Episode 137: Josh Felser, Freestyle VC
Today's guest is Josh Felser, Angel investor and Co-Founder of Freestyle VC.
Josh Felser is among a growing group of successful entrepreneurs who are applying the skills they mastered in the tech space to the challenges of climate change. After getting his MBA from Duke University, he started two successful companies: Spinner (acquired by AOL Time Warner), the first internet music service, and Grouper (acquired by Sony), a video on-demand streaming service. Fresh off those successful exits, Josh pivoted into investing, co-founding Freestyle Capital, a VC firm focused on early-stage internet and mobile startups.
After reading Bill McKibben’s “Global Warming's Terrifying New Math” in Rolling Stone, Josh was motivated to tackle climate change. Co-founding, ClimateX, a company whose first product, #climate, is an app that helps users discover and share their climate change actions via social media. He aims to engage social media influencers and celebrities to amplify effective climate strategies.
In 2020, Josh began making angel investments in companies that foster a more resilient planet with a spotlight on energy management, food & water supply chain, sustainable ag and manufacturing, urban development, and disaster mitigation.
Josh also sits on the board at the Center for Entrepreneurship and Innovation at Duke University as well as a member of the Technology Solutions Group for California's COVID-19 Task Force.
Josh is an accomplished venture capitalist and entrepreneur. I was looking forward to having him on the podcast and to compare our climate journeys. We discuss his path so far, some key takeaways, and what advice he may have for others interested in making a transition to climate investing. I learned so much talking to Josh and I hope you all enjoy our conversation as much as I did.
Enjoy the show!
You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded December 7th, 2020.
In Today's episode, we cover:
How Josh became concerned with Climate Change
COVID-19 task force for the State of California
Freestyle VC
Why and how Josh zeroed in on climate tech investing
Fund 5 and how Josh got involved
Josh's investing approach and process
Cleantech 1.0
Hardware versus software climate solutions
Cleantech trends
Roadblocks that traditional tech investors face when transitioning to climate
How to transition into climate investing
Climate fund time horizons and expectations
Capital efficiency
Project finance and grants
Science risk
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Jason Jacobs: Hey everyone, Jason here. Before we get going, I just want to take a moment to give a quick shout out to the new paid membership option that we recently rolled out. This option is meant for people that have been getting value from the podcast and want to enable us to keep producing it in a more sustained way. It's also for people that want extra stuff, such as bonus content, a Slack room that's vibrant and filled with people tackling climate change from a wide range of backgrounds and perspectives, as well a host of programming and events that get organized in the Slack room. We also have virtual town hall, once a month, where you can get preview of what's to come, and provide feedback and input on our direction. We'll be adding more membership benefit over time. If you want to learn more, just go to the website myclimatejourney.co. And if you're already a member, thank you so much for your support. Enjoy the show.
Hello everyone. This is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people, like you and I, can help. Today's guest is Josh Felser, co-founder of Freestyle Capital. I was excited for this one as Josh is a very successful entrepreneur and venture capitalist. He co-founded Spinner and Grouper/Crackle, which were acquired by AOL Time Warner and Sony for $320 million and $65 million respectively. And then he spent the last many years at Freestyle Capital where he's invested in a bunch of successful technology companies that you would know.
But recently, I read this article called, Why Josh Felser Left The VC Firm He Started To Try To Save The Planet? So I dug in and also had the good fortune to be introduced to Josh, and what I found was someone who, while they were further along in their journey than me on the technology side, had come to some of the same realizations that I had about the importance of climate change, and like me, was find it increasing difficult to focus on anything that was not that. So just a few months ago, Josh pulled the plug, came in to focus on climate change and has spent the last few months figuring out what to do. So he's early on his journey, like me, far from an expert.
But for anyone out there in this audience, and I know there's a bunch of you who are trying to figure out what role you can play in the climate fight and how to make the transition yourselves, I thought it would be interesting to bring someone on like Josh, who is quite accomplished and a few months now, down the path of that journey, to see how it's going, what some of the key learnings are so far, and what advice he might have for other people who are feeling like he was, as they start to think about making that transition and finding a way to combine their livelihood with this important existential crisis. Josh, welcome to the show.
Josh Felser: Thanks man. Psyched to be here.
Jason Jacobs: Psyched to have you. It kind of a weird one because in, I think it was late 2018, is when I first started heading this way and, and it s- seems like you've been focused in this area, at least with part of your time, for a lot longer than that. But then it was more recently than that, that you kind of picked your head up full-time and ripped the bandaid to go follow a similar path. But we really haven't had a change to compare notes so we're, we're doing it live. [laughs]
Josh Felser: Exactly. I, I'm just so glad you're doing this because it does put adding emotion to this process is such an important part of helping people wake up, you know? It's not just a... Yes, there's a lot of, there's a lot of data and science and modeling behind all of this, but to actually share the stories of the people who are jumping into helping to green the Earth, I think is an important part of it, and maybe it helps other people cross over to this space.
Jason Jacobs: Totally. Yeah, I mean, as we're talking today, I mean, you can kind of a muse of the... I mean, they'll be lots of different kind of listeners but the muse is like, you before you rip the bandaid essentially. So anyone that's listening that in those shoes, hopefully, you know, some portion of 'em will actually get the inspiration they need to push them over the edge and, and take the leap after listening to this discussion. No pressure.
Josh Felser: Yeah, you know, I, I, um, because I, I'm on twitter a lot and I, and because I've been in general tech for a while, as founder and as an investor, it started in a really positive way. It didn't take much, right? People are, are now more awake to the, to what they're experiencing in their everyday lives. I guess they can't... In the past, it's been easier to put it off and way, "Oh, someday maybe I'll do this. Someday maybe I'll can jump in," and now we're seeing the impact on our everyday lives and I think it's, especially in the Bay Area, with our, the wildfire challenge we've had, it's... People are ripe for it, and we need this talent focused on climate, we need this savvy experienced, tech-talented product and marketing and engineering and even founders, to focus on climate if we're going to win.
Jason Jacobs: And I'm curious, when did you first start being aware and being concerned a- about this stuff? I mean, was it kind of recent occurrence or was it way back in early childhood or I guess maybe give us a peak in the way back machine.
Josh Felser: Yeah. I, I was kind of clueless as a kid about anything of like substance. I just was lucky to have a pretty decent middle-class life and I can remember back to exactly what happened, right? It wasn't, it wasn't gradual, it was, it was reading, back when we called it global warming, it was reading McKibben's Global Warming's Terrifying New Math article in the Rolling Stone. It was 2012, and I was in the music business with my first startup so I would just read the Rolling Stone for that and all of a sudden, I'm reading it and I'm read this article and it, and it just, it shook me, I had no idea what we were up against, just some of the numbers that he threw around finally made sense to me. 565 gigatons of CO2 we could handle before we exceeded two degrees and how much there was in the ground and how incented the fossil fuel companies were to extract it. Just all the incentives were wrong and they it felt like if we all didn't rise up and do something, then we were going to be in really deep trouble.
And so, that's kinda how it started. I reached out to Bill, somehow he responded, and he agreed to come to San Francisco and do a Salon at Twitter. I was friends with Dick Costolo, who was the CEO at the time, and did this Salon on Twitter and I was like, "Amazing. Everybody see this?" Bill's talking, he's, he's really impressive and powerful and knows. And nobody in tech cared. It was amazing. Like no one, so I went around trying to get people interested in joining me and trying to at least figure out what we could do and Twitter did a survey of its employees on the causes that were most important to them, and climate was seventh.
Jason Jacobs: Wow.
Josh Felser: Seventh. So I kind of went this non-profit route and I started this organization called #Climate which was really a simple app designed to help non-profits more easily activate their most important followers to share on social media, share action in social media and then manage them. And so it... We launched it, the NBA was partner, Guns N' Roses was a partner, which was kinda crazy. And it was a, a great experience, we had some impact but it just wasn't, it was on the edge, like, it wasn't going to a difference. And non-profits, the work they do is important but they non-profit approach is also not going to be the driver behind what we need. And so I kinda gave up.
Jason Jacobs: When, what year was this that this was occurring?
Josh Felser: Probably like 2014, I kinda, I sorta, 2013 I started that, I built #Climate and it's up, the app doesn't work anymore but the site is still up. And, but then 2014 I kinda gave up. I just couldn't get people interested, I tried, I went back to being a general tech investor until recently.
Jason Jacobs: So what happened between 2014 and 2020 that led to a change of heart?
Josh Felser: I mean, a bunch of stars had to align for me to be doing what I'm doing now. Uh, certainly there's a lot more tension on, on the danger associated with climate change and I think living here in the Bay Area and experiencing the devastation of the wildfires every year, most of us experience the smoke but then reading about people's lives were ruined from destruction of these wildfires, that I guess... And I'm from Miami too so I got to experience the double whammy of like, more frequent, more powerful hurricanes in, in South Florida. We'll have to come back to that cause you had a tweet about, about South Florida which I want to talk about, just remind me. My brother, my brother-in-law is the Major of Miami Beach so we can come, we'll come back to that.
Jason Jacobs: Oh wow.
Josh Felser: Yeah.
Jason Jacobs: Kindly.
Josh Felser: So I kinda experienced what was happening in the, in the world, I got to personally experience it. I'd started a, helped start a task force for the State of California, focusing on private company solutions to the challenges from COVID. I did with Bill Trenchard and we worked with the, the CIO of the State and it was pretty amazing to actually be able to dig in and see how quickly the State was, was looking for private company help to solve some of these problems and we worked on supply, food supply chain stuff and mental health and track and trace and all the usual. But it just, more importantly, it kinda opened me up to impact, and do with the impact that I might be able to have and how important it is. So kind of that happens. So I took four months off of Freestyle just to work on this task force. And Bill did the same for First Round.
Jason Jacobs: And was that... At the time, were you still thinking that you would take four months off and then go back to being a general technology VC?
Josh Felser: Totally. Totally. I mean, Bill and I spent more time with each other in that four month period than we did with our partners. So that kinda opened, opened my eyes more. And then...
Jason Jacobs: What, just a quick aside, but I love Bill, by the way, so I just want say that publicly.
Josh Felser: Good. I do too. Um, and then, having been a Freestyle for 10 years, you know, it was kind of time for a change. I mean, I had been doing general te, tech investing for 10 years and I appreciate the importance of the next B2B sales support software, but I had already started to shift within Freestyle to, mostly to the circular economy, and mental health, and sleep, and I had already started switching from what the typical kind of B2B SaaS investing to kind of this new world. And so, it also, it, I saw how passionate I was about it. So 10 years at Freestyle, we're about to start investing Fund 5, I get religion from working on this task force for the state. And then I just, I felt I had to do something, at least, whatever I could. I had to join the battle because it's going to take every single one of us. And then I also got religion about the opportunity, which is these dual opportunities to both build the next wave of billion dollar company and green the Earth, and that those things are not in conflict anymore, right? So that all happened at the same time. And here I am.
Jason Jacobs: So given that you got a taste of impact through you COVID work and given that you... I mean, you mentioned mental health, and sleep, and some of these other areas that are maybe more important to overall well-being than some other typical enterprise things, why climate at that point? How, how did you lock in on climate and, and what led you to that focus in this?
Josh Felser: It was easy. It, climate change, climate change makes everything worse. Everything. Poor mental health, poor physical health, it goes after lower income more so it increases disparity. I mean, it really is the cause of causes in our, I think in our lifetimes. And so, rather than like focus in on one of these smaller areas, I just felt like, why not go after the thing that's going to create, make everything worse in the world if we don't fix it?
Jason Jacobs: And what were the timelines here, given that we're sitting in December of 2020? These Fund 5 discussions, when was that?
Josh Felser: So that happened in, uh, it, we started talking about in May, May, June of this year. And then it just, I guess I, so I'm still a board partner Freestyle, I still manage of my portfolio companies and, and am responsible for them. But I kinda, I started full-time in August. I didn't really take a break. COVID is just a weird, we're all working hard, we're all taking a break, it's just a weird time. Days flow and, you know, weekends flow into weekdays and, and so it didn't feel like I needed a break, I kind of went right in. So I kinda, I feel like I started out [laughs], when I jumped in, in August, I feel like, I felt like I was in third grade.
Jason Jacobs: And when you made that decision that you were not going to pursue being part of Fund 5 as a full partner, and that you were going to point in the climate direction, what is it that you thought that you were actually going to do at that time and what process did you think you were going to follow to figure it out?
Josh Felser: I had no idea. To be honest, I just knew I had to do it and that whatever I tried to figured out in advanced before actually... You know, like entrepreneurs, we, we don't, we just jump in and we start figuring things out by doing, right? That's kinda how, at least I was as an entrepreneur, and me doing is talking with everyone. Reading for sure, but talking with founders and investors and it's kinda like today's climate world is kinda like the internet in the late '90s, where everyone's collaborative and open and seeking to help each other. And so I found this, this, you know, a really willing kind of community. And, and it allowed me to get to speed way faster than I would have otherwise. I certainly felt like I'd be focusing on software-forward companies, companies that help, that use software to make hardware smart, versus going into deep tech. You know, anything that, where R&D was part of the due diligence was probably not a great way for me to jump in.
Jason Jacobs: And it's been, what, three of four months now?
Josh Felser: Yeah. Yeah, I'm in seventh grade.
Jason Jacobs: And tell me about that process. What kinds of things have you been looking at? What's your approach been like? What are some of the key learnings along the way? Any, any color to just kind of paint the picture of, what are those first few months look like, at least for you entering this brave new world?
Josh Felser: Well, like you and, and others of us that have been fortunate to have build networks and success, kind of saying we're a little older so it makes it easier for us to do something new because we have a network of folks to draw on to learn. And so I, I feel like I've been so lucky to have a, a large, a network of folks that have been introducing me and teaching me. And so, man, so everything, a lot of what I've learned is just table stakes for everybody already in the industry so I don't think I'll rehash that. Some of the things that I've learned that have been interesting, it's kind of like, I don't know if it's frustrations or, or like software's still kind of the red-headed step-child of climate. It's interesting. So much of the attention's on the deep tech and, for reason I understand, you know, it's a multi-decade impact, but the thing that I'm trying to make sense of is... So they're all these list of impactful paths. And what I find that isn't done enough is applying a probability that that path will be successful, given all that it has to go through.
You know what? Every company has to get everything right to be massively successful. And so, fusion maybe the savior of humanity, it may be. But the probability that it is, is very low, because it's really hard. So I try and look at... When I look at all the different ways that startups can have impact, I also look at, well how hard is this path going to be? How likely is it they will be successful? And then when you, when you add that into it, there's some unlikely categories that emerge that haven't gotten the attention that they should have, just within the climate banner. Like, hey, if we just convince peop- five people to rent the same object versus buying five new objects, that has a powerful impact. And I can totally see the path to making that happen. But that kind of investment doesn't get the attention, like in the industry? At least it hasn't so far. General techies kind of get it, but I haven't seen... So I think I'm learning what can I take from general tech and apply to the space so that I can be a, a meaningful contributor and that's one of the areas.
I don't... looking at, I'm not going to invest in the battery world, like that's, that's an R&D due diligence kind of investment. But it makes no sense to me that we aren't doubling down work to turn our car batteries, our EV batteries, into b- at least to back up for... It makes no sense, now I get the degradation of the battery but I know all these things are solvable. And so, why hasn't that been a huge focus of the industry? Why aren't we, you know, I have a 90 kilowatt hour battery in my Tesla and the power will have 13 kilowatt hours, right? So I know there are challenges to make it work but, but companies like Ossiaco, I did not invest in them. I just love that they're drawing attention to this, this challenge. Utilities hate islands, you know, that was a new, a new phrase for me, trying to understand why it's been so hard for local generation transmission.
Under-performance of cap and trade. I assumed it was working. Obviously, it's not anywhere near what people thought it would be in California. I mean, those are some of the... Oh, the dependence on government, so that's a, that is, you know, I always had a, some knowledge of it but, you know, when you see that our Governor, at the stroke of a pen, can have such profound impact on our, at least on the State of California. No gasoline, gas powered cars being sold after 2035, that's a massive change. And what if the Governor also said, "Hey, only low methane veep can be sold in California." That's a, that's a wrinkle when we get into maybe later about... I want to hear more about how you're making decisions too but, how we're making decisions. Like, that... What government can do easily to change the game is a new, is a, is new in my decision tree. It's not something I'd had to deal with in general tech and it's a massive difference. It sounds so obvious to people in the space but it was a new learning for me.
Jason Jacobs: As you... Given that we have to decarbonize our entire global economy and, you know, in every geography part of the world, every, every industry, every sector, big companies, small companies, everything in between, how do you think about sector focus? How do you think about geography focus? Cause even if you take any sector, there's applications of software, there's applications of hardware, there's applications of hard tech, there's applications of processes and logistics and so yeah, how, how are you figuring out, cause you mentioned software that makes the hardware work better but what about where that's applied?
Josh Felser: So I, I'm definitely investing globally but in companies that are focused on North America because that's a market that I understand. And so it's harder for me to evaluate... I got a rec- I got a pitch the other day on a company focused on the developing world. I just know that m- I, today, I don't, I could learn it but today I don't know how to penetrate that market the same way that I understand North America. And so, down the road I could see getting excited about that but, but I e- I do believe that investing globally make sense, in the space, but I'm still going to focus on companies seeking to make a difference in the US. But the categories are probably similar to yours I would think, the circular economy, energy management, supply chain investments of all types cause and efficiency we create in the supply chain obviously has a profound impact. So food, water, goods. I'd like to do more Sustainable AG, I have to learn more about it. I've done, I've made on investment in a company called Neutral.
And also, I think that marketplaces and exchanges will be really interesting, both carbon and energy and I think there's a lot that I understand there, still a lot more to learn. But if I had to pick, those are the categories that I'm going to focus on out of the gate. And they're also categories that I think I can at least launch with a college understanding.
Jason Jacobs: And, I mean, you had said that when you headed this way, you really didn't know what you would do and what I'm hearing from you now is a focus on investing, which is no surprise given that you've been a professional investor for so long. How are you thinking about that investing? Is that investing a tool to facilitate learning and progress your journey or is that a financial investment? And have you decided that you're, you know, that investment is the contribution that you have to make over here, or are you still figuring that out longer term?
Josh Felser: Yeah, so I mean, I think right now, you're 100% right. I'm writing small checks, like 25K checks in companies I've made, foreign investments hopefully a fifth is going to happy this week. And uh, I, I, I'm only, I am investing because I think these companies will go well, both in their impact and their financial return. But, I am doing it as much for the learning. And I also behave what I invest in these companies, I'm actually behaving like I am a venture investor, in ways that the founders like. I'm not just a passive investor, I'm trying to help them get from A to B. And so, I do look for the interest in that kind of help. That's the way I was at a venture investor, I've never been passive, I've always been a very hands-on, like an extension of your management team kind of investor. And so, I'm doing that now and I'll keep doing that. And maybe, you know, I can follow in your footsteps and, in Q1 actually, raise a fund. I think that would be exciting but I still have a lot to learn both about the industry and, and structure, and who might I might want to work with. I mean, all of that is in the stew.
Jason Jacobs: How much time have you spent kind of doing a retro on of Cleantech 1.0 and what happened there, key learnings?
Josh Felser: Well, I've done, I have read about it. I mean, there's this great MIT article that just came out, which I'm sure you've read. And I see signs of it today. I mean, especially in hardware. I mean, two of, there are two hardware companies that I looked at and they're basically seed stage and they just raised capital like they're almost Series B. So there are sectors that scare me, that are like that. The software space isn't like that. Like, because, you know like, as I said, it's still, it's not getting the attention from some of the deeper pocketed investors in the climate space so, but I am wary about it and I, I worry, you know, I don't... It's amazing when a company, you know, I, as an entrepreneur, you and I have both like, if someone came to us with a term sheet, that was a crazy valuation, it would be amazing to receive that, and we'd probably take it.
But the downside is that when it comes time for the next round, you have to really deliver. And that, it just... We all know hardware's a slog and it's just like what will happen if this next wave of hardware companies, they can't deliver the kinds of returns to raise the Series B at and a- ever increasing valuation? What happens then? So I would say, people are smarter, founders are smarter but there's still some of the trappings of that 1.0 world in the market today. What would you, what do you think?
Jason Jacobs: Well I wasn't around. I, I have tried to garner as much lesson learned through the game of telephone and through reading as I can, I'm still learning. Uh, but I, I would, I would say it, from what I can gather, it seems like when Silicon Valley came in the last time, they really weren't of the opinion that it was the marriage of the Silicon Valley ambition and hubris, hubris and entrepreneurial fire with the deep institutional knowledge and expertise but it was more like, you know, we're gonna come in and show everybody how it's done. That's one element.
Another element that I've heard is that there's a big uh, that it's important to have capital type align with the type of investment and that they were certain, that equity capital was trying to [inaudible 00:25:12], trying to find everything at that time and it really isn't the best fit for some types of more infrastructure development and so on that might be, you know, a better fit for, let's say, project finance.
And the last thing is, I mean, we've... I have an, I'm sure you have as well, had drill into your brain, that you want to kind of start small and iterate and don't get too far over your skis and it seems like back then, it was more like, let's skip all those steps and, you know, let's, let's do c- the equivalent of color for deep tech, right? Uh, remember color? [laughs]
Josh Felser: I do, yeah.
Jason Jacobs: So yeah. Yeah, so I don't, I mean, this is anecdotal but, whether this time is different, better or different, or worse, it does seem like it is clearly a, a different time. We're in a different place, the tools and infrastructure are in a different place, the problem is in a different place, people awareness of the problem is, is in a different place, et, et cetera. But, and I also, from what I've seen, while there is an increasing amount of talent coming in from the valley, which I think is of, if harnessed properly, is really a good thing, I've seen a certain humbleness from much of that talent in terms of coming in as learners first and understanding the value of expertise, taking the time to build those bridges and cultivate those relationships. Starting small, being cautious about how that capitalize the companies. Just more, I would say, maybe less hubris and more intellectual honestly. And that doesn't the stuff will work, uh, but, but, it means, that this, this is a different shot on goal and a different time and whether it works or it doesn't, it's where I'm squarely and I feel, I have nothing but conviction for that bet.
Josh Felser: I agree. I, I guess, the, the h- I just don't, the hardware space is, is being treated different. And so, I, I just, I'm still, my, the jury is out on the hardware-forward space, and because there is a lot of capital required. And so, what happens is, obviously, if you need $20 million you don't want to raise at $40 million pre and give away a third of your company, right? So there's a pressure to raise at, at a higher valuation because you need, you need more, and the VCs are willing to give you more. So that's the dynamic, it's not that, that necessarily that the companies think that they're worth more, it's like, you need $20 million, you want to give up 20%, 25% of your company and so, you end up an evaluation that's a lot higher than maybe where the company actually is. So some of that, I think that's more the dynamic that I'm seeing versus anyone thinking that the company's are actually worth that. But I could be wrong.
Jason Jacobs: Yeah. Wha- A couple trends I've been tracking, uh, one is that I'm starting to see these more hybrid vehicles emerge that have one arm of equity of one arm of project finance and trying to put them all under one roof? And the other is companies that are foregoing traditional venture capital and going from, let's say, angels of philanthropic capital or that, to private equity, whether it be the Warburgs or, or some others that, I mean, you're, you're seeing, I mean, Monolith Materials is one that did that, and Scale Microgrids is, is one that did that, and I don't claim to have a solid understanding of how these different asset classes can and should be utilized, but with our little fund, writing little checks, that is almost structure agnostic, we can maybe experiment in some different categories and, and get that learning that, that can then inform when we're playing with bigger dollars down the road.
And so I'm, I'm trying to get that learning, but at the same time, you know, not use this early LP capital as sacrificial lambs for my, my learning process. So it's a balance, but at the same, if was can kinda get some of these early reps in and get it right, then those early LPs, as they stick with us, stand to make a lot of money in the long term as well. So it's, I don't know, that's a tension that I, that I wrestle with every day, kind of the learning versus the near-term returns.
Josh Felser: Yeah so I'm, I'm, I'm probably, I, you know, I think your approach makes a ton of sense and it's exactly what I did before I started Freestyle. I spent two years investing... I had some of my own capital, I invested my own capital over two years and made 21 investments and then I rolled that into Freestyle. And that was the right path. I think now, likely because I've got investing experience and I have invested in some companies in this space, that I'll probably start... And I am spending the time right now to kind of build my knowledge and continue to invest, I'll probably start out with something that, you know, is maybe a little bigger. And I think that I'll be ready for it when I do it. I won't do it before I'm ready but I think I probably will because what I, what I want to learn more about is the particular, kind of the, the, this big bucket that is climate, and, but there is a lot of... I mean, I was just going through my decision process for climate and it, it's actually almost the same as general tech, right?
It's quality of the CEO, size of the market, product-market fit, it's like... And then, you know, trying to answer, if company does A, B, and C, I can see a billion dollar company and a billion dollar impact, right? So it's, the difference is assessing the impact. That is the main difference. At, at Freestyle, part of what made it interesting is that we always in- we kept investing in new categories, not just like the, what allowed me to invest in healthcare and... I've actually, I don't I've, I've only invested in one company that was in the similar space to what I did as a founder. Happened to be Patreon, so it happen, happens to have worked out. But, you know I kept learning new industries and using the skills I developed as a general investor in those industries. And so, that's why I'm saying, I'm at seventh grade with now and I'm not gonna do anything, uh, raise capital until I feel like I'm educated enough to not experiment with anyone's money except my own.
Jason Jacobs: If you had to guess, I know it's early but, what percentage of your investments, one you're, as your portfolio gets more established, do you suspect will have founding teams that come from valley transplants, if you will, versus veterans of working in, in these industries?
Josh Felser: I mean, what I hope happens is that they're paired up, right? So I really, that's the win-win for everybody. And you take like, which is what we look for. So I, I kind of don't, I don't know how it will play out but, you know, in general tech, I, I always try to find like a experienced business person married with a subject matter expert and that's the winning team. So whether it... and climate it's like a researcher academic techie married with a business person. That's, that to me is a winning combination. It's probably even more true in climate. I'm trying to think of the five investments that I have made now, three of the five have had crossover CEOs.
Jason Jacobs: CEOs that are coming from the outside in.
Josh Felser: Yeah, have worked in general tech and have crossed over. And, and, one of, one of them, it's public I can share, is SilviaTerra is more a traditional like OG. But when met SilviaTerra, I kind of saw that I really liked them and I felt they'd be, really would benefit from having a general tech investor lead their seed. Which, and so I introduced them to USV, and USV... Even though USV is a climate fund now, Albert's like a general techie and he's perfect to lead that investment and SilviaTerra.
Jason Jacobs: When you think about the increasing of people from traditional tech that are picking their head up and wanted to move in this direction, what gaps do you see, what bottlenecks do you see, what is clogging the arteries here in preventing more of that to happen efficiently and effectively?
Josh Felser: Yeah, so I, there are two, um, I'd love to be able to share who they are, I don't have their permission yet, but they are two ex-Googlers who are jumping into climate and one of the first ways they're jumping in, is they created the database for general techies to start looking at opportunities in climate. And so, that's, I think that's, that, I hope that I can convince them to blow that up, and so as a way for all of us to start funneling general techies into this kind of more dedicated pipeline. The hardest part is that, I'll get DMs from people and they'll just say, I'm interested, I'm interested but I don't know how to even begin, like how to even find... How to evaluate an opportunity at a climate-oriented company. It's just the very beginning. Once they're in the process and they're being interviewed, I could see that changing, but right now, they just don't even know how to begin.
So like people who don't know me, who are asking me for help, they don't know anybody who, who is working in this space. And I think, as we start to have more of those folks jump, then they'll pull their friend in and that'll make it easier, but right now, we're just in the very beginning, we need to seed it.
Jason Jacobs: And if you think about you a few months ago or let's say less experienced yous, who are maybe picking heir head up but don't have as much of a brand or widespread relationships or things like that, what do you wish was there for you or what do you think would be beneficial for those people to more effectively build those bridges.
Josh Felser: Ah, listen to MCJ.
Jason Jacobs: [laughing]
Josh Felser: Seriously. Listen to, listen to... Read, listen to podcasts, they're, yours is, you have such a variety of people on it that, if someone were to follow, listen to what your, your interviews, I think they would learn a lot, and they would, it would make it easier to know where to begin. It, it's, once you give someone a push, a little push and they can start finding the channels to learn, I think, most people who work in tech are self-starting and so I think they'll... But it's that initial, seeding them with, okay just listen to MCJ every week or subscribe to newsletters A, B and C. Follow the right people on Twitter who are talking about climate and startups and... But that initial push is what's needed. They don't even know MCJ exists. Most general techies don't know. Even though you c- even though you're one of them and one of us.
Jason Jacobs: What about that matching process that you mentioned before about paring the expertise with the new kind of business of founding DNA coming in, are, are you seeing those matches effectively and is there, is there anything that you can envision would help that happen more effectively at scale?
Josh Felser: Yeah, that's a great, great question because it's manual right now. I'm trying to think, who would be the right, who would be the right... So maybe that's something that you should do. Seriously. You're way further along than I am. You've got this audience. I'm sure that two Googlers would love to talk to you. And maybe that's you getting engaged with them, cause they have done the technical heavy lifting, maybe that's the way to do it and figuring out how you can start making connections within your very wide network. Maybe you're, maybe, actually, you know, I hadn't thought of this, but maybe you're the one who can seed it.
Jason Jacobs: Yeah. One of the things I've been finding is there's so many things like that, that it's like, why isn't someone doing this and we could do this kind of thing? That, that, well we definitely need to do is focus. Because I agree, we could easily do that. I could also go to a whiteboard right now with you and in half an hour we could brainstorm 50 other things like that. That's one of the things I'm so excited about professionally and in terms of our ability to bring out change is that it is kind of open road, if you will? But that can also be paralyzing as well. It's easy to spread yourself too thin and just kind of be mediocre at everything.
Josh Felser: It, it's, it's also finding allies willing to do the work, like the actual doers who, and I think these two, they're doers and so that's why they've already done, they've started the process, they just don't have the connections, enough connections in the climate but they're not just talking about it, they're doing it. So it might be that they are able to kind of fulfill the heavy lifting, you know, on the tech side while we're all just directing people, you know, to the platform.
Jason Jacobs: I would love to talk more about that, we could have, you know, episode just on that, uh there. I do want to come back to one thing though, so you talked about a some point a fund and at some point having it, uh, a bigger fund, given kind of what you've done and what you know how to do and how you think and what gets you excited. But one question that I've got for you is, assuming apples to apples, same dollar amount as Freestyle let's say, from what you can piece together so far with the caveat that I know you're early, what would you do the same with this kind of fund and what will be different? And that could be in terms of structure, that could be in terms of return expectations, that could be in terms of LP makeup, that could be in terms of anything.
Josh Felser: Well...
Jason Jacobs: Sector focus of stage of, you, you, you tell me, but I, I'm just curious from what you've been able to piece together so far, clean slate but focused in this area, what does that look like?
Josh Felser: You know, the, the thing that, when you're starting out, even though I've done four funds but this is new, is the thing that people don't like to say is that you like who likes you. You have to have some of that. You're starting out so you... But I also want more corporate, so at Freestyle, we never, we don't have corporate LPs, they're all foundations or funds of funds and I'd want more corporates involved who are able to help evaluate what, you know, tell us that they're interested in and then be customers. I think that's important. I think would also go better with the size of the fund and also the stage. I, I don't think... I think that whatever I do will bleed into seed but I believe it'll be more of a Series A fund and that's mainly because Series A climate feels like seed general tech, in terms of that's been accomplished by the time the Series A has been raised. So I, there is great... Because there are more variables in a climate setup so there's greater risk earlier on. And so, I think that the smartest place for me to enter is the Series A. And so I think that implies a bit of a larger fund and maybe some different types of LPs.
Jason Jacobs: Is climate a sector?
Josh Felser: We need a different name for it because wh- if I were to say to like an OG climate investor, hey, um... one of the companies I invested in is called Arrive Outdoors. And they, like you rent gear and apparel for the outdoors, skiing, camping. They're doing a great job, they're the na- exclusive for the national park service and they all have all these huge retail deals. And their mission is to have five different use the same product. So that's, that is climate. But it doesn't fall under most OG definitions of climate, so we need a new phrase to describe what it is that we're doing, at least that I'm going to be doing, and I think what you're doing, also. And so I don't know, so to answer your question, I actually, it probably the traditional definition of climate tech is very different than what I see myself doing and what I see a lot of other folks doing that are jumping. So we kind of need a new definition that's more inclusive.
Jason Jacobs: Any contenders that you're chewing on? That you want to give the teaser about?
Josh Felser: [laughs] No, you know, I...
Jason Jacobs: C- customer development, you'll get some feedback.
Josh Felser: I know, I know.
Jason Jacobs: [laughing]
Josh Felser: I don't... I actually want, I want, you know, let's get the community thinking about it. I th- I don't have it, I wish I had it. I just, I think I might have a name for what, what I'm doing but I guess I could share that. I'm chewing on lots of different names but I don't have, I don't have a great phrase because one, I don't...
Jason Jacobs: Name for the fund or a name for the, name for the category? For the fund? No one's going to twist your arm but, but my ear's definitely perked up.
Josh Felser: Well I, I, you know, I have the URL so I'm not worried about somebody taking it. Maybe we'll end with that, maybe we'll end with that. But I, I haven't been in this space long enough to really feel qualified to come up with the name for what we're all doing because I've been in it for a few months. But I think that we should try and come up with a name that we all, that we can embrace, those of us that are, that aren't just investing in what is, what has been known as climate tech or uh, just clean energy. I think there's, we need a more inclusive name.
Jason Jacobs: And I heard you say that the, that the ecosystem's largely been coming in and glad for the help. Do you worry at all coming in about stepping on the toes of the people that have been spending their whole careers working in this area?
Josh Felser: You know, in some ways, it's like I, we're, we're all needed, we really are all needed and I have, uh, I'm, I'm learning from many of these folks. I'm humble in my gratitude and I, I will a lot to learn for a long time to come so I, I don't, I definitely don't feel I know more so I know less. So I don't worry about that from me, maybe from, maybe it's a fair concern from some of the bigger VCs that are jumping in, maybe? I really view them, because they're so much more knowledgeable about the, the climate space than I am, I view them allies versus... And in fact, when, when, let's say I do have a fund, I actually will like, uh... If I'm able to uncover companies that, that some of those folks want to invest in, I'll remember how kind they were to me and try and be inclusive and do all the things that you would hope we would do, because I wouldn't like be where I am right now without them.
Jason Jacobs: So maybe, uh, a lit- little bit of rapid fire if I may?
Josh Felser: Yes.
Jason Jacobs: As you're thinking about the fund or even in your annual capacity to the extent that it might translate over to, to when you have a fund but, time horizons expectations, same as a traditional tech fund? Longer? Shorter?
Josh Felser: 10 years.
Jason Jacobs: 10 year fund. So same.
Josh Felser: Same.
Jason Jacobs: Capital efficiency. Companies that might require a lot of capital over time. Is that okay?
Josh Felser: Uh, 50% more.
Jason Jacobs: Project finance. If they require project finance to, uh, to scale. Is that a deal breaker?
Josh Felser: I'm fine with that. I've invested in companies like that before in general tech.
Jason Jacobs: Science risk?
Josh Felser: Uh. [laughs] Stay, uh, stay away.
Jason Jacobs: Grants. Do you think it's smart for these kinds of companies and obviously these kinds companies, it depends what you mean by these. But if, if a company were to pursue grants, whether it be from the government or otherwise, in parallel to their equity funding, does, does that excite you, scare you, something between?
Josh Felser: Take free money all day long.
Jason Jacobs: That was probably the bulk of my questions. I feel like I'm missing some but I think that gives me a decent flavor for what kinds of things get you excited.
Josh Felser: I have question for you.
Jason Jacobs: Okay, let's hear it.
Josh Felser: Okay. So I have a couple. Give me your take on the exodus. I saw you tweeted about it. Are you supportive? Judgemental? Neutral? Exodus from the Bay Area. What's your take on it?
Jason Jacobs: Yeah. Well, I mean, I think people should where they want to live, first of all. So I would never judge if someone makes a life decision and determines that their, that for them and their family they would have a better path somewhere else. It's not, like I don't get territor- like if someone leaves Boston back when the Bay Area was like unparalleled as the be all and end all and people would leave Boston and there were some people here that would get really snippy about it, and if anything, I would get snippy about the fact that we don't give people a more compelling reason to stay, but it wouldn't be on them for choosing to build their company somewhere else. No, so no bitterness in that regard.
I think yes, like some of the pettiness on either side of the issue is stupid. I think some of the, I think Twitter's, during this pandemic, has been enlightening in terms of helping get to know some people's full self and maybe some people that, maybe over the prior decade to two, uh, you know, as young buck growing up in tech, I might have put on a pedestal like I actually realize that they kind of suck, so that's been helpful in that regard just to, kind of like how athletes use to only talk through their spokespeople kind of thing and now they have their own platform and they can say whatever they want for better or for worse, well tech's the same way.
And then in terms of how it all plays out, it's like, it's kind of like who cares? Like, there, there's gonna be some people that prefer the in-person, there's gonna be some kinds of businesses that are more important to be built in person and for those, they should have that ability and, and they'll be some that are more conducive distributed and, and they should have that ability. But to say that the reliance on in-person is not going to erode, I don't know how someone could make that argument. It's not going to erode to zero, but of course it's going to erode because digital is becoming better.
Josh Felser: Right. And, and, and specifically though, the folks that are leaving to avoid taxes. Right now, we've got, because of COVID, we're, we're at a budget challenge in California and I don't know, I don't know whether taxes are going to increase here or not. But if they do, it'll be because it's needed to get back to normal for a few years. And when folks with a ton of money leave because of taxes, I have a harder time with that because they can do whatever they want but it's like when the market treated you well and you took advantage of it, as you should, as an entrepreneur, it was great. And now that the state needs your help to get through the budget, to leave, I just, I struggle with that. I struggle with that.
Jason Jacobs: Well, I'm going to say that, that those are prob- Again, everyone's situation is different so I'm not going to judge one person making that decision, I don't know everything going on in their world and everything else. But there are, there is like some element of people who just want to government to stay out of their way and to stay out of everybody's way and they don't want to help the government get in anyone's way and they see things like making sure that like, pu- collective good is okay with some minimum baseline as very in the way and they probably attribute too much of their success to their own talents and ability and not enough of their success to factors that had nothing to do with them at all.
Eh, yeah, I, that just doesn't, it's a bummer, especially because what do they need more money for, they don't even need... It's just going to mess them up. It's not, like beyond a certain point it doesn't actually... Not only does it not do any good but it actually does like harm for you and for the generations that come after you, so why? Like I just, I have a hard time understanding it, yeah. Again, I'm not going to cast stones because I'm not every, everyone's got different circumstances of which I'm not privy but, but I feel like you can look out for people, especially in a time when so many are hurting without it being some like, so- socialist conspiracy.
Josh Felser: Yeah. No, it's, it's a hot, hot, hot subject right now. Especially right now.
Jason Jacobs: Yeah and I'm a capitalist too, like the socialists think I'm a capitalist and the capitalists think I'm a socialist so [laughing]. I know, it's kind of yeah, damned if you do and damned if you don't I guess.
Josh Felser: Yeah. And the la- I guess last thing is Miami is, I think you tweeted that Florida's doomed. Something like that. Tell me more about that and about where that came from?
Jason Jacobs: Yeah. Well, I'm not expert on, on resiliency and adaptation and u- extreme heat and flood waters and extreme events and wildfire and I, I'm learning but I'm, like you, I, I, I don't cl- I mean, and plus I'm such a generalist that I don't, I don't have mastery or expertise anywhere. But the same way that people say, we need to price carbon because we to price the externality because our whole economy is built without giving any credence to staying in harmony with the planet that we rely on to support human and other forms of life, I feel that same gap is in most people's decision processes. Like, they don't make decisions th- through the lens of thinking about that stuff. And one of them is, where should I live? Cause every- when everyone talks about Florida as the next Silicon Valley, well, a lot of the people closest to adaptation and resiliency and things like that, I don't think they would be moving their families to Florida anytime soon. And you would have to wonder, wonder why that is. Are the paranoid or is there something to that?
Josh Felser: I'm with you. I, I, I don't get it. Like, when I got to Miami, where my parents live, and I see how many cranes are, are engaged in Miami Beach, I'm shocked. I'm shocked. I, I don't understand what they're seeing that I'm not. I think it's just inertia, like momentum, they just can't, the system can't stopped even though, it makes no climate sense to be continuing to build [inaudible 00:49:58].
Jason Jacobs: Well, it's incen- that's one of the things I've been learning about, it's incentives because even the insurance industry, it's like the life cycle of those insurance payments or whatever, it's like by the time the shit actually hits the fan, you know, it's, it's even, not only does like, is it not the company's worry but it's like there's going to be like different people on those seats so that's where I get really suspect with the net-zero commitments too because it's like, by 2030, by 2050, it's like, that person just wants to have a job in 2021.
Josh Felser: Right, right. You know, the whole, the whole systemic, you know, we all, we're all under- learning about systemic racism we're all learning about that and I think over the last couple of years, we've been educated. But the systemic climate stuff is fascinating to me because the whole system is geared towards recovery, not prevention. The insurance industry, federal funds, all of it is geared towards, especially out here in wildfires, a fraction of it goes to prevention. And fi- we may have $50 billion in expenditure they shouldn't recover, right? But what if we just took 20% of that and focused on prevention? But that would require that insurance industry op- the insurance industry operates differently, that the federal government operated differently, that were actually, we can do counter to what is human. Humans, we want instant gratification. We'd have to change that. Like, healthcare industry's dealing with this too. How do we get more capital focused on prevention, which would include focusing on, increasing our efforts to battle climate change today, even thought we won't see the benefits til down the road. It's just changing our whole mindset toward this space and that's going to take time.
Jason Jacobs: Yeah, and you can, you can see it because it's like, well, we should build this thing to be resilient but it'll cost 30% more. It's like, but we need to because of climate. What about that storm two years ago? Well, that was a 500 year storm. It's like, well we've had, out of the six 500 year storms we've had in history, four have of them have been in the last 24 months. But just psychologically it's like, no, no, no, that's a 500 year storm so why would we worry about it, why would we plan for it? No, it's still called a 500 year storm but the climate is changing. There's just, there's a disconnect between the realities and the kind of stated facts that we've been conditioned to believe, and then people don't want to hear things that, you know, that go against their self-interests.
Josh Felser: Yep. We suck at ROI. We do when it comes to this stuff. We got to be better at it.
Jason Jacobs: Yeah. Well this, well this has been an amazing discussion. I feel like, in a year or two we should, we should maybe do another check-in and see where we both are. But before I let you go, Josh, is there anything I didn't ask you that I should have or any parting words for listeners?
Josh Felser: I just think that, you know, and you didn't, we have not, we have never had a discussion about this but I do want to say thank you for bridging the gap between these other general tech and climate and pulling more and more of us into this whole movement, and I really have, have gratitude towards you and appreciate it, thank you for having me on the show.
Jason Jacobs: Likewise, I'm real excited to see what you ended up doing. I have no doubt it will be ambitious and impactful and, and, uh, I w- wouldn't be a fellow investor, I'm a newbie, unlike you if I didn't say, uh, we should find some deal to do together. [laughing]
Josh Felser: Yeah. From your lips. Thank you.
Jason Jacobs: [laughing] Thanks Josh.
Josh Felser: Take care.
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. Note, that is .co not .com. Someday we'll get the .com, but right now .co. You can also find me on Twitter @JayJacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
