Episode 32: David Buzby, Private Impact Investor
Today’s guest is David Buzby. David has been starting, building and investing in “impact” businesses for the last 27 years with an emphasis on renewable energy generation, energy storage/grid services, wastewater treatment and e-commerce.
He currently sits on the Board of Cambrian Innovation, Leading Edge Crystal Technologies, Paragon Power and Stem, as well as being a member of the Investment Committee at the PRIME Coalition.
He has in the past been a founding investor and director of SunRun (NASD:RUN), SunEdison (NYSE: SUNE), Valueclick (NASD:VCLK), Brilliant Light Power, Bright Plain Renewable Energy, Prevalent Power, Resource Holdings and Best Internet.
David has an MBA from the Harvard Business School and a BA from Middlebury College.
If exploring the intersection of investing for profit and for impact is interesting, then this one is for you.
Enjoy the show!
You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
In today's episode, we cover:
The two moments in David’s life that led him to focus on impact based businesses
How David got his start in the impact business world
Some of the companies that David has started, invested in, and advised
The criteria David uses for his investments and the dual focus on impact and profits
Some of the issues with funding impact businesses with traditional venture capital, and thoughts on how to solve
A teaser of what David is thinking about doing next
David’s thoughts on science risk, time horizons, upside, price on carbon, nuclear, and more
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Jason Jacobs: Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests, to better understand and make sense of the formidable problem of climate change, and try to figure out how people like you and I can help.
Jason Jacobs: Hey, everyone, Jason here. Today's guest is David Buzby. David has been starting, building, and investing in impact businesses for the last 27 years, with an emphasis on renewable energy generation, energy storage, and grid services, wastewater treatment, and e-commerce. He's currently on the board of Cambrian Innovation, Leading Edge Crystal Technologies, Paragon Power, and Stem, as well as being a member of the Investment Committee at Prime Coalition.
Jason Jacobs: In the past, he's been a founding investor and director of SunRun, SunEdison, ValueClick, Brilliant Light Power, Bright Plain Renewable Energy, Prevalent Power, Resource Holdings, and Best Internet. He's got an MBA from Harvard, and a BA from Middlebury.
Jason Jacobs: Now, that bio was so long that when David came to do this interview, he actually brought a cheat sheet, which was a piece of paper that just listed all the projects he'd been involved with because even he can't keep track of them all.
Jason Jacobs: I thought this episode was great because we talked about how David defines impact, what led him down the impact path, how that definition has evolved from when he started doing impact operating and investing, and today. We talked about his transition into focusing on our carbon problems, specifically. We talked about the kinds of businesses he's involved with today.
Jason Jacobs: We talked about the lens through which he determines which business he's getting involved with, what stage he likes to get involved with, what founding teams he looks for, what he looks for in a market opportunity, and timing. We also talked about the bigger picture, this climate pickle that we're in, and how the heck we get ourselves out of it.
Jason Jacobs: You will not find many people that are better versed in this stuff than David Buzby. I learned a ton from this discussion. I hope you do as well. David, welcome to the show.
David Buzby: Thank you. Nice to be here.
Jason Jacobs: Great to have you. I feel like you're like a best kept secret, at least to me, the newcomer coming into the space because you're just not a name I've heard a lot. But when you look at what you've done, and what kinds of companies you've been involved in, and how many of them you've been involved in, at such a strategic level, in clean energy and beyond, it's staggering.
David Buzby: That's because I'm older than most of the people you've been interviewing.
Jason Jacobs: Well, that, but I don't know where you find the time to sleep.
David Buzby: You'd get better at it. But that used to be a problem when I was younger, yeah.
Jason Jacobs: It's a little bit of a challenge to talk to someone like you, because some of the people I've been talking to, it's really easy to put them in a box. Like your whole career has been doing X, and so, it's a, oh, if I want to talk about X, I bring them on. You've done a lot of different things, across a lot of different areas, in a lot of different kinds of roles, so you're a unicorn.
David Buzby: Thank you. I appreciate it.
Jason Jacobs: Yes. How would you describe your background and what it is that you do? Maybe we'll start with now.
David Buzby: Sure. The easiest way to describe it is I'm a company builder. I don't fit in the box of I'm a clean tech executive, or I'm an impact investor. I've tended to cross that line quite a few times. Since 1990, I have been essentially starting impact businesses, although we didn't call them impact businesses back then. My first business was a recycling business. Coming out of business school, my first business card said garbage man. That's where it started.
Jason Jacobs: You have a sense of humor is what you're saying?
David Buzby: Trying to. It all revolves around building companies that have some impact. In my case, most of them have been environmental impact businesses. Whether I'm the founder, or the CEO, or a board member, or an investor, it falls out of the specific situation and what the company needs. But I've played all those roles. Sometimes, all of them at the same time, other times, one or two. But what I'm most focused on now is early investors, strategic board member role.
Jason Jacobs: Which, I would imagine, by definition, takes less time from an operating standpoint.
David Buzby: Right. Anyone who's been the CEO of a startup knows the amount of effort that requires, and time. I'm nearly 60. While I like to think that I could keep up in that role, the truth is that probably not at this stage. It's all encompassing.
Jason Jacobs: If you look back towards the earlier stages of your career, what is it that led you to head in this impact direction? Was it a single watershed moment, or did it happen differently than that? I mean, just talk to me about that transition, if you may.
David Buzby: Two moments. One, you have to go all the way back to 1978. That's embarrassing. I was in college, and I was a political science major, mainly focused on U.S./Russian relations.
Jason Jacobs: I was, too.
David Buzby: You were too? All right, that's good. You remember it?
Jason Jacobs: I do. Let me just channel my two-year-old perspective, which is not too far away from my current perspective, but still a little more rings around the tree.
David Buzby: Anyways, I was studying how the U.S. and Russia interacted in the Mideast, the oil politics. I started thinking, boy, it would be really neat to see if we could create another source of power besides oil because we're constantly fighting over it, it causes wars, it causes lots of problems. I want went to a talk in Manhattan. I can't remember how I ended up there. But I ended up in Manhattan in a talk with a guy who's running the only real solar manufacturing plant in the U.S. at the time.
David Buzby: It was owned Solar-X at the time. It's gone through multiple ownership changes since then. I built my own PV panel, and I stuck it on my roof at my college dorm, and I powered my stereo with it. I thought it was-
Jason Jacobs: Really the coolest guy in the dorm?
David Buzby: Well, not many people knew about it because I used it as a joke. People would come in, and I'd say, "Hey, turn off the music, would you?" They'd turn it off, and it wouldn't go off because I had it wired directly to the back of the amplifier, the amplifiers back then. I just thought, "Well, this is really neat." I always had my eye on what was going on in the solar industry since that point in time.
David Buzby: The other watershed moment was I was working after business school acquiring companies, and we acquired a company that was a division of Johns Manville. Johns Manville was the company that had all the building insulation and other markets, and they were using asbestos. What I found out through that was that the people running Johns Manville, this is all public, so I'm not saying anything that everyone doesn't already know, knew about this problem since the '50s.
David Buzby: I saw at least five people die from asbestosis while we were owners of that business. That was only over the course of two years. At that point in time, I just decided, "Okay, that's it. I'm not going to spend my time, and my energy, and my life of my career unless it's doing something positive for the world." I can honestly look at myself in the mirror and say, "Okay, this does have a positive impact," although we didn't call it impact back then. Those were the two moments that led me into "the impact world."
Jason Jacobs: Where did you start? You have second watershed moment, and what next?
David Buzby: Recycling in California. I moved from Denver, which is where I was living, to California, because they had the most ambitious recycling goals. I bought an old scrap yard in Fairfield, California, about an hour north of San Francisco. Transformed it from a scrap metal business, which, if you've ever seen a scrap metal business, they all look pretty much the same, big piles of steel, and metal, and junk in the backyard, and not very friendly-looking.
David Buzby: What we did is we transformed it into a retail looking atmosphere, so mom, and dad, and the kids could bring their recycled cans, and bottles, and paper, and plastic into the front door, and we kept the institutional business coming in through the backdoor.
Jason Jacobs: Someone needs to build a nuclear plant this way, by the way.
David Buzby: That would be nice.
Jason Jacobs: They do in other countries, they make them a lot more... they're not so removed from cities, and they're a lot more accessible to regular people if they want to stop in and do tours and things like that.
David Buzby: Interesting.
Jason Jacobs: I said that in jest, but actually, I think it matters.
David Buzby: Yeah, it does matter. Our plan was to make it friendly for people who wanted to recycle. We ended up getting, in that Solano County, it was called, we ended up getting about 80% of all the business. We thought, "Okay, well, that worked," and we knocked it off about 30 times throughout other communities in California, and had a nice recycling business.
David Buzby: Then we sold it to a Swedish conglomerate called TOMRA, which, for some reason, wanted to dominate the U.S. recycling market. They liked our model, so they acquired us.
Jason Jacobs: Given that you were intent on finding something with an impact perspective, how did you define impact at that time when you were just jumping in?
David Buzby: For us, it was all about reuse. Every can or bottle or piece of metal that we recycled was reused in some capacity in a new product. All the aluminum gets smelted and goes back into aluminum cans. The PET plastic would get chopped up, most of it would end up in China, but it would go into rugs, or coats, or something like that. The paper would go back into fiber products. We measured it by how much waste we removed from the landfills, and how much energy we saved by not having to use original materials in new products.
Jason Jacobs: Is that reuse the same criteria that you were using to select that opportunity in the first place?
David Buzby: Pretty much. It was mainly focused on avoiding trash going to the landfill. The energy savings wasn't top of mind, but it is now. In that industry, it's actually a very big deal, the amount of energy you save by using recycled versus virgin material.
Jason Jacobs: Over the years, you've been involved in so many projects. Has that definition of impact stay pretty constant or has it been evolving over time? Talk to me a bit about how that definition has evolved, if it has, since you first got into this area.
David Buzby: Yeah. For me, it evolved from landfill avoidance and energy savings to CO2 reduction.
Jason Jacobs: When was that, that you made that transition?
David Buzby: When we started SunEdison. What was that? 2002. That became probably one of the top two reasons for doing that. The first one was just to get off carbon-based fuels for some of the same reasons I had thought about in 1977, just to get independence from oil and gas.
Jason Jacobs: That energy independence has been a driving theme for you as well?
David Buzby: Yeah. But also, at that point in time, it was pretty apparent that climate change was becoming an issue. Even if you weren't convinced about climate change at that point in time, just the amount of pollution that energy generation was causing could be solved with solar.
Jason Jacobs: You already talked about your two watershed moments, and the switch to carbon wasn't one of them. What was it that brought about that awareness or transition in focus?
David Buzby: Probably the energy crisis in California, which was approximately 2000. We had sold the recycling business. I'd started another internet business that was sold at that point in time. The first time in my life I had free time to think about what to do next. I spent a lot of time trying to figure out why the energy crisis occurred in California, and what we might be able to do about it.
David Buzby: I started reading, not only the wonky reports about how energy gets created and distributed across the U.S., but also the early climate change reports. Because as I'd been following solar for at that point in time, almost 15 years, I decided to really-
Jason Jacobs: Since the dorm room.
David Buzby: ... since the dorm room, I decided to really delve in and try and figure out what were going to be the technologies that were going to be successful as we shifted away from carbon-based fuels.
Jason Jacobs: Talk about your first foray into solar, and also talk about just what the state of the solar ecosystem was at that time.
David Buzby: The state of the solar ecosystem at that point in time was... this goes back to 2000, which is when I made my first investment in a company called Prevalent Power. There were really only, I don't know, two or three solar developers at the time. There was a company... I'm going to forget the name of this company, but SunPower ended up acquiring them. I want to say Next Slide, but that might be wrong.
David Buzby: I invested in Prevalent Power really is an experiment. Prevalent Power was started by some guys that I knew from prior Silicon Valley experiences. We created a small developer that did very well in winning development proposals and putting solar PV up on, say, small commercial rooftop, or 500 kW size systems.
David Buzby: They were so successful that they kept coming back to me and the other investor, there were only two investors in the company, and asking for more money. We said, "Well, that model doesn't really work because you'll continually dilute yourself as the founders. It's not going to be a good outcome for you. Figure out how to finance those systems that you're putting up on roofs, so you don't have to come back to us for more money." They didn't quite figure that out.
Jason Jacobs: This is before the days of the large-scale project finance it now? Is this?
David Buzby: Right. We sold the company. I went looking around for a different model, which evolved into SunEdison. I met a guy named Jigar Shah, and Chris Cook, and the three of us started SunEdison back in 2002. SunEdison's claim to fame was that we developed the first solar PPA at about the 2002, 2003 timeframe.
Jason Jacobs: Amazing. Now, of course, that's a mature vehicle for financing solar projects, right?
David Buzby: Yeah, it's financed... I don't remember how much because I haven't checked in a while, but at least half a trillion dollars worth of solar projects. That was a good advance.
Jason Jacobs: You've gone on to be involved in a number of solar projects since then?
David Buzby: Right. We sold SunEdison in 2009. We weren't the guys, for your listeners who know about SunEdison, we weren't the guys who wrecked SunEdison. We were the guys who created it and turned it into a very attractive acquisition for a company called MEMC. After we sold it, I became an investor and board member of SunRun, which is now the largest residential solar company in the U.S.
David Buzby: At the time, it was us, and then SolarCity came along right afterwards. We competed with SolarCity for years and years for the number one spot, and we're currently in the lead again. I also got involved with a company called Bright Plain Renewable Energy, which, when we were about to take SunEdison public, we filed a preliminary S1 on a Friday, and the Lehman Brothers went under on a Sunday. No more IPO for SunEdison at the time, which is why we sold it.
David Buzby: But as part of that plan, we were going to create what's now called the yield co, which is a way of getting public financing into utility-scale solar projects at very low cost. Since SunEdison was sold as opposed to going public, we didn't do that. For one of my next ventures, we started a private yield co using private institutional money, where we would go out and buy solar projects at various stages of development, finish the development, and then manage them so that the investors got an attractive return on their money.
Jason Jacobs: About when did you shift gears to focus on carbon?
David Buzby: Well, most of these solar companies... I have to look at my list here because there's a few others I didn't mention.
Jason Jacobs: Wait, this is amazing. You are the first guest I've brought on that's done so many things that you need to bring a list just to keep track for yourself. That makes me feel better about struggling with prep for this interview.
David Buzby: It's embarrassing, but true.
Jason Jacobs: I would love to take a picture of this. In fact, I'm going to... keep talking, but I am going to snap a photo of this because this is a classic shot, this is a memorable moment.
David Buzby: All those solar by the time SunEdison and SunRun, I was very aware of climate change, and the effect that we could potentially have by taking these platforms, SunEdison being the commercial and utility-scale platform, SunRun being the residential, and really scaling them. That's been something consistent since we started SunEdison. My point of view is that if you really want to have impact, it's got to be really, really big. The problem is big.
David Buzby: I always make this comparison. If the problem was people not getting enough gourmet coffee, you wouldn't start a corner coffee shop, you'd start Starbucks. You might start out with a corner coffee shop, but the goal is Starbucks. You want massive scale to really solve the problem. SunRun and SunEdison were both started with that goal in mind. It was not only converted to solar to get off carbon fuels, but impact the amount of CO2 that's being emitted into the air by converting as much as possible to solar.
Jason Jacobs: Since you made that transition to focus on carbon reduction, other than solar, are there other areas you've been involved in, or has it been exclusively solar since that?
David Buzby: Yeah, there are other areas. Stem is an energy storage and grid services company that we started back in 2010, I believe. I was the founding investor and board member, and there were three entrepreneurs that started that company. It now is the largest distributed energy storage and grid services company, I think, in the world. Certainly in North America, but I think also in the world at this point in time.
David Buzby: Their business model was a way for... it had several winners. Customers, energy users, would get lower demand charges because we would deploy battery-stored power during peak periods as opposed to them paying higher rates at the utility. We would supply energy services to the grid when they needed additional power for certain period of time.
David Buzby: This wasn't really part of our plan, but this became part of the effect. We were called the gas peaker power plant killer. Because if there's enough of distributed storage that's attached to the grid, when all the air conditioners go on in the Central Valley, in San Francisco, in the summer, as opposed to firing up a gas peaker power plant, you can draw on distributed storage to have the same effect. We are having a very definite effect on the amount of CO2 that gets emitted as a result of our business.
Jason Jacobs: When you go about choosing a project, do you typically get involved from day zero, or what's the sweet spot for when you come in?
David Buzby: I like to get involved provided that I think the market and the entrepreneurs are in alignment. Sometimes, they aren't. But provided they are.
Jason Jacobs: What does that mean?
David Buzby: It means that you're not going to spend five years getting nowhere. As an entrepreneur, you're developing a solution to a real problem that the market is ready for.
Jason Jacobs: Got it. Market and entrepreneurs being in alignment, being that the entry point and strategy are well-timed?
David Buzby: Well-timed, yes.
Jason Jacobs: Provided that?
David Buzby: Provided that, I like to get involved very early. Because then you're affecting the DNA of the business, and who are the top people in the early days, and what the strategy is, not only market strategy, product strategy, financing strategy, all those things. That if you don't get right from the outset, you usually have to reset at some point in time. That resetting process is usually painful and lengthy. I like to try and get involved early so you can have a smooth trajectory up.
Jason Jacobs: Other than timing, what other characteristics do you look for in the marketing team?
David Buzby: For the team, I look at two things. Are they really mission-driven by whatever the mission is? Because, as you know, starting a business and getting it to a certain stage is a lot of work, it's a lot of bumps along the road, there's a lot of different paths you have to explore, it's exhausting. I want to make sure that the entrepreneur is really driven, and not just for a quick win, but for the long haul. I also make sure that the mission is impactful. In this day and age, most of that is CO2 reduction. That's about the biggest thing that I look at.
Jason Jacobs: How do you measure impactful?
David Buzby: What I use right now is, the amount of CO2 that we can reduce between now and 2050, that's my measuring stick.
Jason Jacobs: What's the threshold for impactful?
David Buzby: That's a good question.
Jason Jacobs: I love hearing that.
David Buzby: Most people say it's got to be a gigaton.
Jason Jacobs: Is that what the Breakthrough Energy Ventures team says-
David Buzby: I think that's what they say, yeah.
Jason Jacobs: I think so.
David Buzby: That's a good measure. But I don't think that's the only way you should look at it. Because if we use that measuring stick at the time for the businesses that I've started in the past, they wouldn't have measured up, partly because we didn't know how to measure it accurately. I'm still not-
Jason Jacobs: You're saying, sometimes you can go in with it and it's unclear that'll clear that threshold, but actually, by the time the business matures, it can do that and beyond?
David Buzby: Exactly.
Jason Jacobs: It's like, in my world, like apps and software and things like that, if you're creating something new that hasn't been done before, it might look like a toy, and it might be hard to describe the true market opportunity coming in. Like Uber's is a good example. It looked like a little app rich people use to call their private car to come get them. It's like, well, how big is the taxi market? It's like, well, that's one lens, but how big is the market of people that are driving or taking the train or doing other things that aren't taking taxis, but would if the service didn't suck so bad?
David Buzby: Right. Or Facebook when they first started, when it was just focused on a couple of colleges. If you were an investor and said, "Well, I'm not investing in your app unless you can show me that your market is a billion people," you miss some really obvious things by-
Jason Jacobs: But you're saying the same applies when you look for impact from a CO2 standpoint as well. That's interesting. No one said that before.
David Buzby: I think that you can get too focused on the immediate impact and forget the bigger picture, that if you're really successful creating a product that reduces CO2, that the adoption rate could be staggering in the out-years. If it isn't immediately impactful, well, I'm not so concerned about that.
David Buzby: The other thing I look for is a very profitable business model. Because it's my belief that over the long run, the only way you really scale is by having a very profitable business, that attracts additional capital so you can keep growing. If I don't see a path to profitability that's realistic, then I usually don't spend a lot of time on it.
Jason Jacobs: Well, so, I find that statement interesting given that when we started this discussion, one of the first words you said was impact. What I've found as I've made the rounds is that people looking for profits are allergic to the word impact. People that say impact, oftentimes, subliminally, or subconsciously, or consciously, may be synonymous with concessionary in some way. But you seem to be defining impact differently than that. Am I hearing correctly?
David Buzby: Yeah, I have lived by the belief that you need both. You need good financial profits, and you need good impact. If you can have both, it's not ever going to have a large impact. That's my belief anyways. When I talked to impact-only audiences, they probably don't like what I'm saying. When I talk to profit-only audiences, they may or may not believe in the impact statement. But that's my philosophy, you need both.
Jason Jacobs: Why don't the impact people like what you're saying?
David Buzby: Because I think it implies that somehow, I'm not focused on the impact, I'm focused on making money as the first goal as opposed to impact as the first goal. What I'm saying is, combined, you're going to have the most powerful impact and the most powerful financial return. Because we're going through a shift in consumer desires, where if your product or service has a negative impact, you're going to be swimming upstream for a long, long time.
Jason Jacobs: Well, here's a question for you. I find that there's this fork in the road, where if you talk to the fancy-named venture capital firms, for example, they don't like to have the impact firms on their cap tables because it shows financial weakness. They haven't described it those words, but that's the sense that I get, is that it shows that they're not as mercenary, from a return standpoint, as they need to be to produce the best returns.
Jason Jacobs: From the impact side, they might say, "Wow, traditional VC, we don't necessarily want them on the cap table because they have these time box funds, and sometimes, our kinds of companies, we don't need to be concessionary on the terms, but we need to be concessionary on time. The seven to 10 years, this isn't going to cut it, we need 15 or we need 20. We need patient capital." We find family office, for example, works better.
Jason Jacobs: What your view of the world? Also, to support that, the companies that you've been involved in from day zero or near zero, which path have they typically gone as it relates to following financing?
David Buzby: Right. I've heard both of those arguments quite a bit. All I know is that my portfolio of its 16 companies now, over 30 years, has delivered way above average returns, and way above average impact. It's because we-
Jason Jacobs: Can we put any numbers on those?
David Buzby: I can put some numbers on it. The IRR is, if you take a weighted average IRR, you have to understand that the way I invest, money goes in, and it comes out, and then I don't have a clock saying, "Invest all your money in three years or else." I only invest when I see good opportunities. Doing a straight IRR is a tough... the equation doesn't work.
Jason Jacobs: You fall in the patient, concessionary on time, but not on returns?
David Buzby: I'm patient. I don't think I have to put money to work. I'm impatient once the money is at work. I want the company to succeed quickly, just like every other venture capitalists would. But I don't say, "Okay, I've got $100 million and I've got to invest it in three years." Money comes in, it may sit on the sidelines for a while until I see it again. I take a weighted average of each company's IRR, weighted by the amount of money that's got in, and my returns have been over 50%. That's higher than normal.
David Buzby: The impact, if you add up all of the companies I've been involved in and do the analysis I mentioned of... if you add up the CO2 removed from when that company started to 2050, what is the collective impact? It's approximately, it's over 1% of the CO2 that has to be reduced by 2050.
Jason Jacobs: We just need 99 more David Buzbys.
David Buzby: If we had 75 more me, we would have a good grasp on how to address climate change.
Jason Jacobs: We can make that a follow on topic on and off camera about how to do that, how to get 75 more David Buzbys.
David Buzby: That would be great. Or just give David Buzby 75 times the money.
Jason Jacobs: Well, and that's one question I have for you actually, is, from a source of capital standpoint, do you have a formal vehicle that you're investing from, or is it just your personal assets?
David Buzby: It's been my personal assets. But I'm in the process of formalizing the plan-
Jason Jacobs: Don't say anything you're not allowed to talk about.
David Buzby: ... to it more capital that I can manage.
Jason Jacobs: Got it. Your dollars are basically a product, is your dollars, and your time, and your expertise, and your relationships, and so on. What does that product look like? If I'm an entrepreneur or set of entrepreneurs with a very early stage company that passes your threshold for timing and potential for CO2 reduction, etc., and entrepreneurs that are in it for the long haul, do you have a typical check size and terms, or is it very deal specific?
David Buzby: It's usually very deal specific. What I try to do, and what I'm trying to do with my philosophy around the fund, is solve a couple of problems. One is the consistency of the mission. My average company life in my portfolio is about seven years, from what I've invested until when they get liquid, either they get sold, or they go public. That's pretty fast.
Jason Jacobs: Yeah, that fits in traditional venture timelines.
David Buzby: That fits. What I've seen be a problem is, at different stages of that company's life, there's different investors. Usually, angel investors can only invest for a certain period of time, and then they don't have a big enough checkbook. Or early stage venture investors might only invest in A and B, and then you get private equity that comes in, and they've got timelines where they want to get out.
David Buzby: When you have that mix of investors, they also have usually a mix of mission. It's hard to maintain the original impact mission of the company through those series of investors. It's also very hard, oftentimes, to attract, especially in Silicon Valley, where is I've spent most of my investing career, it's very hard to attract the top talent when you're competing with apps, and software, and internet applications that have a shorter time horizon to liquidity and are probably paying more than some of these impact infrastructure companies can pay.
David Buzby: It's a very real problem that I've seen over and over and over, that the mission can change, and you have to fight to keep it the same. It's hard to track the top people when they know they have to go at it for seven to 10 years before they get liquidity, and they may not get the same liquidity that they would get if they started a software company.
David Buzby: What I'm trying to do is get capital that's willing to invest all along the path, from the earliest day to the last investment that's required, so that the mission stays the same. I'm also trying to, and this is very early stages, but create a vehicle where either investors or entrepreneurs can get some liquidity before the final liquidity event, whether that's an IPO or a sale of the company.
David Buzby: Ideally, what I'd love to see is these companies maintain their missions and their people forever, so that you're building long term successful businesses that are focused on this mission. It's hard to do that when the capital is split up into stages or there's not earlier liquidity events for the entrepreneurs.
Jason Jacobs: What's the pitch then? If you're pitching an LP that's deciding between putting their money with you versus putting it with a more traditional venture fund, what makes a good fit for an LP in the type of structure that you're talking about?
David Buzby: The real answer is I don't know yet. I'm just at the early stages, and I definitely don't want to be presumptive here. But if you ask me, what's the big Holy Grail goal here, it's strictly create a investment vehicle, similar to what Berkshire Hathaway did, for high quality companies. I'd love to do for high quality impact companies.
David Buzby: That it doesn't really matter when you come in and invest and when you exit, we are company builders, we're building great companies that are focused on impact missions. If we can get the financing structure right, you'll be able to hold on to the ownership for the rest of your life if you want, or if you're a charity, or a funder, or an LP, for whatever time horizon meets your goals.
Jason Jacobs: Do you find that the companies that you've gotten involved with, have you shied away from going to a traditional VC as following capital, or what are the typical sources been of those companies? What's your bias, if any, for the types of companies that you'd like to get involved with?
David Buzby: They're are two questions. One was what type of funders?
Jason Jacobs: One is, so you said that it's the type of business that requires significant further capital down the road.
David Buzby: Right.
Jason Jacobs: Where has that tended to come from? Also, where do you want it to come from? One is where it's actually been coming from, and the other is, if you could wave a magic wand, where do you hope it would come from?
David Buzby: Where it has come from, typically, has been impact-driven venture firms. In the early days, there were very, very few of them. Today, there's a lot more. It's come from them in the early stage, and then private equity investors, and later stage, also with some impact mission. Too often, it's come from selling the company. This is one of my frustrations, is that, at certain point in time, the venture investors and the private equity, they need liquidity. That's fine. That's their business model, their investors deserve a return, and they should get it.
David Buzby: But what happens to me as the early investor, board member, mission-driven guy, is that I don't want to sell. I don't want a new job. I want that company keep growing forever and have big impact. Ideally, that capital would come from either family offices or limited partners of some sort that have a longer time horizon. Then the company grows enough to be a public company, so the future capital can come from the public markets. The earlier investors, at that point in time, can decide whether they want to stay in or keep their ownership for as long as they can.
Jason Jacobs: What is it do you think that's causing these businesses to sell early?
David Buzby: Most of it is a desire for return by the early investors.
Jason Jacobs: The impact ones?
David Buzby: Yeah. Yeah. Some of my companies were started to early before there was a lot more impact investors. Impact investors now may have a longer time horizon, and so, it may not be a valid point. But SunEdison's example, we created a great company, we had to sell it. Because we needed $750 million of project funding, one year, and to meet our growth targets, and no one was going to lend that to a small company, so we had to sell ourselves to a larger company.
David Buzby: It would have been great to hold on to the ownership of that company, continue growing it. We might have avoided some of the problems that they had after we sold it if we'd kept the mission and the management the same. As opposed to being broken up into smaller pieces, it would have been a driving force of renewable deployment across the globe today.
David Buzby: Having access to capital that would have gotten us through that period of time would have been great. There really wasn't... and keep in mind, this was 2008, when we needed the capital, there really wasn't that type of impact capital around at that point in time.
Jason Jacobs: I've heard from you that your returns are above average, and I've heard from you that the average time horizon has been around seven years. But I've also heard that there's been a need for early investors to get returns, which has inhibited the company from staying independent to let the fruit get the ripest, if you want, and reach its full potential.
Jason Jacobs: If the returns are above average... and I've also heard you say that they require more time, but yet, your typical time has been seven years, so I'm a little fuzzy there. But the question I'm struggling with is, why does it require impact capital if you're generating top tier returns?
David Buzby: To keep the mission intact. It's very easy to compromise on the mission if you're not focused on it. If your goal as a financial investor is returns only, you're going to prioritize those. What I'm saying is you can prioritize both, but it's hard work. You have to stay very involved at the strategic and at the board level and make sure the missions remains the same.
Jason Jacobs: You talked about Berkshire Hathaway, but are there any financial investors focused on this carbon problem, that are doing what you're dreaming of doing well?
David Buzby: I'm sure there are. I haven't spent a lot of time in my career figuring out who those are. I haven't spent time like a venture capitalist would searching for who the right and limited partners are. I've spent 99% of my time figuring out how to grow these companies and make them successful. That's the transition I'm in right now. I've got to ratchet back the amount of time I spend on companies and stop investing in new ones for a little while.
Jason Jacobs: What about the... so not the limited partners, but the actual institutional investors themselves? Are there, I don't know if the word is front office, but whether it's a VC or private equity firm, are there funds that have raised money from limited partners that are doing the things you're talking about well, and today they're role models?
David Buzby: I honestly don't know. I'm assuming there are. I'm hoping there are.
Jason Jacobs: Let me ask it a few different ways.
David Buzby: Yeah.
Jason Jacobs: No, I'm just kidding. Just a random checklist of things I'd be curious to get your take on, where does science risk fit in for you?
David Buzby: Science risk?
Jason Jacobs: Yeah.
David Buzby: I try to avoid it. But there's no avoiding it. Stem was a pure science project. Stem was an idea and three guys. It took us four years of very hard R&D to make it all work. I went in early on that one because I knew how important it was to solar and wind, that there was a way of integrating the power that they created into the grid so it wasn't just intermittent power. That was very much mission-driven.
David Buzby: I'm involved with a company called Leading Edge Crystal Technology, which is probably two years of very hard R&D, doing things that people said couldn't be done. That is very much mission-based for me because it can dramatically reduce the cost of solar, more so than just about any other development at this point in time, except maybe you're driving down the cost of residential solar customer acquisition.
David Buzby: I'm a huge believer in the entrepreneur. That's another science-driven project. But they all have very commercial applications once they hit a certain point in time. It's not science just for the sake of proving something, it's proving and application that has a very distinct market use.
David Buzby: Then, probably the biggest science project I'm involved in, and this one is, maybe every five to 10 years, I'll take a flyer on something, and this one's a flyer, and it's called Brilliant Light Power. It has been a 25-year-long science project. I've been involved for six years, I think, but the mission is so impactful.
David Buzby: For me to say that I'm in the business of trying to create businesses that can get us away from carbon-based fuels and reduce CO2, you almost have to invest in this one, if you have the fortune of having liquidity to do it. Because if they're successful, its non-carbon-based fuel, very cheap, and ubiquitous. It would have a massive impact.
Jason Jacobs: What type of fuel?
David Buzby: It's pretty hard to describe it, so I'm going to do it quickly and not try to bungle it. But it's basically manipulating the orbit of the neutron in a hydrogen atom to create an enormous blast of light, plasma, that in turn creates an enormous amount of power.
Jason Jacobs: Is it fusion?
David Buzby: No, it's not fusion. If you ask the entrepreneur that, he would literally throw you out of the building. It's not fusion, it's novel. It's something that he has been developing, as I said, for 25 years, and he's very passionate about it. I've seen enough evidence that it's all real. It's just a question of commercializing it.
Jason Jacobs: What about regulatory risk? Where does that fit in for you?
David Buzby: That's a tough question to answer because I'm of two minds. One is it's very high. If you've ever been involved in any of the businesses that I've been involved in, you're constantly at peril of some regulation really throwing a wrench into your plans. It's very, very high.
Jason Jacobs: Unavoidable?
David Buzby: Unavoidable now. But the way I look at all the businesses that I've been involved in is that it won't matter. At some point in time, it won't matter. SunEdison is a good example. We had all sorts of regulatory risk. We needed the metering, we needed the utilities to be supportive. SunRun the same way, and we needed the investment tax credit. If those things had been pulled away, it would have been life-threatening for all.
David Buzby: But the ultimate goal was, the consumer is all that matters. If we can create a product that's better for the environment and cheaper, everyone's going to go in our direction. Long term, I don't think there's much regulatory risk because consumers will drive this marketplace, and it won't matter. You won't need investment tax credits, you won't need net metering. Because solar will be so cheap and storage will be so cheap, you can just choose that as the option you want, and you won't have to rely on any non-market-based influences.
David Buzby: Now, having said that, regulatory risk today is a big risk. The current administration is a great example. It feels like, from a regulatory point of view, in the last couple of years, we've gone in reverse, which is really too bad. I am extremely hopeful, though, because the industry is pushing forward more aggressively than I've ever seen it. I think that regulatory risk, at some point in time, we're not there yet, it just doesn't matter.
Jason Jacobs: Price on carbon, think we need it, think it'll ever happen?
David Buzby: The best idea I've heard about carbon... I'll answer your first question, do we need it? Today, yes, I think we do. In the future, I hope we don't. I hope it's one of those things that goes away over time. But the best idea I've heard there, I believe it's called the carbon dividend plan, which is a political-
Jason Jacobs: This is the one from the Citizens' Climate Lobby?
David Buzby: It's from a group that has James Baker, and George Shultz, and a bunch of other business and government luminaries. The reason why I like it is, it's a carbon tax, but they're not calling it a carbon tax, they're calling it a Carbon Dividends, so that you would pay if you are driving a gas, carbon-based automobile, and you emit X amount of CO2, that would be calculated by the amount of fuel you use. You would pay a tax, but it would be dividends back to the general populace.
David Buzby: Very similar to what Alaska did with their oil and gas program, where they lease oil and gas properties, but they take a certain amount of profit, and they send it back to every citizen of Alaska. It's a way of getting the U.S. populace, which seems to be torn about whether there should be any kind of carbon tax or not, to accept something, where that tax is not going into the federal government and then lost somewhere and people don't know whether it's doing the right thing, and actually going back into the pockets of the consumer.
David Buzby: Those who consume more carbon-based fuels will pay more than they get back. I like the plan, because I think it's politically feasible, but I don't know enough about it right now. I think a carbon tax, in and of itself, is politically pretty difficult to get done.
Jason Jacobs: How much of a barrier is the lack of long duration energy storage in large-scale deployment of renewables?
David Buzby: I think it's a barrier now, but I think going away quickly.
Jason Jacobs: Through what means?
David Buzby: Just cheaper battery, cheaper energy storage. It's getting to the point, where, don't quote me on these, but I've seen large projects offering power in a three to four-cent a kilowatt-hour range, including energy storage. It's firm power. Whether it comes from the panels or from the battery, it doesn't matter.
David Buzby: Once energy storage, once the battery prices start coming down, and they are, it won't be a barrier anymore. You'll be able to offer firm power 24 hours a day.
Jason Jacobs: Where does that leave you then in terms of the need for nuclear, and your thoughts on that?
David Buzby: I'm not a nuclear expert. I have never focused on it mainly because of the risk of some sort of catastrophe. I just have never focused on it. If we can exist without it, we'll be safer.
Jason Jacobs: On the one hand, you've got people like Mark Jacobson at Stanford that are talking about 100% renewables, and then you've got people like Michael Shellenberger talking about 100% nuclear. Where do you fit on that spectrum in terms of what we should be shooting for?
David Buzby: I would say, personally, I'd say, 100% renewables. The market will end up telling us where we do end up. If nuclear can become extremely safe, then why not? I haven't gone down that path mainly because of my own personal philosophy on the risk of nuclear is too high. I'm also probably not smart enough to understand nuclear, to be honest with you, to invest in something and really, really understand it. I'm just not. I don't think I have the background to be the best at that.
Jason Jacobs: But if there were two statements, and one is 100% renewables, and one is 100% zero carbon energy sources, you think 100% renewables is what we should be striving for, and that if it's zero carbon but non-renewable, then it's a distraction?
David Buzby: I think so, yeah. There's technologies, I'm invested in one of the carbon capture companies that can, if we're in a bind, which we are, absolutely in a bind, we're not doing enough fast enough to meet the 1.5 degree goals or 2 degree C goals, whichever ones you ascribe to, we're not doing enough fast enough. Things should accelerate, but I don't think they're going to accelerate fast enough. Having something like carbon capture to remove carbon from the air as an interim solution, I think is a good idea.
David Buzby: I'd rather see us spend our money on that as opposed to building nuclear facilities that might have a four-year lifetime and a risk that I think is too high. But for all the nuclear fans, I freely admit, I don't know what I'm talking about there. I just have this feeling that the risk is too high.
Jason Jacobs: We could spend a whole episode just on that, but first, I just want to preface with I am far from an expert as well, and I don't claim to be. I feel like I know very little, and I'm trying to learn more. But one of the things I've been hearing as I've been making around is that if you just look at the math, we're going to need it.
Jason Jacobs: The other thing is that a lot of the objections sound a lot like what you just said, where it's like, well, it's too big a risk, I don't really understand it to know that, but it's just a feeling. But if you talk to the people that are experts, they tell you that if you really dig in, that relative to something like coal, for example, the risk is actually way smaller.
Jason Jacobs: If you look at overall casualties or ill health symptoms or things like that, relative to a bunch of things that fall within the realm of socially acceptable today, not optimal, but socially acceptable, that nuclear, for whatever reason, is held to a way higher standard than things like coal. That the safety concerns are actually way overblown in that context, and from a mass standpoint, that we're going to need it.
Jason Jacobs: Now, I don't know enough to know if that's true, but it does make me want to dig in a lot more closely because if we're going to need it, if that's true, those two things, one, that we're going to need it, and two, that the safety concerns are overblown, well, then we should be going in the opposite direction that we're going. I don't know if they're true, I'm not an expert. But that's something that I take very seriously.
David Buzby: Yeah. Like you, I'm not an expert, so I can't really opine. But if that's true, if they're safe enough that lots of intelligent people say this is safer than coal, for example, when you factor in all the health risks, then I would say, taken all of the above approach-
Jason Jacobs: Gosh, you know what this makes me want to do? We've never done this before, but you're such an expert on the side of the road, you're coming from... By the way, I'm a pragmatist. I'm not saying nuclear, yes, renewables, no, of course, renewables. I'm an all hands on deck, that's where I'm coming out so far. But you're 100% renewables guy, but that's got an open mind, but that just doesn't know enough. It makes me think that there's a discussion to be had between you and maybe someone that comes from the nuclear side, but is like you, also has an open mind, and just have a discussion and make that an episode.
David Buzby: That would be fine. One of my advisors at SunEdison built a nuclear plant in California. He was the ex-CEO of PG&E. I liked having him as my advisor. He wouldn't join my board because he thought solar was a bunch of tree huggers and was never going to succeed. But it was great to have his opinion because he could point out all the things he thought I was doing wrong. He could point out how the utilities would react. He actually turned out to be the most valuable advisor to me, at SunEdison, because he was a critic.
David Buzby: I try to keep an open mind. I just don't know enough about it. It's hard politically to get it done, and I think no new nuclear plants has been built in the U.S. for however long it's been. Every investor I know in nuclear has never had a happy ending in there 20 years into some of these projects. That's where my bias stems from.
Jason Jacobs: You know what, I love that you have a bias, but it's not religion, and it's a bias unless proven otherwise, and thus far, it hasn't. To me, that's like, well, I have a different bias, I think that's a really healthy worldview. It makes me really excited because I feel like there's a counterpart to you that's coming from the opposite perspective, and that would be of just such an amazing, fascinating perspective for anyone like me who's just trying to get to the truth, and probably for each of you as well.
Jason Jacobs: I'm going to tweet after this, and it's going to be like, "Renewables, and you experienced renewables veteran, who's in 100% renewables camp because he doesn't really understand the other side but has concerns, seeking someone who comes from the other side, and that has concerns about renewables but also an open mind, to have a discussion on who's the right person," and do a public call out to try to find you a mate.
David Buzby: That would be good. I'm sure they're out there, and I'm sure their intentions are good. It'd be fun to meet them.
Jason Jacobs: Well, and I can tell you because I've been talking to some of them, from a mission standpoint, everyone wants the same thing, which is to decarbonize, and minimize overshoot, and minimize ill effects, and deaths, and forced migration, and droughts, and famine, and all the bad things. Everyone comes from that spirit. It's more just a question of how.
Jason Jacobs: From my standpoint, I have no religion, the how is whatever proves to be the best in a world of suboptimal options. But everything needs to be compared against status quo, which is the most unacceptable of any path.
David Buzby: Yeah.
Jason Jacobs: But the strong opinions, and people are really passionate, but their tensions are right, we just need to find a way to get everybody rowing in the same direction.
David Buzby: Yeah, I think we're getting close. I think there's more energy behind solving this problem than I've ever seen. It's all passionate energy, which is great. Hopefully, the tipping point is soon, where, as opposed to being something that half of the country thinks it should be a good idea to do, it becomes 80% of the country saying, "We have to do this."
David Buzby: Because once you have that type of critical political mass, people forget the problems that the world has solved in the past. I'm confident that this one can be solved, it just we got to speed it up.
Jason Jacobs: We just need to get to the place, as a country, where the rest of the world already is.
David Buzby: Not all the rest of the world, but there are a lot of countries that are way ahead of us. Yep, you're absolutely right.
Jason Jacobs: Well, last question.
David Buzby: We have a great political discourse, but I don't think that's the purpose here.
Jason Jacobs: But it is. I mean, it is relevant because-
David Buzby: Very relevant.
Jason Jacobs: Yeah. If you want to solve climate change, the number one thing you need to do, at least from this country's standpoint, is get this current administration out of office. But I didn't say that.
David Buzby: I would agree. The thing that makes me hopeful is, I honestly don't know where my generation is. I'm as shocked as everyone else that the current administration is in power. There's clearly a lot of people that disagree.
David Buzby: But I get the feeling that my kids generation, they're just aghast at how stupid we are, just absolutely how badly we've messed it up. I think every generation feels like that about the older generation, every new generation. But I just get the feeling that there's not going to put up for it. Whenever that political power shifts, it's not changing again. This is a problem that has to be solved.
Jason Jacobs: I hope so. Two last questions. Second to last question. If you had $100 billion you could put it towards anything to maximize its impact on decarbonization, where would it go? How would you allocate it?
David Buzby: $100 billion?
Jason Jacobs: $100 billion.
David Buzby: There was a study done back in the early 2000s by some guys out of Silicon Valley, who said they could buy the presidency for $450 million. They had a really good analysis, and it was believable. For $100 billion, I take $5 billion and I buy the presidency, if you could do that. As someone who has really had, as one of their goals, to solve climate change, I would probably take $20 billion and lobby Congress to get the same thing done. Because with that kind of money, you'd get stuff done. It's clear. It'd be nice if you didn't have to do that, but that's how it works.
David Buzby: Buy the presidency, buy the Congress, and get this stuff passed, whatever the legislation is, to really make this a priority for the country. Same priority as the World War I or World War II or putting someone on the moon, we can do it. Then I take the other half of what's left and split it up, or the $75 billion that's left, I'd split it up and say maybe two thirds of that on existing technology just to accelerate it. The other third, which is still $20 billion or so, on new technology, longer term go-to-the-moon type solutions.
Jason Jacobs: Then, final question, which is just speaking to the listeners out there who maybe feel like I feel, where they are concerned about climate change, they really want to help, they don't really understand the problem, how to help, where to start, what advice you have for people like that trying to figure it out?
David Buzby: I think the easiest thing is demand it from the companies you buy products from. It's hard to tell someone go carbon-neutral, don't drive your car, don't get in a plane, don't go on a boat, don't buy food that was trucked from far away. That's asking too much of people. But you can demand those things from the companies that you're buying things from. They're starting to listen. All of them are starting to listen. That's one way of doing it.
David Buzby: Another way of doing it is demand it of your investments. There's a lot of funds now that have ESG mandates. It's hard to tell how serious they are about them and how to measure them, but it's all moving in the right direction. Put your money where your convictions are, invest in those types of things. Just be careful to invest in good ones.
David Buzby: The third one is vote for people. Those would be the three most important things. Demand it of the companies creating the products and services you use. Demand it of where your money is going to work. Then vote. Vote for people that are focused on this as a problem.
Jason Jacobs: Amazing. Well, we covered so much ground. I learned a ton. David, thanks so much for coming on the show. You've been a great guest.
David Buzby: Thank you. I appreciate it. Fun.
Jason Jacobs: Hey, everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. No, that is .co, not .com. Someday we'll get to .com, but right now, .co. You can also find me on Twitter at @JJacobs22, where I encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear.
Jason Jacobs: Before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
