The Breeze - Issue #10
Jetstream investment theses and process
|May 8, 2020|| 4|
The Breeze is a free weekly email about climate tech investing.
Today I want to share my climate tech investment theses and how I invest.
Getting funded is all about finding a fit with potential investors. I’m sharing this in the hopes that it helps startups understand if I might be a fit for them and vice-versa. (For a longer list of climate tech investors and their theses, see Issue #2 and Climatescape.)
When I started investing in climate tech in October 2019, I focused on reducing greenhouse gas emissions. I now believe that GHG reduction is a necessary but not sufficient condition. We need to rethink not just our emissions contributions but our holistic relationship with nature in order to thrive as a species and as part of a natural system.
As I said in Issue #8, as long as we consider our natural world as a resource to consume, we’ll keep finding ways to hurt our planet’s ecosystems, which hurts us too.
Here’s my new approach:
I invest in startups that improve how we live within the natural world.
Here’s what this means to me. The first part of this statement, “I invest in startups that improve how we live,” is focused on the fundamental aspects of the human condition — how we live. I’m keeping this phrase flexible by design. It’s an ongoing inquiry into the practical and spiritual ways for how we might live better as a population.
The second part, “within the natural world,” is a recognition that we are not separate from nature. Our current view of nature as “other” is unsustainable. For humans to thrive, the natural world must also thrive. Earth is a system. We depend on its life-giving processes (photosynthesis, evaporation, transpiration, convection currents, etc) and we operate within its subsystems (the hydrosphere, geosphere, atmosphere and biosphere, etc).
I invest in startups that strive to improve how we live while honoring our habitat. This includes climate tech and adjacent areas like cleantech, sustainability and circular economy. If you’re a founder, I want to learn from you: how might we live within the natural world?
I think of investing opportunities through the following lenses. This is intended to be a living document that will change as my learning and thinking evolves. Further down I explain how I invest through my syndicate.
I look for startups with big, hairy audacious goals (aka BHAGs). If you’re going to play the venture-backed startup game, you have to play big. The odds of winning are low, the sacrifices are real, and the grind is incredibly hard. If you’re lucky enough to win, you want to be in position to win big. (There are other paths for startups than taking venture funding, but I’m not interested in those at the moment.)
I’m interested in startups building toward these goals:
Sustainably produced food
Resilience through decentralization
Natural ecosystem protection, renewal and reconnection
We’re making progress in reducing waste by using plants as plastics, improving recycling and reuse, and reducing consumption. We’re marching down the path toward a zero emissions economy. These are long roads. We’ll get closer with deeper understanding, innovation and policies that account for externalities.
Food and agriculture matter for our health and the planet’s health. Millions of people in the U.S. can’t access real, nutritious and delicious food. Our industrialized system delivers cheap calories with a side of diabetes and methane emissions. We have an opportunity to produce food sustainably and make it broadly accessible.
Resilience is a way to cope with external shocks. COVID-19 has shown that our supply chains are stretched and frail, and we’re unable to rely on a centralized federal government to respond effectively. We need community-based solutions for energy, water, food, and possibly currency, to start. I expect these to have decentralized and distributed characteristics like we see in personal solar and storage, community solar and microgrids for energy.
We immediately need to stop deforestation and ecosystem destruction, and we need to nurture natural ecosystems. It’s promising to see major corporations become paying customers for initiatives like Pachama, which preserves forests, and AMP Robotics, which reduces waste. I expect these tailwinds to increase, and I support startups that enable nature’s power.
I invest early, or “almost too early,” as Mike Maples says. I like to help founders get the party started. From my experiences investing in Robinhood and Patreon, I found that being one of the first believers is the way to gain the most financial upside and personal fulfillment as an investor.
Typically this looks like:
Just the founder(s) or small team
Pre-product through early revenue
Valuations ranging $2m to $8m
Raising $250k to $3m (pre-seed through seed)
Often a lead investor
I invest $100k-$250k
This is the flywheel I focus on to continuously improve my investing practice, with occasional exceptions. (Shout-out to Sumon Sadhu for help me think through my investment zone and flywheel.)
Given that I invest so early, I place heavy emphasis on the founders and the market opportunity.
I’m especially interested in understanding the founders’ unique insights, or their “secret,” as Peter Thiel calls it. What truth have others not yet seen or understood that the founder has identified through experience or customer research? How will they turn this into a profitable, defensible enterprise?
I also want to know what it’s like to work with founders before committing. I’ve made investment decisions in 24 hours, but I often spend weeks, sometimes months, getting to know founders and observing how they execute. It’s a good sign if I find that I keep coming back to them based on a desire to work together, confidence in their progress, and conviction in their space.
I look for founders whose guiding light is to improve our planet with their high-growth businesses. I seek this alignment for two reasons:
My purpose is to serve people and the planet. I want the founders in my portfolio to become part of this tribe.
A startup’s first iteration doesn’t always work. If the startup pivots, I want our priorities to stay aligned. If the founders’ compass is aligned with climate, the market they pivot into will ultimately serve the startup’s original climate-friendly purpose.
(Aside: The most effective way to pivot is to take your existing product into a new market. In other words, find the right customer for your original proprietary insight. For a masterclass on product-market fit and pivots, I recommend Mike Maples’s interview with Andy Rachleff.)
Early-stage investors are reticent to specify industries they focus on because great founders are like visitors from the future who create new categories that we can’t predict. For example, there wasn’t a meaningful alternative meat industry until Beyond Meats and Impossible Foods came along.
I seek to stay open minded and learn from founders in this way. But I do have a climate focus, so here are some existing areas that I’m interested in:
Carbon finance: carbon accounting, transparency, offsets, ESG
Sensors & data: satellites, balloons and devices monitoring space, earth ecosystems, cities, homes, buildings and factories
Energy: smart grid, EVs, home and building efficiency
Food and agriculture: supply chain/logistics, resource management, plant-based and lab products
Transportation and mobility: electrify everything, charging optimization, delivery automation, efficient transportation, accessibility and safety
You can see my existing investments here.
These aren’t a checkbox per se, but tend to be characteristics that I’m consistently interested in:
Massively scalable with technology
Network effects for defensibility
Machine learning to optimize and constantly improve
Product is better than alternatives (i.e. pass the Mr Burns test)
How I Invest
I invest through my Jetstream Syndicate. My entry early-stage check is typically $100k and can grow to $250k.
Syndicates are like a VC fund for a single investment. When I’ve decided to invest in a startup, I tell the founder what size check I’d like to write, and I share the opportunity with my group of investors (aka LPs). Each LP then decides to invest or not. It usually takes me a week to collect commitments from my LPs and another week to close the investment with AngelList, my fund administrator.
If you’re a startup that fits the above criteria, feel free to reach out. I earnestly try to respond to everyone. If you’re interested in investing alongside me in the types of startups I describe above, check out my Jetstream Syndicate:
Impossible Foods, known for their soy-based burgers, is reportedly in talks to raise even more funds. The company recently secured $500M Series F in March at a $4B valuation led by Mirae Asset Global Investments of South Korea. They’ve now raised $1.3B since founding in 2011. Read more at Bloomberg.
Sidewalk Infrastructure Partners (SIP), a spin-off of Alphabet’s Sidewalk Labs, raised $400M Series A from Alphabet and Ontario Teachers Pension Plan. SIP plans to modernize infrastructure, accelerate circular economy, and facilitate deployment of driverless cars. Read more at Fortune.
Lime, the electric scooter company, raised $170M in a reported down round from a $2.4B valuation to $510M. It was led by Uber with Alphabet, Bain Capital Ventures and GV participating. Uber will transfer its electric bike and scooter division, Jump, to Lime. Read more on TechCrunch.
RWDC Industries, a bioplastics company growing its capacity to half a million tons of material, raised $133M in Series B funding from Vickers Venture Partners and other funds. Read more on TechCrunch.
Michael Moritz of Sequoia says, “Those who played down the warnings of the plague have now received a taste of what it will be like if they continue to ignore scientists’ warnings about a far greater scourge to humanity: climate change.” Read more in the Financial Times (pay wall).
The transition to renewable energy from coal or nuclear will be painful for the workers at those plants. Job losses are happening quickly, and the renewable industry might not be growing fast enough to counter-balance them. Just transition plans, designed to be fair for workers, are different across the country and world. Read more on Greentech Media.
Speaking of gardening, you can buy a self-watering garden from Avalow. Founder Jeremy Nusser gave readers 2 discounts: use code TheBreeze for 57% off plants if you buy a garden, and code TheBreeze-Shipping for free shipping. They work together too.
Last week I posted my availability for consulting work. Thanks for the responses. I’ve filled my open spot and am booked up through August. I’m grateful for the work. 🙏🏻