to come up with different financial statements for every investor that would never scale. So I think there's a lot of work to be done, but fortunately, many people trying. Yep, love it. Well, if I find anybody good, I will definitely send them your way for following. Please do. El-Rishin is a partner and C-O at G2 Venture Partners. It is an absolute pleasure to talk to you. Thanks so much for the time today. Great to talk to you as well. Thanks for making time for this. All right. That's it, everybody. The final Sunday show of 2022 is in the book.

books, it lasted about this long this year. It went that fast. That fast. But more episodes to come. We're going to do like a year roundup, some predictions. We're not going to leave you podcast lists over the break. You'll just check your feeds. Some great stuff coming. That's right. Have a great rest of the weekend. Bye-bye. Bye-bye.