Episode 216: Craig Shapiro and Tomás Belon, Shared Future Fund
Craig Shapiro
Tomás Alvarez Belon
Today's guests are Craig Shapiro and Tomás Alvarez Belon from Collaborative Fund.
Collaborative Fund is an investment firm focused on supporting and investing in the shared future. Their funds center around two macro themes, the growth of the creative class and the concept of the collaborative economy.
Recently, Collaborative Fund announced their new Shared Future Fund which provides rapid funding and useful resources to early-stage entrepreneurs working to solve the global climate crisis. It's a programmatic fund and they aim to make 100 investments of $100,000 in 2022 alone, giving a decision within 10 days of application.
Craig is the Founder and Managing Partner of Collaborative Fund. He currently holds a board seat or board observer seat in several pioneering climate focused companies, including: Brimstone Energy, Dandelion Energy, Kula Bio, and Quaise Energy. Tomás is a climate investor at Collaborative Fund focused on decarbonization and the Shared Future Fund initiative. Prior to joining Collab, Tomás co-founded Canopi, a Y Combinator-backed carbon accounting startup, and was a consultant at Bain & Company. He also advises Climate Tech VC, a 20,000+ subscriber newsletter focused on climate innovation.
We cover a lot in this episode, including the origin story of the firm Collaborative, how their approach has evolved over the years, and what led them to get into climate investing. We also discuss the types of risk they're comfortable with, criteria they look for, and how they think about different sectors. And we cover the Shared Future Fund, what it is, how it works, Craig and Tomas’ vision for it, and how it fits in with the other things that they do as a firm.
Enjoy the show!
You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded June 14, 2022.
In Today's episode, we cover:
Overview and origin story of Collaborative Fund
The fund's focus on the intersection of for-profit and for good
How they got involved in climate investing
How capitalism could impact a company's long-term mission for good
The way Collaborative Fund evaluates impact and risks
How the firm's investments have evolved
Tomas' climate journey
How Shared Future Fund came to fruition, its programmatic nature, and its focus on catalytic capital
The fund's partnerships including Activate and Activate Fellows program
Who qualifies for Shared Future's funding
How Collaborative and Shared Future hope to one day support companies from day zero and beyond
How Shared Future expects to build criteria for companies past beta phase
Benefits of working with YC and Activate in attracting quality talent and incredible technology
An overview of the Shared Future Fund application
Differences between the Collaborative and Shared Future Fund
Who Craig and Tomas want to hear from
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Jason Jacobs (00:00:00):
Hey everyone, Jason here. I am the My Climate Journey show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey, or MCJ as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So we set up a Slack community for those people that's now mushroomed into more than 1300 members. There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for; determination to tackle the problem of climate change, ambition to work on the most impactful solution areas, optimism that we can make a dent and we're not wasting our time for trying, and a collaborative spirit. Beyond that, the more diversity, the better.
Jason Jacobs (00:00:52):
There's a bunch of great things that have come out of that community; a number of founding teams that have met in there, a number of nonprofits that have been established, a bunch of hiring that's been done, a bunch of companies that have raised capital in there, a bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members, and some open source projects that are getting actively worked on that hatched in there as well. At any rate, if you want to learn more, you can go to myclimatejourney.co, the website, and click the become a member tab at the top. Enjoy the show.
Jason Jacobs (00:01:34):
Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help. Today's guests are Tomas Alvarez Belon and Craig Shapiro from Collaborative Fund. Collaborative Fund is an investment firm focused on supporting and investing in the shared future. Their funds center around two macro themes, the growth of the creative class and the concept of the collaborative economy.
Jason Jacobs (00:02:16):
Now, that being said, I've been seeing them getting more and more active in climate. They're investors in Brimstone, Cloud Agronomics, Commonwealth Fusion Systems, Dandelion, [Coolibio 00:02:27], and a whole bunch more. They've also come at climate through the food angle, Beyond Meat and several others in the food category as well; Sweetgreen, Square Roots, a bunch of others. And recently, they announced the Shared Future Fund, which provides rapid funding and useful resources to early-stage entrepreneurs working to solve the global climate crisis. It's a programmatic fund, and in 2022 alone, they aim to make 100 investments of 100K, and to give a decision within 10 days of application.
Jason Jacobs (00:03:01):
Now, I thought this was interesting and wanted to learn more about it, so I was grateful that Craig and Tomas made the time to come on the show. We cover a lot in this episode, including the origin story of the firm Collaborative. We talk about the approach, how the approach has evolved over the years, how and when and why they first dipped their toes in the water for climate investing, the types of investments they've made, what type of risk they're comfortable with, what types of criteria they look for, how they think about different sectors, and of course diligence, which is a challenging climate since it's not a sector in itself. It's every sector.
Jason Jacobs (00:03:40):
We also talk about the Shared Future Fund, what it is, how it works, it's reason for being, its key success criteria, their vision for it, and how it fits in with the other things that they do as a firm. Wonderful discussion, and I'm excited to bring it to you. Craig, Tomas, welcome to the show.
Tomas Belon (00:03:58):
It's great to be here.
Craig Shapiro (00:03:59):
Yeah. Thanks, Jason.
Jason Jacobs (00:04:00):
Yeah. Well, I'm psyched to have you. It's funny. I've known about Collaborative for years, back when I was doing stuff that had nothing to do with climate, and now I'm three and a half or going on four years into climate and keep bumping up against you guys more and more. I say bumping up. It's not competitive. We're on several of the same cap tables. We've been sharing leads back and forth, sharing notes when we're trying to learn. And it seems like you guys are getting increasingly more active in the space, as are we, so I was really excited for the opportunity to have you on, and I have so many questions, but just a chance to learn more about what you're up to and how you're thinking about this stuff.
Tomas Belon (00:04:39):
Great to be here, and we're excited to share more. I think Craig can probably tell you a bit more about how we got into climate.
Jason Jacobs (00:04:45):
Yeah, maybe that's a good place to start. Craig, do you want to just talk a bit about, first of all, just an overview on Collaborative and then we can get into the climate stuff?
Craig Shapiro (00:04:53):
Yeah, yeah. Started Collaborative in 2010, and the original thesis was that the most interesting opportunities existed at the intersection of for-profit and for good, that the best and brightest entrepreneurs were increasingly starting businesses that went beyond just a pure profit motive, but wanted to solve an actual problem that was going to improve society and improve people's lives. We're a little over a decade into this. We manage a number of funds. Our flagship fund is our early stage venture fund. We're investing out of our fifth flagship fund. That's $125 million fund. Yeah, and across those funds and some thematic funds, just on the venture side, we're managing a little over a half a billion dollars.
Craig Shapiro (00:05:43):
In addition to Tomas and I, you've got a motley crew mostly in the New York area, but a few of us on the West Coast and scattered. I'm sure I'm leaving a bunch out, but that's kind of who we are at Collaborative. We think a lot about impact and consumer brands and consumer behavior, and climate and sustainability is, you're absolutely right, Jason, it's an area that is increasingly coming into focus. And so yeah, we're excited. We recently announced something called Shared Future Fund, which I'm sure we'll get into, but that's one of several things that we're going to be pursuing over the coming weeks and months and hopefully years, as we're really excited about this space and the opportunities in front of us.
Jason Jacobs (00:06:29):
Well, typically, we do overviews and we chip away and get into the good stuff, but I'm going to skip a few steps here. I don't know why. I guess I'm feeling crazy, but you mentioned, Craig, the intersection of for-profit and for good. I'm just curious, other than finding companies at this intersection, are there any structural differences that you've done and/or that you think are important when doing early-stage equity investing at this intersection, for example, source of capital or time horizons or just anything different, or is it everything else the same?
Craig Shapiro (00:07:07):
Yeah. Great question. The short answer is mostly no, there's not a ton structurally different. The slightly more nuanced answer is we were very intentional. When I started the firm, I talked a lot about backing companies that were on a mission to create systemic change and how oftentimes, that can take a longer period of time than what might fit in your traditional venture fund. I think just being overt about that intention attracted LPs and capital that has a longer-term mindset and gives us some flexibility.
Craig Shapiro (00:07:49):
Structurally, if you look at our limited partnership agreement, it's kind of plain vanilla, much like most venture firms, but for example, our first fund, we've extended beyond the period, the normal period, the 10-year period, because there's still a handful of companies in there that are plugging away. And our LPs have been very flexible, because they came in kind of knowing that intention. So yeah, it's a mixed answer, but mostly kind of plain vanilla with, I think, some thoughtfulness around who we brought into the fold, which gives us a bit of flexibility.
Jason Jacobs (00:08:25):
And again, I'm kind of skipping ahead to the juicy stuff right up front, but I have to ask. If you're backing companies that have this purposeful mission and that comes from the founders and comes from day zero and comes from the expectations you set for LPs and stuff like that, but ultimately, given that it's a time box fund, there does need to be liquidity of some sort. The two primary ways for that, that I know, and I'm no expert, I'm still learning all this stuff as I go, but it's either entering the public markets or getting acquired.
Jason Jacobs (00:08:55):
Now, if you get acquired, you get acquired by a company that's managing quarter-by-quarter earnings, assuming they're publicly-traded, and if you go public, then you're answering to quarter-by-quarter earnings as a standalone entity. But either way it's the same, that with the best of intent, you get plugged into the bigger machine ultimately. So no matter how noble the intent at the early stage, is the impact going to be severely handicapped until the broader system gets changed?
Craig Shapiro (00:09:25):
Yeah. It's a great question and it's one that I think we're a tiny, tiny gnat in this ecosystem, certainly not one that can solve some of those broader issues. You're right. One thing I would point out as an additional source of liquidity, beyond either an IPO or an acquisition, is there are opportunities to sell stock once you're in a business for a long period of time to other interested parties. In some cases, we've sold shares in companies that we're invested in to really long-term holders. Think of an endowment or even a private foundation who really believes in that mission but understands the constraints of a venture fund, and in some cases, the founders are really supportive of that.
Craig Shapiro (00:10:17):
Without disclosing too much, one of Collaborative's largest investors is an endowment, and they've been a willing participant and partner along that journey. You're right at a very, very high level, but I think there's emerging alternatives that help solve for some of those structural issues. The only other thing I would say is, I don't necessarily subscribe to the public markets and quarterly earnings as being antithetical to for good. Through acquisition, we acquired shares in Etsy, for example, and they've performed really well in the public markets, and I don't think it's come at the expense of their long-term mission.
Craig Shapiro (00:11:02):
And so yeah, there's parts of capitalism that I think are suboptimal, but I don't think it necessarily severely handicaps. I think that's how you described it. I wouldn't describe it that way necessarily. In some cases, it does, but in others, I look at a company like Tesla. In some ways, I almost think they benefit from being a public company, because there's a lot of interest in the company. Yeah, it's an interesting conversation.
Jason Jacobs (00:11:30):
Well, one more big picture question, then we can switch gears to Collaborative. Also, Tomas, I'm asking a bunch of Craig questions to start, but I have a ton of questions for you. Do not worry. But Craig, when it comes to B Corps, ESG, things that are essentially trying to incorporate these principles in a dedicated way, I'm just curious your thoughts about those, given that overall, the system needs to change. By siloing these off, is it helpful or does it get in the way of broader systems change?
Craig Shapiro (00:12:00):
Yeah. Great question. We, I think, have largely sat out the impact measurement discussion. I'm a huge fan of the B Lab team and have known them for a very, very long time, and we've invested in a bunch of B Corps and public benefit corporations. But at a high level, I don't think that there is an effective measuring stick for impact that exists today. It's too subjective. It differs based on what stage you're talking about and it is polarizing. People have really strong beliefs. We saw the spat recently between Elon Musk and Tesla being kicked out of the ESG Index, and it's like, ah, what a waste of everybody's time.
Craig Shapiro (00:12:51):
I think it comes with good intentions, but from Collaborative's perspective, we view that intersection of for-profit and for good through our own lens. We're like, "Are we proud of what this company's going to do in the world?" And if so, we don't really care what other people think, honestly. And so yeah, people are not investing in Collaborative because they want us to adhere to a very specific rubric to measure the impact. They trust our judgment in backing companies that are pushing the world forward through a lens that is self-diagnosed, if that makes sense.
Tomas Belon (00:13:34):
Yeah. Just to chime in there, I think within climate and measuring impact, a lot of funds have gone the gigaton route, where they're going to say, "We're only going to make an investment where you can clearly demonstrate either gigaton impact or have a gigaton impact. I think we use that as a benchmark. That's really useful when we think about companies, but there are plenty of others that are contributing to a climate-positive world that might be focused on biodiversity, diversity or the circular economy that don't have such a clear measurement of emissions, and yet will have a massive impact. And so we like to take these frameworks as frameworks, and not as strict guidelines that will constrain some of the investments that we're really excited about and that we know will help transform the world we live in.
Jason Jacobs (00:14:20):
And you've talked about impact in a subjective way of, are you proud of it versus just strictly gigatons or something like that, and I get that. We're similar at MCJ, at least so far. One question that I have is, climate aside, how have you thought about sectors? How have you thought about bits versus atoms? How have you thought about risks, things like science risks, things like capital intensity? Are there screens or filters that you use there, or is it the wild west?
Craig Shapiro (00:14:51):
Not to come across as being contrarian, but I think about any of those filtering mechanisms as mostly being counterproductive. I think venture capital, it's a career in uncertainty. I was thinking about this. It's the only asset class where, as a manager, you're raising money for things that don't exist yet. That's a weird thing. If you're raising money for real estate, you can point to buildings. If you're raising money for public stocks, like a hedge fund, you can speak to the companies. For venture capital, you're like, "We're going to invest in people that are working on things that they don't even know about yet today." It's an odd thing. And so what I think that creates is a vacuum of uncertainty, and a lot of us in this community want certainty.
Craig Shapiro (00:15:46):
So it's like, well, if we only invest in software, bits versus atoms, if we only do certain stage, if we only do... Then it feels like we're more in control. But I almost think that's the opposite approach. It's like, when everybody said, "Don't invest in food. It's too hard in the supply chain and it's never going to be venture scale," guess what? We invested in food. When everybody said, "Oh, what do you guys... Deep tech? Why would you invest in that? You don't have X, Y, or Z credential." We were like, "Great, let's start looking at deep tech."
Craig Shapiro (00:16:22):
Sometimes the best opportunities don't fit a certain narrative, and so keeping a really open mind in terms of the types of things that we can support has been, I'm sure in some ways an Achilles heel, but in other ways, in my mind, I think a big advantage. It's something that we talk about actively as a team, which is why I wanted to get out ahead of Tomas on this answer, because there are things. I don't mean to make it sound like we're just like, "Hey, oh, cool. Let's look at everything under the sun," but I try to resist. That's been something that I'm kind of proud of, actually, as a firm, is that we will oftentimes kind of break the rules, whether it be ownership amounts or sectors. When everybody is saying, "This is the right way to do something," I think it's oftentimes probably not.
Jason Jacobs (00:17:16):
And you mentioned that the early stage is kind of the flagship or the core from that vehicle. Typically, what stage are you coming in? What check size range and what percentage of those are you leading in taking board seats?
Craig Shapiro (00:17:32):
It's evolved over time. When we first got started, we were writing smaller checks, 100 to 200K checks in lots of different companies. Fund two started the evolution towards slightly larger checks, a bit more concentrated. Fast forward to today, we're making much fewer bets, much more concentrated, average initial check sizes between one to two and a half million dollars. We're usually investing in their first, call it institutional round. People sometimes call it a seed, seed plus in some cases, even a Series A. And we're not ownership-obsessed, but we like to have meaningful ownership, because we're trying to be pretty active.
Craig Shapiro (00:18:23):
A lot of times, I don't think board seats make sense when first investing at the seed stage, but we're open to it, and in some cases, we'll take a board seat. In lots of cases, we don't. So yeah, there's not a one size fits all, but I would say-
Jason Jacobs (00:18:39):
What about leading, setting terms?
Craig Shapiro (00:18:41):
We like to lead and we like to set terms. We don't have to, but I think we as a firm like to make independent decisions. I think one of our few advantages is speed, and so if we see something we like, we'll price it and put a term sheet down. If you said, "Hey, Craig, here's a magic wand. Here's a great opportunity," our ideal would be to price it and set the terms and lead it.
Jason Jacobs (00:19:09):
And so a few more Collaborative-specific questions, and then we'll get into the Tomas show when it comes to the Shared Future Fund. But from a Collaborative standpoint, when did climate first show up on the radar, and what were some of the first steps that you did not necessarily first investment you made, but first steps you did once you started thinking about it that started moving you towards action of any sort?
Craig Shapiro (00:19:30):
Yeah, yeah. One thing that I've said in the past jokingly, but I think there's an element of truth to it, is that food was kind of a gateway drug for us into climate, that our early investments in Sweetgreen, in Beyond Meat, in Ripple Foods and others were really just the start of what ultimately pulled us much deeper into the space. And from the consumer side of it, we then started to understand sourcing and supply chain and agriculture, and then that pulled us even further. And so it's likely, I don't know if the investment in Sweetgreen in whenever, 2013, something like that, that I really started to think about the impact that our food system was having on the broader climate arena, and that encouraged us to start to think about other food investments and agriculture.
Craig Shapiro (00:20:37):
I remember when we invested in Ripple Foods, one of the key things that they touted was how much less water and how at the time, almond milk was a thing. It still is, but the alternative was all almond milk, and it was like, well, almonds consume so much water. That's kind of what started us down this path, and then from food and agriculture, we got pulled into decarbonization. We took, at the time, a crazy bet in a Google X spinout called Dandelion Energy. Then we led their seed round and I got to know Kathy. And everybody, by the way, everybody was like, "You're crazy to do... What do you know about geothermal? What? What are you doing?" And it was through that we learned and got exposed, and that led us to make another geothermal investment spinout from MIT called Quaise. And so it's like these things are dominoes that have pulled us further into the climate and sustainability world.
Jason Jacobs (00:21:38):
And historically, has climate essentially just been another area of exploration that fits neatly into the focus of the early-stage vehicle, or has it been separate and distinct within the firm?
Craig Shapiro (00:21:53):
Yeah. Great question. Historically, it was just one of the key areas within our broader focus. Our early-stage flagship fund is more of a generalist fund, with climate sustainability just being one of the areas of interest. But I would say just within the last, call it 18 to 24 months, there's been an increased interest. In fact, I think you and I talked about this, but some of our LPs in particular have said, "Hey, Craig, we're really interested in more exposure." And so that's what has led us to creating dedicated vehicles. We recently launched something called Shared Future Fund, which is, from a capital perspective, a subset of our LPs basically said, "Hey, we want a lot more exposure to this area." That led us to brainstorm and think of ways to do it outside of our flagship fund.
Jason Jacobs (00:22:48):
And so if you start in the early stage, there's different ways that you could go. You could pile money into follow-on rounds of the breakout companies there, or you could go earlier. How have you thought about that as a firm? And then, of course, we can get into the Shared Future Fund specifically.
Craig Shapiro (00:23:06):
Yeah. I think earlier is better, and I don't say that as a general rule. But for me and for us as a firm, I think generally, we really prefer and enjoy things at their earliest stage, because it's messy. It's more creative and it's like a scrum. It's a game of pickup soccer, and that's when you are figuring stuff out and that's when it's most fun. You know? As our fund size has grown, it's a little bit tougher for us to figure out how to deploy capital at the earlier stages, but that's one we like. Again, if you said, "Hey, Craig, here's a magic wand," it would be meeting founders day zero or certainly very early in their journey so we have a chance to really collaborate with them.
Craig Shapiro (00:24:03):
And this speaks to, and I promise not to belabor this, but that notion of the intersection of for-profit and for good. There's so many learnings that we've accumulated over almost 12 years of what some companies have done that has worked really well and what some companies have done that hasn't. And so being able to share those learnings when the ball of clay is still in its most malleable state is usually where we can have the most impact.
Jason Jacobs (00:24:40):
So Tomas, finally we get to Tomas, but maybe talk a bit about the Shared Future Fund and what it is, but also talk about your journey to getting into climate work and to getting to Collaborative in the first place.
Tomas Belon (00:24:52):
Yeah, I'll briefly share a bit of how I got here and why I'm working on Shared Future with Craig. My climate journey really started back in undergrad. I started to take energy classes more from a security perspective. I went to Georgetown, and that's kind of the lens that the university sees the world through, for the most part. I increasingly realized that energy was both a massive opportunity and a big geopolitical risk, and that's obviously very clear today with the Ukraine and Russia war, and what that's revealed about our lives and our economy.
Tomas Belon (00:25:28):
I left Georgetown realizing that I need to understand businesses better, that businesses were one of the most important levers to solve the energy crisis. I went to Bain and Company, where I was a management consultant for a couple years. It was really neat, because on the one hand, I got to do sustainability work, helping some of the largest real estate companies in the world, thinking about how they could offer sustainability products, not just get to net zero. But at the same time, I was working with mining companies, and that contrast, I think made me realize that if I really wanted to work in climate, I needed to do that full-time.
Tomas Belon (00:26:01):
As a result of that, I decided to take a step back. I was very lucky to get the Schwartzman scholarship, which is a year in China. Because of the pandemic, I ended up doing it remotely and actually spent a ton of time in Costa Rica, in this paradise of a rainforest where I really got to tangibly interact with the nature in the world that I want to protect. A lot of folks in climate say, "Hey, I'm in this for my children." I'm in climate for myself. Selfishly, I want to be able to go for a walk. I also want to not boil l. We're in a drought here in California. And so I work on climate for myself, and being in Costa Rica really crystallized that for me.
Tomas Belon (00:26:39):
I also had a chance to write a thesis on recycling electronic waste and solar panels, and realized there are these massive problems that need systemic change. I then went down this rabbit hole where we ended up founding a carbon accounting startup. We were focused on the crypto industry specifically. This was right around the time that Elon Musk was tweeting about accepting Bitcoin to purchase Tesla cars and then saying a couple days later, "Actually, it's not sustainable," and so it was a really interesting time to start the company. We went through Y Combinator and learned a ton, but ultimately realized that we were too early for the market.
Tomas Belon (00:27:17):
Obviously, folks in crypto today are experiencing a lot of pain, but one of the takeaways for me was that actually, good information is really important for the market to accept solutions around carbon accounting, carbon pricing, carbon removal solutions in general. But also, that as a founder, you need to hit the wave at the right time and we were a bit early. I then started working with Kim and Sophie, who are the founders of Climate Tech VC, a newsletter that reports on deals in the industry, and they're very connected with Craig and the Collaborative ecosystem. Craig was just helping to launch a series of climate initiatives that we've announced and are going to announce in the coming weeks, and so it was a perfect opportunity for me to join.
Tomas Belon (00:28:02):
Very quickly, Craig and I started to think about what to do with the interest that we were getting from our LPs that were saying, "We want more exposure to climate. We want to provide catalytic capital, and we want to develop it as quickly as possible because there's a timeline, that we have a covered budget and we need to hit it and we need the best solutions to scale quickly. Really, that's where I think Craig got the idea for Shared Future, which is a fund that is meant to be programmatic. It's meant to provide catalytic capital very quickly to founders. Right now, we're deploying $100,000 checks via uncapped SAFEs into 100 companies this year. So in total, it's about a $10 million fund.
Tomas Belon (00:28:49):
We think about how Shared Future is going to evolve in a couple different phases. The phase we want to get to and what really excites us is one in which Shared Future is open to any founder to apply and to say, "Hey, I'm working on climate. I'm going to hit that apply button and within 10 days, hear back and get funded if I'm accepted." The way we're going to get there is actually by going through a beta phase, which is what we're in now. The beta phase means that we've partnered with Activate and Activate Fellows program and Y Combinator to fund this year's batches, to say, "Hey, if you're a climate startup and you're in one of those programs, then you're eligible for Shared Future funding." And in the coming years, we're going to expand that eligibility pool until we get to that end state where folks can apply.
Tomas Belon (00:29:38):
Again, the vision here, really, is to provide very early catalytic capital, and that's on the front end. On the back end, it's to create a network of networks, both of founders and of innovation hubs and of supporters. We have Sweetgreen, the Goldhirsh Foundation, and Banff Advisors that are part of the Collaborative coalition. We want to bring together all these folks to help each other solve the biggest problems in climate and obviously, to scale.
Jason Jacobs (00:30:05):
Great. And so the 10 million that you mentioned, is that a dedicated vehicle?
Tomas Belon (00:30:11):
Yeah, it is, and we're going to deploy that in 2022 in the divisions that we're going to continue to expand that in the coming years. That's part of the conversation that we're having now with LPs, within the firm internally. But we've been really blessed by the amount of interest that's come from both founders and folks that aren't even LPs today that are saying, "We want to participate in this," and so we think that this is just the start of the journey for Shared Future.
Jason Jacobs (00:30:40):
And when you think about that Shared Future as a firm, do you put the same pressure on it from a returns standpoint that you do for the other pools of capital that you're investing, or does it have a different job within the firm?
Tomas Belon (00:30:51):
It does have a slightly different vision. The way that we think about it is, and I think the way that our LPs think about it today is to really provide catalytic capital. And so if you look at the spectrum of impact investing to pure capitalist investing, I would say this is slightly more towards the impact investing side of the spectrum than where collaborative sits, though it still is a traditional investment fund and we are providing uncapped SAFEs, not grants. At the same time, we think that that's important, because we want to participate in the growth of these companies.
Tomas Belon (00:31:24):
We want the fund to grow over time, and so we want to have a mechanism to be able to reinvest those funds and to return those funds to the folks that believed in the companies from the start. That's how we think about it. It is a separate vehicle than Collaborative's seed stage fund. There are opportunities and moments in which we may cross-pollinate and invest from both, but the way that we make those investment decisions is completely separate.
Craig Shapiro (00:31:52):
Yeah. And just one quick note is, Jason, just to kind of cut right to the heart of it, it is, as Tomas mentioned, it's separate. The largest investor in it has a mandate to invest in climate, and not for-profit necessarily, so it gave us a ton of flexibility to think about how to structure it. In fact, we haven't really shared this, but initially, we thought about running just a pure grant program. We were thinking, geez, that might be kind of fun. We were in inspired by Fast Grants, this nonprofit initiative where they got money into the hands of scientists really, really quickly, and so we studied that a bit.
Craig Shapiro (00:32:36):
Ultimately, for reasons that are kind of boring, we decided to go the uncapped SAFE route, which was clean, simple, and enabled us to get money into the hands of for-profit businesses at the earliest stage, which is where we think the biggest impact's going to come from. That gives you a sense of return profile-wise. There's a lot less pressure on Shared Future Fund. Not to say that we're not excited for financial returns or don't believe that it will generate great financial returns. In fact, quite the opposite. But the pool of capital, which again, is just a subset of our existing LPs, has a slightly different view or mandate as it relates to their investment through Shared Future Fund, if that makes sense.
Jason Jacobs (00:33:27):
Yeah. Did you worry at all before you launched this, that the broader group of LPs that are not participating in this vehicle would be concerned that this is a distraction or taking your eye off the ball as a firm? And if so, how did you address that or how would you address it if it came up?
Craig Shapiro (00:33:48):
Yeah. We've done so many things, Jason, that causes people to scratch their heads. In 2016, we launched a thematic fund around kids and we teamed up with Sesame Street. We got a lot of the same questions like, "Are there really investible opportunities? Is that a venture-backable space? Is this a distraction?" Some of which came from our LPs, most of which didn't. I would say our LPs, if you said, "What are you most grateful for?", we've got a really special group of backers who have given us a long leash. I think our returns have enabled us to extend that leash. There's a lot of trust built in. That dedicated vehicle in the kid space has already returned over three times people's money and is well on its way to do a multiple of that.
Craig Shapiro (00:34:49):
I think a lot of times, counterintuitively, the things that you might think could be a distraction or not generate returns may end up being the thing that really goes on to produce alpha. Like in that kid space, we invested originally into a company called Outschool. That started gaining some traction. Then, as Tomas said, out of our flagship fund, we doubled down, and that was the seed round, which most recently raised at a multi-billion dollar valuation. And so I do think of Shared Future as a breeding ground for potential investments from other vehicles and as being accretive to the overall effort.
Jason Jacobs (00:35:36):
And so when you think about, for example, if there's two scenarios, one scenario is the Shared Future in a programmatic way ends up producing great returns, but doesn't see any follow-on from the core early-stage vehicle. Or the other is it produces crappy returns, or I guess this isn't a viable scenario, because if it produced crappy returns, would it really produce follow-on investments? But just for sake of argument, let's say produced less stellar returns, but you wrote five checks from the core fund in companies that were found in that. What's a better outcome for the firm?
Craig Shapiro (00:36:08):
I think that the best outcome for the firm is that both Shared Future Fund and our core fund are able to support these companies throughout their journey. As an entrepreneur myself, it never totally made sense to me that you have to kind of date new investors at each new round. Why can a partner like Collaborative, which is backing you because they believe in your mission, be with you at day zero, but also potentially support you at the seed round, at the Series A, and beyond? And we do. We have an opportunity fund. We've launched later-stage vehicles to support companies through their Series B, C, D and beyond.
Craig Shapiro (00:36:55):
We're not there yet. We have so much work to do, but I really, I hope that we can build a platform that can be more of a lifecycle investor that can support these companies throughout their journey and not just like, "Hey, we led your seed round. Best of luck. We'll make some introductions at the Series A, and we get the markup and we're good. We're out." That doesn't make sense to me as an entrepreneur. As an investor, I understand it, but as an entrepreneur, I don't. I don't know. We'll see. Just to speak very plainly about returns, we'll see how things shape up.
Craig Shapiro (00:37:30):
One thing I should mention is that part of Shared Future's, part of the genesis behind Shared Future is a bet on this cohort or this vintage, something that people talk about in the venture world. Which before getting into venture, I was like, "Vintage? What the hell's that?" But it's like people tell, "Oh, that's a 2014 vintage. That's a 2016 vintage." We think that this vintage of climate is going to be very successful, because we're seeing the amount of talent that's migrating into climate right now and sustainability is like nothing I've ever seen over the 12 years of investing professionally. And so this gives us almost like an index fund approach. It's almost like, "Hey, we want to have maximal exposure to the 2022 vintage." And as Tomas said, we're going to be raising new Shared Future Funds if we're successful each year, so it's going to be Shared Future Fund 2023, Shared Future Fund 2024, et cetera, et cetera.
Jason Jacobs (00:38:38):
Got it. So it's like a traditional fund structure, but with a one-year deployment period, essentially?
Craig Shapiro (00:38:43):
Exactly. That's exactly right.
Jason Jacobs (00:38:47):
Are there any kind of rights, like right of first refusal for the core or anything like that, or is it only just earned through the goodwill and the help that's facilitated from the, I almost called it a grant, but from the check, from the Shared Future check to going out for the traditional seed round?
Craig Shapiro (00:39:04):
Yeah. It's the latter. There's no strings attached. There's no rights. We did, at the request of YC, we attached an MFN. And in fact, I think we're doing that with Activate as well, because they wanted to make sure that entrepreneurs are aligned as they're going out to raise additional SAFE notes or price rounds, that this kind of catalytic capital gets the benefit.
Jason Jacobs (00:39:29):
So that just means if someone else comes in with a cap, given that you're uncapped, that you just level out to that same cap.
Craig Shapiro (00:39:35):
Exactly. Exactly. Yeah.
Jason Jacobs (00:39:37):
Yeah. No, that makes sense.
Tomas Belon (00:39:39):
I think to your point about the goodwill here, we definitely are putting in work on the back end to support founders. We do office hours. We're building resources that they can use very tactically. We, I think most importantly, are truly trying to foster the connections between each of these, quote unquote, batches that is coming into Shared Future to truly make this network of networks where folks can find help. I think YC internally does a good job of that. A lot of folks that have gone through it, we think that's the best part of YC, and that's something that we definitely want to replicate in Shared Future. We're already starting to see that with folks showing up to office hours to events, pinging each other in our communication channels to help each other, and that's really, really inspiring. We hope that's part of the reason why folks are going to be excited to join Shared Future moving forward.
Tomas Belon (00:40:30):
The other reason we think this is the right moment for the fund is obviously, the fundraising environment has changed radically from when I joined venture just a few months ago. And so we hope that by being first check-in, we can help prove some traction and help folks accelerate that. When other investors ping us and say, "Hey, you invested in this Shared Future company. What's your diligence?", don't necessarily have that because it is programmatic by nature. We do do a lot to support those companies, succeed and scale and build.
Jason Jacobs (00:41:03):
So can any company from YC or Activate in these cohorts automatically qualify?
Tomas Belon (00:41:11):
Any climate company within Y Combinator for this year currently qualifies. We work with YC to define what the boundaries of a climate company is. With Activate, the way we've structured it is companies go through what is essentially a 24-month program. At a certain point, they graduate, and graduation for that means hitting certain milestones. Maybe that's having a business plan. Maybe that's having a first customer. It's specific to each company. And so we work with the managing directors of Activate to say, "Hey, once a company has met those milestones, they are then eligible for Shared Future funding.
Tomas Belon (00:41:47):
Of course, we then do our diligence to make sure that there aren't any red flags and that we can fund the business, but the idea is that this moves very, very quickly. For this year, that's how we're thinking about it. Obviously, as we expand the application pool, the criteria will have to become more specific and evolve over time. That's a model that's still developing.
Jason Jacobs (00:42:07):
So are you just drafting behind whatever YC calls a climate company, or do you have your own set of criteria? And in either of those directions, what defines a climate company?
Tomas Belon (00:42:19):
Yeah. That's obviously the million dollar question for everyone. Look, today, we've done one batch, so we've invested 22 companies at YC, and we feel very confident that all of those are tackling a core climate problem that will have, at a minimum, a significant reduction in greenhouse gas emissions, if not additional co-benefits. So that is, at the most basic level, how we're thinking about the criteria. As we see more edge cases, we will define the criteria more specifically, but that's actually, Jason, a big reason why we started with the beta mode now versus going public and open from day one, because it is really interesting and there are so many discussions about, what exactly is a climate company?
Tomas Belon (00:43:02):
There's an issue that Climate Tech VC put out a few weeks ago that was talking about this company in the methane space that's helping to prevent flaring and using it to mine Bitcoin. Is that a climate company if you're helping to reduce emissions but still producing emissions? It's very interesting, and so we're in the learning phase now. We are building this startup as we go, and so we're excited that everyone that joins Shared Future understands that, both on the LP side, on the company side, and at Collaborative internally, and is willing to develop that over time.
Jason Jacobs (00:43:33):
And given that the feedback loops in venture are so long or slow or whatever the right word is, and given that this is a beta phase, I would assume that you would hope that you'd leave beta phase before the venture feedback loops bring real data back around. So, have you defined what success looks like and in what timeframe are you evaluating in this beta phase that you're in?
Tomas Belon (00:44:00):
Yeah, and that's part of the conversation we're having now. I think the way that we think about it is 2022, let's get the foundation right. Let's understand how to fund companies, how to do it quickly. Let's understand how to set up the right partnerships. Those were the goals for this year. I think we're on track for that. The goal for 2023 is to start to open up the application pool. That might mean adding a few accelerators to our list of companies. It might mean adding a few advisors to help us evaluate applications as they come in. It might also mean doing a small launch that's open to the public to test it out and then see which model works.
Tomas Belon (00:44:37):
But I think that the goal here is that 2023 is going to see a step change in the eligibility for Shared Future, and that by truly 2024, we are hitting a fully open programmatic model, assuming that is viable and that is something that is best for the companies. That's what we're working towards, but we're learning along the way. Just like MCJ, I think, has evolved since it was started and you guys started making investments, we continuously implement that feedback loop. You're absolutely right. We're not going to wait for a seven-year time horizon to make changes. We're doing that constantly, and I think that's part of the reason why Shared Future is exciting, is because it's dynamic. It's going to change. It's going to evolve, and everyone is involved in that conversation.
Craig Shapiro (00:45:24):
I think one thing to point out is the feedback loops are really long from a financial returns perspective, I mean crazy long. But actually, I think some of the early indicators of success, you know from investing, within six months, I can give you a call and say, "How do you think this company is doing? Have you enjoyed working with them? Are they pushing things in a good direction? Are they able to hire good talent?" And so I think we'll know. Part of what we're planning on is around Thanksgiving of this year, to sit down and take a hard look in the mirror and just say, "How is it going?" On that spectrum of, what are the criteria? How are we defining what is a climate company?
Craig Shapiro (00:46:17):
We are leveraging these early partnerships, YC and Activate, but I do think our bias, again, this goes back to your earlier questions, is to be a bit more open and not too dogmatic about trying to... I'd rather us err on the side of, "Hey, they're trying to do something that pushes the world forward." I'd rather be like, "In hindsight, you know what? That probably shouldn't have been in it," as opposed to a real strict criteria. I think the rubber will meet the road when we do get more towards true programmatic funding, where anybody can apply and we're having to sort through that. But as it exists today, we're trying to be almost intentionally open-minded as it relates to this.
Jason Jacobs (00:47:12):
And so if you look at the job that a YC or an Activate is doing for you in this beta phase, I know it's like a blankie, but what are they a blankie for, which aspect? And then in order to get to the open phase, which it sounds like is where your passion lies, what is it that you need to learn or need to build out or need to understand that doesn't exist today, that would give you the confidence that it's time to spread your wings, leave the nest?
Craig Shapiro (00:47:46):
I'm happy to give it a shot. I think that's a great framing, the blankie. I think YC does a great job, and Tomas having gone through it, they've gotten very good at asking questions. I think part of the reason that they're so successful is that their screening is quite good, and so the application process really probes. It's not just like, "Where did you go to school and how long have you been working on this?" I think they ask the right questions. Ilan and team at Activate, I just think some of his experience is really unique and I think they've created a brand that served as a beacon for a certain type of scientist who is working on projects and wants to explore a commercialization path.
Craig Shapiro (00:48:46):
I don't think we have those muscles yet. I don't know that we know which questions to ask, so it helped us give us training wheels or almost skip a step in the process and deploy capital sooner rather than later. But in the background, we are. We're starting to think through what are the questions that we have to ask that will enable us to make decisions really, really quickly and with the least amount of human intervention or review? And some of that may be related to impact.
Craig Shapiro (00:49:19):
Tomas has mentioned the gigaton measurement. Some of it's going to be business model-related. Like at scale, what do your unit economics look like? How do you make money? Who pays for this? And some of it's going to be about the person and really understanding what motivates them and what brought them to devoting their life to this. So I think it's a question problem that we have to solve in order to get to a true programmatic-style effort, and that's where we feel like YC has honed that pretty well, and Activate in a different way, but certainly has attracted incredible talent.
Tomas Belon (00:50:01):
Well, and what I was going to say is, Jason, I think at the simplest thought, and this truly is oversimplifying what are two incredible institutions, but I think the reason we're excited about YC is they do a fantastic job of attracting and identifying great talent. I think what Activate has done a great job of, in addition to talent, is identifying incredible technology. They have deep venture folks looking at this. And so that's why we took both of these organizations as partnerships to begin with, and now there's a question of, how do we ask ourselves some of those same questions? How do we augment what they are doing? But we definitely see these as two-way partnerships, where we then help their companies succeed and grow over time, and less so as us purely outsourcing the diligence work that we otherwise would've done.
Tomas Belon (00:50:51):
And of course, as I did mention earlier, there are moments when we do invest from our traditional early-stage fund as well, so we do put in that work on the back end. I think the questions here fundamentally for Shared Future is, how do you scale? What is a traditional diligence model at the very early stages of climate to an order of magnitude more of companies in less time? There's almost like a softer question that we need to ask of, what data points do we need in order to accelerate that and still make, 80% of the time, the right decision?
Jason Jacobs (00:51:28):
And I know those 10-day turnaround, I think that's what I read, but are you actually talking to these founders? Are they walking you through a deck? Are you asking your own questions or is it more of a checkbox?
Tomas Belon (00:51:42):
Yeah. Right now, what we ask founders to do is to fill out an application where they talk a little bit about the company and what they're doing. As I mentioned, we're also talking to them on the side for our traditional early-stage fund, so those happen in parallel, but the Shared Future application truly is a written application. We also obviously are talking to, at Activate, the managing directors or at YC, Gustav. We have several data points, and as long as they meet the criteria, we are ready to fund those companies in those 10 days. We say 10 days. We actually are funding companies in a significantly short amount of time as the summer, or sorry, the winter '22 YC batch showed. And so 10 days is the long time we give, even though that's still really short.
Jason Jacobs (00:52:26):
Have there been circumstances where either you've said no to companies that meet your stated criteria or that you wish you could?
Tomas Belon (00:52:33):
I think that we so far have funded every company that has applied, because they have met the criteria. I think in this earliest stage, and truly, that was the first 30 companies that we funded, the goal was to learn. We wanted to make sure that we took the most open view possible. We haven't had folks that we funded but wanted to say no to. I think that the rationale for that would've been to say, "Hey, there's a red flag and we cannot invest." That doesn't mean that there are companies that we looked at from our traditional fund and said, "Hey, maybe that's not an investment that's right for Collaborative right now."
Tomas Belon (00:53:08):
That's obviously a conversation that we navigate with founders, where we say, "Hey, we're going to support you from the Shared Future side, but maybe Collaborative's seed fund can invest now." I think initially, we were concerned about, hey, how are our founders going to react to that? The reactions have been super positive. Folks say, "Hey, thank you so much. We're excited to participate in this program and to stay in touch for future rounds." I think we're finding a way to navigate that, but it's certainly a conversation that we are open and transparent with.
Jason Jacobs (00:53:36):
One question that just brings up for me is you talked about the muscles that you're building on the programmatic side, but you also hope that at least some of these companies will graduate and become core investments. You're looking across so many sectors and types of companies, and geography is another thing I didn't ask about, but a lot of things. Even if it's just North America, which maybe it's global, but it's already a lot of things before you even get to the geography piece. So if you're trying to lead and trying to set terms and trying to be that conviction capital at the true seed, how do you diligence? Because there is no blankie for that.
Craig Shapiro (00:54:16):
It's so good. I think, listen, my hunch is Collaborative's core seed fund or flagship fund will end up investing in a relatively small number of the Shared Future portfolio companies. It's intuitive from the outside to try to link the two, because it's like a venture capital firm. I think we had somebody say to me the other day, "Oh, I heard about your new scout program." And I was like, "Wait, what? We don't have a scout program." But it actually made me think, "Oh, that's what the people might have that perception, that the goal is for us to create a pipeline." And in some ways, that gets me excited. It gets us exposed. But I do think of them very independently and discreetly from one another. For Shared Future Fund to be successful, it has to work in its own right.
Craig Shapiro (00:55:12):
This isn't just like, "Hey, we raised a very large fund. Let's carve out a small portion of it and sprinkle it into a bunch of things and see what germinates." This is a dedicated vehicle with goals that extend beyond just purely financial goals, but more like, how do we catalyze just more people working on climate? When we look at the success metrics, it needs to be sustainable from a financial perspective i.e. generate returns, but when we evaluate it, it's not like, well, how many of these turned into or translated into Collaborative core investments? If none of them do, I still think this could go on to be a huge success.
Craig Shapiro (00:55:54):
I also do think in this environment, where the economy is really volatile and raising money is increasingly becoming challenging, it makes me even more proud to have a vehicle where people can just fill out a simple application and get money within 10 days. I'm just like, man, some of that initial capital. Now, one could argue if they've already gotten accepted to YC or Activate, how difficult is it for them to raise additional capital? Which is why I'm so eager for us to get beyond just those two beta partners, because I do think it's the random team that may be at a university lab or may be going through a lesser-known accelerator or may just be getting started, and that first 100K can be meaningful.
Craig Shapiro (00:56:46):
It can enable that one additional hire or give you the confidence to quit your job, hire the lawyer, get your documents in order, whatever it is. I think that's very separate from our early-stage fund, where if there's deep interest in a specific area, we're going to go heavy into it and try to lead. And that may come from something that we funded in Shared Future, but it may not. In most likelihood, I don't know. We'll see.
Jason Jacobs (00:57:18):
And when you look at this beta phase that you're in, what would be helpful to you? Who do you want to hear from? I would imagine it might be hard to hear from companies if they aren't part of YC or Activate, but are there companies or subject matter experts? You mentioned diligence is something you're wrestling with. What message do you want to leave listeners with and who might you want to hear from, if anybody?
Tomas Belon (00:57:42):
Yeah, I think there are a bunch of folks. One is, if you're a company, we want to hear from you. We want to understand, what are your capital needs? Where are you looking for funding today? And by the way, if you want to talk to our early-stage team, that's obviously something that we're excited about as well. The second is, if you're an expert in a field like carbon removal, if you sit on boards that help other folks' diligence and understand and select who the best companies are, we're learning about that ourselves, and so we want to hear from you.
Tomas Belon (00:58:11):
And the third is, if you're an innovation hub, say you work at Third Derivative, folks that we're in touch with now, or at any of these other incredible accelerators that are identifying talent, and you think you could be a potential partner for Shared Future, please do reach out for us. And then finally, if you're excited about the program and just want to chat, we're here, and so you can shoot us an email. I'm tomas@collaborativefund.com, and we'll be there. We're here to have the conversation, we're here to learn, and we're here to grow.
Jason Jacobs (00:58:38):
And guys, anything I didn't ask that I should have, or any parting words?
Craig Shapiro (00:58:42):
No. The only thing I would add to Tomas there, and I think it's a great question, Jason, as to who we want to hear from, we're learning as we're doing this. And so if anybody's listening that has ideas on how we can improve it, make it more valuable, more successful and most importantly, make the companies that we're backing more successful, we'd love to connect. I do think Tomas touched on this very briefly earlier, but it's worth maybe spending 20 seconds on. We were deliberate about inviting the Goldhirsh Foundation, Sweetgreen, and Banff Advisors in as an original, call it founding partners. And the reason we chose those three was because one of them knows a lot about non-dilutive capital, which we think is going to play a key role for a lot of these companies as they scale.
Craig Shapiro (00:59:41):
One of them is a potential customer. Sweetgreen has stated that they want to be carbon-neutral by 2027, and so they're looking for solutions to help them achieve that goal, and we think customer introductions are really valuable. And Banff Advisors is great at helping identify and source talent, and we also think that's a key pain point for a lot of these early founders is, "How do we hire our first business lead or somebody to head up sales or somebody who really understands how to navigate the regulatory environment?" It's talent, it's capital, and it's customer intros. And so if you think you can help us accelerate in any of those areas, we chose those three because we are close with those folks and we like them and trust them, but our hope is to grow that coalition into a broader set of folks that are all pushing this forward. So yeah, that's the only thing I would add.
Jason Jacobs (01:00:44):
Awesome. Well, thanks so much, guys. I think it's awesome what you're doing. I love the area of approach and the mission-oriented nature of it, and I'm psyched that we're co-investors in several companies together and hope to do a bunch more with you, so thanks again for coming on the show and excited to see where this goes.
Tomas Belon (01:01:01):
Thanks, Jason.
Craig Shapiro (01:01:03):
Yeah, Jason, you're the best, and congrats on everything on your side too. We're hoping that we can co-invest with you on a bunch more stuff too, so appreciate you doing this.
Jason Jacobs (01:01:12):
Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note, that is .co, not .com. Someday we'll get the.com, but right now, .co. You can also find me on Twitter at jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
