This podcast is a recorded version of Avaana Climate Corner's fireside chat on State of Global Climate Tech Investing. The podcast will cover global macro trends in climate-tech, trends across energy transition, climate resilient agriculture, mobility, and resource management and advice for entrepreneurs building in this space followed by a QnA. The transcript of the episode can be accessed here:- https://avaana.simplecast.com/episodes/state-climate-tech-investing
[00:00:00] Saksham: we welcome you to another session on state of global climate investing from our ongoing fireside series brought to you by Avaana Climate Corner.
I'm Saksham Mittal, part of the investment team at Avaana. Today we have with us, Joshua, I'll just quickly give a brief intro about both of them. Joshua Posamentier, co-founder and managing partner of Congruent Ventures. Joshua oversees congruent's investments in Polyspectra, Sense Photonics, energetic insurance, TeleSense, bellwether Coffee, Xtelligent ,ArcByt, Fox Robotics and Emergy Labs.
He has rich experience in venture both including at Prelude Ventures and Intel Capital in operating a role that Intel, national semi, and Texas Instruments and he also has done entrepreneurship stints as the CEO of Blip Stream. He was an integral member of Intel's first wireless chip team.
Started and ran national semiconductors EV, Energy Storage and Smart Grid business units. And initiated investments in several new business lines. [00:01:00] Joshua who has over 50 patents issued or pending ,holds a BA in physics from the University of California Berkeley, and hold MBAs from the Columbia Business School and the Haas School of business.
Joshua is an a Avi cyclist, skier, sailor ,surfer and photographer, and lives with his family in this SF bay area.
Swapna is a partner at Avaana Climate and Sustainability Fund leading investments into the technology led startups, utilizing climate solutions and sustainability, and delivering exponential returns.
Swapna has 13 plus years of experience across investing, investment banking in corporate finance in sectors including supply chains, industry 4.0 mobility and Agri-Tech. Prior to joining Avaana Swapna Investments, Qualcomm Ventures ,the corporate venture arm of global semiconductor technology major Qualcomm ,where she invested in various companies, including Shadowfax, Ninjakart, Locus, zuddle, moveinsync, reverie and stellapps.
Swapna' stellar work in the ecosystem, has been recognized worldwide and she was also recently recognized by gcv as a top 50 emerging leader in the corporate venture community and was the only one from India on the list. Swapna is also part of the Class 25 at the prestigious global [00:02:00] Kauffman Fellow program.
Previously, Swapna has worked as a senior associated Stan Young and as a corporate finance specialist at Vodafone India. She's an engineer from NIT Nagpur and has specialized in MBA finance from FMS Delhi. Now over to you Joshua and Swapna for sharing the insights on the broad climatetech landscape and for the interesting discussion.
Thank you.
[00:02:17] Swapna: Thanks. And my co-partner in stalking Joshua on Twitter. So Joshua two corporate lapsed VCs. What should we talk about? I guess we can start from, how did we get here? especially this is an Indian audience which has a view of what's happening in India, and, how we are building for the world. But I guess climate is no more a local problem. It's a very global problem, and all of us are doing a bit to solve it. We'd love to understand your journey of setting up congruent, your vision behind congruent. Of course, it's been five to six years of that journey. Where are you in that journey and how do you see global landscape evolving as your journey?
[00:02:53] Joshua: Yeah, happy to share that and thanks for having me on. So I spent close to 15 years in the corporate world, both [00:03:00] in a individual contributor role and, managing roles, but also briefly at Intel Capital. And that role was mostly focused on building new businesses from scratch for the corporate world.
Transitioned a few times through a few acquisitions as these things often do. And so I joined I joined a firm called Prelude Ventures about 11 or 12 years ago at this point to focus on climate specifically. I had been working in energy in the semiconductor space, so I had some familiarity, but I decided to make that sort of my full-time focus and and focus entirely on the carbon ecosystem.
So that's prelude. And one of the challenges we had back, 10, 11 years ago was there was not a lot of early stage investors in the in the climate landscape. Most had left the space after 2008, 2009. And this was such a, ongoing global problem. It seemed like a great opportunity to step out and start something really focused on the early side of things.
And so the impetus for [00:04:00] starting congruent about at this point, 6 or seven years ago, we just celebrated our sixth anniversary in January was really to focus on that early stage. So our sweet spot, our specialty is companies that are really just getting going. So about three quarters of the deals we do are actually the first institutional capital companies raise.
And so that gives us the opportunity to help get a lot of different things off the ground. We are I would say relatively risk tolerant investors. So we're willing to back early founders that have just really either come up with an idea or just started to do something but have the big vision in mind and in our opinion, a reason to succeed. So we do everything from software to hardware, deep tech financial tech, you name it. We're willing to take a look if it's got the ability to change the course of our, climate trajectory.
So everything we do is climate focused, sometimes greenhouse gas reduction, sometimes pollution reduction, sometimes water [00:05:00] reduction. You lots of different ways to go about improving, include, improving things via venture investing in climate. So our actual investment focus is primarily North America, but the companies we invest in often have global footprints, both in terms of where their teams are based and where they intend to sell their products.
Swapna was saying there's definitely a a global problem and something that we fully acknowledge.
[00:05:24] Swapna: Absolutely. So moving to the fun part of it, you started congruent about five years. You just celebrated in January, so six year running. What is Tuesday taco and how has the ecosystem evolved?
[00:05:35] Joshua: I, a lot of things have changed over the past 10 years. My favorite thing to, to have changed is the quality of entrepreneurs coming into the space back, seven, eight years ago it was. In many cases, first time entrepreneurs or purely technical talent, technical founders that had not really worked at companies before, but had amazing research.
Nowadays, there's tons of talent, complimenting that, those other kinds of founders coming from mainstream techs, [00:06:00] so tons of people out of, Google, Teslas, SpaceX Microsoft, just all over the place, really deciding to take the next step in their careers and really focus on climate. So that's easily the biggest thing.
And I think, as most of us in venture would acknowledge, it's usually the best teams that, that make things successful and more talent in this space is just, is helping immensely. So there's that, and then there's a lot of, amazing funds coming in. So Avaana capital, obviously in the India region is huge compliment to the whole space.
And I think there's almost always far more good opportunities than there are companies to fund. So that's an argument for, yet more capital to form the space. The third thing is, I would say unlike 10 years ago, there's really broad acceptance, certainly publicly, but now on the part of multiple governments and corporations, that climate change is actually a really big issue and a real issue.
And so everything from, Microsoft's deciding to trying to sequester and reduce the carbon footprint [00:07:00] back to their founding days, 40 years ago European governments and other governments saying, look, we're really taking carbon free electricity seriously, to, even small towns like mine that said, you're not gonna install any more, methane powered appliances, it's all electric from now on.
So from the bottom to the top, there's public policy that's finally supporting, climate tech in general that makes our lives easier, that makes our jobs easier. But it really drives the need For adoption for new technologies. So it's a good time to be doing this.
[00:07:30] Swapna: Absolutely. And that brings me to my next question. I think you're right, capitalist there, entrepreneur qualities there. I think the big key question is it all about breakthrough? Like breakthrough or is it about atoms and bits and what should we be really solving for and how much energy to focus where?
Because again, the context really is Indian, India, 20% of the world population. Clearly we are the largest population and have some of the best tech talent. It is both software and hardware. Like hardware has come of age easier, but software talent is also there, which means you're building world [00:08:00] class software products for the rest of the world.
What's your view or congruent view on how do you think versus as you solve for climate tech?
[00:08:08] Joshua: So interesting you asked that. We just did a pass through our entire portfolio tagging companies with whether they're atoms, Bits, atoms and Bits, or Bio, that was our fourth one that didn't quite fit in the other three. And it's about half and half in our portfolio. Bits versus atoms.
And a lot of companies have both, obviously. If you're making a sophisticated piece of hardware that needs AI to run, obviously you're gonna have more than just hardware or just software. But to your other point, your other question on I think some people frame it as innovation versus deployment of existing technologies. As much as people want to have that conversation about which one it is, it's absolutely both. If you look globally, there's 10 times more capital going into deploying technologies than innovating new technologies, which is probably, as it should be, that's new. Deploy solar fields, deploy new, new transmission lines deploy efficiency solutions.[00:09:00]
Great. We have a lot of tools to address climate change, but there's a lot more that we can do. And the other thing about innovation is it usually means making current technologies cheaper, better, even better, even easier to deploy. And so that's a lot of what we see. So most of our investments tend to be, we're looking for large markets, so we tend to not in invest in incremental technologies.
That seems to be something, big corporations are pretty good at doing. If you're solar panel manufacturer knocking a penny or two off the, price per watt of your solar panel, something you're probably pretty good at. So not something you necessarily need venture capital for, but if you're looking for the next big battery chemistry company or the next Next amazing seed trait technology company.
That's gonna be a pretty interesting place for a startup to play. And so there's, there is definitely a split. In fact, we work with a lot of our limited partner investors, which a lot of are real asset owners and deployers. So they're the ones that [00:10:00] actually invest in the in the solar farms, in the in the wind farms, power, transmission lines, batteries, you name it.
They look to us for insight there, but they are deploying so much more capital into those those solutions just to scale them. There's no need to slow that down or stop it. We need to deploy the technologies we have right now while watching for the next set of technologies and not and not limiting them.
So I think they're both great places to invest, but we've obviously picked the the very, very early side of new technology.
[00:10:28] Swapna: Absolutely an agreement. I think innovation as well as deployment. I guess the question is again, from the vc and this is what we hear from a lot of founders in India and I want to hear your view of how you're seeing US companies building for the world is of course we are all familiar with Gartner hype cycle and the challenge with a lot of these atoms is you start building and it probably takes 20 years before you start seeing real commercial.
Like for example, the other day we have this great climate group in India where every climate enthusiast probably is there and the conversation [00:11:00] was around can thorium be future, what's happening in hydrogen? Are some of these things really becoming mass scale adoption technologies? And the jury is still out, so would love to hear Congruents view.
How are you seeing that and what are some of the things, what our entrepreneurs can take a leaf out of.
[00:11:18] Joshua: So the unfortunate fact is it is true that it takes a long time to get some of these harder tech technologies to market hand scaled. I am still seeing companies I invested in literally 10 years ago, get their first factories online to make volume parts and and components. And that's frustrating.
There's not a ton you can do. There is some work that can be done, with government support and that sort of thing. But I definitely think there's a lot of technologies that we still don't know for sure. Taking your hydrogen example for example no question.
96% of the world's hydrogen is made, captive onsite for chemical processing and only 4% or so is merchant hydrogen for mobility. And there's so much investing [00:12:00] going on in the hydrogen space globally. The one thing you can be sure of is that hydrogen is gonna get cheaper. So if you're gonna go, if you're gonna pick a trend, less expensive hydrogen is a good thing to bet on TBD where it actually goes in terms of the market and the and the adoption and what all of it's used for.
But, we've actually already made some investments on the basis of that assumption. So technologies that we've invested in are gonna take, two or three or four years behind where hydrogen is. But we're hoping that our company intercepts the hydrogen
cost curve as it's on the way down.
So like that's a trend. So you can invest in the hydrogen side. I think that's ultimately gonna be a massive sector. It's, I would say it's less clear exactly where it's gonna be used. Aside from those big, fixed places where you're re replacing methane is with feedstock.
[00:12:48] Swapna: absolutely. And I think that's what we are also seeing that of course there's a lot of infrastructure investment, there's a lot of CapEx investment that's already happening and like every technology curve there [00:13:00] is miniaturization of technologies and the cost curves do come down, and hopefully it becomes commercial enough for everyone to adopt it in our lifetime at least.
But the other question that I have is, and this is where we resonated, Joshua, for our first time we spoke to, is the team that we are pursuing, right? I think in India, how we look at it is 90% of India's emissions are from three key sectors. Supply chain, mobility, energy transition, agri and food systems similar, quite similar to you.
And those are also large GDP contributors. And of course we are seeing innovations there. So for the audience here, what does it mean for Joshua and Congurent? What does really climate mean? What are the sectors you're investing in? And then maybe we'll drill down further into what are you seeing happening in the sectors and what our audience could think about building in those spaces.
[00:13:48] Joshua: Sure. So as you said we in invest in many of the same spaces, so we tend to divide the world into sort of four climate focus areas of investments. So the first one and probably the most obvious [00:14:00] is what we call energy transition. And in our world that means generally shifting the grid from fossil sources, coal, natural gas and that sort of thing to electric sources.
So that's solar, wind, augmenting that with battery storage, better transmissions. So there's lots of places to invest in that space to solve some of the challenges of renewables. Today renewables are actually by far, the cheapest incremental source of energy on the grid and the cheapest overall source of energy on the grid.
The problem is sun doesn't always shine, the wind doesn't always blow. And so there's always a lot of technology you can wrap around those two solutions at slight incremental cost. To get them to be firm, reliable resources. And so that's something we are definitely that's primarily where we're investing.
So that's everything from taking batteries and extending, solar power to 24 hour power, it's to absorb excess wind and shift it to times when there's not wind, but it's also to move power over very long distances safely. So I live [00:15:00] in California. We have a massive wildfire issue here and so being able to move tons of power and underground power lines to make them more reliable and more robust is, a very high priority. Not torching, the forest is actually very good for the climates also. So we're very focused on that. Lots of different things, but there's also interesting software solutions.
So we have a company that does what what they call grid orchestration, which is using all of the resources from, the solar resources to wind to even controlling the components on the grid, variable transformers switch cap, banks, all sorts of other, substation hardware, controlling it all, orchestrating it all to enable the grid to actually absorb more renewable power when that's being produced.
And so really, it's all about coordination. If you don't have a battery, generation has to align with load and you have no choice about that. And so again, having software that coordinates all of that will enable its software. It's relatively expensive. It'll enable lower cost operation and greener operation.
And so that's with the [00:16:00] electrification, energy transition bucket. That's where we focus. Our next one next vertical is decarbonization of mobility and supply chains. That's your sector, but we call it urban and mobility vertical. So that's everything from built environments to so how you build buildings, making them lower carbon footprint buildings.
So perhaps less concrete, more other materials that are, carbon negative or decarbonize the concrete. Another very, challenging technical undertaking, but one that there are a lot of startups focused on. So how do you get the how do you get the carbon out of that, but also how do you operate buildings?
Two-thirds of a building's footprint is actually the the operations, the heating it, cooling it, lighting it all of that, moving the air around. Those are that to, again, over the building's lifetime, more energy is spent just keeping it, habitable than building it in the first place.
So most of that is actually software, though. There's definitely some hardware there as well. Our third vertical is food and agriculture, which is pretty straightforward. Growing more [00:17:00] with less runoff, less greenhouse gas and more productivity for input. So right now, ammonia fertilizer is made with primary ingredient is methane, which is basically converted to hydrogen to make ammonia with.
We would love to see, what they call green ammonia or blue ammonia, depending on which color hydrogen you're using. And there's lots of different colors of hydrogen, if you haven't looked at that chart. But basically carbon free ammonia will dramatically change the world. Something like a third of global.
Greenhouse gas emissions come from food and agriculture and a big part of that comes from fertilizer production. So making that cleaner is amazing. So in the past I've invested in a company that makes what's called bio fertilizer, which is using naturally occurring microbes to fix nitrogen just from the atmosphere straight to the roots.
And that's a lot cheaper than making chemical nitrogen and a lot better for the environment. And see it's also better for yields in the plants because you, at some point, crops get too high to apply more for more fertilizer. And that's what whatever you have on the field is what you have on the field.[00:18:00]
If you have microbes in the soil, constantly producing nitrogen that goes all season long until you harvest. And so huge potential for improvement there. But the other place, on the food side of things, shifting from an animal protein world to an alternative protein world is potentially a huge game changer.
So we have a company in that space that uses a fungi based food. It's a fermented product that that makes a very good chicken replacement. Basically it has the potential to be a complete protein. It is very tasty and low cost has the cost entitlement below that of chicken and honestly is even healthier.
It's mostly protein. So that's got the potential to be a huge huge game changer as well. And one with, global footprint. A lot of the alternative protein companies are relatively expensive, and so they're limited to, high wealth, high income urban areas. The thesis underlying ours is it's really got a global footprint.
It's cost competitive in all markets. Anywhere where you can stand up a facility and basically feed a system, [00:19:00] sugar that comes out with amazing, delicious protein. It's great. So those are a couple of the places we play there as well. We'd like to see also ways to remediate land that's been damaged by over farming and that sort of thing.
So the last vertical we invest in is called sustainable production and consumption. That's a little bit of a catchall, but includes things that are really consumer focused that aren't just the food side of things. So we have a couple of companies in the circular economy sort of making use and reuse of things.
So we have a, company that does. Literally robots that sort through recycling and pick the right, the right plastics, the right metals, all of that for recycling and having a higher purity stream makes it much, much easier and lower cost to recycle. So now all of a sudden it's easier to recycle the stuff instead of throw it in a landfill.
At the same time we have companies in that bucket that are more supply chain focused. Different ways to manufacture metal, for example, with less waste on demand with ultimate flexibility. So tons of different manufacturing software opportunities there. So [00:20:00] manufacturing at least little bit different globally, but in the US most manufacturing operations are are underutilized.
So two thirds utilized perhaps on a good day is what you hear from people in the manufacturing space. So if you could just take the same asset and use it more, you would be making, more product per facility with the same capex the same footprint. So lots of opportunities for improvement in manufacturing, but also being able to make products where you need them when you need them, instead of building, a thousand of something and stocking them for a year for a car part, for example.
So lots of different places. So we have a very broad scope you've heard. We also have an insurance company that helps companies that don't have credit, for example, get bank lending. So it's a credit enhancement product that happens to, seems very like a very niche product, but all of a sudden it unlocks capital for deployment, mostly
[00:20:50] Swapna: absolutely. In fact, in India we have invested in a company called Turno, which is basically EV financing product. Very similar, right? TCO goes up, no one knows how to underwrite. Someone [00:21:00] needs to do the data work, and here is this company building for it, right? Very similar thought process there. We don't see climate as a sector really. It's a theme, right? It could say you're not solving for healthcare, but if you're solving for good air quality there, you're solving for healthcare in some sense, right? Or we are not solving for education. We have a company called Terra.Do, which is building a climate school.
So I think I totally resonate with you there. Similar to how you have bifurcated your portfolio between atoms and bids and bio. Are you seeing activity in one particular sector versus the other where you're seeing, because I think one of the gripes of the ecosystem is there's more money towards supply chain and mobility versus the others, right?
Are you seeing the construction in your portfolio, your how you're doing investments?
[00:21:44] Joshua: I'd say across the verticals there's probably a bit more higher number of software focused startups. So the bit side of things for all but one, so the food and ag one is obviously you have to make things in the real world. So there's a limited map you could do with just software there.
On the other [00:22:00] side of things, there are a lot of software startups. The one thing I would say is that there's, one of the problems with the the Cleantech bubble bursting in, 2008, 2009, is a lot of knowledge was lost. And so we see a lot of companies that look just like companies from that era.
And there's a unfortunately lack of institutional knowledge about what has happened before. So for anyone starting something and thinking about that, it's worth looking at the companies that came before. In the software space especially and trying to understand what happened with those.
Originally, it might be the right time for a lot of those kinds of companies. But there may be really good reasons they didn't survive the first time round as well. So I'd say the bar is so low to start a software company these days that, we're gonna have a lot more of them and we'll see.
Sometimes great entrepreneurs can take what didn't work the last time and make it work great this time. So we're, one of the challenges we've got is having been in this space for a long time we have to stay, keep our eyes open and be willing to look [00:23:00] at things that may not have worked last time, cuz this might be the right time for them.
[00:23:04] Swapna: Yeah, I agree on that. And in fact, the other thing which goes back to your cost competitiveness and global nature of these companies, right? I think if it can solve for your part of the world, why can't it solve for other part of the world? Because everyone is battling with similar problems in terms of if you can build something for the manufacturing space, if it's applicable in us, why not Europe?
Why not India? And similar for India, I, I'm slightly biased towards India because I do feel that if you can build for India, it's a harder market to sell and build for you can solve for rest of the world. I would love to get some examples of your portfolio of how they're built for. And how they then have replicated to the rest of the world for some insights or input for our.
[00:23:46] Joshua: So it's a good question. What, interestingly, one of our companies in the in the metal space, it's an additive manufacturing company that makes aluminum parts is really focused on automating and making it so you don't have to to overbuild parts. One of our other [00:24:00] companies builds all of their castings, all of their aluminum castings in India and ships them overseas.
And that's, it takes them, probably two months between order and actually receiving the parts here between, fabricating them and shipping them and all of that stuff. Having this other technology would allow that those parts to be built locally. But more importantly, once that sort of technology's developed globally, it will make it, easier and more efficient to build exactly the parts you need at in every geo because it really takes, it takes the the specialization out of it a little bit, but also But also lets you build for each market in each market, so less, less shipping, more local production.
Seems like it's probably good thing overall. It also lets people iterate more often. So if you think about the evolution, China's undergone over the years, used to be purely outsourced manufacturing. Now a whole lot of design happens there. And so that's outsourced. I think that trajectory makes a lot of sense.
So increasing the value added to parts, not just [00:25:00] making a raw part in shipping and let it, letting it be assembled and integrated elsewhere, but more, bring more of that value add locally. I think that a lot of these kinds of manufacturing technologies are lend to that trend. And for a market like India, that seems like it would be, huge advantage, especially given the the increasing domestic, the size of the domestic market there.
So I don't know if that's specifically an area you're focused on, but I can say that some of our consumer companies are definitely looking out into the future trying to figure out how to address that market.
[00:25:30] Swapna: That's on the hardware side where you're trying to not be dependent on say, one geography for your supply chain, and, but you're trying to get different parts of the ecosystem and it goes back to the energy argument that suddenly you realize you were overdependent on one country and then you were scrambling to figure out energy sources from other parts of the world.
But I guess the other question is on the software side and again, slight bias because India has traditionally built services and software for the rest of the world. How are you seeing US software companies going to the rest of the world? [00:26:00] Or how are the sandboxing, how are the opening corridors and is there a playbook there which could be used for climate companies out of India in software building for rest of the.
[00:26:12] Joshua: It's a good question. I think some of the challenges at least, I mean our software companies, given that we only started the company, six years ago and our early stage investors, it takes many years to get some of these software companies to market. So one of the challenges we've got is they're just now penetrating, say the domestic US market, but take.
Take the company doing grid orchestration. So so they make a software platform that someone would call an e m s, an energy management system. So that's the giant software from Siemens or Alten that runs the actual electric grid. All the components, all the generation like coordinates the grid.
It's a huge software. This company makes the startup version of that. And so their inroads right now are with smaller utilities that are a little more agile. The interesting thing about India is it's just now really starting to build a mature grid. And it's [00:27:00] if you think about it, the early days of of going of telecom in India, right?
There was not, there wasn't a, an extended copper infrastructure. So India got wireless telecom probably faster and better than the us Yeah, that's it. If you don't have the legacy technology to worry about, you just do the next technology, and so I feel like grid technology's probably gonna end up going the same way.
And what that means is really a ton of software tying all the pieces together, especially, as microgrids get built out in different regions and then all hooked together. Coordinating all of that is gonna be incredibly important to. The robustness of the grid and just keeping costs down.
And it's something that, for example, the US grid is gonna have a lot of trouble with over the years the US grid has built for central generation and distribution and consumption at the edges, when all of a sudden you have distributed power everywhere. It's a really different challenge. And that's one thing I would say.
The company in our portfolio that focuses on grid software is very much aware of, and most of their customers are very new [00:28:00] utilities at the edge of the grid here. And so that, there's a lot of similarities there. But there's also, we have another company that works with , as I mentioned that credit enhancement product.
So being able to bring low cost finance. To different markets that have the same exact issues. In the US if I'm a small business owner, I might not have commercial credit, I might not be able to borrow money at reasonable rates. And so if I can't borrow money at reasonable rates, I can't, put solar on my on my building and get lower cost of power than I can buy from utility.
That's terrible. I should be able to buy solar, put low cost financing in place. And so that's that exact tool set makes sense globally. This company, again, very early stage, just, just resting, million of gross written premiums is US focused now, but it's working with a reinsurance partner out of Europe and , has global desires to, to go after other markets, including India.
I think that was actually the second market was one of the second or third market they were talking about.
[00:28:55] Swapna: That's definitely a very good insight. I'm hoping to see at least five pitches, which is in [00:29:00] the next two months here of people building and trying to software hopefully. I guess the next question is, like you said, there was an error, Cleantech 1.0, it had its scars, now it's climate tech.
And of course now we are seeing great companies. There are some decacorns and some unicorns, some trying to be there. What could we all, as investors, founders be doing better to ensure that these times the outcomes are real getting towards our individual and zero country targets and ensuring that we are all solving for the harder problems and for scale and for real.
[00:29:35] Joshua: That is probably the hardest question. I would say we should all be very honest about the impact that these companies are making and make sure we're investing, from our side, investing in companies that are really not greenwashing. So I see one of the questions is asking about accurate m r v, me measurement and verification for what we do and really being honest about that and saying, look, if you really have to look at the [00:30:00] impacts these companies are making or have the potential to make. So most of our companies, again, are very early stage. They haven't scaled yet, so they haven't made an impact yet. But one of the things we can do to essentially keep the sector honest is really think about how those impacts are going to be at scale and making sure they're, the ones we want and of a large enough magnitude to matter.
So if you're doing something, it tends to lead us to do larger things that have a larger impact. The good news is that also potentially drives larger returns. And one of the other things we can do is venture investors is show good returns and say, look, an investment in climate is actually a good investment.
That's a win. It draws more money to the sector, which creates hopefully a virtuous cycle of more investment flowing into the space. So being honest focusing on those large large opportunities. And really, again from the venture perspective, trying to provide good returns.
[00:30:52] Swapna: No, absolutely.
And I think our view is very similar to yours, especially when you're solving for a country like India and the world where climate [00:31:00] become is a real problem. If you're building scalable startups for solving these problems, there's no reason you won't make profit, right?
Because it's scalable, it's large, it's create going to create impact. So impact is going to happen and money is going to flow in, right? I think it's about building those scalable, large opportunity outcomes for everyone. That's for us as investors, and we should continue to invest in great companies to create the right output for our LPs.
What about entrepreneurs as they're thinking of building? Again, because climate, of course has become the next hot topic it just. I hope people are not doing it because it's an fancy thing to do, but it's really the large outcome. But what are you seeing there? Because remember the AI era when every P PT out there had ai, the IOT 4.0 era, every P PT had now suddenly every company, and going back to greenwashing argument has climate.
But what is an advice for entrepreneurs who are really passionate building for climate? How should they think about building scalable [00:32:00] companies?
[00:32:02] Joshua: Yeah we definitely try to say climate is not the new crypto. Because that would just be terrible. So I, for new entrepreneurs coming into climate and we've helped a lot of different group, a lot of different people who've said, who've left a big corporation and said, look, I really just, I don't know what to do, but I wanna do something in climate cuz I see it's a real problem.
I think helping those people find opportunities, but also from their perspective, the ones I've seen be the most effective. It's really taking the time to really learn what those problems are, not just jump right in. So there are definitely a lot of entrepreneurs that jump right in and it's I know ai, I'm gonna take.
Everything I know about AI and I'm gonna try to apply it to climate. And that's really, my take is that's really a technology first problem. That's a technology first approach, and that almost never actually ends up working. What really works is understanding the ecosystem, understanding all of the challenges or the ones that you're interested in and trying to [00:33:00] take, start with the challenge and then figure out what technology set solves that problem.
There's no difference between climate and any other startup ecosystem. It's all, what's the problem you're trying to solve and what's the right, the optimal technology to solve that problem? So same thing I would say. So basically I can say treat climate like you treat any other sector.
Learn, learn about it. Go deep, figure out where the problems are and where you know, where you're interested in applying your solutions.
[00:33:26] Swapna: And good news, it is a large problem statement and there can be so many ways to solve for it. As simple as within. When we think about ev ecosystem alone could lend way to 20 large startups from right, from battery to battery recycling and everything in between, right? So I think that's the potential of each of these sectors and there are large opportunities in each of them.
So maybe there is virtual and not looking like copy cards and solve for large scale problems there. I know there are a lot of people wanting to ask you a lot of questions, so I will hand it over to Saksham and our audience.
[00:33:59] Saksham: Sure [00:34:00] would love to go one by one. Before that I had one follow up question to the discussion. So given there are a lot of, valuation corrections happening all across the old VC ecosystem, right? And given climate was very hot sometime, like it's still hot but there that crazy valuations probably for the past two, three years, right?
So how are you seeing that slowing down or how is that whole evolving. Because if we talk about India, we see founders who are benchmarking companies to the US counterparts and asking for similar valuations, which doesn't make sense, right? So how are you seeing that evolving and like how should investors become discerning enough to value a company?
[00:34:39] Joshua: That's a great question. I would say in general, over the past, roughly 12 to 14 months, we've definitely seen valuations come down, especially for more mature companies. And there's a real refocusing going on right now in, in terms of valuation company operations to make at least have a thought about[00:35:00] ultimate company profitability.
So we're, when, as we invest in companies, we're always trying to figure out where, where exactly companies gotta get to in terms of, total capital raise to get to profitability and then grow organically. So that's an ideal world. It sometimes takes a lot of money, obviously, but we are definitely seeing valuations come down.
I would say it hasn't quite gotten to the very bottom yet. I would say we've still got a little bit weight, little bit of room to go, especially at the early stage. Which is obviously our focus. So early stage valuations are still pretty aggressive. And I think that's a little bit of an influx of money that isn't as experienced.
So over time, that definitely has to resolve itself. But, The other thing is just realistically, you always want to be able to raise money at enough ground. So the more you optimize on valuation, the more challenging future fundraising may be. And my advice to entrepreneurs is really think about that over time and make sure you're not over optimizing for one thing that's gonna cause you,[00:36:00] issues later on.
So every, everyone's optimistic, but it can be definitely challenging
[00:36:05] Swapna: Yeah and I agree with you, it's important to grow into that valuation versus get overvalued and then try to get into that valuation over five years versus two years. It's a very different journey altogether.
[00:36:17] Joshua: And have a path for profitability also. I think that should be stating the obvious, but I think there are, there have been a lot of companies that said, oh no, we're just gonna get to scale and we'll figure out profitability later. Like it may work for Amazon, but I'm not sure it works for all the climate tech startups.
[00:36:34] Swapna: Yeah, and I guess 2021 is for sure over I don't know if we have hit the bottom or when will we hit the bottom, but I think now is the time to build in the right way with scale and economics.
[00:36:47] Joshua: Yeah.
[00:36:47] Swapna: I'm willing, I feel this will do better than any other vintage.
[00:36:53] Joshua: that might, that, historically the firms that spin up right at the the bottom of the curve have fantastic returns. [00:37:00] Yeah.
[00:37:00] Swapna: Yeah. You were saying something, Joshua, to that record that
[00:37:04] Joshua: Oh, I was just saying hopefully we're past the bottom of the Gartner curve. You mentioned before,
[00:37:09] Swapna: hopefully.
[00:37:10] Joshua: so we're on the, we're on the upswing.
[00:37:13] Saksham: that makes sense. So I'll move over to the questions from the audience. So we have a question , how do you measure the effect of your portfolio in climate? For example, in mobility, you need to understand the source of power for considering the footprint of the battery and stuff, right?
[00:37:25] Joshua: Yep. So we do an annual impact report. It takes us actually like several months to collect all the data, but we ask each of our portfolio companies a lot of different questions and we've developed what I would call a framework for collecting that data that is actually very company specific.
We tried to build one framework to capture all that data, but the portfolio is so different. It doesn't necessarily make sense, like the same metrics don't make sense for all the companies. Some are. Less water use, less waste generated. Some are straight up, removing carbon dioxide from the atmosphere.
So it really just depends. But we [00:38:00] do believe in netting out the actual effects of these companies. That being said, most are still very early in their existence, so it's a little hard to tell. But interestingly to the question on mobility, we actually have one company in the portfolio that focuses on me basically measuring lifecycle analysis mostly for consumer products, which goes all the way down to farm level.
So literally measuring at the farm level, the inputs, the outputs, netting it all out and saying, look, this ingredient has this exact carbon footprint from this specific farm. And they build that into a product level L C A that says, look, this product is either carbon neutral or here's the carbon footprint.
Here's how much carbon it would take to offset it. And there are ways to do that. I would say we, we do we have our companies self-report. Most of that, obviously, over time we'll get better and better at that, but it's definitely important to measure.
[00:38:54] Swapna: So I think the other problem is, and people try to over-engineer those impact metrics and try to sort of [00:39:00] not really see the validity of doing this.
Like one of the arguments is electric vehicles, but today, given you don't have renewable really purpose, those electric vehicles are you already solving for climate, right? But there is a future where probably these will run on non oil and non gas, right?
[00:39:16] Joshua: There is a concept some people use called harm reduction. And so that basically means it's okay to adopt a new solution. As long as it's better than what ever happened before. It's okay to adopt the current solution, even if it's not perfect. So taking exactly that electric vehicle example I've gotten into, a number of Twitter arguments about that if you take an electric vehicle and compare it to a diesel powered vehicle, for at least most of the US or overseas, I actually found that the actual data for, a pure coal grid, which is incredibly polluting, but even if you charge an electric vehicle off of a coal powered grid, it's still gonna emit less carbon than a than a diesel powered truck, for example.
It's just, it's much more efficient conversion and plus, if you're making [00:40:00] all of your power in one location, you can manage the pollution. You can actually potentially do point source carbon capture, but that's not something you could do when that's distributed. So there's a lot of arguments for just do the incrementally better thing, and as the grid gets greener, All that works, that flows downhill.
If you just have car diesel trucks everywhere, it's much harder to green that. So electrifying is definitely a good thing. It's not perfect if the grid's not a hundred percent green, but it's still a lot better than the alternative.
[00:40:28] Saksham: . Yeah. We have a question like how the US and Europe markets have evolved over time, like both area by policy and innovation for countries which are developing developing in India and who are jumping on the, of the clean innovation very recently.
And it's something similar we discussed as well earlier in the conversion about leapfrogging. So how do you see developing countries follow the trajectory for climate tech innovation and or is it fair to say that the top problems are common across countries for climate?
[00:40:54] Joshua: So I would say on the on the European versus US versus rest of world. Interesting. [00:41:00] Europe had been making, slow and steady progress, but then, after the Fukushima disaster pulling all the, carbon-free nuclear power off the grid, made their grid much dirtier. There's been a lot of adoption of electric vehicles, but answer my earlier points, not perfect with a a dirtier grid.
That being said the initial, the initiation of the war in Ukraine has been the biggest, the single biggest effect in in European energy policy. Everything from bringing the nuclear energy back online to dramatically increasing the scale of renewables, to greening the grid, to even simple things like more electric heat pumps so people don't have to buy natural gas and methane to power their furnaces.
Those things are on an incredible tear in Europe, and I think what people are finally realizing is that energy independence is actually very strategic for countries, the US is energy independent or not, depending on the year and depending on what they're importing and exporting.
I think that's an interesting, it's an interesting point for India, [00:42:00] as an importer of coal from places like Australia that. Energy independence is actually great for future stability of the country. And integrating new renewable sources is also lower cost. So you get reliability over time With distributed generation, you get lower cost energy than it would be through other sources and it's cleaner and you don't have to worry about fuel volatility cuz the sun is the sun.
So I think there's that trajectory that, that trend is, happening globally. I don't know what a good example of a similar kind of market to what India is going through is in, in terms of, climate tech, innovation, adoption. It's just such a different market than so many other regions.
It's hard to say. Which, it might have to be its own example.
[00:42:42] Swapna: Yeah, I think what I have seen is a lot of similarity between India and Brazil, maybe because that's similar sort of inflection points in terms of technology adoption. This is again from my Qualcomm days where we used to, whatever we used to see in India, we used to see a similar copycat model in those markets as well.
Again, very similar emerging [00:43:00] markets, large population, growing population.
[00:43:04] Joshua: Yep. Different physical resources, which obviously makes a different challenge.
[00:43:09] Swapna: Yeah.
[00:43:09] Joshua: Makes sense.
[00:43:10] Saksham: makes sense. Moving on to another question around carbon markets, right? So are we on an inflection point with respect to the VCM markets and is it possible to scale VCMs that sort of exists in different and across categories as well?
[00:43:23] Joshua: Yeah, my take is we're definitely at the early days of voluntary carbon markets. So I think we were seeing a very, a steady upward trend until pretty recently, there's increased perception about where. The role of quality in those voluntary carbon markets is, and the perception that a lot of the credits people were buying were, these nature-based credits weren't actually that that real.
And so I think that's put the breaks a little bit on the voluntary carbon market cycle as people try to figure out where quality is and then start buying again. So there's def this is really good for the environment because it means people are actually paying attention to the [00:44:00] quality of the offsets they're buying.
But it also has the the effect of slowing a lot of that growth down. That being said it's definitely growing fast. The forecasts are pretty huge. I can't remember, I think it's, something like a 10 billion target market by 2030, for example, in, in terms of voluntary carbon markets.
So huge opportunity to generate the carbon credits to verify them, to trade them, all sorts of growth opportunities there. But there's a flight to quality right now for sure.
[00:44:29] Saksham: Got it. And just a follow up to this so we have seen governments also play a role in building exchanges around the world, right? So for example, Singapore is coming up with an exchange. Then we have institutions like S&P coming up with their own mechanisms. And we have startups also play a role in building marketplaces, right?
So what do you think would be like one of the probable ways for this space to evolve, right? So will startups play an important role or will this be more institutionalized and more driven by the government in terms of the whole regulatory thing?
[00:44:56] Joshua: So , it will be interesting, I think in the long [00:45:00] term. I a lot of the trading will happen on the same commodity exchanges that you're used to. I'm not sure if they'll build those, that capability natively or basically find startups that do that in. And eventually acquire and that sort of thing.
I do think they're very slow right now to jump on that train. So I think there's a fair opportunity for startups to really, become the winner in that space, both in terms of market making and curating credits. I think the mrv side of things, I think that might stay independent in the, in much the same way that, standard Pores and Moodys are independent bond rating agencies.
I think there's actually a great opportunity in the startup space for better M R V, and right now it's being done, it's Vera, it's, non-profit. I think that's a place there's tons of opportunities for startup and there's a lot of technologies you can bring to bear to make management verification just more accurate, more real.
So we're looking for stuff like that as well.
[00:45:58] Saksham: Yeah.[00:46:00] How LPs are seeing climate tech as an area and are they being patient enough in terms of the longer times for exit and the impact to be created.
[00:46:11] Joshua: So I can only speak for our LPs. And we've had very clear discussions with them from the very early days that we are, it's worse for us because we're early stage investors, so we have to see the entire company arc go past. So I would say in general, they are pretty realistic about timelines involved in getting companies like this to market.
Sometimes it takes years to develop a technology, then years to get it to market, years to scale. So by then we have a 10 year fund with a couple of one year extensions. So it seems like a long time, unless you make a fund, investment year three, seven years is not enough. And so in all likelihood, the companies that we make late in each fund, Take longer than their the 10 year horizon.
So yeah our LPs are generally on the patient capital side of things compared to [00:47:00] perhaps, an average lp. And so it's a little bit of picking and choosing on our side. But I would say in general, people are pretty understanding that in early stage venture portfolios gonna take a little bit longer.
Potentially, I would say they're generally okay. No one's okay with us not generating the right kind of returns. And so the way most LPs judges is not by, the multiple on the capital we provide back, it's on the, internal rate of return. So basically the time value of money counts.
So if it takes us 10 years to drive a return, we better be getting enough of a multiple to make it look good over that period of time. As long as we do that, I think everyone's gonna be pretty happy. If we don't pull that off, that might be bad.
[00:47:41] Swapna: Yeah, no, I think you're seeing something similar, but I think that understanding is there that, look, this is the era for climate tech and you will do some harder problems. You will do some softer problems, and there'll be a mix of the portfolio, which will over time start generating returns. So that cognizance is there for sure.[00:48:00]
[00:48:00] Joshua: Hundred percent. So if you look at our portfolio, it looks like a barbell in terms of big, really hard opportunities and good size, but pretty straightforward to get to market and build a business kind of opportunities.
[00:48:14] Swapna: Absolutely. I know we have gone over time, Joshua, but this was a very interesting
[00:48:20] Saksham: maybe just one ending note for the all the entrepreneurs out there, if you could just share a minute on what day should focus on and then maybe we can close.
[00:48:28] Joshua: Oh,
[00:48:29] Saksham: really good to hear. Really good
[00:48:31] Swapna: a magic wand question,
[00:48:33] Joshua: yeah.
[00:48:33] Swapna: Wand, what would you solve for?
[00:48:36] Joshua: Yeah I don't have a perfect answer on that, but I would say, Find something you're passionate about. If you're thinking about getting into the space, find something that really, is exciting. Cuz everyone, if they're working on something that they're passionate about, they see, the results of they work better, they work harder they achieve better results.
I would say as, as generic as an answer as that is I would definitely go into something that, you find [00:49:00] exciting, so my first entry entree into climate tech was working on the chips that power electric vehicles. Cause I like cars and I knew something about semiconductors.
So electric vehicles sounded like fun. And then it was a slippery slip from there.
[00:49:14] Saksham: That is interesting to know. Yeah, I think we can maybe call the evening off today. It was really great to have you here and learn from you our morning for Joshua. Yeah. But yeah, that's but great conversation. Learned a lot today myself and nice. You could just close.
[00:49:30] Swapna: That's about it. Thanks Saksham from bringing us all together. And Joshua, thanks for your time today. I and Saksham definitely echo. We learned a lot, but the audience also in India are hungry to learn more as to what's happening because I hear a lot from us, but they don't get opportunity to hear from global folks like you.
So thank you again for making the time.
[00:49:50] Joshua: Happy to. Hope
[00:49:51] Saksham: Thanks a lot. It's been a
[00:49:53] Swapna: Yeah. Have a good day ahead.