Climb By VSC: Episode 42

Jay Kapoor: Hey, everyone. Welcome back to another episode of Climb by VSC. I am so thrilled to have Tommy Stadlen, who is the founding partner of Giant Ventures, a global venture capital firm backing purpose driven founders solving the world's biggest challenges. Sounds a lot like what we do here at VSC Ventures. Before starting this. Tommy was the co-founder of Swing, a consumer technology company that was chaired by Twitter founders, Swing later sold to Microsoft where Tommy held some product leadership roles, in addition to his role of Giant. He's also the chairman and co-founder of Tailwind Group, which has launched three public companies with a combined market cap of over a billion. So you know, our conversation is going to range from both early stage investing, growth stage investing, and also where we see some of the exit opportunities for the amazing climate companies that we're backing today. But I'll just start by saying Tommy, thank you so much for joining me on the climb.

Tommy Stadlen: Thanks so much for having me. Yeah, I'm a big fan of the show and everything you're doing with your firm, but it's such a pleasure to be with you today. So thanks for having me.

JK: Well, that's wonderful. We got a lot to cover today. But before we do that, just so our listeners know a little bit of your background and who they're hearing from today. Tell me about how your journey led you to co-founding giant ventures and where this passion for backing purpose driven technology founders really comes from?

TS: Absolutely. Well, I've been doing climate change for about 15 years now. It feels like a long time. At the beginning, it felt a little bit lonely sometimes when it was not the topic of interest that it has become today. So really, you know, the first half of my career was around climate and sustainability initially, actually in the policy world. So I started off working on policy for them, Senator Obama on his campaign to the President. And what's also briefly for David Miliband, who was the UK Environment Secretary and then the UK Foreign Secretary is actually the first to write into law legally binding emissions targets over in the UK, many, many years ago before others have done that. So what's a little bit in policy, then did a similar role in the commercial world working at McKinsey helping corporates figure out their climate strategies? And how do they start to invest behind climate change in a way that is compelling from a return point of view? So I've done quite a lot in climate policy and climate strategy. Looking at the corporate world, there was a book about it, called Connect how companies succeed by engaging radically with society. And I wrote that book with a mentor of mine, Lord Brown, John Brown, the former BP CEO, who had led BP famously beyond petroleum and tried to begin their journey into solar and other renewable asset classes and then John will become a very large renewable energy investor at Riverstone later general Atlantic. So we teamed up on a book trying to explore basically our company Good put purpose at the heart of their business model. Rather than seeing climate and other social issues as a kind of disconnected corporate social responsibility issue that is almost the Friday afternoon plan that you get to at the end of the week, once the core business has been dealt with. And it was an amazing experience writing that book and we interviewed 80 CEOs from all around the world and came out with a thesis which we felt was compelling, which was that there is a serious competitive advantage to be had by going deeply after issues like climate change and really trying to put your whole business model behind it. We thought it made sense, but ultimately, we went and told this story. The book did well in the best seller book. Ultimately, I felt particularly with CEOs, the eyes kind of glazed over. And intellectually they understood the argument. But they weren't quite ready. It still felt very, very early. And I was left feeling that it was not going to be companies who are very, very large that a corporate two are going to solve climate change. It's going to be startups whose name we don't even know yet whose sole purpose from day one is going to solve the climate challenge and other big social issues like healthcare and other so that was my sort of conclusion of that period of my career. I then wanted to do something completely different. I moved from London where I was born to California to start. As you mentioned, Swain , which was my startup, did that with a friend from London who was a bit of a Twitter stoner. We had an amazing ride doing that and ended up selling it to Microsoft. And once I've done that, and then became an investor, I really wanted to bring together those two strands in my career. So on the one hand, climate and sustainability and making the world a better place and the Other had technology, entrepreneurship, innovation. And that's where we're giants. And I teamed up with a very old friend of mine, Cameron McLean. And we wanted to build a firm which basically was helping back the best, the brightest entrepreneurs who are mission driven and whose sole purpose is to solve the big global challenges of the day and support them in a compelling way to go and build these great companies. That's what John does.

JK: Yeah, I love that. I love the the sort of mission statement there but then also bringing I think, a decade plus experience where you've seen sort of the clean tech 1.O and the the kind of after after bursts of that, and you know it one of the most interesting things of doing this show is I think I had a very different view of what cleantech 1.O was until I started speaking to some of the folks that had seen it and actually said, you know, there have been a lot of great after effects that are that are spurring the innovation we're seeing today. So the folks that call it a failure, or maybe sort of missing the forest for the trees. But I want to click on something you just said there Tommy which is that the incumbents are not going to be the ones that are driving this change forward. So help me maybe understand, you know, you've said that climate innovation is going to be the biggest investment opportunity, we have these incumbents who potentially would have real economic benefits for going after it. Where's the disconnect? Why are the startups going to be the ones that benefit from this?

TS: I think it's just extremely hard if you're running a very large corporation, to sort of turn the ship around from what you're currently doing. And so, you know, if you're a supermarket chain, you know, if you're a steel company, it's just very, very hard to fundamentally shift what your direction of travel is and, and go off to something else. And so I think inevitably, issues like climate and other ESG issues do tend to be disconnected from the core purpose and strategy of the business. And that leads to greenwashing. It leads to, as I said, sort of CSR being this disconnected issue run by public public affairs teams or CSR teams who don't really have anything to do with the Corporation for business. And I think it is just so much easier if you're starting from a blank sheet of paper, day one, you know, we are going to roll out heat pumps across Europe, or we're going to build a green steel plant in the US. And so I think it's just a clarity of purpose for the big You name is so much easier to do from a standing start. What I will say though, is that we are very big believers that the startups are backing and you're backing in Climate Technology, if they don't partner with the incumbents and help to change the incumbents, whether it's government or corporate, we're not going to get near. decarbonizing the economy was a big part of what we tried to do at giant is taking these early stage Climate Technology companies and help them sell into the big corporations so that they can help those corporations go on that journey. Or helping corporations who are really struggling to go anywhere near decarbonisation, through things like carbon marketplaces. So there are so many ways that we can help these big corporations do it. But I think startups have to be part of the solution because the corporations are simply not going to get there on their own.

JK: Yeah, I guess thinking about, you know, the amount of attention that has been on climate tech broadly the capital that has followed it. We're now talking in August 2023. And the most recent data suggests that Series B rounds are down to something 20-25% Series C rounds are down almost 70% in climate specifically to say nothing of the sort of broader technicals. system. And then yet you know everything that you're sharing is there are industrial tailwinds. There's regulatory tailwinds. So for founders that are listening, and they're thinking about fundraising, you know, maybe paint the picture a little bit of what's happening in the startup capital markets to kind of square the circle. This is a massive opportunity. And yet, there are capital constraints as you get sort of higher up the growth stage stack.

TS: Yeah, it's a really good question. I think if you step back, if we get anywhere close to decarbonizing the economy in the US and Europe by 2050, climate tech is going to be the single biggest economic event in human history. It's gonna be orders of magnitude better than the internet both in terms of the winners that it creates, but also in terms of the losers are folks who are exposed to stranded assets like oil and gas and coal. So, if you just do the math, it's roughly $10 trillion a year of investment that's required to get to net zero. And I don't know about you, but I certainly believe that we're on a political path where that is becoming more and more Sasson in Europe. And also in the US, you know, they've been amazing to see the kind of bipartisan support for the IRA, for example, that I was amazed by that has clean push that through and I think that is because partly Citizens in the US and Europe have seen climate change physically come to their door in the last two or three years. So we are getting there politically, which means that the economic opportunity will be there. Why is that not trickling down and extreme pace as you say right now in 2023. With the venture markets, I think everyone is still trying to figure out how to avoid the mistakes of the first FinTech boom and bust which you mentioned. And I think LPS in a world where, you know, the denominator effect, they're probably overexposed to venture overall, they've just had a very, very difficult time with the technology boom coming to a bit of an end over the last couple of years that everyone's sitting back and going, Okay, we know climate is this huge opportunity, but we also have probably been burned from the first clean tech boom bust. How is this gonna play out? How's it gonna be different? And I'll make a few observations, I would say we are seeing a few different mistakes. On the one hand, we're seeing I think venture investors trying to deploy venture dollars into interest Archer investments into fundamentally non scalable, very capital intensive projects, which I don't think are corporate venture capital. So some of the bigger energy projects, things which might take 1520 years, a lot of science risk and a lot of capital intensity and that's pretty tough. And then on the other end of the spectrum we're seeing and I'm sure you see this, some of the generalist VCs who want to have exposure to climate but only want to touch pure software. And that creates this strange bubble around things like carbon accounting, where we get pitched a carbon accounting stuff literally every Week, I'm sure it's the same for you. Because that's sort of one flavor of climate, which is appealing to the more traditional venture funds. And that creates strange bubbles and some mistakes. And so I think you have to kind of navigate that path to what is actually going to have an impact on climate because it is in some way touching the real world. But it is actually a venture bankable, scalable business. And that's the path that everyone's trying to navigate. And I think there's almost a kind of a wait and see both from LPs and from some of the GPs, the venture plans to figure out where they should deploy money and climate because yes, it's a huge opportunity. But you've got to be really careful about how you access that opportunity.

JK: Yeah, I'm really glad you said the piece about pattern matching. On the software side, because VCs for so long have known we come out of this last decade of the SaaS boom. And I think VCs are trying to apply a lot of those same lessons to now climate investing. But one of the best pieces of advice or I guess, even quotes that one of my founders, a company called Revel here in New York, said to me, they're in the transportation world. They're in the the electrification of the, you know, local New York City grid, and he said, you know, Jay, you can't move fast and break things in this world because the things you're breaking are people And it sort of stuck with me that unfortunately, a lot of the lessons that you have in software were Hey, you mess something up. Okay, deployment goes the wrong way. When you're dealing in the world of atoms, not bits, the order of complexity is so much higher. And I guess that sort of dovetails into a lot of your experience on the government side. Tommy, a lot of VCs for many, many years have sort of stayed away from anything that has to deal with the government unless that is your funds very specific thesis. Government is a four-letter word. And now we're in this world where the government needs to be, you know, hand in hand with industry and hand in hand with startups. So, what are some ways that you think both? On the startup side, startups can do better to engage the government. And then on the flip side, what's the role of government in empowering this wave of innovation?

TS: Well, I always think it's a good idea not to bet against the Fed. And the Fed is pouring, you know, 10s of billions, trillions of dollars ultimately, into climate tech. And I think that is on a path that can't be reversed. Whatever happens with the US election cycle. I do think we're now on a path where the US government has got behind this in such a phenomenal way. You know that it's going to be very difficult to bet against that. But this question of the role of government, I agree, I think is fascinating. The myth, the received wisdom is that, as you say, Don't invest in stuff which requires government support. All of the subsidies fundamentally reveal a lack of a sustainable business model. And also that the government can't innovate. I think there's another myth. There's a fantastic book I recommend by Mariana Mazur Carter, who's a UK based Italian professor called the entrepreneurial state. And how thesis is that actually, if you look at the history of innovation, in the 20th century, so many of the most important technological developments, whether it's the internet and mobile phone, and others, have ultimately have their origins in government, whether it's in you know, the US Department of Defense or others, and that actually, the government is really, really important for innovation both in time As r&d within its government departments, and in terms of funding, and in Europe, you know, if you just look at where the LP money comes from, for example, so much of European venture is propped up by the European Union funds and by individual sovereign wealth funds, and I think the issues clearly like climate, but also like how the government has a massive, massive role to play as a funder, as a as an r&d department and also as a first customer and so we're going to see more and more in climate I think government's having to fund and be the first customer in order to get these industries off the ground and so that then can prosper and understand on their own two feet.

JK: Yeah, I mean, it's quite a nonconsensus even in today's market viewpoint, right. To your point earlier about these waves of companies, right, we talked about carbon accounting software, carbon credit marketplaces, climate change, there are a lot of monkeys, right? You'll see one get funded. And then suddenly there's a waiver for three or four competitors that come through. As you're building your fund. How do you structure your process to kind of reject that group thing to push yourself to look at nonconsensus things versus getting kind of caught up in the FOMO of it all.

TS: We looked at some analysis from some of the best-performing funds and spoke to some of the general partners, some of those funds, and consistently what we had was that it was the contrarian investment, the nonconsistent consensus investments that had performed the best. For the deals that made it through with 100% of the partners voting “yes” didn't tend to be that good. Clearly the ones that everyone said no to were not good. It didn't get done anyway. And it was the ones which were, you know, really divisive, where you had one champion, perhaps saying we've got to do this deal. And then a bunch of other people perhaps saying No, those are the ones that really outperformed. And we're very, very conscious of that. It's probably not thinking outside the box that much and it's probably going to be quite a competitive landscape if it's such an obviously good idea. So we are conscious of that. We've tried to use When placing structural components that allow us to do non consensus contrarian investment, so for example, the partners at giant all have a wildcard investment that they can make. So even if the other partners strongly disagree, we're doing an investment. We each have one per year that we can push through and say, No, I'm doing this anyway. And actually, some of our early winners in the portfolio had been companies that not only internally at giant didn't have full support to do, but we were the only time she externally no one else was interested in seed. And if that goes well, you know, they tend to perform really, really well because the valuations aren't very high when you invest. I think that is really important. You mentioned their carbon accounting. We went really deep on carbon accounting in sort of early 2020. And we're looking at the space. We were looking at watersheds becoming a software platform. That one actually we were really keen to do. We chased the founders and we ended up learning but it was the first deal I think that John from Kleiner and Mike Morris and Sequoia had done together since Google. So we were okay that we lost that one. But beyond that, we haven't done anything about carbon accounting. And what If we felt that already, there were so many competitive dynamics in that market, where we would speak to customers of these types of companies, and they would say it's great, you know, we put out a request for proposal, and we'll get 15 to 20. Startups. We'll come back and bid on it. The price gets bid down and down and down. And then you know, ultimately, we might even pick up PwC or McKinsey or we feel SCP might get involved. So you very competitive and startups incumbents consulting brands increasingly playing the stakes and just a very negative margin compression that we saw come up so we decided not to play in that space, but instead made an investment in a company called water plan, which is an adjacent space which is rather than a carbon accounting, it's around water risk. So for companies like Coca Cola or Amazon, they have a lot of water in their core business model, helping them manage and mitigate What's the risk much less competitive. So that's my, that's an example of us going down on a sector which was quite hot, and then choosing not to invest, but investing in adjacent space.

JK: Maybe it helped me understand what signals of traction you need to see. Let's call it an early stage. Right? What makes an early stage investment? Good for Tommy, and one that you really want to sort of Chase and get after? When you see those signals?

TS: You know, I think there's a kind of meme going around at the moment of pre-seed investors saying to founders sorry, it's just too early for us and how that should be banned from preseed funds given as an excuse to fund it. Well, we love investing early. We love being the first money, let alone the first institutional money. The earlier the better from our point of view, and really, whether it's pre seed or seed, I don't know about you, but fundamentally, I think really it's all about teams and founders that you're backing at that stage the idea changes so much as you will experience yourself and and so I am very much a people based investor. I want to back entrepreneurs who are incredibly smart, really resilient and have perseverance and are talent magnets. They can attract brilliant people to work alongside them. And then if they're working in a theme that giant get behind particularly climate or helpful, inclusive capitalism, then I think it becomes, you know, a no brainer because I don't think at sea, you know, as opposed to precede, or even Series A, I don't think actually most of these companies have the rest that much. So I don't think you're getting that much benefit coming in a little bit later, six months to 12 months later, compared to just going in early and back on the team for the beginning.

JK: No, in fact, you're probably losing out on valuation because they'll say, Well, we've already raised the seed round functionally, we can't raise anything sub, you know, 20 million now. And you're going well, I don't know if you've had the traction to effectively go raise that next round. But, you know, we're coming out of a market in 2021, where, if you were the right background, and in a hot space, it almost didn't matter.

TS: I think that's exactly right. And I think exactly those dynamics are harming founders quite a lot, actually. And raising too much too early makes it very difficult to get the next round done.

JK: When you're looking at a founder, three things: it's smart, resilient, and talent magnets. How do you ascertain that? Are there questions that you're asking them?

TS: Even in our experience it's not necessarily the brightest, most intellectually brilliant founders that always build the biggest companies. You've got to have some base level of intelligence, obviously, and most of the founders are really smart, but it's not necessarily You're gonna be a complete genius. The second thing is around perseverance, I personally think that is the single quality that unites all of the most successful founders unless they get lucky. I think it is so hard building startups. It is so unbearably difficult the odds are against you. The existential threats that come in every single morning I remember when I was doing a startup based in California but with sort of customers in New York and and investors in London, you'd wake up at ATM or whatever in California, and you'd already had a bunch of existential threats hit your inbox from New York and London by the time you woke up and it was just bear is very mentally hard. And so I think it's folks who can persevere, who can run through brick walls, who just simply refuse to give up, that will make it and then a talent magnet. You know, I've often asked myself, which is what I learned from an investor I used to work with, would I go and work for this person? Would I go work for them today or as a sort of 25 year old when I go work for them? And as always a pretty good test that, unless you feel like yeah, this is someone I would go and follow, probably not the right type of person to invest in. So those are some of the kinds of themes that tend to come out but yeah, positive evidence above all else for me, I think.

JK: Yeah, I agree. I agree on all of those and especially perseverance. I think, you know, the way we try to ascertain it is we, we ask our founders, what is the scrappiest thing they've done to date? Right? And sort of what's the hardest challenge they've had to date? And it's not so much the actual, the challenge itself, it's how did you, you know, find your way out of the hole? How did you find your way out of that dark corner that actually I think reveals a lot about a person. One thing we didn't talk about is customer obsession, but you mentioned it earlier, right? Actually going and speaking to customers and evaluating the customer need and problem. How are you guys doing that at your firm are you actually calling up prospective customers and you know doing a little bit of BD yourself or is it something you're evaluating with the founders process that sort of shows you this is not a technology in search of a problem?

TS: I think that is so important. And I think where I've made mistakes in the past is probably backing founders who don't have enough customer obsession and are probably are living in a bit of an ivory tower, and don't have the obsession about “I will tweak product in whatever way I need to do in order to meet the needs of very specific early customers” and so I think it's always a bit of a red flag when you're hearing from founders that they just they haven't spoken to that many potential customers or you know they're gonna build a product for a year and then launch it. I did that with my startup. I kind of locked our team away on myself for like a year, built what I thought was about a product that had a massive kind of big launch and hoped it would just work and then actually didn't turn up. People don't really want it and then that's it. We kind of urgently scrapped to change the product, but that's not the way to do it. For sure. It was really interesting listening to someone speak the other day about open AI and how, you know, he'd always been preaching the Y Combinator code of, you know, just ship stuff quickly at low cost, get it out in the market quickly, quickly, quickly. And he always believed that open AI probably disproved that in but they did sit there for years and years before launching, building the most amazing perfect products. They raise billions of dollars to go and do it. And so it's almost the opposite to that, but I think open AI is one of very few Companies that sort of succeeded without just being obsessed with customers constantly launching module value, if possible. And part of that I think is an obsession with customers, for sure. And speaking to customers, it's as simple as constantly speaking to your customer.

JK: Yeah, I think the operational complexity and climate I think maps quite well to the open AI example there as well, right? There are only so many launches you get, especially when you're maybe building in the world of hardware. So talking about repeat founders, since we're on the topic, Tommy, you wrote this fantastic piece and Fast Company that I really enjoyed about repeat startup entrepreneurship. And the quote that I sort of held on to was, it turns out experience really helps in starting companies. One or two are three things that the repeat founders are doing differently that first time founders can start doing today?

TS: That's a really good question. I mean, I think part of it is not necessarily about what they're doing differently. It's just the benefits their crew have done at once. So they tend to have really good networks, where, you know, they've probably figured out this is the right lawyer to use, they've probably figured out these investors have my back and these ones are awful. I'm never going to work with them again, they've probably figured out a team that they can go back to and say, let's go build this again. So just having that network can I think be very, very useful and save a lot of time. I think the second thing is just avoiding unforced errors. I for sure, in my startup days, just made so many stupid errors that I would never make if I had a second chance to do it. So those are some of the really obvious ones.

JK: Is there anything that they feel like the second time founders, like focus on earlier that you feel like it just takes a first time founder, so much longer to get there?

TS: I think part of it is just focusing on the right things. So I think, you know, for example, not locking yourself away as he went into sort of building the perfect product and then not watching. I think people launch quicker. They're more willing just to kind of test stuff out and quickly learn. I think that's one big one. I do think picking the right partners picking the right team, people figure that out there to understand just how important that is. So those are Some of the elements of it, but ultimately, I think just having done it and having learned and got the scars from being through at once you just learn about it. The other thing that I would say is that from my personal point of view, I wish I'd been even a venture investor for six months or a year before I started a company do you think invested learn a huge amount by the operators and the operators a lot a huge amount if they had of having had some venture experience, really, because of the kind of pattern recognition and and sort of seeing having the privilege of seeing 1000s of companies in a year and you can then avoid some of the mistakes so for example, I started a photo app in like 2014 when they already existed Instagram and Snapchat was coming up. And that was probably a really stupid idea right? And I'd been a venture investor. I would have gone with a really bad idea too late, you know, way too late to the problem but kind of naively just walked into it. And so I think there is an element of, yeah, if you can have some of that venture experience before starting a company, I didn't personally have a great idea, as well as having had as much entrepreneurial experiences.

JK: Yeah. Well, the storytelling aspect we talked about at the top of our call, you know, the value of storytelling, especially in this market, I think you understand that things that VCs pick up on. You've got to have a really big team when everybody shows up with a big circle that has $3 billion at the center of it, because that's how you get funded. But when you actually sit across the other end of the table or you know, even just go through 100 VC pitches, you start to key in on what they care about, right? What are their incentives? As they have to return money to their LPs, what do they need to see in my company to convince them that they'll actually get there? And so I think for those of our listeners that are fundraising right now, that's a good place to spend some time. Maybe speak to some friendly VCs to understand what their incentives are, before you go out and sort of really pitch a story that you think resonates should resonate, but ultimately, you know, misses the mark, in terms of what the other side of the table cares about.

TS: I think so. I think that's a really smart idea. You know, there is a danger to what I'm saying what you're saying, which is that you can't know too much, you know, as a VC and almost there's, there's a benefit to some naivety from founders that you know, ultimately you've got to believe in the impossible and so you can become trusted. If it was a venture investor and say it's never going to work, so there is a benefit to society. But no, I think largely like being really smart about what your market is, the harsh reality of how competitive it is or how early or late you are. I think that reality is really, really helpful for founders. So yeah, having those conversations with VCs early and sort of testing your ideas out, I think it's really useful.

JK: Well tell me we'd like to do a segment on the show called hyper hopeful I know I previewed for you earlier. So I'm gonna make a statement. We're gonna see if it's hyper hopeful and then you know, we'll unpack it. So think of it like a rapid fire one to two minute answers. So let's dive in. So the wave of direct to consumer disruption that is targeting underserved communities, and specific demographics. You know, you've talked about this idea. You're focusing on big problems, right health and inequality. Is this hype? Or is this something that we should be hopeful about seeing change in the near term?

TS: I think the hopeful bit is the idea of technology going after problems that really genuinely matters and makes people's lives much better. We have a whole generation. I think companies who are making marginally better for people are already pretty affluent. And then a whole generation of big tech companies doing things like social media, which you could argue are probably a net bad for society overall. So I think we will see a new wave who are serving underserved communities who are making the world a better place. The height bit though I do worry about some of the direct to consumer stuff in that space. Whether it's neobanks for a very specific demographic. I just worry about the unit economics and then businesses and of direct to consumer as a whole.

JK: So here I'm sitting in New York, you're sitting in London, but Silicon Valley is still considered the world leader in climate innovation. So given the growth of global tech ecosystems, global scale of the climate problem, should we still believe that Silicon Valley is going to be the epicenter of the climate innovation trend? Is that hyperlocal?

TS: I think particularly in climate, I think it's hype. You know, there are because we need to touch the physical real world because we have to partner with incumbents. There is absolutely no reason why you need to build a climate technology company in Silicon Valley for it to succeed. We've had for example, one company in the Nordics, called Blog, which is a holding company, which has already produced three climate unicorns with Northolt, Valerian Plarium, and hg Greensville. And, you know, they're 1000s of miles away from Silicon Valley, and they have the mites of a big holding company to do it. They just don't need that kind of Silicon Valley ecosystem. So I think particularly the climate tech, there is absolutely no reason for that to be limited to seven Families. I think the recommendations will continue to have an edge and things like SAS, but climate will come from New York, it will come from the UK, Germany all over.

JK: I think COVID changed that a little bit too, right? Because you had to be in person you had to fly out to the bay and you know, fight the rest of traffic to go pitch a VC. And I think since 2020 I've certainly gotten more comfortable making an investment in a founder that I've only met over zoom. Like nothing beats spending time with them in person, but I think certainly to your point like some of those barriers have almost just naturally gone away

TS: For sure. I think COVID collapsed geography for venture forever.

JK: Yeah. So the last one of our hyper hopes. And I know you have some thoughts on this, so we can go as long as you want on it. A lot of experts have said that without the addition of nuclear energy, just transitioning to renewables will not be enough to achieve Net Zero targets. And yet VCs have not invested in nuclear energy, or nor have there really been meaningful venture scale nuclear companies. So nuclear as a venture bankable category within climate tech. Is that hype or hopeful?

TS: I am insightful, but it's a very specific type of hope that we've got. I think there's a whole category of hard climate tech, which is venture back a little bit at a very, very large scale. So I just mentioned Varga somewhat. They've been doing with North fold, for example, and they're just now launching a heat pump version of the latest one of their incubations to come out of a conveyor belt. But we're talking about incubations, which require hundreds of millions or billions of dollars of capital. And I think that is a very interesting model for climate incubation in Europe in the US, where you're going to get very large holding companies or corporations or both, who are going to say we're gonna go solve a very hard problem, whether it's green steel, whether it's nuclear and We have the ability to bet a billion dollars on that space. And it has the dynamics of the startup. It's a new team with a very, very small group of people that can create something special. And I think that will always be the way that it doesn't. You know, it's very hard to do something with more than a group of 10 people at its core that creates something from nothing, but they just happen to have billions of capital. What we're not going to see is I don't think we're going to see nuclear completely transformed with a company that's raised $3 million in seed, and then $10 million in Series A, and 150 million that series B is simply to capital intensive to achieve that you might have some innovation around the edges, that the big bold plays are required billions of dollars of capital that are not going to come from the traditional venture funds. But that's not to say that large, large venture bets can have an impact on this space. And I'm completely with you that, you know, nuclear that massive part of the solution set here that we do need to get serious about backing.

JK: Yeah, well, I think about it a lot too, because I think nuclear fundamentally has a PR problem. And that's something that we obviously spend a lot of time thinking about on VSC Ventures, right industries that really need help with their storytelling and have very smart founders working on it. But you know, whether it's an MBA-ism, or it's government action or something, it's something we all know we need and yet, you know, how do you actually present it as a viable alternative to solar and wind and some of the things that maybe have done a better job, your job, but I'm certainly optimistic right there with utami. I think I'm starting to see hybrid funds, ones that have, you know, debt arms attached with their equity and they backed equity in a certain, you know, holding company structure, but the debt that actually finances the infrastructure. There's ways to get around this. And I'm long term hopeful with you there on that as well. So last couple of questions. You've been so generous with your time there's one that I always want to get the perspective of early stage investors on, which is, you know, encouraging more entrepreneurs to focus on these companies saving the world, these big audacious problems, not incremental things, what incentives are shifts need to happen to really push More founders to focus on on climate tech, especially first time founders that could be doing something else to be to be working on climate here. How would you motivate the founders you speak to to go work on this problem?

TS: I would say have a child and that will change everything and your child was just departing for their walk before we started shooting this, this podcast, but in my experience, it's been so powerful, looking into the eyes of your newborn baby, and just being really really you're working on something meaningful that you can be proud of telling them when they grow up that you were trying to do something to really be part of solving climate change or making people healthier and solving inequality. And that I think, is a theme we're seeing again and again, actually, of entrepreneurs who might have built a SaaS company or a consumer company, the first go around, probably made a big success of it, and then choosing to build and claim it for their second company, really, because they want to do something meaningful with their life. They probably had a child and they want to be part of the solution or something good. And that is a very, very powerful driver in my experience. So difficult to do if you're a 21 year old founder, as you mentioned, coming out and starting probably don't have a kid yet. But actually, you know, we see the same thing. We see a new generation emerging, who are not messing around on climate. They're not taking any prisoners. They are very, very disappointed with the older generations and what Bill's generations have done to the world. And they are laser focused on working on things with meaning and purpose. And that trend I think, is going to grow and grow and grow. And what we're seeing I think, is the brightest and the best founders are increasingly choosing to build in climate or health or inequality. And also the best people want to work for those founders. They want to go work with something which has a real mission. And I think that makes our job so much easier and so wonderful, which is seeing incredible people working on the most audacious chart Is to fundamentally use technology to make the world a better place and feel very, very fortunate to be battling those people with giants.

JK: Yeah, a follow up to that, given that, you know, some of these folks, let's say they're in their 20s, or they're coming out of university, maybe their first or second job fundamentally, at the early stage founder market fit is so important, right? You want to back founders that have unique insight on a company of category? Does that matter in climate? Do these entrepreneurs need to have deep expertise in industry before they go after it? Or are there ways that they can sort of bring their enthusiasm and map it to an industry maybe that they haven't worked in before?

TS: That is a really interesting question. I think there is quite a lot of climate tech. It really does help to understand the specific sub vertical or industry you're working in at a deep level. I think there is a real benefit to that. So I mean, for example, I mentioned water plan earlier, but the water resilient SaaS company, they're a team of four entrepreneurs who had an exit and understand outdoor companies, but part of the founding team is a kind of global water expert. And both the credibility that that brings, but also a genuine understanding of what type of business to build is very, very powerful. So I do think there is value to really, actually genuinely understanding the theme you're going after. I think there are some types of businesses where it's less relevant, right, maybe it's a marketplace model, which is less about detailed scientific breakthroughs or, you know, really technical stuff. So there's always a room for people to play in this space. But I think there is an element of specialism within climate, which is pretty important.

JK: Always the optimist, Tommy, I like that on a Thursday morning, Thursday afternoon for you. You've been so generous with your time. I'll close with the question we ask every one of our guests. There's a lot of doom and gloom out there. There's a lot of climate inaction out there. We read the news every day. And sometimes it's hard to fight off the climate anxiety. So what is maybe one thing that gives you hope or optimism about this fight against climate change? And then where do you draw that positivity from?

TS: I'll give you two things. The first is that, you know, probably only 12 or 15 technologies to work to really go and solve climate and a few of them. I think we've already got going we've got electric vehicle that's going on. We're gonna replace all the current global electric vehicles, we've got large scale renewables, whether it's solar or wind, on our powering so much of our electricity, and that will inevitably grow and grow and the cost will go down. So we've done it with a couple of these technologies, we're just gonna go to the rest, and I believe we will. And that's linked to the second thing that makes me really positive, which is just what I mentioned about the best entrepreneurs coming and solving the climate. And if they do that, I believe very, very strongly that it will be entrepreneurs who will solve the climate crisis, not governments, not corporations. You know, don't worry that the politicians are being a bit slow because it will be innovation that carries us there and will push everyone with us. And he's a controversial figure, but you just have to look at what one person that your Musk has done in the electric vehicle ecosystem, and then we can replicate that all over the economy. I think we will get there about Cillizza not zero and we will solve this problem once and for all.

JK: So I mean, that is the shot in the arm I needed this morning, man, thank you so much for sharing your perspectives. I have learned a ton. If we have any smart, resilient talent magnet founders that are listening to this episode, where can they find you?

TS: Absolutely worth it. It's such fun and such a nice way to end my first . Thank you. They can reach out to me on LinkedIn, Tommy Stadlen, just come upon me on LinkedIn and we'd love to to meet entrepreneurs working on problems that really matter and excited to team up more with you as well. And as I mentioned, we're big fans on the farm. Such a pleasure to be on the show. Thanks so much for having me.