Marc Mezvinsky on TPG Rise Climate’s $7B Fund & Impact
Marc Mezvinsky is a partner at TPG Rise Climate. TPG Rise Climate is among the largest pools of capital ever raised with a dedicated focus on climate tech. They announced a debut fund in 2021 at over $7 billion—and another very large fund currently in the works. Rise Climate is part of the broader TPG Rise platform, the impact arm of the publicly traded private equity firm TPG, which manages more than $220 billion in assets.
Marc and I discuss his background and career path in finance across various asset classes, including private equity, venture capital at Social Capital, investment banking at Goldman Sachs, and hedge fund management, in addition to his work in climate tech.
Of note, Marc has a fascinating personal history as the son of two former U.S. House Representatives and as the son-in-law of former U.S. President Bill Clinton and former U.S. Secretary of State Hillary Clinton—he is married to Chelsea Clinton.
We also discuss how Marc approaches capital deployment at TPG Rise Climate, how he thinks about impact in his work, and how TPG Rise Climate evaluates impact relative to market-rate returns.
Episode recorded on Jan 23, 2025 (Published on Feb 27, 2025)
In this episode, we cover:
[3:04] An overview of TPG Rise Climate
[8:34] The fund’s investment approach
[11:12] TPC Rise Climate’s impact mandate
[16:16] Marc’s background and path into finance
[26:16] His exposure to policymaking and its impact on his work
[38:10] Areas Marc and TPG Rise are exploring
[44:07] Headwinds and tailwinds on Marc’s radar
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Cody Simms:
Today on Inevitable, our guest is Marc Mezvinsky, partner at TPG Rise Climate. TPG Rise Climate is among the largest pools of capital ever raised with a dedicated focus on climate tech, with a debut fund announced in 2021 at over $7 billion. And another very large fund in the works presently. Rise Climate is part of the broader TPG Rise platform, which is the impact arm of the publicly traded private equity firm, TPG, which overall has more than $220 billion under management. Marc and I discuss his background, his career path in finance through many different asset classes, including private equity, venture capital with social capital, investment banking with Goldman Sachs, and a stint in hedge fund management, in addition to his work in climate tech.
Of note, Marc has a fascinating personal life as the son of two members of the US House of Representatives, and now as the son-in-law to former US President Bill Clinton, and former US Secretary of State Hillary Clinton. Indeed, Marc is married to Chelsea Clinton. We also discuss how Marc approaches capital deployment at TPG Rise Climate, how he approaches impact in his work, and how TPG Rise Climate thinks about impact relative to market rate returns. I hope you enjoy the conversation. But before we start, from MCJ, I'm Cody Simms, and this is Inevitable.
Climate change is inevitable, it's already here, but so are the solutions shaping our future. Join us every week to learn from experts and entrepreneurs about the transition of energy and industry. Marc, welcome to the show.
Marc Mezvinsky:
Happy to be here. Thanks for having me.
Cody Simms:
I feel like this is a long time coming. We've chatted about doing this for a while and here we are.
Marc Mezvinsky:
Yeah, sentiment echoed. I'm really excited to do this. I've been a long time listener, fan of the team's work and not only what you produce but how you produce it. So privilege.
Cody Simms:
You were telling me right before we started recording that you actually sourced a deal from an episode you listened to at one point.
Marc Mezvinsky:
That's right, and I'd encourage others to do the same. I was listening to a pod of a alternative cement maker. Sometimes you're inspired to reach out. And through this relationship I spoke to the entrepreneur and was able and fortunate enough to allocate some capital to it. But it fits squarely within a broader theme we have in our fund for clean molecules and materials. And in fact, that capital allocation I made personally occurred before we formulated that sector. So let's give you guys some attribution. As we form up our sectors on a scale basis at TPG Rise Climate, we've taken inspiration from a lot of sources, including you.
Cody Simms:
I love it. Well, why don't we start from the top. What is TPG Rise Climate?
Marc Mezvinsky:
TPG Rise Climate is the climate-focused investment arm of our firm, TPG, TPG Capital, and it has a very clear mission, which is to allocate capital to help the world decarbonize. Our first fund had a very clear mandate to invest in a few vectors, a few prisms. One is we're private equity, we are later stage. We try to find great companies that are often highlighted on this show and later in the maturity cycle, for a few reasons. One is that's what we have focused on as a firm since our inception, two is we saw a meaningful almost funding gap for many climate companies, where there's many and we're grateful for this earlier stage climate funds, but as a company matures, where do they get their next capital allocation from? So we like that alignment of what we've done historically to where the market gap we perceived was.
And then also we as a fund really were started from TPG Rise, which is our all weather impact fund, which has a climate sleeve. So we've been doing climate deals for a while. It was a nice alignment between, I should say it's tripartite alignment between what we've been doing as a fund where we saw a gap in the market for funding, and where we have a track record of allocating capital.
Cody Simms:
Now starting at the very top of that, TPG, huge private equity firm founded in the early 90s, I think David Bonderman, James Coulter, institution in Private Equity. And then you have TPG Rise, which you mentioned is the impact fund within the broader TPG, and there's a Bono story or something to that, is there not? Am I making that up?
Marc Mezvinsky:
Everyone needs a good soundtrack in life, and we're fortunate to have some good soundtracks. So look, the chronology of Rise Climate, taking a step back, TPG was started by David Bonderman who recently passed away, who was a really extraordinary individual, and Jim Coulter. And they spun out of the Bass Family office. So our investing style and our DNA really is this entrepreneurial family office ethos. So some of the other large private equity firms, this is well before my time, so I wasn't investing. So this is just a chronology you can not only read.
Cody Simms:
You were probably in high school.
Marc Mezvinsky:
I was, I was in high school. And I had no conception that I'd be in this seat today. But it's important in that it was a real family office deal-making environment. We'll take on deal by deal. It wasn't we were going to build a franchise. And then it evolved from some singular deals. In fact, their seminal capital allocation was they acquired Continental, which threatens some of our work today in aviation decarbonization, interestingly enough. And from there it grew into TPG Capital, which is a very traditional, well now traditional private equity playbook. At the time, PE was still DeNovo.
And then fast-forward to about 10 years ago, TPG Rise started. And TPG Rise, I should take a step back. There's TPG Capital, and then after TPG Capital, TPG Growth started. So traditional private equity and then there's Growth Equity Capital. TPG Rise started 10 years ago we're at basically our 10-year anniversary, and it was we want to invest at scale and impact growth equity capital. So now we are on our fourth fund and that template has really proven out. But the next step of that was we saw a growing demand and need for TPG Rise Climate. In other words, the capital requirements for climate, there was a cognition and a realization were massive and different in some ways. So through this organic evolution from family office to private equity to growth equity, to impact growth equity, we came to TPG Rise Climate. So that's the journey so far.
Cody Simms:
There we go. And TPG Rise itself is a enormous amount of capital. It's like 25 billion or something under management. And then Rise Climate, You probably have the latest numbers there in terms of the size, but it's also an absolutely enormous amount of capital specific to climate businesses. Can you give us an order of magnitude?
Marc Mezvinsky:
I'd say yes and no. The quantum of capital, that number is little on the low side. So as a platform on impact, we have about let's call it between 25 to 30 billion, and the number is going to increase if you will. And we can talk about that. Not only do we have a Rise Climate PE platform, we recently announced a climate infrastructure platform and we have me and some other cooks in the kitchen for some alchemy to do more stuff. But on a dollar basis it's the largest impact platform in the world in PE and growth. As you know, and Jim Coulter says this with greater elegance than I do, I think we can deploy hundreds of billions of dollars into the sector, and the sector will be under allocated. The discipline of finding the right companies that have sound unique economics is what we grind through every day. But I can tell you to validate your number for Rise Climate.
So our first fund was seven and a quarter billion. Our second fund, which is activating now, let's call it between eight to 10 billion, we're still finalizing fundraising. For our first fund, I admit I had some agita and anxiousness about if it was the size of it. I'm like, "Well, are we going to be able to allocate this?" And Jim, to his great credit said candidly, I'm very comfortable with this risk and risk capital, and I sincerely believe if we had 15 billion we could have comfortably deployed it. The opportunities are extraordinary. For some of our capital allocations into our companies, we ended up doing less than we could have just because we had to be thoughtful of portfolio construction. We could only be so big in one position. So I think it's big but it could be a lot bigger.
Cody Simms:
And are you all primarily doing majority ownership investments? Classic PE style or are you approaching it more like a growth equity investor venture capital style of, call it 10, 15, 20% of a cap table thing?
Marc Mezvinsky:
So 75% of our capital are buyouts and carve outs. So think control positions, what folks would maybe stereotype PE as. And then we do it in our TPG way, namely we spend a lot of time on value creation and we put in our ops partners and we have a lot of levers. We want to actively exercise and that's part of our investment thesis. Here's the opportunity. But we think if we do one, two, and three, we can really accelerate. That's 75%. 25% rough justice is growth. So that can be minority capital allocations, minority with some governance, and that, when we say early stage, for TPG Rise Climate, and I talked to a venture investor of which I was one and I'm friends with many, the letters are very different.
In other words, our early stage is maybe a series D, whatever the letters mean anymore on the alphabet soup of our world, we want to target to get into a company, let's call it minimum $250 million. So we don't write $10 million checks, we come in later 98% of the time. But that's our mix and our knitting as well as a firm since we started there.
Cody Simms:
And it seems like you'll also do some structure, bring some debt in if the company needs it, et cetera. We just joined the round you led in one of our portfolio companies twelve, which was an equity round and a good chunk of working capital for the business as well. So I don't know if that was all out of your fund or various sleeves of TPG.
Marc Mezvinsky:
It was. We love twelve, we love all of our portfolio companies, but we're very excited about twelve. And sometimes when you evaluate an opportunity from our perspective, there's regular way equity capital and then you know that if there's project level finance or additional capital behind it helps the company and helps your capital. So it's symbiotic in that regard. And in climate there's oftentimes opportunities to deploy into what I would qualify as Devco Opco, where's the OpEx? You got to pay the team, you got to pay R&D, got to pay the engineers. But once the research turns into manufacturing, you need to have the capital to build the plant, to acquire the commodities, to input into the output. So for us in twelve and other instances, we look at it and say, "Hold on, just capital at Devco OpCo is interesting. But what's more interesting and where we think we can be more helpful to the entrepreneur and the company is to do both. And that's what excites us, because we want to be catalytic capital for those kinds of companies. And to your point, we can and will do both.
Cody Simms:
And as I understand it, from what I could glean off of your website and things like that, it looks like you do have a very specific impact mandate. You're not just market rate investors, you are choosing companies that you believe are going to be outsized successful companies in the market, but also are moving the needle on a climate-related problem. Can you share a little bit more about how you think about that and how you qualify investments in that regard?
Marc Mezvinsky:
Yeah, and it also can thread into my narrative of why I'm here in the first place. And I'm glad you brought it up because shame on me for even making it over 10 minutes in without mentioning it's a key part of our mandate, namely Rise. So for all Rise investments, both our Anchor Rise fund and TPG Rise Climate, we have twin underwrites. So we have the commercial underwrite. And Cody, to your point, our investment style and mandate is non-concessionary. So we underwrite in the 20s in our climate fund as a traditional PE fund does.
Cody Simms:
In terms of IRRs.
Marc Mezvinsky:
Exactly.
There are other folks in our ecosystem who are concessionaries, you'll hear, "I underwrite to a six to 8%." And that's their charge and their mandate. I personally and philosophically am in the view of I want to get animal spirits activated in climate. I say to our team, "Let's be vegan meat eaters if you will." I am a carnivore, but I think if you look at the capital requirements to help affect and solve the climate crisis that we're in, we want to flood in as much capital as we can. So commercially, let's be clear, we are mission-oriented, which I will articulate more on in a sec, but this is not charity. And that's also important for when we speak to entrepreneurs, founders, CEOs, I don't want to sugarcoat things. Our capital has expectations of growth, which means you grow and means your impact is higher. And that ties to the other part of our underwrite and we have the commercial side of the underwrite and then we have the impact side of the underwrite.
So we have a team in Washington DC called Y Analytics, and they have a very rigorous diligent process to ensure that our dollars that go in deliver meaningful impact. And if in our investment committee either is unsatisfactory, namely the commercial returns or expectations or the impact returns which have a rigorous methodology which we can talk about, then the deal doesn't get through. In other words, we need to be very careful for bringing a company that just isn't impactful, doesn't deliver the climate points we want, or the triggering word would be greenwashing. So the team in DC, you can think of it as an editorial board, it's independent and assesses what we do very clinically, and they do precisely that for all of our investments in the impact universe, which then ties back into when we communicate with founders, CEOs and the like, when we can find the founder, the CEO, the leader who is both commercial and mission-oriented, that maps very well to our capital.
Cody Simms:
And just to be clear, what I'm hearing you say is these companies have to be able to win in the open market though you're not going to invest in a company that has a higher risk of underperformance just because boy, if it does work, it's going to have a ton of impact. So you're out competing with pure market rate capital to win a deal, I'm guessing.
Marc Mezvinsky:
Completely spot on. And I like it that way. It makes it more fun in some ways. You can't put down your guard for either impact or returns, but when you get it right, and this is a big underlying thesis of how we allocate capital, they drive one another. In other words, we have this concept as a group called collinearity, meaning if a company is delivering impact, that impact should deliver financial returns for the company, and those financial returns should then subsequently be able to deliver impact. I can give you many examples, but that's the heuristic of how we operate.
Cody Simms:
Do you run into issues where founders are like, wow, I really like Marc, I really like what they're doing, but look at all the reporting overhead I'm going to have to do and all this stuff. I could go work with another growth equity firm or another private equity firm and get a similar term sheet, but they're just going to roll with me because they believe I'm going to do the right thing, not that they're going to track me doing the right thing
Marc Mezvinsky:
Early on, if my olfactory system starts to get activated on an opportunity in a company, I'll speak to the CEO and I'll say, "Hey, we're not all roses and peaches here." We need to hold ourselves accountable to our mandate. And that's our mandate to our investors, that's our mandate to our other CEOs. So we do have some reporting requirements and we're transparent about it. I will add though this co-linearity call out is important, and that we fundamentally believe that by doing this, it also over time increases the value of the company. And hopefully at TPG Rise Climate, we are able to add our value creation toolkit with the climate and impact lens that also delivers value to the company. So yeah, there'll be some pain in the assery, but we think it pays for itself.
Cody Simms:
You mentioned the impact focus was what got you excited in the first place to move into this space. Talk about your journey.
Marc Mezvinsky:
Maybe for your listeners now, if you're looking for a cure for insomnia, this is your moment to just put your head back on a pillow. Look, I never thought I'd be in finance. I'm from a big family, I have 10 brothers and sisters. I'm number 10 of 11. So big, big family, like a quirky Brady Bunch mixed family in the best way.
Cody Simms:
I was reading multiple adopted siblings as well in your family? It's a Wikipedia article I was reading Marc, but a fascinating article.
Marc Mezvinsky:
Super fun, always trust what you read on Wikipedia. But in this instance, my dad had four girls from his first marriage. My mom adopted two girls when she was single, which still blows my mind. She was 26 and 29, to 6-year-old girls and then they got married. So they had six girls and they had me, then they adopted three more boys and then they had my little brother. So I have four half sisters and five adopted siblings and then one biological brother. So a super fun house to grow up in and a lot of life lessons in the best way possible. So I went to school thinking I was going to be one of two things. Either I really thought I was going to be like a theologian and that's what I ended up getting my degree in, in religious studies and philosophy. But when I first went to school, I thought, I spent a lot of time in symbolic systems and physics.
I'm really into applied mathematics. And I ended up not doing that just because to become an applied mathematician you have to do a lot of theoretical math and that bored me, I was always how fast does the Flash need to run around earth to stop time math? And then when I was in my senior year college, it was '99, 2000, and there was a guy, his name is Tom Arapa, and he and I had taken a grad class on something very esoteric, Spanish marriage practice in the 14th century. Something weird that you can get away with taking. So great. I love that class. Kathleen Millen was my professor and I'm very grateful.
Cody Simms:
I'm a history major, so that speaks to me.
Marc Mezvinsky:
It was such a great class. But he was walking by a year later and I did not look the part for finance, let's put it like that, wide corduroy pants, wool burlap bag sweater, big hair Jewfro, real big hair when I had it. And he said, "Hey, will you come and interview?" And he worked at Goldman, he was doing CDO cubed, like CDO squared, pretty derivative. And I said, "No interest at all." And he said, "Please do me a solid. We can't get anybody to interview." I went to Stanford, everybody's going to Yahoo and the like. "Just come in for an interview." I said, "Tal, I'll do it for you, but I'm not going to change." He's like, "Don't worry about it." So I went and the next day I interviewed. The very first woman who I sat down with who's still a friend who interviewed me, looked at me and said, "You're either very smart or you're not very smart."
And I said, "I am here because of my friend Tal." And I had very fast interview cycle and they gave me a job offer at the end of the day, I think it was because of the scarcity. They asked me all math questions, which I think are fun. And I said, "No, I'm going to grad school." And then they said, "Would you like to intern?" And I said, "Where?" And they said New York. And I said, "No, no interest." For all of the entrepreneurs and folks who are working for a career in finance, if you ever have a chance to say no to someone who's used to being told yes, fascinating things can happen. Not necessarily good.
Cody Simms:
By the way, I have the opposite story of you, which was right out of college in like '99, interviewed in New York for investment banking jobs and stuff like that and ended up moving to San Francisco and working in a dot com startup.
Marc Mezvinsky:
Well maybe I should have done that. No. And so many of my friends worked in the dot com world, early Google days, which is a whole other set of stories. Everybody has their journey and I believe in that, there's a spiritual art to life. So I said, "No." Then they said, "Well do you want to intern in Palo Alto?" Because there was an old Goldman Sachs office on Santo Road.
And I was like, "Yeah, great, I'll get to spend time with my friends before I go to grad school." Because I knew I was going to grad school. So I did that. And then at the end of my first year of grad school, they called me and they said, "Do you want a job?" I said, "No." And then they were persistent, they were very, very persistent. And I said, "I'll do it for 18 months." And it's been 25 years now, sorry, 23 years. So I was at Goldman for a little less than eight years. And I started off when they hired me, this is true with my intern. And they go, "Look, we want to be clear, you're not going to be speaking to human beings that much."
Cody Simms:
You were speaking to your friend, Microsoft Excel.
Marc Mezvinsky:
And thank God it wasn't Lotus 1-2-3, but it was pretty clunky. But by the time I left I was running a proprietary trading book in foreign exchange, currencies and commodities. So fixed income currency and commodities. And I loved it, I loved it, I loved it. And I learned so much that I'll never forget and be always grateful for. And so when I was there, a firm called 3G found me, they're a family office of three Brazilian titans of finance down there. And I oversaw the macro book, I was like a glorified treasurer in some ways for them, but I had to make money in macro. But they were also and predominantly known for their private equity capital allocations. And when I was there we bought Burger King, there was 12 of us there, of which there were five investing professionals. So that's where I learned private equity.
And they had, I should say had but still employ a very cost-conscious capital deployment model. They're well known for something called zero-based budgeting or ZBB. So they are very good at finding companies that can run leaner. And I learned a lot about that just from being in the room, and learned a lot about the capital structure, a lot about operating efficiency, operating leverage. And that's when I got into privates and they taught me a ton. And also this ethos because it came from Brazil during hyperinflation, this appreciation for the only thing you can control in many ways is costs. There's a famous 3G saying, "Expenses are like fingernails, they're always meant to be clipped." And so that was pretty extraordinary. So that's kind of how I stumbled my way into finance.
Cody Simms:
I'm struck hearing these stories. First of all, I always love hearing everyone's journeys, but secondly how working in this space, in climate, in energy, the problems are so broad and so cross-functional that having a multi-dimensional background tends to be useful.
Marc Mezvinsky:
The team we have is extraordinary. We are so blessed to have incredible people and sometimes when I go through interview cycles and someone will say, "Hey, I studied finance, then I got my MBA." I'll go, "All right, let's go deep and hard. Let's really push this." Sometimes someone will sit down with me and they'll say, "I studied history or English." And I'm like, "Well how did you end up in this seat?" And those are some great stories and I think when you're doing team build, it's good to have a compliment of everything. So everybody looks and thinks the same. You're going to get very little offer, very little Socratic engagement, which is important for what we do. Going back to your venture and private equity framework, I like to say venture capital is oftentimes the ability to imagine what can go right. And private equity is oftentimes the ability to imagine what can go wrong.
And then growth equity is often in the middle. To be a good venture capitalist, you're deploying into ideas that be 10 Xing, a hundred Xing, what needs to go right? And sometimes that can be incredibly fun. We can talk about my time doing venture capital, but sometimes that can be, if not done the right way with portfolio construction, it can be haphazard and maybe dangerous. In private equity, I also really appreciate the ideas of managing risk, which Goldman gave me a lot of that. Sometimes if you focus on what can go wrong, the good stuff just naturally comes up karmically. So having both I think if you can or want to, can hopefully make you into a good capital allocator and investor.
Cody Simms:
Where did the climate focus come into play for you?
Marc Mezvinsky:
So before I was at Rise, I had a fun moonlighting period at a place called Social Capital, and that was early stage capital allocation.
Cody Simms:
That's Chamath's firm.
Marc Mezvinsky:
Yeah. And part of how I was snookered into joining that really fun place was the social part of Social Capital. I'd gotten lucky by being at 3G and I decided if I'm ever going to work for an institution again, I really want to proverbially be able to talk to my kids about it at the dinner table in a way where they would be like, "That's kind of cool." So as a north star that had bubbled up. So the social part of Social Capital, that was the hook.
Cody Simms:
Meaning social networking, social media?
Marc Mezvinsky:
Definitely not.
Cody Simms:
Oh, okay. Social impact. There we go. I was going to say he famously was the growth hacker at Facebook. That's how he built his career.
Marc Mezvinsky:
It was not that. It was definitely not that, but that's okay. I think recognizing the tools of modernity and technology being an anchor component of that, which is part of our climate thesis, how you can use technology, social media, and just the communication and media environment we're in to recognize that that's how information is distributed and how you can affect change. That's part of what we do. That's what you and I sitting down today is. But no, it was very much an interest capital can do well. It was culinary in some ways before that articulation. So after I left that, after I left Social Capital, I was like, "Look, I'm just going to do my own thing. This is good." And then Rise and TPG, the ecosystem knows that I'm just not spending time unless I can have that North Star signing in my life. And so they figured that out. That's my either Achilles heel or my soft chin or my stern spine. And about five years ago I ended up at a TPG before the climate fund.
Yin Lu:
Hey everyone, I'm Yin a partner at MCJ here to take a quick minute to tell you about the MCJ collective membership. Globally, startups are rewriting industries to be cleaner, more profitable and more secure. And at MCJ, we recognize that a rapidly changing business landscape requires a workforce that can adapt. MCJ Collective is a vetted member network for tech and industry leaders who are building, working for or advising on solutions that can address the transition of energy and industry. MCJ Collective connects members with one another with MCJ's portfolio and our broader network. We do this through a powerful member hub, timely introductions, curated events, and a unique talent matchmaking system and opportunities to learn from peers and podcast guests. We started in 2019 and have grown to thousands of members globally. If you want to learn more, head over to MCJ.vc and click the membership tab at the top. Thanks, and enjoy the rest of the show.
Cody Simms:
One thing that strikes me about working in this space is how intertwined it is with policy, particularly with the stage of company you're investing in, where they're needing to get a factory built somewhere or they're needing to build out infrastructure that requires working with regulators or working with legislators. And one of the things we haven't talked about in your background is how much exposure you've to policymaking somewhat your whole life. Both of your parents, I believe were members of the US House of Representatives and then you have a very famous and powerful political family tied with you.
Marc Mezvinsky:
I'm wonderful. I'll substitute.
Cody Simms:
I don't know them. You could say they're wonderful. That sounds great.
Marc Mezvinsky:
So I grew up in a family of service. Both my parents were in Congress, but in some ways kind of at the bookends of my juvenile adulthood. So my dad was in Congress from '73 to '77, I was born in '77. And then my mother was a broadcast journalist. She started off in radio and then did TV for 25 years and she met my father while interviewing him in DC. So maybe in a psychic way when you talk about media and that convergence of media and action has been part of my origin story.
Cody Simms:
Quite literally. That's awesome.
Marc Mezvinsky:
So true. I grew up in that house and my parents were very active in politics. And then yeah, my wife Chelsea, her parents were also very active in politics.
Cody Simms:
For listeners who may not know, that's Chelsea Clinton is Marc's wife.
Marc Mezvinsky:
That's correct. She's extraordinary. And so I've known Chelsea since I was 15 and she was 12 because through that intersection of our parents both being in politics, so I've known her and I was a year ahead of her in college. I turned out, ended up being a year ahead of her at grad school and a year ahead of her in New York. So we had this stated path in a wonderful way. But yeah, I grew up with it. And to bring it back to climate investing, on the policy side, I think one of the more interesting stories in the past five years within climate capital with the obvious predisposition, this is where I'm is how the climate fund started. So it turned out in February of 2020, Jim Coulter, who's a co-founder of the firm, calls me and says, I just got back from Davos and you amongst some others in the firm have allocated into climate and I'd love to pull that thread a little bit.
And he said, let's think about what a climate fund could look like. I was in the middle of a few deals and I said, Jim, give me a couple months and this is something I'd love to sink my teeth in. And I called him back, I remember five weeks later so early and I said, "Jim, I've got some time. Let's do it." So come back the third week of March of 2020 COVID hit. I like to say our climate fund is a COVID baby. Some extraordinary things came to bear in history throughout these moments like the plague.
Cody Simms:
MCJ was very much born during COVID as well.
Marc Mezvinsky:
There you go.
Cody Simms:
Much smaller size than TPG Rise Climate, but for sure was part of that.
Marc Mezvinsky:
But meaningful impact. And so that's how we started as Jim and I in the very beginning, transcontinentally with Zoom, whiteboarding it and having this idea that scaled capital has a place within the climate ecosystem. And the other key observation that we had in that moment, it's kind of an analog of history and it ties with technology and it ties with policy is this, let's say it's 60 years ago and you are a technology investor. One is would anybody actually call you a technology investor? That as a sector didn't really exist. What you were effectively investing in let's say is IBM, Texas Instruments, Hewlett Packard, you were investing in a sub-sector of manufacturing that had a higher growth rate, a higher growth coefficient that then could spawn subsequent industries. And let's say it's 50 years ago, if people say, "Oh, you're a tech investor." And you go, "Okay, yeah." They would not ask you, "Oh, do you do enterprise SaaS?" It's just as a sector matures it sub-sectorizes.
Cody Simms:
Taking it back to our late 90s story, the internet was one of these little sub-sectors of the broader tech ecosystem. You had to be a specialty investor in VC or whatever to invest in internet for at least a little while there.
Marc Mezvinsky:
Totally. And to thread it into policy is I remember when I was graduating school, university, I remember hearing from multiple people, "Don't go into tech, it's the end of tech." The trustbusters are coming in, they broke up Microsoft. Policy is going to get in the way of this opportunity." So fast-forward to today, climate has some key similarities to that setup. I think has a 50-year macro tailwind, climate's eating the world like software. The effects of climate are eating the world.
But also how lucky are we to say when somebody asks me if I'm a climate investor, I say, "Yes." And they don't say, "Do you focus on solely clean electrons?" "No. We get to have a broad purview." That will change by definition. And the other analog is there'll be policy headwinds and tailwinds in the next 50 years. But if you fundamentally believe that this is a macro thematic that's not going to go away, then park your flag in the face of headwinds. Because there will be tailwinds. I'm very inspired by these historical analogs because I do believe the history rhymes. And I think we're in many of those moments.
Cody Simms:
That's an inspiring way to think about it. Park your flag in the face of the headwinds because the tailwinds, if you believe they're inevitable to use the name of our show, the wind may blow in your face for a little bit, but it's going to be at your back more often than not is what I'm hearing you say.
Marc Mezvinsky:
Totally. And that'll manifest itself in so many ways and if you embrace it, then it won't slow you down.
Cody Simms:
Given the exposure you've had to policymaking and how things actually get done or not done. When you come across a company that has material policy levers to the business for good or for bad, call it risk if you will, does that make you more or less inclined to want to lean in?
Marc Mezvinsky:
So threads into how we underwrite businesses. We underwrite businesses on standalone unique economics. So now all of a sudden when you double click into the balance sheet, let's say a company selling tax credits for example or not, that threads in and we do have a profound sensitivity to that policy risk. In some worlds, let's just talk about concrete, cement, or something that is a technology that helps building materials decarbonize. And then you look at that business and it says, "Well, for us to survive, it's predicated upon," I'm going to make a number up a 200% green premium. We'll say, well pause. Let's compare that false dichotomy to another company. Oh, we can produce a product in building materials that is either at the same cost or a lower cost to the existing technology. And if we get a green premium, it's gravy. We perk up a little bit. We're like, "Okay, hold on. This is technological innovation that's not predicated upon XYZ."
Cody Simms:
Corporate goodwill.
Marc Mezvinsky:
Yeah, exactly. So if that's an upside node, terrific. If it's a predicate node, you should be very, very careful. For an entrepreneur, if you're an entrepreneur listening to this, I would say if you can find innovation that helps the world decarbonize but is not overly dependent on policy, that's interesting. Now against that, there are sectors, to your point that we've leaned on, we've allocated on the shoulders of stimulus. So we have an investment, this is all public in a company called Nextracker. Nextracker does optimizations for solar panels. And solar is where it is today, IE, lower costs than conventional fuels on a subsidy market. You could also make the argument that I'm very comfortable making that the regular way oil and gas market is this huge market. As is healthcare.
Cody Simms:
A giant subsidies market.
Marc Mezvinsky:
As is technology. So to tease out where subsidies that exists or not is hard. But at the end of the day, specifically, we're very sensitive to the policy risk. We have false dichotomies. If this company exists without a subsidy or not, maybe we're predisposed, but it can't do it in isolation is the bigger point.
Cody Simms:
What if it's less to do with subsidies and more to do with permitting or getting essentially the right to build something, which for many of these companies is binary.
Marc Mezvinsky:
It's a big deal, and we put a risk coefficient on it. My experience is it's harder and takes longer than you think. So I was giving some similarities between allocating it to tech and allocating to climate. I feel like this is 60 years ago run for the rhythm of capital investing history is a climatist attack. It is different in many ways that thread into this question, Cody, namely 60 years ago, the technology capital allocations were often hardware, those examples I gave and then the software layer got built and the capital efficiency of software is gross margins are much higher.
And also the influence of venture capital on the cap table is different because if a company requires less money to hit profitability, then coming in early is really important. That's the catalytic capital. If a company has higher capital intensity, then often, not always that last slug that gets you to that profitability curve has a lot of influence, which is what we experience in many of our capital allocations. So what excites me and what scares me as hopefully all good investors, it's the same thing is that with permitting, they'll come to us on that last slug, they get through to profitability. And if they get the permits then they have to execute. But there's a pretty clean path to the promised land. So if you can underwrite that, it can be pretty darn favorable, but it's pretty darn tough. So we've taken on some of that permitting risk in our underwrite, but there's a cost of capital that's associated with it. So that's a trade-off.
Cody Simms:
For the last few years there's been a large capital partner that has been a friend to all in this space that may not be as active for the next four years, namely the DOE in funding many of these projects, doing loan guarantees of hundreds of millions of dollars to help get some of these factories built. How are you guys thinking about the role of the federal government as your partner and friend in building businesses now? We're recording this four days into the new Trump administration, so we don't know what we don't know obviously.
Marc Mezvinsky:
The amount of uncertainty is higher and when uncertainty is higher, then it gets harder to allocate capital in the space and you candidly also need to be paid for it. So in some ways, if you can get a view amidst all the uncertainty, hopefully the markets reward you over time. Because the easier thing to do is just sit on your hands and do nothing. So that's one. In terms of government capital partners for our sector, again, pros and cons. As a clinical capital allocator, I'm like, "Well, if there's going to be less dollars in the system, our dollars are hopefully more helpful." And commercially, that's not a bad thing. There's another framework which is again, we want to fund as much capital because we need to decarbonize as fast as we can for the sake of humanity in the world. So that mission element is not immune to me and it's what got me into here, but I also think it's real.
Cody Simms:
None of this works if private markets don't solve these problems, solve problems, the government can't solve these problems, it can be helpful, but ultimately it does have to be private capital that funds this transition, I think.
Marc Mezvinsky:
I vehemently agree. And when we were starting to fund what we said was if it was just government dollars alone, it doesn't work. If anything, this is why we need animal spirits in the sector. And it's that fine line between being like, oh, animal spirit, Adam Smithian framework to me I view as you have to recognize the risks of it if it's unbridled, but at the end of the day it can also drive meaningful change and purpose. So we have to be cognizant of that distinction. But for me, I'm like show me a great climate company and I'll show you capital. And then what you're rightly doing is teasing out what may make it easier to be great. But this is hard. To quote a good friend of mine, starting a company is like eating glass. It's just hard. So who's going to be with you while you're eating glass? Who's going to believe in you on that journey? And that is what I want to be. Throughout administrations, throughout policy cycles because that's a real legacy you can leave behind.
Cody Simms:
Well on that note of find me a great climate company, are there any particular areas that you're exploring at the moment that you're extremely excited about?
Marc Mezvinsky:
Some are master of the obvious areas. So two master of the obvious areas, and let's do something a little bit less prosaic. So massive of the obvious areas are convergence, like the Venn diagram between data centers, AI, machine learning and climate. And we're seeing a meaningful amount of capital go into the sector. Finding value there is work, but in terms of finding a macro tailwind, it feels like I'm at Stanford again a long time ago. With all this energy and excitement, there'll be ebbs and flows, there'll be massive failures, but the value creation is non-trivial. So we've made investments in the space in climate. We recently made an investment in a company for example called MIRATECH, do filtration mission controls and sound attenuation. Think air quality and sound quality for data center backup generators. And this is, I would refer to as negative emissions, but you have two massive macro tailwinds converging, and have climate and data center growth.
That's really interesting. Can we find companies at scale that will deliver cleaner power to the grid than steady state? That's really exciting. Find me those companies and I'll have Pavlovian salvation. And then another super, I'd say obvious one is an area we've been spending a lot of time in and have done some allocations into as what we would call adaptation and resilience. I mentioned clean molecules and materials. You're in LA, we're living in a world of what was once a one in a thousand-year storm feels like once in a decade. How do we not only reduce our output of emissions but recognize we have to make ourselves stronger? So there are many opportunities there that excite me that I think the trend of this isn't going to go away. We may have two years of nothing occurring, but I think having a more fortified grid, having a better disaster response system, having a more efficient restoration services, all of these things are climate solution response, and we shouldn't just come up with responses. It needs to be part of a solution, a suite of solutions.
Cody Simms:
So real world physical security and hardening I'm hearing is a bucket that you're spending time in at the moment.
Marc Mezvinsky:
Yeah, I think if you guys have highlighted a lot of DAC companies and I've spent a ton of time on DAC companies and I think they're important for our ecosystem and long-term capital allocation, we haven't gotten there yet based on some of the unit economics not to yet kick in, but they will over time. But I think if you view this as a barbell for solutions in 10, 15, 20 years from now, you have to invest there, but you also need solutions for today as well. So part of our portfolio construction goals are to make sure we have a lot of both. But yeah, those are the obvious ones. The more fun quirky off the run stuff. Again, you guys know the sector. We invest in a company called BETA. It's an eVTOL business. It's an electric airplane, extraordinary with a ferocious founder. And another one which you've discussed, Form Energy. That's a really fascinating business. This is a 100-hour battery for utilities that will enable grid firming.
Cody Simms:
It's an iron air battery if I understand, not lithium ion.
Marc Mezvinsky:
Correct. Thank you for that. So the fun part of our job is building a portfolio of these companies that can move the needle. And then the really fun part, and you guys get to do this too, is when you have one portfolio company over here and it lights a bulb for another portfolio company over here, and I'd say this as a final, what inspires me about the pod and everything is you guys are at the vanguard even if you didn't know you were, it's like creating this community of portfolio companies, of friends, of mission-aligned folks. How great is that? If we can get that right, then I think we can have a lot of reason to lower our shoulders and be hopeful.
Cody Simms:
I was talking about that with my partners this morning when we were talking about some of our investment themes for the next year or two. And in particular talking about how do we find families within those investment themes, meaning you invest in this area and then you realize there's a shoulder over here that is related and tied in and there's an arm over here that hangs off that shoulder in a different space, but it's related and tied in and you start to learn across all of these businesses to have a view of the overarching family of trends that are happening. And that's an area we're trying to get smarter and more pointed at. But I'm sure it goes all the way up the food chain to the work you do.
Marc Mezvinsky:
I won't say up the food chain, but yeah, absolutely. We have, for example, let's just contextualize it, real world example. So it would be twelve, because it's it a SAF business, sustainable aviation fuel, but who tests the fuel to be says it is what it is? Who has a beaker here of fuel that says this is 10-hour fuel that was just created and this is a hundred thousand year-old fuel. What's the testing ecosystem? So we looked at that and we bought a testing inspection and certification company, AmSpec, extraordinary business. And it's going through this, it supports old-fashioned ONG, but under our ownership we're really pushing its renewable fuel initiative. And we're going to move the needle that way. But we wouldn't have connected those dots to your point, Cody, unless we were like, let's breathe in the whole ecosystem. Let's foster this ecosystem. And when you do that, pretty extraordinary things can happen.
And it makes me feel like these, I'm idealizing them, but it's these tech investors 50 or 60 years ago. It's like I'll start off on the mainframe and then I know what ENAX is, I know what punch cards are. And then you're like, "Hmm, this software layer is interesting." And then you're like, "Wait, this application layer is pretty cool." And then you're like, "Well, this app is pretty amazing." And we live in a world where I don't think it takes 20, 30 or 40 years. This is happening in years and months and how lucky are we that we get to take the lessons of history and put some dollars behind it as something we care about?
Cody Simms:
Well before we wrap, just to make sure we're not whistling through the graveyard, as my partner David likes to say, there are going to be some headwinds to use your old phrase over the next few years. And I'm curious if there are any particular headwinds that you're paying most attention to right now.
Marc Mezvinsky:
Yeah. So again, sometimes being good investors, worrying about what can go wrong and not being Pollyanna-ish, though my meaningful worries look clearly. If there are companies that were predicated upon policy outcomes, they're either going to have to adapt or they may not succeed, they may die. And that manifests in a very specific way in some of what we were teasing out a little bit. So I think there's a higher risk of many companies that haven't completed their first plant or their first build out. So they have development operating sensitivities, but their projects are not yet complete. So there's the risk in my mind that orphan projects could flood the market. That's real and that means you lose jobs. That means people could lose faith in some subsectors, could have reflexivity in a negative sense. Well, the reflexivity is not a negative positive.
Cody Simms:
And new energy generation, new energy storage, new E-fuel technology that doesn't make it to market is essentially just a stranded asset. Maybe there's IP there, but those are tough to find a home for.
Marc Mezvinsky:
Northfold is when we go on our investment committee, we're not shy in bringing that up. And so I think that is a real risk and probably it's not a risk it's happening. So you now need to think about what that means when you're allocating dollars. I also think on the talent side, we haven't seen this yet. I worry about our ability to recruit and keep and motivate talent. We're super lucky, our teams are just amazing, but how much of that was, oh my gosh, the tailwinds are massive. So all of some of the best and brightest were like, let's go into this sector. And we've seen this again to analog it to tech, where in the early naughts, I like saying naughts. There was a massive influx from the March, 2000 high in NASDAQ. Going into it there was a ton of folks who went into tech and then it slowly faded.
And then we were in the tech desert for a long time and there are people who stayed there and who believed were rewarded massively. But the talent pool was, maybe I'll go somewhere else and this could be good choices. I'm not saying if you work for a consultant, that's a bad thing. I'm not saying if you work for XY industrialists, but I think that is also just as you're building a business, if you say, "Hey, what am I worried about?" That is a worry. Now maybe we'll get the people who are really good and really committed, that would be the glass half full. But I do worry that we've had such a blessing of talent come to this industry and I'd like to bear hug it. So that's a systemic and structural worry as you build teams and build businesses.
Cody Simms:
I think we're at the point where we need some really big outcomes for talent to continue to stay super engaged is my take. And hopefully there will be some of them even in the face of some headwinds over the next few years.
Marc Mezvinsky:
So what we're doing there, we didn't really talk about this, but we're talking about headwinds, but let's talk about tailwinds. We're seeing tailwinds in many ways internationally if we're talking about policy. Look at what's happening in Japan on their carbon intensity. Europe is not tapping the brakes just yet. India has a big area of focus. So part of what we're doing as a global capital allocator is being cognizant of that. So hopefully our leadership, corporate, political, social, wants to be at the vanguard of embracing our realities, that we need to adapt in the face of climate change, because we will allocate capital around that conviction. I think there's plenty to be worried about and great investors can climb that wall of worry, and that's what we're aspiring to do as capital allocators at Rise Climate and speaking to you. If we can do that, then it's super fun and rewarding.
Cody Simms:
Well that's a great sentiment for us to wrap up on Marc. I don't know if there's anything else you wanted to leave us with before we close the conversation today. But I will say I've just appreciated your time, appreciated having you in the community, having you as part of what we're building here at MCJ. And it's great to get a chance to chat with you today about the work you're doing at TPG Rise Climate.
Marc Mezvinsky:
I am flattered to be on. You guys are inspiring a lot of people and it makes a difference. So thank you.
Cody Simms:
Inevitable is an MCJ podcast. At MCJ, we back founders driving the transition of energy and industry and solving the inevitable impacts of climate change. If you'd like to learn more about MCJ, visit us at MCJ.vc, and subscribe to our weekly newsletter at Newsletter.MCJ.vc. Thanks and see you next episode.
