Climb By VSC: Episode 50

Jay Kapoor: Hey folks, welcome back to our 50th episode of climb by VSC. We're here in studio with my co-host and partner, Vijay Chattha, the other general partner of VSC Ventures. We're going to talk a little bit about the journey that we've been on with the show launching it just after Labor Day last year. So, we've been going for about 50 weeks, and I'm so excited for you to join us. This might be the first time you're seeing or hearing from us. Thank you for joining us, and let's climb. So, Vijay, thank you for joining me here. You came all the way from California out here for climate week. Let's start with just a little bit of introduction on you for the listeners that maybe haven't gotten to know Vijay Chattha and VSC.

Vijay Chattha: Sure, so quick background. I've been an entrepreneur since I could be one, started at 16 with a little DJ business with a friend. We did bar mitzvahs and Indian weddings. And I got the first touch of like building something and trying to make some money. And it continued in college where I started getting involved in like putting on events and parties and promotions. We brought some record labels to the Penn campus, and I started my first company at college. And basically, from that moment, my dad had mentioned one thing to me which he said don't get too comfortable as an entrepreneur because you'll never want to work for anyone again. And unfortunately, I got comfortable. And what I found in the world of Silicon Valley and technology, which was booming, and my one of my best friends in the hall, who brought me into the tech world, we started that company together, I realized that there was a big delta between some of the biggest change makers that are going to be brought into society and their ability to communicate clearly with their audiences. And so, the idea of helping people that were very different in skill set to me, was very appealing. And I fell into this idea of working in publicity, which I had never thought of, but it just so happens, it's what you do in life, you find some sort of niche, and then you try to become valuable. So, my core of who I am is like, how can I be helpful to other creative people in some way or capacity? Yeah, and if I could find some value or be valuable that I would be happy inside.

JK: So let's tease the VSC 20-year journey and how that turned into you and I coming together. So how did you become a climate investor?

VC: So basically, I'd say the first thing is about when you're helping startups, you start to realize that it's not just about what you do. It's about that entire organization succeeding and everything is starting from zero to one. And often for us. It's early. It's we're working with founders when they're sometimes four person companies, two person companies, all the way to companies with hundreds of people. And I always enjoy the early stages. And what I started to realize was that the work we did with the founder was very similar to the work that the early-stage VCs were doing. So, I didn't see a lot of difference between what I was doing and what they were doing as it relates to just providing value. And what is the value of the values recruiting or is it sales or is it publicity that drive? All those other things are fundraising, there's about four or five things that each founder needs at some point. And I've realized that we were pretty good at one of those. So, we started investing like little angel checks my wife and I into some of these companies. Sometimes we took equity for service, and it started to become very successful to the extent that we I got the bug to basically seek what if we pulled the reverse Andreessen? So instead of being a venture firm that had communications could be communications firm that had venture and I was with gratefully we have 88 LPS that were friends and former founders that have been successful, who believe in us and believed in what we did for them, that they want us to do that for others. And that's how this all started, and you know, we got connected again through a trusted friend, and who asked him, you know, who is one person you're blown away by, give me a recommendation. And it was you, and we started with a project, and then COVID hit, and then, you know, things started hitting again during COVID. Yeah. And it gave me enough confidence to say let's let me jump out of my comfort zone, and really go into venture in that regard. So, it’s a different business. It's a very much ballgame. It has its own maturation process, which is completely different than publicity where you want instant gratification hits. Venture is the exact opposite.

JK: And I’ll share a little bit of my background for our listeners. We're hearing from us for the first time because most of the episodes are going to hear they're going to hear from me, they're going to hear from you. You know, I kind of became a climate investor accidentally, and one of the guests we're going to have on the show very soon is Frank Reed is the founder of rebel when I invested in them in my last one launch capital, I've been investing in seed stage for close to a decade a couple other funds, worked in media strategy in places like the NFL before. And when we invested in Frank, you know, they weren't a climate company. They were trying to do shared Micro mobility in an urban setting, and sort of changing the game from you know, scooters like word of mine, to doing mopeds. And what that company has become now is a climate darling, electrifying the urban grid. And to me, I think the biggest learning from that is that climate is touching every industry Yes. So, if you were doing something in industrials or climate something that if you were doing something in food, climate is touching that and so, the big unlock for me and kind of where I kind of got right with my like, is this is this really the world that I'm in right now. And it is, is every industry that I was investing in over the last decade, is now impacted by climate? So why run from it or try to avoid it, when the underlying thing that we need to be resolving is climate tech and climate innovation and helping these companies scale? So that's how we got together we got together to raise this fund. We've raised $21 million venture fund. We've invested in 17 companies now together, help some of them scale to their series A and you know what I wanted to do on this episode with us today and really make this a conversation because I do too many interviews. You know, this is our 50th episode. First one that we're doing in studio is hopefully the direction we're going to keep going with the show. I want to reflect on the last 49 episodes that we've done. Yeah. lessons we've learned from folks who have blown us away. Stories that kind of stick with us and stay memorable. And really, I think highlight how we are different a year later. So, let's start with that we've had on scientists we've had on policymakers, mayors, a lot of investors a lot of founders, is there a particular category of guest that you really enjoyed either interviewing or listening to on the show?

VC: Well let me first answer the first question you asked that I didn't answer correctly, which is why climate for like climate? Yeah, let's talk about that. Right. So just quick for me, the wildfires they hit Northern California there at the North Bay. My sister's house was burned down in Santa Rosa. Many people died in that neighborhood. We looked at the sky every morning. It was pink, it was orange. I'm looking at my kids and I'm saying do I want to do investments in AI for accounting software, or do I want to work on this problem literally outside my house? And what if we took the superpower of storytelling and the resources and capital and dedicate some of that to climate? And I think what we've realized in a year must answer the second question is, we're doing more of it. We're leaning more into this. It's just I mean, look every day I get to wake up and say, What's my why? This is the why, yeah, if we can accelerate some of these solutions, then I will feel pretty happy when I'm done on this planet that like, we took something of what we've learned in our skills that we've been educated on or we've been grateful enough to be able to do and applied it to something that actually matters, support founders that are working on important problems. That's what we're doing. And part of this like podcast is learning how to support the whole thing about this podcast is not what does the planet need? It's how to build the solution correctly. Once you've decided you want to build something, and what to avoid, so that you don't make a mistake of other companies, because the stuff that we're building is hard. And there's a lot of failure. And so can we direct the next founder through the help of our podcast, that would be the value I see that we're bringing.

JK: So has it been mostly investors that you've talked to or founders that you kind of find yourself like, really leaning into the conversation or really connecting with them.

VC: I'd say there's two types of investors I've really liked. One is the clean tech 1.0 investor that got dealt with a lot of bad outcomes initially, yeah, financially. Yeah. And those that are still stuck with it. Are the True OG climate investors. Andrew BB at obvious he was in clean tech while he's still in clean tech 2.0. He's seen a lot of scars. He's seen a lot of things work and many things fail, is first, shout out to those folks that pioneered this investment structure. But what does that those people walked so that we can run? Yeah, right. So, shout out to those folks. That are still in the game. There's many of those folks that have gone upstream. They're doing growth stage, the Java things. Yeah. And they were they figured out alternative capital financing very important that we had to have that first phase. The second type of investor is someone like I'd say, like Tom, and at one who really sort of shed light on this idea that you can't be cost neutral with a new solution. If people will not pay agreed premium. You basically need to get to 3x better margin on your solution, or you want to invest in it. And I think that was a good simple, clear way to think about all these founders that are building are you assuming people are going to pay more for something that's better for the Earth? are you assuming that the same price is good enough? And Tom would say same price is not good enough? Because it's going to take hundreds of millions of dollars for a big organization to re fit their entire supply chain for the same price thing, which means they're losing money. So, I think that was an eye-opening early conversation that's impacted some of my thinking. So, tell me so on your side, where are you in your journey of understanding climate technology? 48 episodes from where you started?

JK: I think the biggest myth I had to dispel was this is a space that I need a PhD to access. That was my biggest apprehension around the world saving. Oh, it's enzymes that break down plastic and it's understanding deeply how energy gets sent around the grid. And it's understanding interesting level cell molecular level how food and alternative proteins and Beyond Meat, and it is some of that right it is because climate Tech is one very, very broad. But what I learned about this investing space is folks like me, folks that have been traditional software investors have quite a bit to offer the companies in this space. There are some really, great scientists and engineers that struggle with storytelling content, like building a pitch deck that tells a concrete story that isn't just, you know, here is technical jargon and scientific equations, but connects people to outcomes. There's a great a Steve Jobs quote that I find myself wanting more and more to people sell outcomes, not features. Yeah. And he would repeat that all the time to his team because, you know, folks who say it can hold 2500 Whatever. It's like no, what is what is the outcome, right? Your music wherever you want, right, right. And if you connect with people at that level, ultimately, it just gets you closer to your customer. And so that was a big unlock for me doing sort of 49 episodes now is the more investors that I talked to, that said the best founders of my portfolio, do this. And I go, Okay, so there's probably a lot of those founders that don't do this, that we can help along the way. Great. I have a role to play as a climate investor. It took quite a few episodes to get there, but I'm actually very happy that I went on that journey.

VC: Yeah, that's great. I think these other parts that I would see if that did 50 episodes. One is that climate 2.0 is still in its infancy. To the extent that there is a lot of collaboration and non-gatekeeping of insights. The people we have on are very open about what works and doesn't work. They're open to come on. They're open to talk about why they invest in places, they're open to share deals. So not you know, at the sort of 2020 hype, zero interest rate world of let's say SaaS or other areas, there's a lot of sharp elbows. As you get up the stack. I feel like maybe it's the market reset, or I think it's because people want to save the planet, that this is a fun, collaborative environment right now. Yeah. And it feels like being in university or it feels like being in that first job at the company where everybody wants to be excited and sharing ideas and sharing deals. I think that's fun. Like I was part of that in mobile. Yeah, in the early 2000s. And everybody was generally excited to learn from each other. And what was the most surprising is that competitors, direct competitors that sit down and talk about how to grow the pie in a way that you don't really you didn't see in like Wall Street or something before that, or maybe even a web one. Maybe that was the case. But we're there right now. This is the moment where people are open minded. They're sharing deals, they're introducing founders to each other. I don't see a lot of cutthroat competition, especially at the early stage. I guess where we are Yeah, but it makes me feel optimistic about why people are investing and why they're building. It's not just to make money it is to make some money, of course, it's to make real progress in society. Yeah, it's always fun to be in a new market, where there's still that level of like, collaboration. It's just important to like, take a moment and like appreciate the people that come on our show, that don't need to come on. They don't need to give away their secrets. Tom doesn't need to tell us about his like, like margin strategy, but he does it because he wants more companies to succeed. And I think that's cool.

JK: Yeah. What is something as you look back on the last year that you believe now that you didn't believe a year ago as you've gone on this journey to climate investing?

VC: I mean, it's clear to me that companies do not know how to market and maybe they will argue that they're not ready to market, but the more time I've spent with them they're ready to market.

JK: You mean startups, not later stage companies,

VC: Yes, startups are not taking advantage of so much low hanging fruit that's out there. Simple website. You know, LinkedIn marketing, so cheap. I mean, you could just literally find these individual people that will buy your product that you'd have to go to a trade show five years ago to find video. There's So either they're super cool and need to be turned into a video, or they're super complex and need a video to explain it. But these things are like marketing 101 Now, website, video, LinkedIn, like very few are doing it. Very few other ones are making a million in revenue are doing it. Yeah. And so, I feel like this is the next untapped market is getting these founders to see the quick wins that can be created. Because everything's about revenue right now. So, there's nothing better than the customer funding your company. Right? And it takes a long time for them to get adopted into the system. Therefore, the longer you wait to do your marketing, the longer you'll wait to get the revenue. So that's my one of my learnings. How about yours?

JK: The thing I used to believe, was that this isn't less about investing. As a consumer, my choices, I thought we played a much bigger impact, right? If I'm choosing better options for the climate, if I'm you know, choosing a place that does plastic straws, or that does compostable cups or does this kind of stuff. I am making a difference. And the more folks that I've talked to on the show, in a way it's freeing because there has been a lot of, I don't say PR but propaganda from large companies that have made it seem like it's your fault. You use plastic if you don't recycle. If you take a paper bag from Trader Joe's and you don't bring your own recyclable bag. It's your effing fault that the planet is getting effed up. And the folks that are sending this propaganda out are oil companies, chemical companies, plastic companies, the polluters, either polluter, or it has been very, very profitable. For them to point the finger back at consumers. And I think that just adds to climate anxiety. And I will tell you that doing the show my climate anxiety has come down, not just because I'm hearing from people that are sharing the solutions but also, it's like that scene from Goodwill Hunting, where he's like, it's not your fault. It's not your fault, Jay. It's not our fault. Yeah, we were not the folks pushing through, you know, the legislation in the 1980s that allowed these companies to pollute, and it's not our fault right now, if you go have almond milk latte and a plastic cup. It's the fault of the company creating that plastic cup. And it's the fault of the market that hasn't created a better alternative yet those plastic cups, and I think recognizing that I used to believe that there was a lot more than I could do as a consumer. I am now confident that there's a lot more that I can do as an investor. And I think that's been the biggest evolution and kind of flick feels like a little bit of a burden off. I still try to make better choices and what I eat and what I buy and the things we choose, you know, take a green premium when my wallet can afford it. But it kind of refocused me on like, where should my energy be really going?

VC: I'd say that there's probably one company that's figured this out, which is Tesla. Which is that they really didn't spend a lot of time focusing on the planet. They focus on a superior product. It happens to not need gasoline. But the Tesla is just a superior car than anything at that price point. That's gasoline. It's just a better product. So, founders can learn from this point of what Elon did is make a better product period. And the green thing should be an add on it seems like a nice to have that it's green. It should be a better product; the burger should taste better. Right? Or else it's not going to get to the next level. And so that is the challenge for tomorrow's founders are that assume that the green premium is zero and people expect it to be agreeing premium if it's a new entrant. But the product must be better than the existing product or it's not going to work.

JK: Yeah, that's spot on. What guests surprise you the most or kind of left you thinking questioning? Things after your conversation with them?

VC: I liked having Janelle on who was the mayor of Sausalito because it's nice to see a politician who is effectively like an entrepreneur. And she in our podcast, said I'm inviting more ocean centric startups to partner with the government. Come find me. Come like collaborate with me. The second thing she said is I think she's running for lieutenant governor. I wish you well and her campaign strategy was I want to go play basketball on like the public courts between the top of California and the south. And I want to spend time with people I want to play sports with them. As my way to get stuff. I was like, that’s refreshing. She's an athlete too, but I loved it. And I'm like, I like everything about this concept of like, connect with people where they are in their environments, find a way to share some sort of common bond. And secondly, like let's make a city and open like make them playgrounds for entrepreneurship, to participate. And I think more cities that think that way is going to do great and they're going to foster these little environments. And so, I liked her it was just we didn't have a lot of politicians on Yeah. And when you're a mayor of a small town, you don't have to be as like conservative and you're talking points. So, it's nice to have that fresh perspective.

JK: Yeah, I'm trying to think about which guests have specifically left me kind of thinking or questioning, I would say we've done a couple of episodes around the IRA and, you know, the one that I like sticking out of my mind. I don't know if he was the first one to talk about it with me. But Vaughn Blake from Blue Bear capital. You know, we were talking we do the segment on the show, sometimes called hyper hopeful, and I'm talking to him about the IRA. And he was the first person willing to go on record and say, Yeah, I think the IRA is kind of hype when it comes to startups when it comes to startups. Because if you dig in and look at where the money is going, it's going to infrastructure projects, wind, solar, geothermal, right. If you're a startup today, and you're putting in your pitch deck that the IRA is a massive tailwind for us, like you, you are being disingenuous, is what I would say, right? What I would love to see from a company is, hey, we are going to be a great business. Here's what we think our unit economics is going to be like, all this stuff is great. And oh, if the IRA money trickles down our way that look how much faster we can grow. But you cannot be a business just because there have been massive subsidies coming in. Right. But I think Vaughn was the first person pointed out we've had some other folks on the show that have talked about the IRA. He kind of left me thinking and questioning a little bit of like my own belief about, hey, we're celebrating this great win. Right and it is a great win and you we're worried about when it comes to election season, how much of that could be taken away if there's an administration change. But as investors, especially at the early stage, like, let's not kid ourselves like, this is not why a company should exist or why a company should do well, just because there are federal dollars that are coming out.

VC: Yeah. I agree with you on that point. And it's not the iPhone necessarily moment for every company. But I would say that the one thing I've learned a lot in this last year is the role of government in this industry. is big. Yeah, they are the funders. They are the buyers, sometimes or the sellers. They will be part of any company's trajectory. Look at Tesla. They were bailed out by Obama, right. They survive in subsidies for years. They still get tax credits and states. They moved their Giga factories at other places for even better incentives. Yeah. Oh, government played a huge role in this company succeeding so far. And it's almost like defense technology as a vertical. This industry needs government. Without the government, it's not going to succeed.

JK: That is so antithesis to the last 10 to 12 years of Silicon Valley. When you listen to Travis Kalanick, or early days of Airbnb, and again, not comparing those two founders, but their approach was kind of try and stop us. Right and that I sense you're also feeling is like, not the way it's going to go in this industry.

VC: I read “The Fixer.” This is a great book. Yeah. And he talked about let's talk about Airbnb and Uber for a second. Uber needed a lot of lobbying strength in many cities to survive without lobbying, they'd be dead. Yeah. And frankly, now that they're publicly traded, don't have as much VC dollars for lobbying. When you go to an airport now, you're going to have to go a couple miles to get to that Uber stop in LAX. Yeah, you're going to have to go to a different parking structure at SFO to find the Uber some places you must get on a bus. Oh, dude, without that lobbying money. Look what's happening these places. Airbnb in New York. Yeah, okay. Hey, is it a coincidence that the same week that they stopped the cancel these Airbnb’s the hotel price or 600 bucks yeah. Hawaii, banning short term rentals. government plays a big role in those companies. And they're getting screwed right now. Because they've lost all that lobbying money that they had from the hightail funding environments of pre-IPO. Yeah. I wouldn't be very worried about all those companies. Because every year that goes by, it seems like the hotels are fighting back. Right. And they're blaming it on like, like, how affordability housing all this. But why is it that the hotel price goes up in the same week as the abuser? I mean, come correlated, yeah. correlated? And how can Uber and Lyft be basically like stepchild at most airports where there's just stopped basically paying off the airports, we I think we were living in a dream world where Silicon Valley was moving fast and breaking things, but they were really doing was moving fast, breaking things and paying off a lot of people. And that's all gone. And then when the checks start drying up, the Uber pickup starts moving further up.

JK: I think the challenge also is that where a lot of the companies we're investing in, are interfacing. Government is one no more than two degrees of separation away right now if you're dealing with a power energy company, guess what they must deal with regulation because zoning or whatnot. So, you may not think my customer is the government or my customer is a government backed entity, but they are interfacing with those issues and therefore, your ability to implement get adoption move fast, hopefully not break things is impacted by that local regulation.

VC: Yes, I would say that the biggest learning I've had is the role of federal and state governments over the next 10 years, will basically make or break our society in terms of startups. Where were all the AI people last week? They were in Washington DC. Yeah. Right. That's software. That's not deep tech. Why do you think these chips companies are all blowing up right now that maybe the chips act, maybe because America has to make its own chips now? So, we're going to go to a place where I think there's going to be deglobalization. Yeah. Which means we're not going to rely on China for certain things or Taiwan for certain things, or Ukraine for certain things we don't know for our supply chain is going to get messed, we're going to have to make things here. We must make things and we're going to have to become better friends of Mexico and Canada. And I think that the companies that understand that now are going to be very well positioned. And how do you make it worse, not political, between the GOP and the Dems and make it a good fit for everybody? Right. I think you find a fair number of Republicans and Democrats will fund defense industry in this country. Forever. They keep giving more money to it. If we start to look at innovation as actually a defense against other countries, it's going to get funded. Yeah, if you call it like, you know, save the planet stuff, you'll get 50% of the vote.

JK: We've talked to a couple founders on the show. We've also invested in quite a few founders. As you've been on this journey. How has your process for doing diligence and evaluating these founders change because I have some specific things that that I do differently now. But I want to start with you what what's changed for you?

VC: The first I'd say the first thing is I like having a partner. Right? I think it's good to have somebody else come into a diligence process that is not emotionally connected in some way to the first pitch, or the photo. I mean, that's kind of why we don't do I don't do YC Demo Day. Some of the best advice we got from some of the other funds we love is you know what, go back two months later, and look at that deal. Don't get caught up in the moment. Yeah. And so, as a storyteller, I get caught up in the moment a lot. It's nice to have a partner who's like, hey, I know you're excited. But like, let’s stop and think a minute. Having a partnership is great, because you can really think about it's the two of us or we always try to find the devil's advocate and things and that's fine. We maybe that's our style. That's I think the big thing I've learned the first thing. The second thing I would learn is like it does take a village to build a great company in terms of in sort of a cap table. And I've felt this way now for, you know, a decade but the best investments that I've made are ones where I felt that the investment elite investors in the board, were hands on and were creative. They were not only financially motivated, but they were also either previously entrepreneurs, or they were very excited about the nuances of the company to like to play a role or provide feedback. And as we look at these companies now, I look at who are the investors in the cap table? Are these people I'm going to also want to spend time with for the next decade and what's their motivation? And what's their what's their quality control? What's their business model are they spray and pray? Or they this is the two deals I'm doing this year? Are they Hey, we already have a like a mega unicorn in this fund. So, I'm not going to just have a couple some fun with these investments. All that investor cap table psychology is important. There needs to be an AI for that.

JK: You don't have to look at AI for that man. You look at their funds size and I'll jump in on that. Right. So, there's two things I think that I do differently now. So, one let's riff off what you were just talking about. I think for fund of our size at $21 million fund. There is probably a cap on fund size that we can collaborate with. Or we must understand the incentives of the partner inside of a larger fund. And kind of what they think success looks like. I think that's the biggest thing. And a lot of founders miss this because they go for brand names and they think if I get XYZ brand fund as my investor, I am going to do well. It's going to unlock opportunities for me customers are going to you know, flow. And ultimately, that is all great when it's 2021 and the money's flowing. And when it comes to 2023 and you go back to that same investor, and it turns out that they were you know, billion-dollar fund that was writing two to $3 million kind of option bets. And you thought that you know, you were the main you realize that you were the side piece. Like that becomes a really challenging moment. Yeah, not just for you as a founder. But for the investors on the rest of the measures like cap table. Yep. And I won't name names I've had issues with other companies in my past three, we're like past ones, where this has happened, where you think, oh, this board partner this lead is right or die. And it turns out that they're not it was just an option bet, so you don't have to look at AI or incentives or whatever you I think just must look at the font size. And you must look at the partner and understand how many boards are they on How involved are they with the company? Are they a company builder or are they come to the come from that background? And doing that diligence, you know, especially when we look at co investors we've been in this ecosystem long enough, asking people that are co invested with that person. How often do you check in with them? How often do they send you deals, how good are those deals? I think every time we let a new co investor into like our communities, so to speak or our group. I think we do a good job that we understand why they're there. I don't know if a lot of folks that's a so that's one. The second thing I'll say, and this is again like caution for founders’ kind of thing right. Round names mean nothing precede seed Series A. Right like these have changed so much. When you guys worked with Postmark into series A it was $3 million. Today that's called the precede ultimately, what are those stages mean and what is the stage that we invest in right? precede is can I build it? That the thing that I believe my customers need? Can I build it seed stage to me where we really come in? does the customer want it? Will they buy it? And I think series A is there enough customers for me to really make a billion-dollar business, right? And what I have learned is don't worry about the funded name or are they precede are they seed are this series a find the folks that that company is at your stage? Are you at the can I build it stage okay; you probably need to precede fun. Are you at the Will my customer by this phase? Okay, you probably need to see. And if you're at the wow I have customers and they're buying it and I need to scale and I need money. Okay, you're probably at the series a stage. No, I think I have I have now homed in overtime and not gotten so caught up on round names and even round sizes and just dig in by talking to the customer. It's a great every one of the last I'd say six or seven out of 17 deals that we've done. We've had multiple customer conversations yet both existing and prospective. And I think it just makes us so much smarter. And it sometimes leads us passing on deals, because the signal there isn't strong enough.

VC: And that's part of the function of a slower economy where we can take the time, compared to the last five years where there were deals sent around where the deadline was within a week, in or out type bullshit, which people could get away with back then.

JK: Which is fun. It's awful. If you work if we're going to be in a deal, you know, we did a seat deal in Glacier we're going to be in that cap table for the better part of a decade. That's right. We're going to be in there longer than average American marriage. Like how are you going to get married in a week? That's right and like expect there to be so I don't know.

VC: No, you're right. It's so just two other thoughts on this short, short, like what should the founder what should they have in their cap table? Right. So, the first was that there's some great, great investors whose funds are smaller than 50 million. Yeah. And if I'm a founder and climate, I want money from them, and maybe I want money from four or five of those funds. But I think what I would want is I don't want four of those sub $50 million funds, investing in my car, you know, and I think that's a dream team because you're finding now that there's superpowers of specific areas. And when you're that small, you need to succeed with every company. So that's like the first thing I'd say. The second thing I'd say is if you want to get to FDA at the A in the B especially in like deep tech Now it's important to find an investor who is going to be patient and not freed up by the market. We don't talk enough about that VC two, which is one that's seen so much that they provide like, calmness to the founder to like, hey, just keep building Yeah, things will turn right like we've seen a lot to know that you shouldn't just be so antsy. So, there's two types of energy, the early stage where you want these, I call it the cardiac cap table. You want everyone to be working for you doing things closing deals, who do you know, here's a spreadsheet, but then at the next stage up or two, you want someone who's like, with a cool hand, like, hey, I know that just happened, hey, that crisis just occurred. Hey, that machine broke down and had an issue. We'll fix it, we'll be fine. What's your plan? And I support you? So, one of that's the most interesting insight I got last week. Jay, talking to a founder was like who's your dream series A investor he said somebody with like a chill sensibility and patience to the long-term picture here. Yeah. And I was like, Man, I have not heard that in a while. Right. We've heard about value-add services and brand and closing deals. But it was interesting to hear from the second time founder. Yeah, the first Yeah, that they want someone who's patient and chill in Arizona. That's, that's nice to know. Yeah. And that's also nice to know how the company has evolved what they need. What is the new energy that should come in at certain times? It's not the same energy with just bigger funds. Yeah, it's different energy.

JK: Yeah. So that was a new learning. I think a recent new learning you know, kind of building off what you're talking about second time founders and first-time founders. It's a question that I've asked quite a bit more recently, especially when I want to talk to guys like Leo or Susan from Eclipse or, you know, the folks at GE to VP billion-dollar funds. You know, John Doerr initially started G2VP. And I always ask you know, what do you see second time founders doing differently? That first time founders can learn from, and I get a wide array of answers. The most frustrating part is everybody says, you know, it's just a feeling like it's just an understanding it's just the muscle memory of doing certain things faster. We're not freaking out about certain things. But I would say the, the most important answer that I've gotten is communicating better. Second time founders, often they communicate better they don't communicate more. They communicate better. And that was, I think, an interesting learning, which is, knowing how to lean on your community. You talked about filling a cap table of these four or five investors. You know, we read those quarterly updates. Yeah, we read those monthly updates. If you send two monthly updates in the third month, or the fourth month, you miss it. Okay, like, that's already a red flag, right? And I keep hearing, the best founders lean into the fact that they've got these folks around them. Often. It's second time founders who understand that like my cap table isn't just some money that's going to be silent and kind of go away and let me go build things. I think we personally also like the founders and say, let me let me bring you in. Let me help you understand that we read you and it doesn't mean that I must hit you up every week or every month. Even if it's just every quarter. You're consistent. That asks, you celebrate wins. Yeah, you share challenges. And you lean on this network of folks around you to help you.

VC: Let's just discuss that. I've been a big, big proponent of second time, third time founders and there's certain funds that we work with that only bet on second time or they only bet on someone who's been in their business that industry for like 15 years. Their average founder age is over the age of 35.

JK: Yeah, right. Buddy Lee already clips of the exact same thing is that now the folks I'm backing built a software company, you know, seven, eight years ago. Now they're in their 30s and 40s. And now they're building a climate or industrial automation company. It's not it's not what you imagine. It's not the young guys in hoodies.

VC: And you know, so that's a big myth. What I've also think is interesting is there's there needs to be more standardization of industrial letters. Like we know, we I have one angel deal I always for you, the guys that asked about this, this dude should be making investment memos of the service. That should be his business, because it's so damn good. It's so clear. And honestly, I'm just like, I'm ready to back your next company. Man. It has thing works well. I'm an investor. But the next one I'm backing to because you get it and more like I guess a lot of founders don't have good news all the time.

JK: That's part of it. And they probably don't want to reach out but I think as investors we shouldn't put the expectation that the update is about good news all the time. Now, it may be that you feel like oh, if I send this, I'm going to get some angry emails and angry letters. But I would tell any founder listening, if you don't send it, you're more likely to get angry emails and angry letters. That's supposed to mean like, hey, I gave you money six months ago. I haven't heard from you since Yeah. But if you reach out and say here, the challenges that I'm facing and you position them as here are challenges to my business, can you help me you are much more likely to get that help, and much less likely to get investors were like, well, I don't know. What's going on with your business. Yeah, I'm unhappy.

VC: I agree with you. And I think that it's short sighted, because founders will need to go back to capital sources for the rest of their career. Yes, even when they're super rich and don't want to use their money. They're still going to want partnerships. Yeah. And I often when sometimes I do look at a founder and say well, you got a great exit. Why is your VCs and the new one different? Makes me wonder, right? Yeah. Is that a marriage that went wrong? Right. And so those are little micro details that if you see the same investors back in the same founder six times over, that's probably a good founder.

JK: It's a good sign. Yeah. So, we'll close on a couple of things. So, you've interviewed some founders on our show. You talked about one glacier earlier on. How is that experience and approach of meeting him having him on the show, meeting him in person? Did it make you think about kind of the right way to build founder relationships before we make an investment?

VC: Glacial is an interesting one because we both got exposed to the company at the same time in two different places. Yeah, you heard about it through one of your in your network. Yeah, I went to near future event shout out to them for an amazing event. I watched the video, and I was like, that's amazing. That's robots recycling, and automatically finding things using computer vision. Love that like that's, I don't need a science degree. I get this. Yeah, we had a Rebbe on the show. Yeah. He explained a great founder journey from coming from software web to meta to realizing he wanted to focus on these bigger problems. Then, podcast was great. You appreciate the clips. He invited us into the round. Right. On top of that, I was able to go to Recology SF to huge recycling. Yeah. And man, it takes a lot to leave Marin to go to a baseline, the garbage dump, went there. You're in garbage, man. You're in recycling and to walk in there. And first, seed stage companies that have enterprise customers that allow you to just walk in is almost nonexistent. Yeah. Right. It's a lot of these things are in like pilots. And you don't even know where these are. And if they're still running, it's there's a lot of cloudiness to that. So going to the place, seeing the glacier devices working in real time with, you know, not needing as many people on there. Then also looking across and seeing the bigger machines from some other competitors. They're just not working. They're not running. That's diligence. That's old school, you know, preserve intelligence. Preserve, and I was lucky it's in San Francisco is there and you got stuff you go to the settings place here now. It's important to go in person. That's the stuff Yeah, and that zooming is great. For a lot of stuff. But now we've returned to like having to in our world you must touch and feel the product again.

JK: Well, so often the stuff that you and I are looking at, I think has a hardware component right and I'll so fundamentally like spell this out. The reason we get excited about it one is there are so many software funds, and all those deals are getting bid up and getting expensive. And yet venture still hasn't figured out a right way to do hardware. And here we are saying okay, we think we can find the right companies in that space that that that inflection point I talked about, right? I know how to build it. I can sell it to my customer. Great. The other thing is, we come from a world of communications and media strategy and content. And these are very visual products. Yep. So, give me a glacier recycling robot every single day of the week as compared to a reinsurance platform. How the hell do you make a video about a reinsurance platform where you can send a camera crew to Recology and show the robot in action? And, you know, it lets other customers kind of build trust. It's okay, right. I see this thing. It's not hypothetical. It's real. So, I think that's the other angle of like, yeah, you must do the diligence in person. It's kind of counterintuitive post COVID. Everybody was like, Yeah, I'm writing $50 million checks after meeting a founder on Zoom. Yeah, now we write a 500k check. And we go out there and we spend time Yeah, you know, face to face with the founder. I think it makes a huge difference. It does.

VC: And I think that's fun. And it's not a correlation that the most newsworthy stuff is the best investment. Maybe you could argue the opposite. The least newsworthy stuff is sometimes the biggest investment.

JK: Wait, so that's, that's ironic, right? Like, we are PR and content people at this stage. Like, why lean towards the non-newsworthy things?

VC: I'm just saying there's two ways to make money. You could invest in snowflake, which is not that newsworthy until they're super successful. And every story is about how much money they make. Yeah, but most people could describe what they do. Or you can invest in Tesla, right where everybody can understand the car. Maybe they understand the valuation, they understand what the thing is. Yeah. So yeah, we're going to dedicate our life to things that have a more visual storytelling component. Because if it, if we do pick the right ones, they could explode. It could be some of the biggest companies in our generation. The two biggest two biggest companies in America are apple and Tesla, their hardware. There is optimism. We don't need more VCs to join into this.

JK: We don’t! Stick with software and let Vijay and I do what we're doing now.

VC: You know, we need more founders. And we, as Susan came on today said, we need more adoption by corporations. So, you're seeing robotics companies raise it up rounds. Round down in this market. You're seeing companies like Amazon and Walmart, adopting a lot of retail technology and robotics now, and we're seeing what a shock was to people, which is that a lot of people don't want to work in jobs that were it's a lot of it is just sort of the option to do other jobs in this world. than the ones that that robotics can do. Yeah. And there was a fear 2016 that the robots were taking the jobs. Yeah, there's fear. Maybe that AI is doing it but not robots anymore. Nobody's scared of a robot taking their job anymore. They don't want those jobs. Yeah. And so that's also part of understanding how PR and hybrid works. You shouldn't also get too scared about anything that comes out. Because generally things are not as scary as they seem. And they're usually not as great as they see. That's the other thing, right? So, we're like, the longer you're in this business, the more you realize that things are kind of in the middle. Yeah. And it's easy to get to where everyone's scared about GPT now like the accuracies down ever worried is going to end education. It won't teachers are using it. Yeah. Sounds like the older you get honored perspective and perspective. Everything's kind of in the middle. You can make money knowing that things aren't as bad as they are. And you can make money knowing things aren't as good as they are.

JK: Right. So, I'll close on two questions. So, the one you know about optimism, we ask every guest I want to ask you and I'd love to chat about it too. Before we do that, we fundamentally like to look at trends and big opportunities. From everything that you've heard on the show, from the last couple of years of looking at these companies, what are sort of big trends and opportunities that you're excited about that you're tracking your following that you think are going to be opportunities for us to do deals as an investor.

VC: I mean, I think we must look at the problems that we're facing in this world. And so, what are the biggest problems and are there enough people and resources trying to tackle them? I think the one thing that I've learned in this space is that climate is not one industry. It's like hundreds of micro industries. And it is extremely difficult. To become an expert in all those areas. And even if you go into one rabbit hole like water, there's water funds. Yeah, there's people that have learned what doesn't work and does work. You want to go to another area go to solar, you could spend, you could spend decades looking at different film that could go and do solar at a different pace. And, and so it's almost like the more I learn, the less I know for sure, in the space. So, the opportunities are everywhere. Right. I think the question will be, how will these things get adopted and who's paying for them? Yeah, right and who finds enough of a need to switch over because of the superiority of the thing that's going to be I think that's the thing, if we're going to Climate Technology must be a superior experience for the end customer always, or it won't work, and that's where the subsidies are not going to help in the long term. Right. They're just there to kickstart. Yeah. On your side, like what gives you optimism, you know, at this stage, and what, what gives you confusion Awesome. Is there anything that's like, making you is it all optimism? 49 episodes?

JK: No, I think there's, there's a fair bit of, I said, you know, my climate anxiety is reduced hasn't gone away completely. I think the challenge for me is the pace of adoption, not just as an investor but as a person on this planet is, you know, we welcomed our first child, my wife and I, you know, now he's really, He's not hypothetical. I'm not talking about what my future children going to inherit this planet. I have a child; he's going to inherit this planet. And so that anxiety always comes from the scale of this problem. You know, not just capping emissions now, across all these legacy industries, but also reducing the impact of what we've already been doing since really the last 60 years kind of most aggressively, but even sort of before that. So, I think what confuses me is like, is all the stuff that we're looking at just incremental. And yes, it's a great like, business opportunity, because these industries are modernizing concrete, aluminum, steel, they're looking at a lot of opportunities, there's going to be customer adoption, there isn't enough to actually make a dent, or, you know, are we going to have a really successful fund, but ultimately look back and say Man, we barely made a dent in the problem. So, I think that's where the confusion is, which is like, the scale of the problem. The excitement that's around it. Are we just patting ourselves on the back and feeling good? Or are we making a difference? I don't have that answer yet. I'm still on that journey. And let's check in 50 episodes from now and maybe I'll have a better answer for you. But to leave on a little bit more of a positive note. I think what keeps me excited, is the two trends that we started with this conversation, work and world saving. They're converging. They are converging very actively. It is very rare for me to meet a company that is building a legacy industry that isn't also talking about capturing emissions, capping emissions, reducing issues in the supply chain issues in the production. process, in the feedstock, whatever. It is commonplace to have that conversation. And so, if you are a founder that is building those industries, and you're not having that conversation, your peers are already there, it's time to catch up. But that excites me because now it means that there's a lot more folks that are not quote climate investors that are still seeing the opportunity. And if we're going to talk about why we can say it's, these Ira tax credits typically benefit the incumbents, right? Those are the folks that are better situated to absorb the benefit from that. But to absorb that benefit, they must change fundamental things about their production process. And to do that, they probably must look at startups and early-stage technologies that are that are there, right? We're going to change how things happen on your conveyor belt or your production line. We're going to change how we pick and pack food so that you're not using high emissions, transportation or packing properties. That really excites me. There are multiple billion-dollar businesses that are going to be built, just helping these legacy industries decarbonize. And like, that's happening. And that's exciting. isn't happening fast enough. Is it going to make a big enough difference fast enough for like, a year when he's you know, 30 years from now being like, I heard you had a Climate Fund. Did you do anything with it? I don't know. I don't know if it's going to happen fast enough. And that keeps me up at night a little bit.

VC: Yeah. Well, two things that need to happen, I think, just to reflect forward a year, right. We look forward for the next year. Two things that worried me one would be corporations abandoning their ESG goals. Yeah. Which always happens in a recession. You know, people make big promises of around a lot of things that are not caught a profit. And then interest rates go up or things reset or recession. And people drop those things quietly or loudly.

JK: We saw that with racial equity, right? All these goals around, you know, post Black Lives Matter and we're going to invest in this and then the market changes and nobody's really talking about those investments anymore.

VC: That's right. Yeah. So that is a big issue, because if they don't keep these goals, they're not going to mandate the adoption. So that's concern number one. Concern number two is the Republicans win. And they dismantle the IRA. Right in generally because it was Biden's thing right not because it's not bringing jobs to their areas. But because they need to just dismantle that's going to be terrible for this for this country. And the country is leading the world right now. So, if we don't get these right other countries are not going to adopt these solutions. And if we don't keep these things in order, it's going to be hard for the best students that come out of college and university. To think this is a good industry to focus on versus going into something else that's just purely instantly lucrative. Yeah, right. And so, we have, I think what's going to happen in the next 12 months, is a lot of climate VCs and founders are basically going to be doing a lot of political action work, which is going to take them away from maybe building a little bit and selling and fundraising to preserve their own survival. And we're not there yet, man but it's the clock just flipped January 1. Yeah. And these people start getting out their primaries, and in that last election was decided by courts, and we still have like, 70 million votes on each side. Yeah, I think we have a lot of work to do ahead. And that'll be another skill, which is how do we mobilize again, like we did four years ago, and that IRA, that was 30 years in the making. So, if that thing gets dismantled, then we've got bigger problems than just a venture fund, but it's where many people in our industry need to galvanize.

JK: So, let's leave on a more hopeful note. A lot of work to be done. What keeps you excited, hopeful, optimistic to keep doing the work?

VC: It's the coolest shit right now. I mean, the people that are making these, we see all the decks. They're just there's innovation happening everywhere you look from the shoes you're wearing to the air; you're breathing to the congestion to the wildfires, 20 or 30. Companies are working each one of those things. That's amazing. Yeah. And that’s only in America, man. You're going to see that kind of volume of innovation. I do believe that. What keeps me excited, is that I believe that innovation and technology is what this is only when society moves forward. Right? People can fear it. There's always articles about the pros and cons are like AI is going to probably do a lot of great things for this world. Yeah, right. Yeah. And of course, you've got to like to think about regular regulations and things, but I think more people got excited this year about AI than the last 10 years combined, and AI has been around since they need to see it in their own life. If we can see climate solutions, changing a small town of fishing town, a lake, just improving a little world, then they're going to get excited and realize this is not political. This is a thing that we focus, so I feel like I get excited about that moment. It's a magic moment. So, I'm excited about can we help create more magic moments.

JK: I think what gets me excited and I'll give you credit here because I think being on the founder calls with you. I have seen founders getting better at storytelling. And I think what it's helped me learn is like this is a skill set you can learn as a founder, this is not something that is like some mystical thing that you know, that picked up on a mountain in the Himalayas and only he knows how to do. You know, we've obviously as a company had 20 years of experience doing this and so that obviously counts for something. But as a founder if you are building something, that's a hard engineering problem, that's a hard technical problem. That's a hard science problem. But you take the time and invest the time to learn how to tell your story, to learn what your audience cares about, to learn how to tell the same story in a couple of different ways to related audiences. Like the fact that the skills that can be learned means we can bridge the gap between cool stuff that is happening at the lab stage, or at the sort of early product stage and take it to customers that are willing to pay for it. If only they can understand how, it solves their problem, and they don't necessarily care how you're doing it. You know, maybe it has blockchain, maybe it has something else. They don't give a shit. Does it solve my problem? Can you do it quickly? How fast can you get it here? And if we can help more founders do that, and we've already been doing that with the 17 companies in our portfolio, then that anxiety that I was talking about a little bit earlier, but are we moving fast enough? We can make a difference in helping companies move fast enough. And so that's my why that gets me excited. I'm able to help these companies in a meaningful way. And, you know, kind of bring it back to where we started the conversation is kind of why we're doing this together, why we started.

VC: Thank you for listening to another episode of Climb by VSC. See you next week.