Capital Series: David Aronoff, MCJ Collective

This episode is part of our Capital Series hosted by MCJ partner, Jason Jacobs. This series explores a diverse range of capital sources and the individuals who drive them. From family offices and institutional LPs to private equity, government funding, and more, we take a deep dive into the world of capital and its critical role in driving innovation and progress.

David Aronoff is Chairman and General Partner at MCJ Collective. 

David has been in the venture space for nearly 28 years and joined MCJ a few years ago. His role has transitioned from LP to advisor to executive chair, and finally the last two years plus to his current role and chairman and general partner. 

Jason and David go in-depth, not only into David's journey, but also into the transition he made after a long career in traditional VC towards seeking more purpose, how he combines purpose and profit more squarely in this next chapter, plus his journey to finding MCJ. Then we have a fun grilling session where Jason gets to role play and ask David all the questions the partners get asked from LPs as they have been out raising the fund.

Enjoy the show! 

Get connected: 
David Aronoff Twitter / LinkedIn
Jason Jacobs Twitter / LinkedIn
MCJ Podcast / Collective

*You can also 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 on August 14, 2023 (Published on August 23, 2023)

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In this episode, we cover:

• [3:56] David's background and decision to join MCJ Collective

• [9:42] His journey exploring climate and solutions 

• [13:00] David's thoughts on MCJ's early rolling funds 

• [20:02] His mission-driven transition back to full-time work and building MCJ Collective the firm 

• [24:01] The thought process behind the launch of MCJ's traditional fund structure 

• [29:32] David's previous fundraising role vs. his role at MCJ 

• [33:00] His thoughts on MCJ's stack, data room, and preparation

• [38:48] MCJ's overall strategy 

• [44:33] David's perspective on ownership and MCJ's portfolio math

• [49:04] The diligence process

• [55:21] Time allocation of MCJ's five partners

• [58:38] MCJ's decision-making process 

• [1:00:16] David's views on how the team will scale 

• [1:02:32] MCJ's fundraising status to date, investor breakdown, and closing plans

• [1:08:36] David's thoughts on the future of MCJ's venture fund 

• [1:20:10] The "why" behind his work at MCJ and who he wants to hear from

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• Episode Transcript

  Jason Jacobs (00:00:00):

  Today on the MCJ Capital Series, our guest is David Aronoff, who is chairman and a general partner with me at MCJ Collective. I was excited for this one because David has been in venture for going on 28 years, and joined MCJ a few years ago. First as an LP, then an advisor, then as part-time executive chair, and then the last two years plus, full-time as a general partner in the fund and our chairman as well. But, while I know a lot about David, I was hoping in this one to learn a lot as well, and this episode does not disappoint. We go deep, not only into David's journey, but also the transition that he made after a long career in traditional VC towards seeking more purpose and combining purpose and profit more squarely in his next chapter, his journey to finding MCJ. Then we have a really fun grilling session where I get to role play and ask him all the questions that we get asked from LPs as we've been out raising the fund. But before we start...

  Cody Simms (00:01:08):

  I'm Cody Simms.

  Yin Lu (00:01:10):

  I'm Yin Lu.

  Jason Jacobs (00:01:11):

  And I'm Jason Jacobs, and welcome to My Climate Journey.

  Yin Lu (00:01:17):

  This show is a growing body of knowledge focused on climate change and potential solutions.

  Cody Simms (00:01:22):

  In this podcast, we traverse disciplines, industries and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.

  Jason Jacobs (00:01:36):

  With that, David Aronoff, welcome to the show.

  David Aronoff (00:01:39):

  Thanks, Jason. I never get to see you, so this is really a treat.

  Jason Jacobs (00:01:43):

  Yeah. For anyone that doesn't know, David is one of my business partners. I think one reason to have you on the show is that you worked in a career venture capital for a long time, not really focused on climate, and now you are working full-time as a VC focused on climate. And so just understanding the thought process and that transition and where you are in that journey and what gave you the conviction that this was the right thing and stuff like that I think would be valuable for a lot of people that are maybe concerned about the problem but not focused on it full-time in their day-to-day. And then separately and selfishly, I know you pretty well and I have heard all of your stories multiple times at this point, at least I think. But maybe I'll learn something new about my business partners. So I really appreciate you making the time and hopefully it's not too awkward.

  David Aronoff (00:02:33):

  Not at all. I'm happy to do that. I've been looking forward to this.

  Jason Jacobs (00:02:37):

  Me too. As I told you before we started recording, best day of my life.

  David Aronoff (00:02:42):

  You need to get out more.

  Jason Jacobs (00:02:44):

  That's true. That is true. But for starters, David, maybe just talk a bit about MCJ Collective and about what led you down the path of working at MCJ Collective. And gosh, that was such an open-ended question that it might take up the whole hour just answering it, so don't do that.

  David Aronoff (00:03:02):

  Listen, I think that anybody who's been listening to the pod for any reasonable amount of time knows that the way you started MCJ really as your learning journey, that that turned into the pod, that turned into a community, and then about the time that I joined you, started really working with you, you added the capital stack, having been doing some angel investing on your own. And so for me, MCJ is not one of those things. It's not content that happens to have community and capital. It's not a venture firm that happens to have community and content. All three pillars are equal and important because the whole notion of what we're trying to do is promote acceleration and community to help solve climate change and really help address it. And so the way I found you was literally going through my version of your journey.

  Jason Jacobs (00:03:52):

  Except with slides. I didn't have any slides for my journey.

  David Aronoff (00:03:56):

  I know. You didn't have any slides, and so I'm a little disappointed by that part. But you say that I had been a career VC. I actually don't consider myself a career VC. I had two degrees in computer science and had been working in the startup world for a long time, and then went back to get an MBA really with, and you've heard this story a million times, Jason, the intention of really doing a turnaround and going back to startup. I had been an engineer and I wanted to learn more about the business side of things. And then I was intercepted as I was finishing up business school, desperately in need of a job because my wife and I had spent every last red cent that we had, plus drained our 401(k) to pay for business school. I couldn't find a startup that I really loved, didn't have an idea that I really loved, even though I'd started a company in between years of business school, and I've been recruited by a few venture firms and I figured I was going to stay there for a year.

  (00:04:45):

  So for me now to look back and it's been going on 28 years now being in venture capital, next year will be 28 years, it's amazing to me. I always figured I would do startups from the operational side and I've been fortunate that I'm able to do it now twice as a VC, as well as helping a bunch of companies. But at the end of 2019, I had been a partner at Flybridge for 15 years, had helped build a firm with two of my closest friends, which was really amazing to have that opportunity. And we had the ups and the downs and the successes and failures and then successes. It was a typical story of the startup rollercoaster. I retired. I always do that in air quotes. I stepped down at the end of 2019. We had told our investors that that fund was going to be our last fund and had a graceful decline out.

  (00:05:31):

  And the plan that I had, and this is where that slide deck you referred to comes in, I wanted to be intentional about what I wanted to do next. I planned on taking 2020 off as my gap year to figure out a few things that were on my mind. The most important thing looming was what to do regarding climate, and for me, there were a few vectors that all intersected that drove me to it. One is I had invested in Clean Tech 1.0. When I was at Flybridge, I made two investments in the space that were both successful and then I never invested again. They both raised one round of financing and then sold the companies and made a nice return and never invested again, which probably, and I say this jokingly all the time, put me in the top 0.5% of all investors in Clean Tech 1.0, because I actually made a return on the investments. But that was always in the back of my mind.

  (00:06:22):

  Second, I grew up in rural Vermont, and I've always been a skier. Past 15 or 20 years, I've really gotten into mountain biking, and so I love just being out in the environment. I've traveled all around the world to mountain bike. I've seen the effects of climate change in varying places from the Alps to Guatemala, New Mexico, and that was on my mind. And then I had two Gen Z kids who, during the early part of the pandemic, came home to live with us and top of their mind was what was going on with the climate. We had these really in depth intense conversations where I'd say that, semi jokingly, they blamed my generation for destroying the earth, and they were pushing me and my wife to say, "What are you guys going to do about fixing it?"

  (00:07:05):

  And that's what led me to start to do a little bit more. The confluence of those three things led me to say, "This is the thing that I want to do most." I'd executed on my gap year plan and decided that trying to do something within climate was going to be the thing that was most important to me, that attracted me the most, had the most energy and excited about. And that led me to the My Climate Journey podcast. And I'd known of you from the Boston venture community and startup community, but we'd never met. And I actually think it was my former partner at Flybridge who said, "Hey, you ought to reach out to Jason."

  Jason Jacobs (00:07:41):

  You almost called me Jacob, your son.

  David Aronoff (00:07:42):

  I did not call you Jacob. My son's name is Jacob, and I often call each of them by the other name, possibly because, well, my son Jacob is actually a little bit more mature than you are at age 25. So Jeff Bussgang, my partner at Flybridge, give him full credit, said, "You ought to reach out to Jason. He's thinking about adding a venture capital fund to what he's been doing, and you two ought to know each other." And so I slid into your DMs, and I said, "Hey, really trying to learn more about climate. I hear you may be thinking about a venture capital fund. Why don't we trade? If I can give you some advice about raising, running, managing a venture fund, and if you help me learn more about climate and figure out where I can play," and that was the beginning of this beautiful story.

  Jason Jacobs (00:08:24):

  Well, I don't know if you know this, but I've known about you forever because I graduated college in '98. My first job in a tech startup was in 1999 at Storage Networks in Waltham, and Greylock was one of our backers, and you were at Greylock at the time. I was a student of venture. For whatever reason, I was enamored with venture capital and with venture capital backed technology companies. So I was researching, even back then in my early 20s, all the different partners at all the different firms and reading all the books and stuff like that, and so I've been hearing your name forever. I'm actually shocked that it took until 2019 or 2020 until we met.

  (00:09:02):

  So walk me through a little bit, and obviously I know some of the story from the other side, but you were kind of steeped in the sport of venture capital for, as you said, going on 28 years. I think when we first started talking, I had just started pulling together this rolling fund and every day, I was bringing on a new high profile individual LP and announcing them publicly on Twitter. I think that was the mode I was in at the time. Maybe talk about that journey, so the journey of getting to know MCJ and also the journey to start getting further down the path of climate and what the different stages were that led you to where you are today, back in the saddle full-time as a GP.

  David Aronoff (00:09:42):

  When we first started talking, this rolling fund, it really was just out of the cradle and there wasn't a whole lot to know about it. There wasn't a depth of understanding. There were very few funds that had been started on angels at this point. And so I think that the first thing that you and I and Thai were doing collectively was just trying to understand exactly what it meant as you were recruiting. Recruiting is a kind of a euphemism for people wanting to play behind your hand. And so first maybe several weeks to couple of months were just like, "Well, how does this thing work? Let's talk with the AngelList people. How do we understand about the structure?" It was really just the foundational stuff to understand what we're getting ourselves into with it, and that was the beginning of what I describe as getting caught in Jason's vortex.

  (00:10:20):

  And at the same time, I was reading all the material I could possibly read. I was listening to as many of the podcasts as I could, and admittedly, I still have a podcast deficit for our own pod. I am slowly catching up, but I've still got some more to do in terms of that. Also, at this point, I hadn't committed fully that I was going to work with you. I was an advisor, and I think I started off as informal and then that quickly upgraded to something more formal and then eventually joining you part-time and then full-time. But I was still trying to figure out whether I would start a company in this space, still believing that I was an engineer and an operator. I wasn't sure that I wanted to continue the next decade of my life committing to a venture fund.

  (00:11:04):

  And I think that, for both of us, the rolling fund at the beginning was a great way to build an MVP. When we were first figuring out what this would be, this relationship would be, we were spending a bunch of time just trying to understand what a rolling fund would mean, how to model it, how to manage it, what kind of data we might get in terms of support from AngelList, matching that against what I was used to from Greylock and Flybridge. And then the other side was really me drinking from the fire hose to try and understand more about the different opportunities in cleantech because when I had made my investments back at Flybridge in the Clean Tech 1.0 phase, these were companies that were certainly energy related or transition related or energy conservation related. One was an enterprise energy management software company, a SaaS business, and the other was a semiconductor company for low power management. But those were kinds of companies I might've invested in in the past. It just so happened that their mission was aligned with cleantech.

  (00:12:02):

  And admittedly, I hadn't spent a whole lot of time in the sector after that because I had just been continuing to invest in stuff that I'd done before. So, for me, trying to understand the breadth of cleantech, and I really listened closely to something that you've said since the first time I met you, which is that climate isn't one sector. It's every sector. And so, for me, that meant trying to understand a bit, reading everything that you guys have produced, going into the various different folks out there and the work that they've done, whether it's podcasts or blog posts or white papers. And the community is just so unbelievably rich and open and transparent that it was great. As part of that, actually, early on, I signed up for Terra.do and started in a cohort there. I ended up having to pause it because the business part of MCJ just started taking off and I needed that time. So I've been self-paced after that, but that was amazing in terms of really helping me get a grounding in climate science for dummy investors, I guess, in my case.

  Jason Jacobs (00:13:00):

  And when you came in, David, and I was just using the rolling funds, what was your initial thought about the rolling fund and whether that was the right decision for us, and also directionally, just how far at the time did you think it would take us?

  David Aronoff (00:13:16):

  So let me split those two. I thought it was a great minimum viable product. It was a great way to quickly activate a fund and to begin experimenting with a different strategy, a strategy that had to be different. It couldn't have been a traditional venture strategy to match the community mission of MCJ. And so what was really attractive was it was really easy to get started. Literally, it took a little of your time, little of my time, a little of Thai's time and some help from the AngelList folks, but it was a pretty low activation threshold. If you compare that against what we're doing now as we're raising this traditional fund structure, the juxtaposition is pretty dramatic. We were up and running in a week, two weeks, and in terms of where it would carry us, there were certain things that we were understanding as we moved along.

  (00:14:07):

  And so the benefit of a rolling fund, and for anybody who's interested in rolling funds, at some point, I should do a blog post about it and our learnings, but there's some great materials that's out there. AngelList has done a bunch of stuff and some other fund managers have done things. Just Google it and you'll see. But effectively, it turned venture capital into SaaS and allowed us to have effectively a one-year subscription and then with re-ups for our investors. And so that made it less of a long-term commitment for the investors, which typically would invest over 10 years. There's still 10 year fund lifetimes, but they would invest over that 10 year period, and this was certainly lower impact than that. And then, for us, it basically meant that we could keep increasing the size of a fund from quarter to quarter as we recruited new limited partner investors.

  (00:14:53):

  It also meant that the downside is if they didn't like what we were doing or if the greater macroeconomy changed, that we could lose some as the interest in investing, regardless of whether it's climate focused, could wax and wane. And so it just seemed to be a perfect fit for this early exploration of a different venture business model that we were starting. So first part of your question, that's the way I think about it, was great as a platform for experimentation. As we started thinking about longer term and really testing some of the assumptions, and the assumption funnel premise is pretty simple. We felt that we had really amazing access to some of the most talented founders out there in climate tech by virtue of the work that you had done in terms of building community and content. We were really blessed and fortunate to have that and that we could then in turn help those companies in ways that we try to help the community at large.

  (00:15:47):

  That's the premise of flywheel of goodness among content, community and capital. Over time, I think we realized that that approach that we were taking in terms of portfolio construction, in terms of how we work with companies, there was a limit to how much we could do without losing our way and without forcing us to do things that were maybe unnatural. Our role as a collaborator and being very complimentary to founders and lead VC investors in these companies really working together, and hopefully providing something which is additive, and there was a limit to it. And I think we also started to see that we were forcing AngelList maybe to do things that they hadn't expected with a rolling fund. At this point, we had five partners in the fund and a team of nine, and we were building a real company, a real firm around it.

  (00:16:39):

  And that didn't seem to be the use case for other managers who are using the rolling fund. And I admit having my own history in venture, there were some expectations about access to data and different analyses that I felt were going to be really important for us to do in terms of looking at our portfolio and managing it, that there was just a little bit of an impedance mismatch. I think that AngelList was doing their best to accommodate us and they've been great partners, but I was just expecting to have something that I had for 25 years before I met you. And so the decision to move away from the rolling fund to a traditional fund was not an easy one because the rolling funds, they were rolling along, they were doing fine, and they were really consistent with this idea of community and access.

  (00:17:21):

  And so I think the transition to a traditional fund to give us more of that industrial foundation behind it and to allow us to recruit different kinds of investors, those with longer time horizons, and so thinking of institutional investors and those who may be have businesses which are very synergistic with climate, that kind of a new platform is necessary. And we are trying to figure out the pluses and the minuses of moving off AngelList. Remember, Jason, we talked about running AngelList alongside a traditional fund. We decided that that was just going to be too difficult and too complex for a small team, and so we bit the bullet and said, "We're going to have to raise a traditional fund but do it in a very MCJ way."

  Jason Jacobs (00:18:04):

  I want to pull the thread on, "Okay, so then where did you start and what are the elements that are similar to the way that you did things historically? And then what are the biggest differences with what we're doing to traditional venture?" But I also want to marry that with the fact that when you started, you were an informal advisor and then you were a formal advisor and then you were a part-time exec chair, and then you were a full-time partner in the fund the last two plus years. So I guess it'd be helpful to understand that staging, but it'd also be helpful to understand the staging of when you built a conviction that one, that it made sense to go back to do anything full-time, and two, that this was the right home for you. I don't know how to attack that. That's a lot.

  David Aronoff (00:18:42):

  No, so it is a lot. I think that the building conviction in part was synonymous with that journey from part-time advisor all the way to getting full-time. And I just kept getting drawn in, and I had other things that I was doing. The infamous slide deck that Jason referred to, basically, I had put together a personal strategic deck, had set up a set of ground rules and things that I had loved from what I'd done in my career up to that point, things that maybe I wish I'd avoided, and some lessons I'd learned as my ground rules. And then I basically split it into thinking about for-profit work and nonprofit work.

  (00:19:18):

  And in my mind, the for-profit work was not just dollars, but it could be profit in terms of intellectual curiosity and just wanting to learn more and do so in a way where I guess the best way to describe it is I want it to be more intentional and maybe intentional for the first time in my life about my career. And so one of the most important rules of those basic tenets I set up, prime directives, was not to jump into something, not to be too impetuous, which is my nature. And it's funny to say that to you, Jason, because I think that you think of me as being more pragmatic and data-driven, but maybe it's all relative.

  Jason Jacobs (00:19:51):

  Just like you switched roles in this firm versus historically, the roles you played at Flybridge and otherwise, maybe one day I'll be chairman of a firm and I'll be the data guy. Who knows?

  David Aronoff (00:20:02):

  I'd love to see that. We intersected this plan that I had, and I had about five things on the for-profit side and about five things on the nonprofit side that I was trying to evaluate. I set up a rubric to try and evaluate them, and it was everything from, "How interested am I in it? How interested would people who actually work in this space and may be gatekeepers be interested in me? Was my existing network helpful? Would it meet this either psychic or monetary gratification that I was looking for?" A bunch of other things that were in there, and then I basically just started talking to some really smart people. It sounds a little familiar, but on a much smaller scale to what it was when you started MCJ. And so climate, to start with, was in that nonprofit bucket. The stuff in the for-profit bucket or daily work stuff was more horizontal with a few exceptions.

  (00:20:54):

  And I quickly just started ruling out a bunch of things. I tried it. Like I said, I want to sit on some boards as an independent director, and I quickly decided these would be much later stage. I sat on boards for years as a VC. I quickly decided that my heart wasn't in it. I wasn't for the most part, and there's some exceptions. I'm fortunate to be on a couple of independent boards related to work for the country, and I really, really love that because there's a mission to it. But in terms of just sitting on a board of a company where I hadn't been the lead investor, where I hadn't gotten deep into the company, it just turned out that that connection made it less interesting to me. And so I started ruling out a bunch of stuff, but then the climate stuff made its way from some of the nonprofit side, where we made a few investments and commitments, into the for-profit side because I just saw this rare opportunity where this idea of doing good and doing well at the same time.

  (00:21:45):

  It was almost like the red pill, blue pill where, all of a sudden, the world was revealed, talking with you and talking with others and reading and listening and watching. I drank the Kool-Aid of, "This isn't one sector. It's every sector." It's the next phase of the industrial revolution or a new revolution entirely. And it's a massive imperative for humankind to be able to survive, not to be overly dramatic. And so for me, that was the underpinning of it all, and then it coalesced with the work with MCJ just started taking on more form. Some of the stuff was more mundane. It was, "How do we think about running the finances?" when it was just you and Thai really as the only full-time employees, and, "How do we think about building something that's going to allow foundation to grow?" And then some of it started getting much more interesting, intricate, complex, and we started recruiting people and we started saying, "We're going to build a firm here."

  Jason Jacobs (00:22:39):

  I felt like a fisherman during this time. I was giving you some slack on the line, letting you go swim around, thinking that you're free. But the hook, I felt at the time, at least I was optimistic that the hook was already in there. So it was like, "Go swim away, and I'll just slowly reel it." I say that in jest, but it was a natural organic evolution from my side as well. But please keep going.

  David Aronoff (00:23:00):

  No, but I think that I maintained the discipline of being intentional until the point where it was just clear that I had to do this, and I didn't declare that I was full-time, even though I was 75% in where it was the only thing that I was really doing was working with you guys, other than a couple of outside boards in mountain biking. But after we recruited Cody and recruited Yin and started building up the team, actually before we recruited Yin, you and Cody basically just came to me and one of a couple of times where you basically just said, "Listen, it's time to fish or cut bait."

  (00:23:32):

  And I realized that it was you guys were saying, "Well, if you don't come on full-time, we're going to have to find someone with your background to do it." You were very polite in doing it. I felt very honored, but for me, it was just very natural. And then I had a conversation with my wife, and she'd already come to the conclusion that I was already full-time and that I was going to do it. So the negotiations with both parties, with you and Thai and Cody and then with Jessica on the other side, went very smoothly. There was no blood loss, which was good.

  Jason Jacobs (00:24:01):

  And so as you set out on this journey with us, one of the first steps, it feels like, was to start thinking through how to plant some roots to build this enduring firm. And people is one side of that, but structure, of course, is another side of that as well. And for the reasons that you discussed a bit earlier in this discussion, we were starting to outgrow the rolling fund platform. So talk a bit about how you thought about the key tenets for the enduring structure and also, given where we've ended up, what are the elements of it that are consistent with how you've done things historically in your career and what are the elements that are different and how?

  David Aronoff (00:24:42):

  There were some back and forth. You and I, and this is the thing I love about working with you, we just battled out. I'd say that initially, we both started from a position of where each of us had come from, which was, "I've been in venture capital so long. This is the way you build a venture capital fund." You and I always talk about there's a box of venture capital, and that box makes it convenient because you understand the ingredients of the box. It also makes it convenient for investors, because investors understand what that box looks like. They've been investing for a while. And some of this stuff was just arcane, and I remember distinctly conversations with you and then a little bit with Cody, the two of you ganging up on me a little bit, which was, "Well, why are we doing it this way? Why are you insisting we do it this way?"

  (00:25:20):

  And so, to me, the allusion to red pill, blue pill was it just finally opened my mind, saying, "Well, why am I doing it that way? Why did we do it that way for 25 years? What's the history of it?" And I understood some of the reason to do it back in 1965 when VC was first getting started, because it was super risky and there weren't that many firms doing it. And you needed to set out very distinct guidelines and live up to those guidelines to make sure that institutional investors who'd never seen anything like venture capital before could be as comfortable as possible. But in 2020, when we started the rolling funds and then thinking about 2023, when we're launching our traditional fund structure, things are really, really different. At the same time, your natural inclination to just not want to follow any rule whatsoever, and wanting to tear down something just because it was old, that was another source of, I'd say, constructive friction.

  (00:26:12):

  Where you ended up on that was to say, "Just because something has been in place for a while doesn't mean it's bad, doesn't mean it's not necessary." And so we had to figure out how to take those two borders, figure out how to meet with them, but then also to think about, "Well, what does an enduring fund mean in the context of what we've built so far? What does it mean in terms of this community first mission, the idea that we want it to be inclusive, that this is not meant to be some sort of exclusive club?" And venture historically has had that patina of being an exclusive club, less so, I think, in the last 15 years, but certainly in the initial era, it was very clubby and very clandestine in many ways. And that certainly is not the way that you built MCJ, learning out loud.

  (00:26:58):

  And another kind of important reason for using the rolling fund is a rolling fund was a different SEC rule in terms of guidelines that allowed us to talk about things openly. So the tenets were, "We've got to be true to ourselves. We can't all of a sudden just turn into a traditional venture fund," and I don't mean to cast dispersions on them at all because they're so necessary [inaudible 00:27:18] investors [inaudible 00:27:19], but we had a role. Our role was to be additive, complimentary capital, and that was the fundamental tenet. It was not to have sharp elbows, to come in and to have a meaningful check size for us, but not so much that it would disrupt what the lead investors who were taking the board seats and doing that shepherding work like I did for 25 years before joining you.

  (00:27:44):

  It was meant to really be an assist to what they were doing with this idea of community at the heart of it. And so that's the fundamental tenet and to do it out loud, to do it out in the open, such that everybody could learn and we could do things differently and appropriately. Not simply because it's different in breaking down the box, but because it was important to the mission of trying to accelerate solutions to climate change. And so the similarities, as we think about this new fund, there are a lot of similarities. We've got a traditional fund structure, which is a 10-year fund with the ability to do a couple of extensions. We have an industrial strength backend back office stack.

  (00:28:23):

  We've got limited partners who are not only our historical [inaudible 00:28:27] partners, where we're really thankful that so many of them have come into the new fund, but also this kind of structure allows those institutional investors who write bigger checks, who think about multiple funds at the same time as they make a first commitment, that kind of enduring backing was something that was important to us. And that's where it's similar to what it had been at my last two funds. What's different is we maintain this different SEC structure, which is called Reg C, which originally was originally created to support crowdfunding, but that's not what we use it for. The most important thing there is there's no prohibition against forward-looking statements, against marketing.

  Jason Jacobs (00:29:04):

  Against having this discussion while we're mid fundraise, for example.

  David Aronoff (00:29:07):

  Exactly. And so that is a no-no for traditional funds. It means that there's a couple of additional steps that turn out to be not that burdensome once we figure it all out in terms of accrediting our investors and qualifying the investors. But that hasn't really been a big burden once we figured it out. And that's the major difference in terms of just fund structure from what I've been doing before is that we can have this conversation.

  Jason Jacobs (00:29:32):

  Well, there's definitely some more threads I want to pull on in terms of the differences in our unique approach, but one question for you is, "So I've got it. It's keep the best of the old. Shed the worst of the old, and do things the MCJ way while still incorporating the key things from the old that are good and sound and there for a reason. I want to talk about roles for a minute. So as you said, you're coming up on your 28th year in VC. Maybe talk a bit about the role that you played historically in fundraising at the firms that you worked at and now the role that you're playing here at MCJ."

  David Aronoff (00:30:05):

  Yeah, that's probably one of the biggest differences. I'm learning every single day, working with our team. Greylock is one of the oldest and most storied venture capital funds, most successful venture capital funds in history of the industry. Fundraising, I wasn't involved in it at all. Fundraising was some of the senior folks who had been there for a while, but also we had a very stable group of the same limited partners where they didn't add many. And so fundraising was not a student body left, student body right thing when I was there, or at least if it was, it was opaque to me. And they were great, but I was also very new. I got there right after business school and I came as an associate. So my role was just very, very different there when I started.

  (00:30:44):

  At Flybridge, I came on board after the first two funds had been raised, and so a couple of my partners there were really at the forefront of fundraising. And so when we raised the third fund, I was a support player. I was not quite a character actor, but I was a support player. I was not the lead of it, and that just continued on. There were almost six funds, maybe more, in total over the time that I was at Flybridge. And it just wasn't my role to be the lead of it. I certainly was involved. I certainly added what I could, but that was really the domain of Jeff and Chip who were very skilled at it. And so coming into MCJ, having had the most experience of our team, and maybe you guys gave me far too much credit, 90% of my time at MCJ right now is fundraising as we work on closing out this first institutional fund.

  (00:31:36):

  And for me, it's been fascinating. It's a very different set of conversations than I've had before about fundraising, I think because the mission is different, the team is different, the approach is different, sectors are different, and so there's a lot of differences. There's some similarities when you talk to capital allocators, for sure, but I also feel like the way that you and I have teamed up and then our broader team as well and the way that we run it looks more like a sales process one of our operating companies might employ. And so, for me, my background as an operator, I've told you numerous times I don't consider myself as a professional investor, I think of myself as an operator first and foremost, the idea of the way that we're running things and making it data-driven and mixing in infrastructure along with a very personal side of things, which is, I think, both your nature and my nature, that works for us.

  Jason Jacobs (00:32:27):

  So new position to co-lead an investment process, although you've been doing the sport for a long time. And we talked a bit about how there were some things we're going to retain from the traditional way and some things we're going to do that are uniquely MCJ. So if you consider fundraising, just as an analogy, let's go with climbing a mountain. Well, before you go out on an extreme mountain climb, you prepare, and part of that preparation is stuff like structure and admin stack, and part of it is stuff like data room as well. So not necessarily the sexy stuff about running a fund, but pretty important, and stuff that we've been told that we punch above our weight class on relative to our stage. I credit you for that, David, because you've really not only championed that work, but done most of it as well. Maybe talk a bit about how you thought about the stack and how you thought about the data room and how you thought about just preparation in general before we headed out to kick off the process.

  David Aronoff (00:33:26):

  Thanks for the praise. I think there's praise in there.

  Jason Jacobs (00:33:28):

  There was praise. Not because I didn't think it was important, but I wouldn't call that the biggest area of my energy and expertise.

  David Aronoff (00:33:34):

  So part of this was really looking toward this idea that, over time, and maybe not even in this fund, we would be talking with large capital allocators, institutional investors who wanted to see the rigor and the thoughtfulness and the work in terms of everything from how we thought about team construction, how we think about our strategy for investing and portfolio construction to how we think about tracking performance. And then, I think in the wake of the Silicon Valley Bank crisis, how we think about our investment policy for running our own business to make sure that we don't run into trouble if there's a banking crisis again. There's a bunch of things in here that really are almost like the theory of operations and then the different procedures and policies. If we're saying we're going to have an enduring firm and this is meant just to last, these things become important.

  (00:34:22):

  And I think you've said this a lot of times, Jason, maybe not for this first fund where some of those institutional investors want to see a little bit more history, a little bit more team history, a little bit more investment performance, but certainly beginning the work now, I think my thought was that we start building the foundation that this is the way we're going to run the firm, that it's a lot easier to do it now than to try and backtrack and do it later, and it's going to help guide us. And so that was the underpinning of it all. For me, it was really helpful because it forced me to think about different things that we hadn't. And you know that a few weeks ago, we did a new big dump in terms of different policies and procedures really in advance of being asked by a particular investor that we've been working with.

  (00:35:03):

  And it just dawned on me, "Oh crap. There's a bunch of other stuff here that we ought to be thinking about along the same realm." So there's continued learning. Thinking about that stack really as the basic foundation, not just to show people that we're smart and we're thoughtful, but really to help us run the firm and help us think about things. Everything from how we do annual reviews among ourselves and our full team to putting these policies and procedures if we're going to be running it like a business. But that was like table stakes, and now we're in the process of every quarter, we update with different information that we get [inaudible 00:35:35] performance. Those things are really important and we've got the reps going on it. But I think the next part was really maybe the way that I think about you and I have been doing in terms of all the outreach, where if you look at the foundational piece, there was our pitch deck and credit where credit's due, our partner Cody really drove the creation of that, the design of it and how it's evolved and continued to be maintained.

  (00:35:59):

  But if you now think about we've got this beginning of the data room, this pitch deck, what we internally call the IGS, the intergalactic spreadsheet, which is how we think about looking at historical performance and managing our portfolio. And then you and I basically started off trekking into the wild and talking to... First, we started talking to our people. It was our existing limited partner investors that are all individuals, most of whom work in climate or are serious about climate, come from the tech world. And those were important conversations because we wanted to bring as many of them who were interested along with us because we've been so fortunate they put us in business in the first place. And it also was a good confidence builder, to be honest, because we're talking to our people.

  (00:36:39):

  As you and I said, we're fortunate to have an overwhelming percentage of them participate in this new fund, but they should have because they already liked us, and so that was good. But then we started talking to people who didn't know us and that maybe didn't come from the climate world, and I would say that it was a bit like being explorers without a map. In some cases, we would go on a mission to talk to LPs who we thought would be our tribe. Like, "They get it. They're in climate," and then either because we did a lousy job of pitching or maybe they had some issues related to the broader financial situation-

  Jason Jacobs (00:37:14):

  The macro, so not our situation.

  David Aronoff (00:37:16):

  Yeah, the macro environment. So there was a bunch of learnings. I wish we'd recorded you and me pitching in February of this year versus the conversation we had last week rather. The differences in terms of how we conduct ourselves, how we engage, how we listen, one of the biggest learning, I think, for both of us. And we got some coaching too. We've had some good advisors to us who've been really helpful and giving us very stark feedback. I think you and I have gotten better at listening and engaging and, hopefully, getting to a point where it's less about selling. I don't think of it as selling when we talk to LPs. I think it's about just trying to figure out if there's simpatico, if there's a synergy that what we're doing makes sense to them and the way they think about doing things makes sense to us. And those are the conversations that I think are the richest for us, whether they invest or not. And so, for me, I'd say that the haziness... "We've gotten radar," maybe is a better way putting it in terms of our fundraising. Better radar than we had six months ago, five months ago.

  Jason Jacobs (00:38:19):

  Well, this is the part of the discussion that I've been waiting for the whole time, which is the role play section where I can be a potential LP and ask you all the questions that we get asked just to get a better sense of what we're actually doing. And obviously, I know, but for listeners as well and just some insight into how you think about it. So maybe talk a bit about the strategy, and I'm going to stop asking questions in twos. I'm going to put a period after that. Maybe talk a bit about the strategy.

  David Aronoff (00:38:48):

  Our strategy, effectively, is to build a diverse portfolio across climate sectors of the best early stage companies pursuing meaningful approaches and meaningful meaning can have tremendous impact on either decarbonization or adaptation, but really pushing the mission of solving and addressing climate change along. And so, at the highest level, we are not an impact fund, and so some of the listeners may know that there's a category investing known as impact investing, which is generally thought of as being more concessionary capital. You're doing things for the good of humanity, and so therefore, you will take a concession in terms of potential for returns, because you're doing good for humanity. And that's very important. That category is really, really important. And I think by the nature of the way I just described it, you can understand how they overlap with climate.

  (00:39:42):

  Then there's market rate funds, and market rate funds, basically, you can think of that as traditional venture capital. Investors are giving money to venture capital firms because they think that they can well outperform any other asset class and they're willing to take on the risk because of the potential. You can lose one times your money, as they say in venture capital, but you can make an infinite times your money or nearly infinite times your money and you're taking on that risk reward. It's a beta of one. We are kind of the intersection of both of those things. Everything we do has to have an impact on climate change, whether direct or indirect, and it has to be an outperformer when it comes to market rate.

  (00:40:16):

  And so that is another driver of the way that we think about the strategy for our fund. We will not invest in something simply because it can be a great return profile if it also can't have tremendous impact on climate change, and vice versa. So those are two ways of looking at it. We're also, I've mentioned this before, we're complimentary capital. So we're incredibly fortunate because of the strength of the community, because of the robustness of the network that has really grown organically over the past five plus years now, that we're sought after because we're thought of as connectors. And if you get to the heart of what the value added that we bring to portfolio companies, the brand promise, is that the way that we can help accelerate solutions to climate change is by helping to accelerate connectivity among our network, among our community, among the broader community in climate.

  (00:41:08):

  In order to do so, to be that friend to all, we have to make sure that we're not perceived as having sharp elbows, that we're not trying to use that position to basically overwhelm a company, to have them take more capital, because then the lead investors who are also our partners in all this wouldn't want to have us on a cap table, and it would be tough. We would not get the same kind of access we're getting. So, for us, how that translates into portfolio construction strategy is we write small checks in the early rounds. Our first investment is from pre-seed through series A. We're writing checks where we're typically the second or possibly the third-biggest check in a round, but we've never been the biggest check in a round, and we don't take board seats.

  (00:41:50):

  That allows us effectively to build a bigger portfolio, because the time that I took for 25 years before joining you, and the very important part of being a shepherd and a load-bearing wall lead VC sourcing, evaluating, negotiating, sitting on boards, that takes up a lot of time. It has to. It should, as a primary fiduciary investor in a company. That's not what we do. We're spending that 70, 75% of the time, depending upon how you calculate it, maybe even more, on the backend, helping with portfolio help in ways that are just, as I've said a couple of times now, complimentary to the role of that lead investor, and really consistent with this idea of being inclusive and being part of the community. Then, from round to round, we will invest in subsequent rounds of companies, but there's no automatic investment in a follow on round.

  (00:42:42):

  We re-underwrite, which in venture-speak means that we do diligence on a subsequent investment in an existing company in the portfolio as if it were a net new investment. So we come back to make sure that, for every investment we make from round to round, that we have tremendous conviction about that new round. And then we continue, regardless of whether we decide not to invest because we can't invest in every round. That's not the way that... Our fund isn't big enough, and it also wouldn't match with this idea of trying to have a standing return for the fund. So there's a little bit of an aspect of a tournament from round to round where we're down selecting from round to round based upon that diligence. But that doesn't mean if we don't invest in round N plus one of a company that we're abandoning them. Quite the contrary. When you're in the portfolio, you're in the portfolio and we do everything we can to be helpful. So let me pause there because I think I went down a little deeper than you were asking for that first question.

  Yin Lu (00:43:33):

  Hey everyone, I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ Membership Community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019, and have grown to thousands of members globally. Each week, we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change.

  (00:44:00):

  Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks, and enjoy the rest of the show.

  Jason Jacobs (00:44:33):

  Well, gosh, that leads me to a bunch of questions. One is if you're writing these small non-lead checks, how do you think about ownership and how does the portfolio of math work in terms of putting up strong venture returns?

  David Aronoff (00:44:46):

  Yeah, so this is one of the more important distinctions between us and the way that I had done things in the past, or that typically you think about venture capital, which is this notion of the power law of VC, which is you want to get as much ownership as you can in the early rounds. And in part, it's to counteract the loss ratios. The loss ratios in venture, I think are well documented, and the idea that if you want to have a 5x net of fees fund, which has typically historically been a top quartile or better fund, for every loss or just return of the capital, you need to have at least a 10x to counteract it to get there, and that calculus makes sense. And so there's this notion of investing to maintain ownership as you go forward.

  (00:45:30):

  And naturally, that means, particularly for early stage venture, that you're going to have a smaller portfolio, not truly concentrated because true concentration in early stage portfolio means that you could have binary outcomes, but you're going to have 30 to 40 net names in a portfolio for a typical early stage fund. And I'm not talking about the very large funds that have multi-stage investment approaches. Our approach is fundamentally different. We're focused on at-bats and batting average as opposed to pure ownership early on. The way that we've modeled it, if we go deep to, say, an E-round of a portfolio company based upon assumptions about valuations and capital raised and that kind of stuff, we may end up owning four to five and a half percent of a company long term. And that's going to be for very few companies.

  (00:46:19):

  And that's lower than the way I would've thought about it at Flybridge or other firms think about it. For us, we think that, by virtue of the community and the access that we're fortunate to have, that even though we've modeled it with pretty devastating round to round economics, and by that I mean loss ratios that are worse than I've experienced in my career and worse than typical, we think that the nature of this diversified portfolio plus the down selecting from round to round means we're going to end up with more at-bats and more wins than I would in that concentrated portfolio. So I'm not going to own as much, but I'm going to have more triples and home runs because I'm just involved in many more companies. And we also, by nature of the way we do things, we also get some schmuck insurance.

  (00:47:07):

  And by that I mean if we make a mistake, which we will make, and decide not to invest in round N plus one of a company that we were invested in earlier, or we pass because we think valuation was too high or typical things that venture firms think about, we still have an ownership stake there. When that company is successful, then we're going to get some returns from that that we otherwise might not get because we have enough shots on goal. And so it's a different strategy. Clearly, the typical venture strategy of the power law has been working and continues to work, and you look at some of the storied names in venture capital who adhere to that approach. So I'm not crapping on that approach at all. It's how I built my career. Our approach is different and our approach is also very consistent with this idea of building community. And so there's this synergy and adherence to the core values that we have as a firm, even in our portfolio construction.

  (00:47:59):

  And more than just doing it for the sake of being consistent, we're convinced it is a winning strategy, given the role that we play, the access that we have, and also, I'd say, the time in history right now where, to some extent, this is Dunkirk. We've got to launch every boat we can to address climate change with discretion. You don't want to fund things which are silly and have no potential chance, but you've got to let the combination of capitalism and Darwinism do their thing, and continue to promote the companies that are really making a dent, that are doing well, that are having an impact. And by doing that, I think that we can simultaneously have great returns for our investors, and also make a dent in terms of climate change.

  Jason Jacobs (00:48:43):

  So, given you said that climate isn't one sector. It's every sector and that we're playing across sectors, I guess given that, combined also with the shots on goal or tournament based approach, how do you diligence these companies, given the breadth of sectors, given the fact that you've got a generalist team?

  David Aronoff (00:49:04):

  And this is something that I think we wrestle with, we learn, we continue to improve on, and so I think about diligence for us as having a different set of layers and I think it starts with the five of us. So none of us are climate scientists. All of us have been operators and a couple of us have been professional investors. So there's certain things I think that we bring just from our own backgrounds that are incredibly helpful, because we've all been entrepreneurs working with entrepreneurs for long enough that those aspects of diligence in a company, how you think about team dynamic, how you think about willingness to learn, coachability, the thing you've heard me talk a lot about is the it-factor for founders being pied pipers. That means being able to recruit people they shouldn't be able to recruit. That means being able to get access and engage with experts or with customers or partners that they shouldn't be able to, that crazy 10x or 100x factor that great founders and entrepreneurs have. That's the first foundation.

  (00:49:57):

  The second level is really that we've been doing it for five years. You and Thai have been doing it for over five years now. Cody's been doing it for about as long, by virtue of the work he did at Techstars before joining us. You and I are a bit newer, but we're doing reps, and we're meeting with a bunch of these companies. We're developing an understanding within those sectors of what's important, and a basis for understanding questions to ask and different experts to go to when we reach a point where we need to know more when we field their questions. That leads to the next level on top of it, which is we've got this incredible community that's just grown organically, that we thank our lucky stars for every day, that we know, and I know you're sick of hearing this, that we need to be net givers to, not net takers. If we're perceived as taking all the time, I think-

  Jason Jacobs (00:50:41):

  I was waiting for it. I was wondering on the bingo card.

  David Aronoff (00:50:43):

  Yeah. But you know that I really believe this. I think that we're fortunate that this community has grown up organically. I think a lot of it stems from your openness and what you've given to us as your team members as well as living those values. And so I worry every day that if we are perceived as just trying to take from the community, that will be revealed and that the community will wither. And so with that underpinning, we're very careful as we bring people into the formal community, as people come on the pod, the network of our 82 now portfolio company founders and the team in there, we make things opt in and we ask as we onboard, and we continue to improve different systems that we use. We ask, "Are you interested in engaging with startup companies and helping startup companies?" As you would imagine, just given the nature of the community, overwhelmingly, people say, "Yes."

  (00:51:39):

  And they also, I think about podcast guests as a great example of this, would say, "Listen, I'm running R&D in this company in the energy related space. I'm really interested in novel approaches to X or Y." And that gives us an opening, when we're looking at a company that's in X or Y, to go to this next level, which is we're fortunate to be one degree of separation from many of the world's leading experts in those 10 sectors that we use as our taxonomy, and we can engage with them to get an expert opinion. It's a benefit to them because they've asked. They want to meet a company working on low carbon cement, or they want to meet companies that are doing stuff for decarbonization of shipping. You can name so many different things. It's a benefit to them because they're getting access, particularly if we're curating really good companies to have a meaningful conversation with them.

  (00:52:26):

  It's a benefit to the prospects or portfolio companies because they're getting nearly instant access to someone who can ask them tough questions, who might be a customer or a partner. And then for us, we get to be flies on the wall and can really help us with diligence that, even if we narrowed to two or three sectors instead of 10, we couldn't hire that kind of expertise because they don't join early stage venture funds. And so that's the next level. The level above it is, open book that we are, we share our diligence with lead investors, and other investors share their diligence with us. We do this openly such that the portfolio companies understand, and we're doing this basically to learn more. So think about that's the foundation how we conduct diligence and that's been working.

  (00:53:10):

  We'll continue to improve it, and the five of us as well as the rest of our team will continue to develop expertise and inclination toward different sectors or disinclination. You know that there's some sectors that, because of my historical work in venture, I look at pretty skeptically just because it's been a tough place to build standalone companies. The other thing I should add is that we have some rules for things that we will do or we won't do or guidelines, I think, is a better way to describe it, because we don't believe in hard and fast rules. We think that guidelines are important to drive discussions. So for instance, because we're not climate scientists, if there is a super early stage, think a pre-seed, possibly an early seed investment in a company that is a deep tech company in climate science where there's bench level existence proof needed and existence risk that what they say they can do, they can do, that's not for us to invest in at that point.

  (00:54:05):

  We have some great partners who are narrower than us who have focus, who have those kinds of climate scientists on their teams, and they're able to understand and assess that risk in ways that we can't. And so, for us, we will come in at the series A once they're past that bench level risk and they're looking at the early scale risk, which we're fine to take on. But I think I've got enough scar tissue from the past with that kind of either bench level science risk or bench level, maybe even some regulatory risk that I think that we want to see a little bit more evidence. And we have other aspects like that that help guide us as we look at companies.

  Jason Jacobs (00:54:40):

  David, you mentioned that there's two partners on the team that have professional investor experience, and by default, that means there's three that do not since there's five partners. Can you talk a bit about what percentage of time people are spending on investment and also talk about the decision process? And as a followup, it'd be interesting just to understand directionally how the team and the firm scale.

  David Aronoff (00:55:06):

  Okay, so time on investment, [inaudible 00:55:09] time allocation of the team, decision process and then scale in the future.

  Jason Jacobs (00:55:12):

  That's right. This is fun. I'm having a blast.

  David Aronoff (00:55:12):

  Yeah. I'm sure.

  Jason Jacobs (00:55:19):

  You might be sweating, but boy, this is cathartic for me.

  David Aronoff (00:55:21):

  I'm not sweating. All five of us are investors, and all five of us have functional roles and responsibilities within the firm. So I've already said that, at least for until we've declared the final close for this fund, you and I are spending a predominance of time on the fundraising aspect of things. So let's not include this period of time. Let's think about it in stasis afterward. So all of us are going to look at new investments. We're all getting deal flow that comes in. We're all evaluating things being introduced to companies or founders or interesting ideas. And so that will continue. You've got pod responsibility, obviously, and a bunch of convening responsibilities in addition to investing. Yin and Cody both have podcasts as well as community things that both of them are doing. And then Thai is our field general when it comes to thinking about the portfolio engagement and how we think about supporting our portfolio companies in more meaningful ways and onboarding everyone that are part of the community.

  (00:56:18):

  That's also part of the stuff that he does. And for me, the admin stack, we have an outsourced finance and legal group and back office group, and so that's part of my responsibilities. And then I think that for the two of us, we probably never will stop fundraising. We'll talk with limited partners, engaging with those who are already limited partners as well as prospecting. We'll continue to do it, just not at this dominant role that we're doing it right now. So I'm going to ask the question that we get sometimes that may be embedded in what you're talking about. With $125 million fund, you can look at five partners as being a lot to support, and is there enough work for them to do? Well, I think, given our strategy, there's plenty to do when we think about the number of investments we're going to make and the number of investments that we screen and the other work that we have to do.

  (00:57:08):

  And so I think that it's right sized for where we are right now. Certainly, I'll talk about scale in a minute. I think there are things that we are planning for and worry about as we scale this up that will provide some more guidelines and maybe some of your hated borders of a box, at least for this strategy. But this kind of allocation, I don't think that this is very different than many traditional venture funds, who partners have different responsibilities. When you just think about the idea of being part of a community and driving community, I think that we do that really well, and I think it's grown up organically and we continue to invest in it. That's something that a lot of venture firms do, and you always talk about the fact that we had content and community which led us to deal flow and interest before we had a fund.

  (00:57:56):

  And that's opposite the way that many funds go where they add content and community. But ultimately, I think that the roles and responsibilities, they'll shift over time and we'll have to see if we need to hire more people or, as we add additional strategies, if there are different roles and responsibilities we need. So that's a little bit about the time on investing where I can't peg it, though, to... We're always looking at investments. Even in this 90/10 time where I'm spending so much time on fundraising, I'm still seeing 10 to 20 deals a week that come across my email or, God forbid, people will call. They actually make phone calls in this day and age occasionally too.

  Jason Jacobs (00:58:33):

  Normally, when you call me, it's a butt dial, but occasionally you actually pick up the phone and call, which always just blows my mind.

  David Aronoff (00:58:38):

  I know, I know. For an extroverted introvert, that's hard. Our decision process, I think because we come with different backgrounds... So Cody and I were professional investors and we understand a process that's different than you, Yin and Thai do. You've been more steeped in climate tech than the rest of us, maybe with the exception of Cody. Or maybe you guys are... Tough to gauge who knows more. So you may have a little bit more specific knowledge, and when you think about Thai, Thai is like a biological encyclopedia of everything that's going on in the industry. So our decision process is majority rules, even though we seek consensus and we want to invite conversation, and I don't know if we invite controversy, but we don't shy away from it. We try to have this egalitarian no holds bar set of conversations.

  (00:59:30):

  I think we worked really hard over the past three years of building that as an operating tenant for the five of us where there are no sacred cows. I think we've structured the firm to permit those candid conversations. And so what I don't see is... No one says something like, "Well, Thai, I know you really like that company. I'm not going to lay myself down on the tracks for it." In fact, that would invite one of us saying, "You can't say that. You need to be thoughtful about this and to lean in and to be educated about it." And so ultimately, the decision process to have it as majority rules is to deal when there is controversy, but then also to deal with the fact that one of us or two of us may be on vacation or may be dealing with some sort of issues that we need to make decisions.

  (01:00:16):

  And so I think from a practical standpoint, that's an important operating principle to adhere to. How does the team scale? This is a really interesting thing. We've got a portfolio now of 82 individual portfolio companies among our fund one family from 2020 to 2022 and now the MCJ 2023. Even though we're not taking board seats and we're not the lead investors in these deals, which frees up a lot of our time, how we scale to be able to fulfill the promise of being as helpful as we possibly can, to be that convener and connector and to do it in a way which is very personal. So we manage the portfolio by the five of us each taking a fifth of the portfolio and being responsible for engaging on a formal basis periodically with each of the portfolio companies and a bunch of ad hoc and informal things.

  (01:01:05):

  But we're also building some tooling in the background and we continue to. Thai did the first levels of this in terms of onboarding. We've got this great intern who's been working with us who, if you're listening, Casey, we hope that you'll be more than an intern once you graduate. But to really focus on the tooling in terms of how we help these portfolio companies going forward to make sure that the conversations are more fruitful, more direct, more contextual, all these things, to allow us to invest in the community and the community that we're building is really important in scaling. We will have to hire some more people. So as we've talked about, two additional hires once we finish raising this fund, someone to really help us institutionally in terms of engaging. Usually call it investor relations, IR. The way we do engage with our limited partner investors is a little different than what I'm experienced with, and so the IR role is going to be different.

  (01:01:57):

  The systems I just talked about, I think, is part of it. And then we also need to think about how we continue to improve what we're doing for the portfolio companies. So the idea of a head of portfolio support is something else that's been on our mind and not to replace the five of us carving up the portfolio and being responsible as proper stewards and shepherds, but really just to help enhance the experience for anyone who's part of it. Beyond that, right now, we have some dreams and some ideas about where we might go in the future, but we're not investing time in that right now. So from a team scaling perspective, I think that's a conversation for out there a bit.

  Jason Jacobs (01:02:32):

  And can you talk a bit about where we are in the fundraise now and also from who, where we've been seeing most of our traction. It'd also be helpful to talk a little bit about looking forwards, how we're thinking about wrapping this puppy up and getting back to work. 506C, baby, so we can talk as openly as we want. Learning in public.

  David Aronoff (01:02:50):

  So we are more than halfway toward our target goal of $125 million, and I'd say that we're gaining momentum with a goal. We want to close this off by the end of the year. That's the target is do a final close by the end of the year. That effectively would wrap up fundraising for MCJ 2023, put a bow on it and then that 90% of the time that you and I are spending on fundraising would decrease to something more reasonable. And so the fundraise, it's interesting. The environment's tough for fundraising writ large. On a relative basis, we are told that we're doing well. I don't think we're satisfied because this is a lot of work, and while the conversations are incredibly helpful... I think it's making us better at a bunch of parts of our job. It's expanding our network and our tribe and the community, and I think those things are all really beneficial and will be beneficial for the future for all members of our community. Wrapping up, I think will be good for us to move on to the next phase.

  (01:03:47):

  The types of investors... And this is part of the learning that I mentioned before. Early on, you and I developed a filter in terms of this hypothesis about who might be in the tribe and who might not be in the tribe. And so I think that we've honed that a little bit, refined it based upon real world feedback. So certainly, high net worth individuals, founders, tech entrepreneurs, general partners and different venture funds, people working in energy transition, the broader MCJ Community have been a huge part of our investors, and certainly, they were 100% of the investors in fund one, and in this, they're going to be a significant portion of it. It could be up to half of it, maybe even more, and they get it. There's a deep connection into the mission and into wanting to fix climate and also, they want to make returns.

  (01:04:34):

  The next group, it builds on that. It's what are known as single family offices. So when people have been successful in terms of wealth creation, many get to a point where they hire a team to help them think about their own asset allocation. They have professional investors working with a family office, as they call it, a single family office, and really driving things. And that's probably been the next biggest chunk of our new investors. We've been particularly interesting to those, and this is part of the filter, who have deep commitment or interest in climate, perhaps their children. They made their money in an energy-related area or an energy consumer or something like that, and they may have children like mine who are deeply committed to the environment, and that drives how the family thinks about deploying capital.

  (01:05:24):

  They're comfortable investing in emerging managers, which is the category that we're in, and so that's been the second-biggest group. And then we get to multiple family office managers who tend to be groups that are third party groups, either with discretion or non-discretionary advisors, to a number of different families. Some of them, when we say they have discretion, they have a pool of capital either done as a fund of funds or in some other structure that they're able, on behalf of their clients, to deploy or they're peer advisors where they meet with us and then they introduce us to their families. The next group, I would say, is a select group of what's called fund of funds. And fund of funds, effectively, it is a venture capital fund that articulates a strategy, raises money from the same groups that I mentioned just before, and then tries to effectively buy a piece of N different funds according to the strategy that they're pursuing.

  (01:06:24):

  And there are a number of fund of funds out there that have been doing it for decades that are terrific and storied in terms of their returns. We're also seeing a new crop of fund of funds that are either climate specific or, in one case, in an LP, have a new spin on how to build a fund of funds, which is pretty interesting. That's probably the bulk, and then the more traditional institutional LPs, which include foundations, endowments, pension funds, universities as part of endowments, admittedly we spend less time with them. Now, there are some that we're engaged with and that really seem to be leaning in that we really get along with and they like our strategy. Whether they come in for this fund or whether it's for the future, building those kinds of relationship with a bunch of those institutional investors is important to us. But I just don't think practically that that's going to be a huge portion of what our investor base looks like for this fund, and that makes sense and that makes sense.

  (01:07:22):

  And for some of them, quite frankly, we're just too small. Even if they're comfortable with climate and with emerging managers, at a $125 million fund, if you've got a $50 billion sovereign wealth fund or a $20 billion university endowment, we can't take a check, even if you wanted to write it, that's big enough because it would dwarf our fund. It would violate your policy as a capital allocator. So that's maybe a little bit about the groupings of our investors. I should mention the five of us are also investors in our fund. That's also very important to make a commitment and to show that we believe in what we're doing.

  (01:07:58):

  And then in terms of finalizing it, as I said earlier, our target is to have this wrapped up by the end of the year. We've been signaling that when we have conversations and we'll continue to track. And so we do rolling closes, which means once we've amassed enough of a chunk of commitments, we'll then go through the process with our attorneys of doing what's called a formal close, to add that essentially to mark it down and to bring the limited partners into the family. And you try and do that when the size of the chunk of commitment is big enough because there are legal fees involved and you want to amortize them over the largest bucket you can.

  Jason Jacobs (01:08:36):

  So, David, I know we're still right in the midst of what we're calling fund two fundraising. If you had to guess, and obviously, we don't have all the answers and this is subject to change, but if you think about fund three and beyond, what do you envision would change, if anything, about our fund size, our strategy, our LP mix? And simultaneously, what do you think the most important things are that we need to show between now and when we head out for the next vehicle? And what are the biggest things you think need to happen in climate as a category between now and when we head out for the next vehicle to get more of those bigger traditional capital allocators over the line?

  David Aronoff (01:09:18):

  These are great questions.

  Jason Jacobs (01:09:19):

  Well, thank you.

  David Aronoff (01:09:21):

  You're welcome. When we think about a fund three, I mentioned before that the strategy that we have of building a diverse portfolio with smaller checks and then down selecting into bigger checks as rounds go on, as best as we can model, it doesn't scale much larger than the $125 million fund that we have. And the reasons for that are pretty simple. This idea of being complimentary to the lead investors and not being perceived to have sharp elbows, if you have a bigger fund, we don't think that we can keep adding tons and tons of names and do our best in terms of community building and convening and connecting. This is an equation from the calculus. The algebra of it is the only answer would be you have to write bigger checks and that would effectively destroy value proposition or could destroy the value proposition of us being additive and complimentary and non-threatening.

  (01:10:10):

  And so I think that fund three adhering to this strategy is probably not much bigger than this, and we have posited that the threshold might be $150 million to run this strategy. We'll know more as we run this fund, but I think for a fund three, if we raise more capital along those lines, you might see us think about a little bit of geographic expansion. Running the same playbook, I'd say that right now, we have been naturally oriented toward where we live, meaning that 84% of our historical investments have been in North America, 10 or 11% have been in Europe and Scandinavia and UK. And then the rest, very few investments, three or four investments now, in Africa and Asia. I would say tangentially in Latin America, those are gaps and those are places that are very important.

  (01:11:01):

  And so I could see us expanding, and that might mean adding a person or two in those regions, but not blowing out a monster fund with that strategy. I think that if there are different strategies where we raise more capital or additional pockets of capital, I think that it's because there's an opportunity that's consistent with the idea of community support and community building. And quite frankly, we just haven't had the time to really devote toward thinking about that. But if you think about here and now, a little bit further down the line, dreaming and then haven't really given it whole lot of thought, it's probably in those latter two categories. So I'm trying to think of some of the other stuff. I can't read my hand scratch here.

  Jason Jacobs (01:11:41):

  Oh, yeah. So I was asking what are the key things that we need to show between now and when we head out for the next vehicle, and what are the things that the overall market need to show climate tech between now and the next vehicle?

  David Aronoff (01:11:52):

  Based upon some of the stuff that can evolve for our portfolio and in the climate space writ large, that can affect LPs. So our LP mix, I would expect that in the next fund, we'll have more of those institutional investors who want to see a little bit more of a history of all of us working together, a little bit more history in terms of performance and are we doing what we said we'd do? I think what's important for us to show... So if we raise another fund in three and a half years, start raising a new fund three and a half, four years, I think it's unlikely, based upon the history of venture capital, that we're going to have liquidity. We might. From our first portfolio, there may be some companies that surge that go public or get bought or something like that, or there's a secondary opportunity where we could make a return on our original investment and then keep that going, keep ownership going forward. It's a slim chance. I'm just being very practical about it.

  (01:12:44):

  That would be great and that would be helpful. But I think more practically, it's we put out this data room effectively is a promise to our LPs about the way we're going to run the firm, and they're going to want to see that we're running the firm that way. And so they also want to see that we're good investors, we're good stock pickers. So we'll look at things like loss ratios between now and then. We'll look at follow on rounds, less sanguine on using private marks. An up round is important for the companies in progress. It doesn't mean the company's going to be successful as way too many tales every day of high-flying tech companies that basically flamed out. But that's one important metric to see. And then how are the companies doing according to their plans?

  (01:13:26):

  We spend a lot of time tracking how the companies are doing and what they've got in terms of their forecasts of, I would say, qualitative and quantitative milestones, and we want to see that. So I think it's just important to show the combination that we said we're doing what we said we're going to do. We continue to get great access to potentially really groundbreaking important companies, and effectively, the portfolio is maturing in a way which is consistent with how great portfolios mature. On the greater side, in the climate area writ large, for some LPs, and we've heard this directly... You and I had what I would describe as a... I think the polite way would say it's a disastrous call with a LP, which you'll know which one I'm talking about, where it was just clear that they weren't climate deniers, but they just said, "Listen, this is a crappy asset class. There's been no returns. There's been no liquidity," et cetera, et cetera.

  (01:14:18):

  Now it turns out that if you go to CTVC and you see some of the work that Sophie and Kim have done, that's actually not accurate. There has been liquidity in the past five years. It is growing. It's meaningful but not super large yet compared to tech sector broadly, but the momentum is building. But what we have to see... Let me put it this way. What would be amazing to see between now and then are some IPOs for the companies that have reached the point where they can sustain it legitimately, it's not just a [inaudible 01:14:49] stock or something like that, and where we're seeing some of the massive players in the energy transition world make sizable and notable acquisitions, that the M&A activity goes up.

  (01:15:00):

  And I would say not just exploratory M&A, but one of the things that we track, Jason, as you know, is when we look at those 10 sub-sectors that we look at, each of them can be mapped to a number of public companies. And in some of the cases, the multiples on Wall Street, because some of these are just traditional companies, are just not that great compared to what we'd see in the traditional tech sector. Part of the promise is that there are more companies beyond Tesla and Rivian and maybe a few other high-flyers that maybe today are the exceptions that prove the rule. So what I think would be great to show, not just because it makes it easier for us to raise money the next time, but quite frankly, because it shows that we're making a dent, we're building real companies to kind of address it, is to start to see emerging winners in each of those 10 sectors that go public, that are acquired, that show meaningful progress such that they start to elevate the sectors.

  (01:16:01):

  That's something I'm looking toward and something that we're going to be spending some time tracking as we think about how to help our companies in each of those 10 sectors, but then also how to think about the way that Wall Street and others might be valuing, and who is important for them to get to know. When you think about the heritage companies, the incumbents, who are really big players in each of those spaces, they're either going to build something themselves in those spaces to compete against our companies, they're going to buy them or they're going to get destroyed by them over time. I think those are the three outcomes and we'll see all of the above. Whether we see it in the next four years before we raise this new fund, I don't know, but I would like to think that we're starting to see signs and, as we know, from our portfolio and other portfolios, there are companies that are starting to hit the right metrics to potentially be public companies. And so I would expect we're going to start to see a few public companies from our world in the next three or four years.

  Jason Jacobs (01:16:54):

  David, now that you've been a few years in, and you can answer this personally, professionally, MCJ specific, broader macro, whatever you want, but just what are the biggest surprises for you so far?

  David Aronoff (01:17:06):

  One of the biggest surprises, and it's not surprising anymore because I've been working with you for so long, is just the openness of the community and this spirit of collaboration that's there. It's one of the four screening criteria to join the MCJ Community, but it's more than just lip service. I'm really amazed by it. And there's a set of conversations which are honest and open and bare where yes, we've got the same divisiveness that we see in our own politics and around the world right now, but there's a willingness to entertain conversations across the board which, to me, is really inspiring and I think it's necessary because, and not to be too grandiose, but because of the existential crisis we face. So that was something I had hoped for. It's something that you promised me when we first started working together and I see that reinforced.

  (01:17:54):

  The second thing, and it's related, is really the idea of novel business models and novel collaboration in really to tackle what's going on has been pretty remarkable. And without naming names in our portfolio companies, we have a few portfolio companies, and maybe this doesn't last forever, but they effectively have triple headed business models doing the same thing. And so they have three revenue streams doing the same thing, and it's not because they're a two-sided marketplace. In some cases, they don't call themselves that, but it may be. But the example would be they get paid to decarbonize. Maybe they filter something out of the air. They get paid by companies who are trying to reduce their carbon footprint. That becomes feed stock for something else which they can then sell, and then in one case, we have a company that effectively is building a logistics network where others can use it and pay them rent for it.

  (01:18:50):

  And so you look at it. To me, that's a novel business model in my mind from the stuff I've been doing for the past career, and I love it because the typical mantra for venture is, "Focus, focus, focus," for startups. This is focusing. Those kinds of companies basically are doing whatever they would do otherwise. It just so happens that they can extract rent three different ways. Now over time, do the sources of the feed stock, as opposed to paying you to take it away, do they basically say, "You get it for free because I know you're using it," or in some cases, will they charge? I don't know. It seems likely.

  (01:19:20):

  I have a few other examples in mind where it's been similar in very different businesses where the incumbents, once they figure out that this is the way the world's going, they say, "No more on that." But I think for the time being, there's some really interesting business models that open up that are just so fundamentally different than anything we've seen before. And then you add to it, whether it's different funding models, the collaboration with our government, with other governments driving things finally and hopefully continually, we'll see when administrations change around the world, these are all things that continue to surprise me.

  Jason Jacobs (01:19:56):

  I guess my last question is just you're an empty nester. You love to mountain bike. Your wife loves to travel. You've had a very successful career. You've made your money. Why the heck are you doing this?

  David Aronoff (01:20:10):

  I think it's for a multiple of reasons. First of all, it's because I can. I think that there's a chance for me to take some of the things I've learned over the years and the benefits that I've gained and I've been incredibly fortunate, Jason, I don't take it for granted at all, and the idea of doing something meaningful and doing it for the next generation I think is really important. This idea that, "Yes, I'm doing this because..." I said early on in the conversation, whatever I did next, I wanted to have both psychic gratification and monetary gratification if possible. No apportionment between the two was expected, but for me, I feel like I'm working for the next generation and working for the planet. The money that we're going to make from this, my intention is to invest that in making the world a better place and to do things for good with it.

  (01:20:56):

  That's what it's about. It's doing something for my kids and my grandkids and great grandkids and for yours and for others, because I feel like it's my obligation. There's this idea of repairing the world. It's just something that my parents instilled in my sister and me. After having a successful corporate career, she's spent the last 10 years in nonprofit leadership roles. Now she's running marketing communications for Meals on Wheels, and she does that because she wants to give back. And so for me, I've always followed my big sister in terms of my career, and so the idea of doing something in parallel with her to try and make a dent on making the world better, I can see nothing more important to do.

  Jason Jacobs (01:21:36):

  And David, for anyone listening that's inspired by your story or has questions, et cetera, who do you want to hear from, if anybody?

  David Aronoff (01:21:44):

  Anybody. If you think I can be helpful, please reach out. We're super busy like everybody's super busy, but if it's helpful in terms of career advice, in terms of getting into climate, in terms of thinking about those things, certainly, if you're interested in becoming part of the MCJ Community or you think we could be good investors or be helpful, that's really what we're after, so I'd love to hear from folks. I think for the listeners of the pod, they'll understand. I do not know why I continue to get solicitations. "David, you've been a lifelong investor in healthcare and biotech. Have I got a deal for you." I've never invested once in biotech and I'm not a Bitcoin investor, so if anybody happens to come upon this podcast and thinks that I'm a Bitcoin or health technology investor, please know that I'm not. But otherwise, I'd love to hear from folks.

  Jason Jacobs (01:22:33):

  And David, maybe just speak a moment specifically to people that are maybe in your shoes from the front end of your sabbatical and transition, people that have made their money and are extremely accomplished and still have gas in the tank or charge on the battery, I should say, and care a lot about this problem, but don't know how to make those worlds intersect in ways that are thoughtful, impactful and more than just lip service. What advice do you have for them?

  David Aronoff (01:23:04):

  I don't know if there's blanket advice, Jason, but I'd say that part of the story that I didn't tell is when I was prepping to leave Flybridge, I went and sought out friends and then acquaintances who had made a similar kind of career transition. Some were older than me, a couple of guys were younger. And the thing that struck me about the folks that I spoke with is that they had found their thing, and at the time when I was starting, I didn't have my thing. So it just was weird for me for the first time in my career, not being rudderless, but to say, "Here's all the stuff I'm interested in, but I..." I have a dear friend who had been a very successful financial services person and he and his wife have dedicated their lives toward helping refugees around the world. And I spent a bunch of time with him and I was incredibly inspired by his mission focus. He set up a family office to focus on this. And then I talked to someone else. I talked to Bill Nussey, who some of you may know.

  Jason Jacobs (01:23:57):

  He came on the show.

  David Aronoff (01:23:58):

  Yeah. And so Bill was one of my best friends in business school. We started at Greylock together. He then became an entrepreneur, and then he made his transition. Because he was so interested in clean energy, he wrote a book about it, similar to you, with a podcast and with a newsletter. And I spent time talking with Bill about how he got there and a few other people like that. And so, for me, the reason why I have that slide deck that you referred to, and I've shared it with tons of people, whether it's been helpful or not, I don't know, is I wanted to be intentional about trying to figure something out. And the best advice I got from all these people, it was consistent among all of them, which was, "Think about the things that in your heart you think are interesting and then just put yourself in a position to learn before committing." And so that's what started with it and that led... I didn't have a blueprint. I should probably just publish this deck if people are interested and certainly, I'm happy to send a link. For me, it framed my thoughts.

  (01:24:52):

  I don't think there's any epiphanies in it, but what's helpful for me is basically to have a guidebook and then to force myself to update it and to force myself to use it the way that it was intended. It was really helpful to me. When I got to the end and I said, "I've made the commitment," to see me put that down, that was really helpful. And then I keep refreshing, going back and looking at the core prime directives in terms of the must haves. So I would just say for anybody thinking about the transition, if you're in the position I am where you're just not sure what you want to do, give yourself the license to go explore, and you'll be really amazed, particularly when you don't have a business card anymore, how willing people are to meet with you, to talk to you, to help you learn. We got it from very different ways, Jason. You figured this out when you started interviewing people on your climate journey. And for me, it was a very similar thing, which I was just amazed at the graciousness of people in terms of helping me figure some things out.

  Jason Jacobs (01:25:51):

  I don't know what the answer is going to be, and I don't want to end on a self-deprecating note, but I'm going to ask it anyways because I'm curious. What do all your VC friends think about where you've ended up?

  David Aronoff (01:26:01):

  Some of them still think that I'm a tech investor. Some of them today haven't really been paying attention or they don't see me at whatever events anymore. But the ones who know me, I think they basically get it. I look at the guys at Flybridge who know me the best, and those who know you, think that this chance, the two of us working together and the way we've been learning and sparring in many cases and going back and forth, they're really excited for me because they think that this is my thing. They knew that I was looking for my thing and that they're really happy that I found it. So the people who know me best and were co-investors or competitors, I think have been really supportive.

  Jason Jacobs (01:26:37):

  Awesome. Well, I'm also really happy that you found your thing and it's been really terrific working with you so far. You are an inspiration, not just in terms of your professional expertise and your work ethic, but also your integrity and your compassion and empathy in terms of the way that you lead your life. There was somewhere I was going with that. Let's see.

  David Aronoff (01:26:59):

  You were on a roll there.

  Jason Jacobs (01:27:01):

  I know. I was like, "[inaudible 01:27:02]," but then I think because there was the internal tug of war of like, "Why am I giving dad all of these..."

  David Aronoff (01:27:07):

  You like my fashion sense too. I think that's part of it, Jason.

  Jason Jacobs (01:27:11):

  Oh, I remember. This is going to be very lightly edited. Maybe we'll clean up ums and ahs, but what you see is what you get. And so this is not a sales pitch for the fund. Yes, we're right in the thick of raising the fund, but it's just a way to give back and help people learn, but also get to know us better so that our people can self-select in and our not people can self-select out because what you see is what you get. So here we are. Thank you for making the time to come on, and thank you to the listeners for listening, and really excited to continue the journey with all of you and with you, David. So thank you.

  David Aronoff (01:27:41):

  No, thank you, Jason. This has been incredibly rewarding and I'm learning more. To have the opportunity to learn and to do well, and to work with this great team that we're putting together, like I said, this is just a dream, so I'm super excited about what the future holds for us.

  Jason Jacobs (01:27:58):

  Thanks again for joining us on My Climate Journey podcast.

  Cody Simms (01:28:02):

  At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity.

  Jason Jacobs (01:28:11):

  If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter @mcjpod.

  Yin Lu (01:28:24):

  For weekly climate op-eds, jobs, community events, and investment announcements from our MCJ venture funds, be sure to subscribe to our newsletter on our website.

  Cody Simms (01:28:34):

  Thanks, and see you next episode.