Jason Jacobs, host of the excellent new podcast My Climate Journey, wondered aloud on Twitter this weekend what the Climate Tech version of an a16z or First Round would look like. Two caveats before I give my answer
- Existing climate investors are playing this role today because they have no other choice.
- There is certainly room for a $10B firm to put even more resources behind this.
What’s so special about a16z?
Startup investing today is so much more than just writing a check. Every firm pitches founders on the value they’ll add. (There are even twitter parodies calling into question how serious those offers to help are.) There’s a reason for this focus on value-add. There are three ways a VC can be successful (let’s ignore luck for a second):
- See more good companies (deal flow)
- Pick more good companies (selection)
- Help companies succeed (value-add)
** for more on this see the academic research like “How Do Venture Capitalists Make Decisions” by Gompers and others.
But Andreessen Horowitz made its mark by defining what a “value-add” investor is. The firm’s founders understood that many of the next greatest tech companies were going to be built by product and technology people - founders who understood technology and markets, but maybe weren’t expert storytellers, didn’t yet have media and PR experience, and didn’t have the network that Marc and Ben had. They understood that they could accelerate those new companies by providing bench strength - partners at a16z that could be called on to help recruit a great head of sales, or someone who could get the company featured on the front page of the New York Times. In short, in addition to providing sound advice from their board seat, a16z would put people to work every day solving their portfolio companies’ problems. Today, all firms understand that the bar has moved and they can’t just provide a check and some occasional advice.
What are the current Climate Tech funders doing?
Jason’s question wasn’t really “why isn’t there an a16z today” but rather, if what software companies need is better PR or better access to recruiting than they could get on their own, what could an analog in climate tech provide?
One answer is that each and every of the active climate funders are doing this every day. [The following list will not be comprehensive, so please let me know what I’ve missed!]
At Clean Energy Trust, we take an active role with the 31 companies we’ve invested in. We work with our companies to hire their next set of leaders, we work with them to find their next early market, we connect them to grant and funding programs, we spend tons of time helping them craft their pitches for the next funding round, connecting them with other investors, and finding pilot opportunities for them. Activate/Cyclotron Road has built excellent free content libraries (http://playbooks.cyclotronroad.org). Greentown Labs and the Los Angeles Cleantech Incubator regularly bring in experts to mentor their companies and connect them with early customers. Elemental Excelerator pairs great companies with test and demonstration opportunities. On the fund side, just to name a few, Breakthrough Energy Ventures, Energy Impact Partners, and Energize Ventures have dedicated staff to match portfolio companies with relevant customers.
So, what could we do with $10B?
Today a16z manages around $10B. If you assumed a standard 2% management fee, that would mean the firm has $200m per year to spend on people to support portfolio companies. If we had those resources (or even a fraction) applied to climate tech, here’s what my wishlist would be:
- Turbocharged industrial marketing support. So many companies in the space have a great technology that could be used in hundreds of different applications, but haven’t found the perfect fit. Unfortunately, this process takes a combination of experience and luck. By pairing companies with experienced industry experts, we could accelerate their time to first revenue and prove that the company is an attractive follow-on investment. To cover the broad range of industries within Climate Tech, you’d need to have a relatively deep bench.
- Top recruiting. Finding the next perfect team member to add sales, marketing, or manufacturing experience to the founding team is expensive. Unlike the market for experienced software talent in Silicon Valley, there isn’t a deep pool of these people and they’re spread all around the country. For the kinds of companies we’re talking about, hiring a recruiter could cost several months of runway. A fund that could bring this in house would put companies on the fast track.
- Policy, regulatory, and lobbying help. All startups need to “eat their policy vegetables” and this is especially true in climate tech. Imagine offering what Tusk Ventures does for its highly regulated startups like Uber. And while many entrepreneurs might feel uncomfortable with lobbying, the reality is your competitors (incumbents and other startups) are doing it. (As my colleague Paul says “If you’re not at the table, you’re on the menu.”) One example - a solar company discovered that one of their competitors was on the verge of changing state building codes to require all panels to be a certain size, a move that would have completely blocked the company from any new sales.
- Grant writers. Jason’s suggestion of a grant writer or two would be hugely helpful. Like with the industrial marketing experts, you need a broad pool of talent here. Instead of having these writers on staff, the fund could provide access to a network of expert grant writers with expertise across energy, materials, agriculture, water, etc.
- PR and advertising. This one feels like a cop-out, because of course this isn’t unique to climate tech. But, many of the companies we’re thinking about aren’t selling to consumers or giving away free software. And those that sell into the enterprise often aren’t general-purpose technologies that can be used across industries. Specialized PR and ad firms who can find out which trade publications and which conferences truly matter for each industry.
- IP strategy. This role (different from a company’s patent counsel who files the patents) would focus more broadly on the company’s long-term strategy for developing new IP and protecting what it invents. There’s often more that can be patented than founding teams realize and companies at the earliest stages likely don’t have anyone on their team dedicated to this important role.
- Manufacturing & Scale Up. Access to experts who understand design for manufacturing, who have worked with contract manufacturers in the US and abroad, and who have taken a hardware product from concept to full scale would help startups avoid the kinds of costly mistakes that have doomed many a company.
The cynic’s view on why there isn’t already a16z in Climate Tech
By disrupting the VC industry and staffing up in each of these areas, a16z was able to offer startups something they couldn’t get anywhere else. They showed companies an unfakeable signal that they were going to help them succeed. In turn, they knew, this would lead the best founders to look to them for investment.
In climate tech, I’m sorry to say, we’re not at the point where we have such cutthroat competition for deal flow. The amazing (but growing!) funding in this space can’t keep up with the number of great ideas, so VC firms don’t yet have to compete with added services.
Founders and funders: what else would you add to the list? What would you tell the people building a $10B climate fund?