Climb By VSC: Episode 4

Jay Kapoor: As an investor, Sandeep has invested in hundreds of businesses ranging from good X, Substack. Notable labs, and more recently has been backing leading climate companies including mosaic, Arcadia, and many more. We love talking about scaling challenges for climate startups on the show, so I'm excited to dig into some beats, experiences, and talk about how it informs the kind of founders that he likes to back as an investor. So let's kick things off. Tell us a little bit about yourself and your background as an entrepreneur and investor and specifically how it led you into climate tech investing.

Sundeep Ahuja: For sure. So again, appreciate being here and I love the show exists. I'm excited to see folks learn from it. The climate story began, sort of, in 2010, a little bit earlier, if you know, the nonprofit kiva.org, I helped launch Kiva back in the day and that was kind of, frankly, a turning point in my life where I was like, this is where I want to be at the intersection of impact and technology. After helping found more companies, I realized I needed to help educate people around climate. So that's kind of the story from starting companies to becoming an investor really, in 2010. I started investing in friends' companies in 2015. My first climate investment was Mosaic which I'd been advising for a little while. And then in 2018 I realized, wow, there's this sort of second coming of climate companies I can really focus on, on investing in climate and that's when climate capital was born.

JK: Yeah, so you invest out of two fund, dura ventures and climate capital. I know we're going to focus most of our conversation on climate capital, but maybe give us an overview of both the stage the cheque size and the kinds of companies that you'd like to look at.

SA: Totally. So as I'm going to do earlier, the first couple checks I wrote were on defense companies. The first check was Zero. The second check was Two Good Eggs. There's a good reason which ended up selling Amazon's like, I'm good at this right one out of two. I didn't actually start a fund until I think 2018 and it was a micro fund. I do have two rolling funds on AngelList climbing capitalist, the bigger one, the one that gets most of my attention, but I've developed a team on AngelList, is called DVC. It’s about 10 partners globally. They are out doing a lot of non-climate investments. So the Duro ventures rolling fund is still going I'm just not focused on it.

JK: Yeah, no, I mean, it's certainly amazing when you look about just the last decade of innovation that has happened on the back end of building a fund. You mentioned rolling funds, syndicates, and you know, even with this new crop of emerging managers, I guess, talking about how things have changed. What is different about this wave of, we'll call sort of climate tech investing, as opposed to maybe, you know, a decade ago when Khosla and folks were doing green tech and sort of that wave of tech investing. What's different today? What do you feel has changed?

SA: Yeah. And I wasn't around back then. But from my understanding, it was a lot of technology investing into hardware that wasn't really to scale. I mean, a lot of it just what you know, the economics didn't end up working out. What's different this time is kind of touching everything. And so it's a lot of business model innovation. It's a lot of resources, reallocation, it's a lot of marketplaces. And so climate tech, while there's definitely an incredible amount of pure tech investing and now with changes in how companies are built from AWS to how much more talent there is available to just sort of cost to start a company coming down, combined with just external acceleration of technology. There's still an incredible amount of work being done in sort of hard tech. And now there's innovation across all sectors, which is partially why climate capital is a generalist fund.

JK: The stage where you invest, you know, given that you have bad companies in general tech will say broadly and then now sort of this world of climate tech help compare and contrast that a little bit. Are there specific idiosyncrasies with climate founders or climate companies that you see or do you feel like it's sort of largely the same rubric that you're investing on?

SA: Before climate, I would still try to find companies where the founder was so mission-driven that he or she would inspire me to get involved and I just felt like we have a competitive advantage in attracting talent. I mean, in a world where capital is relatively commoditized sort of mission really trying to build attract talent, I think was an attractive thing when investing in non climate and climate it's amazing because every company is a mission driven company.

JK: Do you think that a mission-driven component benefits them in certain ways? I mean, I mainly think of attracting employees. There's an interesting article on protocol, I think just this morning that said that employees are starting to leave you know, the sort of big Fang Meta, Amazon companies to seek opportunities in climate tech.

SA: Totally I think so. Attracting talent and capital is definitely one huge thing but keeping it is different right? Why am I here? If it's just about the money, then I should go somewhere else but the climate companies and mission-driven companies generally both the founder and team I think stick it out through tougher times because they're not necessarily there just for the money right? They're there for the mission, and then that gives them a go and every startup comes on tough times.

JK: How do you think about not being a climate scientist yourself? How do you think about evaluating and diligence in sort of that part of the technical risks?

SA: Yeah, so a couple of things. One that enables us to oftentimes follow leads who have done said diligence, and I've got great relationships, thankfully, with a lot of these investors. And so I'll be like, hey, you know, the fact that they're investing usually signal enough because I know them and I know what kind of diligence process they have. So the point is, we've been able to sort of build this team under the precede three umbrella of experts in various domains who kind of defer to them and if they get excited, I mean, if they're in, then we can trust.

JK: That's sort of a really important piece. of building a firm and you know, us as VSC Ventures is a new firm we think about that a lot, right? How do we augment the things that we know to then better serve our founders. And so I'd love the idea of one relying on co-investors who you know, are deep in the science, deep in the tech but then also having sort of that skill set augmented on your team. You've backed 150 plus companies since the inception of the Syndicate, and by the capital, he talked about one or two that particularly stick out to you and you know what convinced you that they were right for investment for you?

SA: I hate and love this question. I saw a preview and I'm like, my answer is always the same, which is mosaic because it's my first right it's easy to say that was my I could or I could talk about my most recent but I'm just gonna go with mosaic since it's my first.

JK: Yeah, of course. Is there one that you can talk about where, you know, here we stand whatever time later turned out to be wrong? Well, yeah. Talk to me about that process.

SA: I met these two founders. Loved them, just super smart. I wanted to get involved but missed the round. Then they were getting ready to sort of expand. We're gonna have this big kind of like coming out party and they want to kind of raise some capital out of it. So I was able to come in alongside random investors, including celebrities that you know, and love, and we were all excited because this is going to happen. And then things changed. The market changed their key customer decided to sort of pull out, suppliers decided that they actually didn't want to go this route. And the company went bust and you know, great founders, Great Investors momentum, and yeah, it happens. Right? And, you know, thankfully the founders that made back their second company, they're just getting started because again, I believe in them and they've learned some lessons. It was a market thing and it was shifting, it just happens, you know, doesn't mean that it was a bad idea and doesn't mean founders made any major mistakes.

JK: This idea around Net Zero targets and decarbonization has really come under scrutiny when people talk about carbon credits and how it's letting you know enterprises claim net zero but then really isn't actually incrementally moving us forward in terms of solving the decarbonisation problem. How do you evaluate that with your companies? Do you have a certain rubric on how they're making an impact beyond the top line?

SA: Yeah, so the short answer is not quantitative at this stage. If this is a company that's going to reduce carbon in the atmosphere, help us with adaptation, take carbon out of the atmosphere entirely, like the directly doing that. That is good enough for me, right for the stage I invest in. I am so happy that there are funds out there that come in after me that apply that level of rigor because it's important and it should be there.

JK: What do you think is behind this shift in LP appetite to invest in climate tech? What's driving all this new money coming in?

SA: Yeah, I think it's a couple of things. One, I think it's alpha, right like you know, if you think about sequoias of the world that are starting to move into climate they're just trying to make their LPs money. So that's one. Two. I think you have an incredible amount of LPs. Not your traditional LPs per se but family offices that are newly formed or hiding with individuals who realize that they can make money and make a difference, right I personally think it's so a brainer to invest in venture scale climate solutions, because you're getting your venture upside, and you're addressing climate change. Like why wouldn't you do that? Right?

JK: We talked a little bit earlier about founder market fit, and I want to maybe circle back on that because I feel like in this category, especially there are maybe a couple of different ways to think about it. What is founder Market Fit mean for maybe a founder who doesn't come from climate sciences you have wanting to build a business in climate tech?

SA: I’ve seen people from different industries apply their different skills sets to the solutions that surround climate tech, so I don’t think you have to come from a climate background to be a climate founder at all.

JK: Do you feel like at some point, you still need to have that skill set on your team. And the reason I say that is like you know, at a certain point financing Climate Solutions financing somebody to green their home or greener cars sort of moves in one direction, I guess, like these that enough, right? Are we as consumers able to solve this problem on our own or do we really need to actually get founders building at large scale for decarbonization for alternative, you know, energy and things like that or can we have these sort of incremental solutions as well?

SA: Yes, we as individuals need to make climate-conscious choices. That makes all the difference between doing it and not. There's another company in my portfolio that's helping folks decarbonize their 401k is right, it's like sure, a lot of people think like I really should do this, but I'm busy life and now as a company, this is gonna make it that much easier. And you're actually going to do it now. Right? So a lot of these companies are just helping regular consumers fulfill their natural desires and intentions but they just don't get around to doing right because they're making it easier.

JK: I appreciate you actually did get the question that I was asking, which is basically, you know, you invest across the gamut of these climate solutions. And it's always tough when we see these companies that it feels like are making sort of incremental changes, right. And yet, as I think venture investors, it can't all be moonshots at a certain level. I mean, depends on your fund's structure. There are these companies that are still making a difference. It just comes back to the question of like, is that difference measure? Are we actually moving the ball forward?

SA: Let’s look at the unicorns and success stories of non climate tech in the last 10 years, right like, you know, companies like Stripe, or companies like Robin Hood and companies like Airbnb. I think business model innovation, there's a lot of moats being built, marketplaces being built. Marketplaces for stuff like the way metals are moved around and plastics move around. And each of these is their own company that like most people are never going to hear about, but there are massive companies being built as climate change affects these industries and as the need for these new marketplaces emerges in all these niche industries, right?

JK: Given the breadth of the companies that you are investing in or the range the companies are investing in, how do you think about this idea of value add? I think we fundamentally believe founders are expecting more than just capital but when you have such a wide portfolio, how were you able to provide that value at scale?

SA: Yeah, that's a great question. It's definitely a two-way conversation. It's not the one-way pitch. It's a two-way pitch. Every founder call and emails, it's like, I have my blurb like, just like this, they have their blurb on what they do. Here's my blurb on what I do. And I send it all the time. Like, here's how I can help and here's how I do help and how I have helped. Being on top of all my portfolio companies, because most of the time, they're just doing what they're doing. Like they don't want an investor poking around. They're like, leave me alone. I know what I gotta do just help right? Or I need help, like, great. I'm here to help.

JK: So I guess on the the idea of helping, you know, we have climate founders that listen to our show, what is a common mistake or some common pitfalls that you see founders make when they are pitching a VC for funding.

SA: Pick the best lead investor. Very important. But don't forget to save room for all the other folks who are going to write smaller checks, but can be really helpful with what you need. And if there's any question about “Can they be helpful” get it up front, right, like, “hey, angel investor, I'd love you to come in with X and X. Can you make sure that you can help me with these interests?” Have that spreadsheet of interests you want or hiring needs and have them kind of pre-qualified to be in your cap table by giving you information like that, you absolutely should be doing that both for to make sure you bring on the right team and then to go to your lead and say look, they're really going to help I have proof carve out 100k or 250k so I can bring them on and we can build a bigger company.

JK: That is absolutely music to our ears. I think you know that some people like my philosophy is that these one stop shop or funds are going to start going out of vogue basically, and it's great like it's nice to go to a place where they have a very large platform and they do hiring and they do PR and they do you know, operational assistance. And what I tend to find is like they're really only best in class at like one, maybe two of those things. And so it's always nice to hear you echo that, you know, this talk about incentives right like if that investor that put in half a million that's pro rata, you know, sure they're going to help you because they you know, they want to see succeed, but they don't have to hustle to get on the next round. So folks aren't even that much more incentivized to help when they come in small checks. You mentioned at the top that you had worked on some climate focused entertainment about water levels in the Maldives talk a little bit about that. And then maybe you know, where you feel like there's a shortage of climate content and maybe what we can do to get more people to care?

SA: Totally. It's been fun to watch the content world approach climate because you have to avoid doom and gloom, right. No one wants to watch doom and gloom. And no one wants to some people do but doom and gloom. You know, I think it's one of those. It's not going to necessarily be a blockbuster and then and then you also want to avoid being trite, right like climate change is so talked about now that to do a movie about climate change, just about climate change. It feels like oh, it's an eye roll. It's like, Oh, it's another one. And so you got to walk this line. But when I think about content and climate, I don't think about running another movie or whatever.

JK: Yeah, I mean, I think the big challenge is maybe a psychological one, right? And you'd like given that we come from the world of storytelling and we think about this a lot like those numbers are sort of hard to fathom, right? When you think about a two degree Celsius increase in, you know, global temperature or you think about, you know, millions of hectares of land, like just big numbers that level are just hard for populations to comprehend.

SA: The TV pilot we did “The Maldives” was supposed to be a pilot for a series. We were gonna go for a whole book of episodes. We were gonna go for how different industries are being affected to you know how the ski resorts are being affected, like go around the world and show like these industries that are being affected by climate change, be it rising sea levels, be it biodiversity, loss in a way to your point humanizes the impact, right, but you meet these people see how their livelihoods are being changed and the hope they have right that's the sort of balance between you want to paint the picture of reality and also look there's hope if anybody here is watching, we still have an, I think, a 10 pilot pitch we can send you on what last times could be.

JK: Well we got to find some people to get this made because that's a great pickup for Disney plus or Netflix. So somebody out there is watching, ready to go. Awesome. So you know we were gonna close on this but I always love to end with this question, especially with folks that have had a career as varied and diverse as yours. What is a piece of advice that you would like to give to your younger self?

SA: Yeah, I mean, it's something along the lines of stay the course or don't worry, it's gonna be okay. I mean, you mentioned varied career. Yeah, I was a banker and then I was like, I don't wanna be banker. So I left making to go be a product manager. And as a product manager is great, but I'm young, I'm gonna do something fun. So I was gonna be an actor, like, Okay, I think it's fun. But, you know, I kind of want to go the way of companies, starting companies, and I got, you know, into climate, how do I get people to care about climate and read a book and so I've done all these things. And to my parents dismay, you know, had trajectories that I'd like, I'm done. With this. You know, I'd like to start at the bottom every single time. And there was a lot of doubt a lot of fear a lot of like, what am I doing, I'm like X years old, and I'm, you know, starting at zero and so thankfully, I'm at a place where I can look back and say, hey, you know, just like Steve Jobs said, looking back at all makes sense. And it does right like each of those experiences. I wish I'd done more, right. So the advice of my former self or your younger self, it's like, keep exploring, stay the course Don't worry, like it's all going to be fine. And now it's easy to say now, thankfully, things are you know, so far so good. And if that's the answer, no, that's advice, but that's what I tell my younger self.

JK: No, it really isn't. You know, the reason I love asking this question is because I think it mirrors so much of the entrepreneurs experiences, right, like a lot of these folks that pitch us over the years. I mean, they are so smart, they're so capable, and they could be making, I don't know, half a million dollars a year working at some big tech company, you know, running a division or something and yet they are choosing to do the really hard thing that starting at zero that going from zero to one and so sometimes it's just as simple as that which is like that faith in yourself that pushed you to go start this thing, keep that faith and I love that point about like pushing through the doubt is what allows you to be in the position that you are and be here to give that advice. So I appreciate the honesty. Thank you so much for joining us on Climb and we look forward to your continued success at Climb Capital.