Episode 81: Matt Eggers, Breakthrough Energy Ventures
Today's guest is Matt Eggers, Investor & Company Builder at Breakthrough Energy Ventures, a $1.1 billion, patient capital fund dedicated to building companies that will have a massive impact on greenhouse gas mitigation. He also serves on the Board of the Institute for Market Transformation.
Matt is a seasoned cleantech leader, investor and advisor with 20 years of experience delivering results in diverse companies. Matt’s recent past experience includes serving as a Vice President with Yardi Energy. He has also been the Vice President of Sales, North America for Tesla and the Vice President of Operations for Sunrun, a national leader in home solar power service operating in 11 states. His earlier experience includes leading the stack operations team and serving as Director of Product Management at the fuel cell company Bloom Energy. In that role he led development of the plan to massively scale manufacturing of Bloom’s core cell technology and developed the features and specifications for the second generation “Bloom Box.” Before Bloom, Matt worked for Genentech where he led the commercial launch of Herceptin Adjuvant, a breast cancer drug with over $1 billion in sales. Matt’s early career experience includes serving as an Associate at Morgan Stanley Venture Partners where he championed investments in biotech and enterprise software companies. Matt has a BS in molecular biology from Duke University and an MBA from Stanford University.
I was pleased to sit down with Matt for this discussion, as he is a grizzled cleantech veteran, and doing important work at Breakthrough Energy Ventures. We cover a wide range of topics, and I learned a lot! Enjoy the show!
You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
In today's episode, we cover:
Mission of Breakthrough Energy Ventures (BEV) and its high-network individual investment model
Success metrics anchored around half-a-gigaton carbon atmospheric reduction and financial return for investors
BEV’s long investment time horizon (20 years)
BEV’s investment criteria
Pivot Bio, a portfolio company, addressing carbon emissions found in fertilizer
75F, a portfolio company, offering AI-driven software to drive efficiencies with HVAC systems
Matt’s climate journey from a farm in Iowa to BEV
Matt’s perspective on the climate problem and its multifaceted solutions
Putting a price on carbon
Inadequate funding in the climate space
Disrupting the dairy industry’s carbon footprint via low-emission Casein
The patience required with Climate Change investing (cf. traditional software venture investing)
The role of corporate strategic investors and banks
Policy developments at the municipality-level that factor in Climate Change and affect homeowners
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Jason Jacobs:
Hello everyone, this is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change, and try to figure out how people like you and I can help.
Jason Jacobs:
Today's guest is Matt Eggers from the investment team at Breakthrough Energy Ventures. BEV is a $1.1 billion venture capital fund dedicated to building companies that will have a massive impact on greenhouse gas mitigation.
Jason Jacobs:
Unlike traditional VCs, BEV's limited partners consists exclusively of high net worth individuals. This enables them to have longer time horizons, more patient capital, and specifically to go after companies that can have an outsized impact on climate change if they are successful.
Jason Jacobs:
This is a great discussion. We talk about Matt's background and what led him down the path that he's on and what led him to care about climate change in the first place. We talked about BEV's work, how they make investment decisions, what stage they come in, what types of companies they're most excited about, how they measure impact and how they're both similar and different to traditional venture capital firms.
Jason Jacobs:
I should also note that Matt is representing his personal views on the show, and not necessarily those of Breakthrough Energy Ventures. I learned a lot in this episode, and you will too. Matt Eggers, welcome to the show.
Matt Eggers:
Hey, it's great to be here. Thanks a lot.
Jason Jacobs:
Thanks for coming. It's been a long time coming to have representation on the show from Breakthrough Energy Ventures and I mean to start, I'll just put a little disclaimer that because you guys don't do a ton of public speaking, I don't know if either one of us is exactly sure where we're allowed to go or not go so we'll probably keep it surface as it relates to BEV itself, but given how much experience you have, just in clean tech from all different facets as an investor, as an operator, I thought it absolutely made sense to have you come on the show.
Matt Eggers:
Awesome. Great to be here.
Jason Jacobs:
Cool. Well, maybe for starters, after we got the disclaimer out of the way, what is Breakthrough Energy Ventures?
Matt Eggers:
Breakthrough Energy Ventures is an investment fund focused on the climate challenge. So our objective is to generate a solid venture return, return positive returns, good returns to our shareholders, to our investors and make a very large impact on climate change.
Jason Jacobs:
Got it. And the LPs, it's a little bit different makeup than a typical fund, right? Because it's all individual LPs?
Matt Eggers:
It's all individuals and there are lots of individuals that invest in funds. I think what's unique about us is it's a large fund with only individual investors, there's no institutions.
Jason Jacobs:
How did Breakthrough Energy Ventures come about?
Matt Eggers:
Bill Gates is the founder of the fund and remains the chairman today and is an investor in the fund, and it originally spun out of his mission innovation projects that happened in the same time as the Paris climate accords a few years ago and then this Breakthrough Energy Coalition came out of that, which is a number of individuals, institutions, governments and companies that are trying to impact the climate challenge.
Matt Eggers:
Breakthrough Energy Ventures is a fund that's related to all that, but completely separate that also spun out of that work where a bunch of those folks said, "We want to invest in companies that are developing solutions for the climate challenge." And so they created this fund.
Jason Jacobs:
And it's about 1.1 billion in fund one?
Matt Eggers:
Yup, just over a billion dollars. That's right.
Jason Jacobs:
Got it, great. I mean, I've certainly read a little bit, and I've seen you guys in some deals and stuff, but from what I can gather, and I definitely want your input on this, but it seems like there's, I think it's a half a gigaton threshold for the type of impact that you need to be able ... You need to be confident the company can have presuming success, is that first part right so far?
Matt Eggers:
That's right. Half a gigaton.
Jason Jacobs:
Yeah. But then after that threshold, you're just like any other kind of profit-seeking venture fund?
Matt Eggers:
That's right, exactly. Seek and venture returns and like you said, there's a normal venture fund has one objective, venture returns for any given investment we have to. Venture returns and half a gigaton of GHG impact.
Jason Jacobs:
But a little longer time horizon on the fund, right?
Matt Eggers:
That's true. That's another key difference is we've got a 20-year life, typical funds are 10-year life, although most funds get extended at least once, if not twice. So they end up being two year extensions, 12 or 14 years.
Matt Eggers:
We from the get-go are 20-year fund. Bill Gates and the other investors recognize that when you're trying to transform massive, old, entrenched, industrial industries, it often takes longer than say building a new enterprise software product and so the fund has a longer life.
Jason Jacobs:
And how do you guys think about additionality?
Matt Eggers:
It's a good question. We talked about this today and we've talked about it many times. The objective of the fund is to use the deep scientific and technical expertise, the deep operating expertise, folks that are in it, to find technologies, companies and founders that might not get found or invested in or supported in a very large way otherwise.
Matt Eggers:
That said, additionality isn't something that we talk about on a deal by deal basis. We don't say, "Oh, are we the investor of last resort? And so therefore, this isn't going to get done if we don't do it."
Matt Eggers:
We definitely don't do that, but we are looking for things that are innovative, perhaps risky, perhaps off the beaten track that wouldn't be getting billion dollar valuations and $300 million rounds from the likes of the average or the many great VCs on Sand Hill Road.
Jason Jacobs:
And can you talk a bit about what stage you guys like to come in, typical check size, whether you lead or you don't lead and just kind of how you think about those syndicates?
Matt Eggers:
That's one of the great things about the fund is we have a lot of flexibility. We have great geographic flexibility and stage flexibility. We've done Pre-Seed investments down to a few hundred thousand dollars.
Matt Eggers:
We don't do a lot of those, but we've done it. Typically, we do Seed and Series A investments, but we also can do and have come at least in one sort of round into more of a growth investment. We're very flexible on the stage and like I said, geography and technology and even industry.
Jason Jacobs:
And do you like to lead or be part of a syndicate or no preference?
Matt Eggers:
We typically lead, we think part of our value add is understanding a lot of what these sorts of companies need. We've got great company building expertise and great technical expertise within the fund.
Matt Eggers:
Lots of connections to the big companies that can be potential partners and acquirers for these companies. So we prefer to take a lead role which generally means sitting on the board, but we also really do prefer to invest in syndicates.
Matt Eggers:
I don't think you'd find an investment other than the very, very small sort of Pre-Seed deals where we were the only substantial investor in. Again, we know that these companies often take some amount of time and a fair amount of capital. So we like to have other strong investors with deep pockets and great expertise and value added around the table with us.
Jason Jacobs:
And how do you think about sectors?
Matt Eggers:
So we've organized ourselves around what we call the five grand challenges which are basically just the five areas where most emissions come from and you could find this data in numerous places on the internet like from the EPA and so forth.
Matt Eggers:
So they're buildings and infrastructure, electricity generation and distribution, transportation, food and ag, and manufacturing. That also represents almost all of the world economy and it's almost all the emission. So we kind of organize ourselves around those areas and try to find solutions in each area.
Jason Jacobs:
And then in terms of one of the challenges that I've got as kind of a newbie to focusing on climate change, and a newbie to climate change investing is I also want to work on stuff that really has potential to matter for the problem, but it's confusing to do this half a gigaton or gigaton or just carbon math in general.
Jason Jacobs:
So I'm not asking you to give away any proprietary modeling tricks or algorithms or anything, but just what advice do you have for anyone that's trying to let's say, some listeners are taking a job in a climate focus company, how should they know how to think about that gigaton impact and also, just for the general population trying to work in someplace that matters, how important is that gigaton impact as well?
Matt Eggers:
I'd say for most people, they shouldn't think about whether it's a half a gigaton or 50 megatons or something like that. Our LPs have asked us to focus on those really big breakthroughs, but there are many, many ways to impact climate.
Matt Eggers:
10 companies doing 50 megatons is just as good as one doing 500, right? And we need hundreds and hundreds of these companies and many, many backers investing them and so forth to meet the climate challenge. So I don't think everyone should use that lens by any stretch.
Jason Jacobs:
And last question and kind of the general overview section of the interview which is just any example deals that you've done or that BEV has done that you're particularly excited about or that would be representative of the kind of work that you're doing with the fund?
Matt Eggers:
There's many. Let's see, I'll talk about a few. One of my favorites is pivot bio. So pivot is a company that's taking on the fertilizer challenge. Fertilizer is a huge emitter of greenhouse gas and if we can reduce the use of fertilizer, we'll reduce the greenhouse gas emitted in its manufacturing and a lot of other pollution that's terrible for waterways and lakes and so forth.
Matt Eggers:
And pivot has taken a bacteria that naturally occurs in the soil where corn is grown and genetically modified it so that it will produce nitrogen even in the presence of other nitrogen which normally it shuts down that pathway because it's not energetically necessary for it to create nitrogen when there's already nitrogen in the soil from the application of fertilizer.
Matt Eggers:
So now, farmers can apply this bug, spray it on their fields, and they can apply a lot less fertilizer and the bug creating the bug is a tiny, tiny fraction of the greenhouse gas emissions from creating that same amount of fertilizer.
Matt Eggers:
With later generations, we hope to get to a point where they can apply zero fertilizer, just spray on this little bacteria which again is naturally occurring in the soil anyway and what's also great about it is because this little bacteria is naturally occurring and attaches to the roots of the corn, it actually works better than nitrogen fertilizer, especially in a changing climate where we get more and stronger bursts of rain in the Midwest that tend to wash away the nitrogen fertilizer and just pollute the rivers and the lakes without even helping to grow the corn.
Matt Eggers:
So you get a better crop with higher yield with less greenhouse gas emissions, less pollution, fantastic product. Another one that I'll mention is 75F. This is one that I'm involved in where I sit on the board.
Matt Eggers:
75F has a mix of hardware and software solution that creates a really inexpensive, but very powerful building management system. Many buildings in the US, the small and medium size commercial buildings which is actually 70% of total commercial space in the US don't have the building management system.
Matt Eggers:
They don't have a computer system effectively that's running the HVAC and it just makes the HVAC run a lot less efficiently to not have that. So this company has built a very inexpensive, very easy to install software defined hardware system with an AI, with the machine learning system in the cloud that runs the HVAC system, runs it great, makes the building more reliable, saves about 20% of the energy in the building just by running the same equipment better, very cheap and easy to install. It's a fantastic product.
Jason Jacobs:
I definitely have more questions along these lines, but maybe switching gears for a moment. We talked about the BEV origin story, but what's the Matt Eggers origin story because you weren't always focused on climate professionally. So I guess start wherever you'd like, but it'd be great to hear how you got into doing the work that you're doing and what you did prior that led up to this work.
Matt Eggers:
Well, I guess for that, I've got to go back to when I was a kid. I grew up on a farm in Iowa and I did a lot of hunting and fishing. We had a forest behind the house and a pond and I just always had a deep affection for nature which also translated into an affection for biology and just living things in general and ecosystems and so I translated that into wanting to work in healthcare.
Matt Eggers:
My dad was also a doctor in addition to being a farmer. So that was something that I heard about at home a lot was interested in and in the sixth grade, I wrote a paper for career day saying I wanted to be a genetic engineer at Genentech someday.
Matt Eggers:
So I kind of pursued that path, ultimately decided that the business side of biotech was a better fit for me. So my first, roughly 10 years of my career was in biotech. I ended up working at Genentech, but my, I guess ...
Jason Jacobs:
Did you show them that letter?
Matt Eggers:
I didn't. I didn't. No, no, I did not. I wish I still had a copy of that. Maybe my parents do somewhere, I should ask them. It'd be fun to find it, but I was still always very concerned about at the time, this was pre-climate change maybe in the '80s, just about environmental destruction, right?
Matt Eggers:
Loss of habitat, pollution, those sorts of things, but it was in the '80s that James Hansen testified to Congress and said, "Climate change is going to be a huge problem." We've known about this for decades.
Matt Eggers:
So that got on my radar and as time went on, the news about climate change and the lack of action of the world's governments and economies started to distress me more and more and more and it got to the point in 2006 where I was working on this incredible cancer drug at Genentech called Herceptin that was saving the lives of 40-year-old women with breast cancer and I loved what I was doing.
Matt Eggers:
But I felt like there's any number of brilliant people at Genentech that continued to work on this and were saving these women's lives to put them back, keep them living on a planet that we're killing, that we're causing massive, massive damage to and that seemed to me the meta problem, the bigger problem, the problem to end a whole other problems.
Matt Eggers:
And they were starting to be investment in that space in the mid 2000s and business activity and I felt like I could go make a big difference in that if I tried. So I walked in Genentech one day, quit my job.
Matt Eggers:
I used to listen to the Star Wars theme on the way to work as I was psyche myself up to do this, and I was like ... It's not like there was a single evil empire out there, but it felt like this big problem and I had to psych myself up to change course and go try to fix it, but I did and so I've been doing this stuff since 2006.
Jason Jacobs:
But mostly until BEV, mostly on the operating side, right?
Matt Eggers:
Mostly on the operating side. Yeah. In fact, until BEV, my clean tech or climate tech, whatever you want to call it involvement has been only operating. Like I said, I did some angel investing along the way as well.
Jason Jacobs:
And I guess reflecting on having lived through the first clean tech bubble, and arguably hangover that still exists even to this day as climate is starting to show up on people's radar with a more pressing urgency than seemingly has existed previously.
Jason Jacobs:
What lessons do you take from the first bubble and all the money that was lost that you carry with you as you think about climate investing?
Matt Eggers:
Looking forward, some of the mistakes that were made were investors that didn't have as deep of technical understanding of these areas started investing in them and they were also expecting things to go just like they do for enterprise software and consumer internet companies before and that's not exactly how these things work.
Matt Eggers:
Like we talked about a few minutes ago, they frequently take more time and money than building just a software company might. We think about that and how we form syndicates around these companies and the expertise that we have that evaluates them and how we support them.
Matt Eggers:
The partnerships that we form with other big companies that can help support these companies and bring that technology to life.
Jason Jacobs:
And I guess before we dive deeper into innovations role on the climate fight, maybe it'd be good to just talk a bit about the problem. So how do you think about the climate problem and how do you think about it differently from you did when you first enter the space many years ago?
Matt Eggers:
Like I said, I think it is the problem to end all of the problems. If we continue to disrupt the climate, we'll make the world of much more hazardous place. One way I like to think of it is what the US Department of Defense and the CIA says which is it's a threat multiplier.
Matt Eggers:
If the glaciers in the Himalayas melt, then India is short of water, that's going to be a massive problem for world security, safety and economic development, one of many, many examples we could think about.
Matt Eggers:
So from an investor standpoint, I just think about every dollar that that a person, an individual or a company spends creates emissions and so it's the entire economy and anything that we can do to fix that just makes things more efficient which is better for the economy.
Matt Eggers:
You can take a very capitalistic approach to this and just say, "Let's squeeze out the waste of the economy. Let's find cheaper ways to find energy like the sun shines all over the world."
Matt Eggers:
There's analysis that was done decades ago that a tiny corner of Arizona receives enough sun every day to power the whole country if we knew how to harness it, enough energy from the sun, and if you ever see a utopian futuristic movie, the air is not polluted, there's no horrible smog, there's no desperate chase for energy, there's no dirty water that people are drinking because they accept that in order to get oil out of the ground.
Matt Eggers:
There's no massive destruction of the ecological resources in the name of "progress." That's not the world that any of us want to live in and it's not the world we have to live in and I think that engineering and technology and industrialization has done enormous, enormous good for humankind.
Matt Eggers:
It's also done a lot of bad, but technology and engineering got us into this problem, and it will get us out of it. I firmly believe that.
Jason Jacobs:
I mean, I've heard some people have come on the show and argued that we need to exit the industrial age. How do you think about that?
Matt Eggers:
I could both agree and disagree with that. I think we do need to exit the industrial age. I think we need to stop harming ourselves so much in the production of goods and services.
Matt Eggers:
I think that will lead to a much better world for everybody, but I don't think that means shutting down capitalism, I don't think it means that we'll have to stop flying, that we'll have to stop using electricity or figure out how to use less of it.
Matt Eggers:
I just don't think we can make that happen in the world. There's still billions of people that don't even get to eat the way we do here in the United States and have access to the internet and to all the information and all the opportunities that we have and I don't think we can stop them from getting there, nor do I want to, but I do think that we can figure out how to do that without damaging the planet that sustains us.
Jason Jacobs:
Well, two frames that I'd like to bring up for contrast on how to think about the problem. One is that it's a huge systems problem, and that everything is interrelated and that pushing on any one thing is going to help facilitate pushing on everything else, but they all matter.
Jason Jacobs:
So the big things matter, the small things matter. The innovation things matter, the policy things matter. The consumer behavior things matter, the government things matter of like it all matters. So that's kind of one perspective, the other perspective that I've heard certain investors stand up on stages and say is that there's a handful of fundamental things that need to change and that those are the things that matter and otherwise, it's just kind of business as usual. How you feel?
Matt Eggers:
There are a handful of things that matter the most. We can look at where the emissions come from and we can see that a handful of things, production of steel, production of fertilizer, production of concrete for example, are massive, massive contributors.
Matt Eggers:
So it makes sense to put a ton of effort into fixing those things that are huge contributors, coal-fired power plants and other obvious one, I think most people know that. So the ones I'm noting are sort of the non-obvious ones.
Matt Eggers:
So we've got to fix those things, but like I said, it's such a big problem and it's such a widespread problem that every little bit helps. So when people debate whether for example, innovation or deployment is more important or someone says, "Yeah, that greenhouse gas problem ..." Whatever it is, pick something ... Dairy for example. Dairy is a huge greenhouse gas problem.
Matt Eggers:
That's not the top priority, we shouldn't spend time on it. I'm thinking, we need hundreds of billions and millions and millions of people working on these problems. Of course, if someone's interested in that problem, they should work on it and if they fix it, they'll help reduce the greenhouse gas problem and there's almost always positive externalities of fixing greenhouse gas problems, cleaner air, cleaner water, less waste in the economy, better products.
Matt Eggers:
I mean, Tesla is a great product. It's faster and safer than a usual car. It's very rare that I see in the things we think about negative externalities and it's very rare that I don't even see a lot of positive externalities, products that are just better in addition to reducing greenhouse gas.
Jason Jacobs:
I guess this is backed with an investor lens, but if there were a potential breakthrough technology that could have a big impact on the problem if it's successful, but that requires some type of price on carbon for it to ever be cost competitive, does that rule it out as a candidate for Breakthrough Energy Ventures?
Matt Eggers:
No, it doesn't rule it out. The vast, vast majority of our investments as of now, and probably in the near future do not assume a price on carbon. We don't assume any regulatory structure at all that doesn't exist today and even if it does exist today, we often question, "Will it continue to exist? Is it going to run out? Is it going to change?"
Matt Eggers:
We want to invest and build companies that will succeed based on the world as it is today without some major assist from the government. That said, I personally believe thinking 10 years out which is the timeframe for most venture investments, that it's really likely that there's a significant regulatory change with regard to greenhouse gas, a price on carbon and or significant renewable portfolio standards, clean fuel standards like in California, low carbon fuel standards, those sorts of things.
Matt Eggers:
I just think the problem is getting so intense, awareness in voters, consumers and companies is growing. The push for action is getting really strong and the evidence of the problem is getting really strong and all along, the Atlantic Seaboard, that coastal towns are getting swamped by water on a regular basis from King tides, the fires in California, the hurricanes, the droughts, people are starting to see like, "Oh shit, nature is changing. Wow."
Matt Eggers:
And so it's becoming a problem that we can't hide from anymore. We can't run away from anymore. So I think it's really unlikely that in 10 years, we don't have some significant regulatory push behind these things.
Matt Eggers:
It's already happening. It's happened in many states with renewable portfolio standards for example. So even if it doesn't happen at the federal level, I think if it happens in California and New York, and Massachusetts and Maryland and Washington, it has a gigantic economy.
Matt Eggers:
What are those states added together like the third or fourth largest economy in the world? So if they continue to do a bunch of stuff, you'll have massive regulatory tailwinds and investors like us and any other venture capitalist tend to bet on the contrary, unlikely, but potentially huge outcome.
Matt Eggers:
That's what every single venture investment is and so if we invest in a few companies that are depending on that, like maybe a carbon capture company, maybe that doesn't happen and so the company is dead in 10 years, but if it does, and that company has spent that time building an incredible technology and an incredible team and a business model that works, that's a multi multi-billion dollar outcome and that's what venture investors do.
Jason Jacobs:
Is it fair to say that the areas that you pick and the solutions that you try to back are the ones that you believe are the most important ones within innovation on the climate change problem?
Matt Eggers:
Yes, I think so. I mean, that's why we focus on those five grand challenges that I mentioned before and that's why we have the half a gigaton requirement for each investment.
Jason Jacobs:
And one of the things that I've been wrestling with is so I get that those are the most important areas if you stack rank within innovation, but where does innovation fit stack ranked with the other areas like policy or R&D or changing consumer behavior, et cetera on the overall problem? How do you think about that?
Matt Eggers:
It's a question that gets asked a lot and I think it's ... I think all of it matters is the easy answer and when people start to shout, it's like the old taste great, less filling debates that used to happen in football stadiums in the '80s, tastes great, less filling.
Matt Eggers:
It's both and there's nothing that's more important than the other I don't think in the innovation versus policy versus deployment. Maybe with one exception if I was king in the world and you said what one thing would you do for climate change? I would put a high price on carbon.
Matt Eggers:
That's the simple, most powerful thing, but that would spur the innovation, right? Why would you do that to spur innovation? Once you internalize those costs, there would be massive innovation driven by economic need to reduce the emissions.
Matt Eggers:
So I don't frankly, personally put a lot of thought into tastes great, less filling, deployment or innovation. I think they're deeply intertwined and we need both.
Jason Jacobs:
And do you think there's sufficient funding going into climate innovation today?
Matt Eggers:
No.
Jason Jacobs:
By a little bit?
Matt Eggers:
By a lot. We see so many great entrepreneurs, so many great companies that I wish we could fund. I wish we had a $10 billion fund, and I wish there were five other $10 billion funds doing what we're doing.
Jason Jacobs:
What do you think is holding back that capital from coming in? I mean, surely it's not career or else it would be here already.
Matt Eggers:
It's true. I think what part of it is the experience from the mid 2000s when a lot of investors lost a lot of money in thin film solar and biofuels and I note that we don't have any investments in those spaces right now.
Matt Eggers:
So that's part of it. The other part is expertise. The innovation economy in the US is largely been built around Silicon Valley and the copycats of Silicon Valley and first, it was semiconductors and then the internet and software and that's what those folks know how to do.
Matt Eggers:
So if you ask them to go evaluate a electrolysis approach to making hydrogen, or you ask them to evaluate a gene-engineering approach to making Casein so you can replace milk, there's not a lot of expertise to understand that and so that translates into high risk.
Matt Eggers:
We're also taking on these big entrenched industries that have a 100-year head start and making things really easy and cheap and so that's a hard problem, but I think as someone that's doing this work, I believe that will generate a good venture return.
Matt Eggers:
This is a differentiated product, it's a differentiated approach to the market. I'd much rather be finding the founders that we're finding, investing in these markets which are some of the largest markets in the world. I mean, things like that I mentioned like steel, concrete, fertilizer, food, buildings, construction.
Matt Eggers:
These are the mothers of all markets. They're big and if we have breakout technologies and founders, we stand to make a lot of money for our investors and for our founders.
Matt Eggers:
So I have confidence that what we're doing is differentiated and I'd much rather be chasing that than be the 197th fund raised in the last two years trying to go after enterprise software.
Jason Jacobs:
So I understand that that gives you a differentiated position, but if you've got a little over a billion funds and you wish you were 10X that and you wish there were 10 of those, that means that you wish there was 100X more capital in this space than there is today.
Jason Jacobs:
What are the most impactful things that we could do or that someone could do if they had a magic wand to help unlock that capital to fill this void?
Matt Eggers:
Well, the first magic wand or king of the day thing would be to have a carbon tax, so there's that policy approach. I think impact investing is something that often doesn't get talked about when people think about what could I do and this isn't a magic wand thing, but a whole lot of little ones can turn into a big thing.
Matt Eggers:
I think everyone that really cares about this problem, even if they're not willing to change their day job to go work directly in it, they should look at their capital, especially a lot of the wealthy folks that might listen to your podcasts, investors, people that have worked at tech companies that have been very successful, that sort of thing.
Matt Eggers:
They should be investing for impact, 100% of their portfolio, I would argue should be an impact. That could be as simple as a switch to an ESG fund to invest in public markets which has lots of issues. We could spend a whole podcast maybe you have, or maybe will on dissecting the imperfections of ESG investing, but it's certainly better than nothing.
Matt Eggers:
But they can also create funds that could go find investors and say, "I want to put 100 million behind you." And as more of that money shows up, more founders will enter the space, more folks in universities will spin out technologies and companies that could have this impact and they don't do it today because there's not 100 venture capitalists crawling around the campus looking for deals like there are in some other areas.
Matt Eggers:
So I think impact investing in the private markets and the public markets in debt is a huge thing that could have a very big impact at a collective scale and that everyone should be doing that if they care about this problem.
Matt Eggers:
Coming back to sort of the bigger picture, magic wand, other than the carbon tax and other regulation, I think about continued innovation and continued deployment. I think it's a yes and both focusing on these really hard problems.
Matt Eggers:
I mentioned Casein and milk a few minutes ago. How do we make Casein in a way that's low GHG? That's a gigaton problem. If we put 500 world leading biotech researchers on it, we would solve that problem, for example.
Jason Jacobs:
So I know that in some cases, you have either co-invested or had traditional VCs follow on to the investments that you've done. When I think about how to get more capital into the space, one path is awareness and educating traditional venture for example that there are opportunities over here that actually fit well into their profile.
Jason Jacobs:
Another example is structural and saying like you guys did, 10 plus two is not the right answer, we're going to have a longer fun lifecycle to account for the fact that some of these innovations take longer and require more capital and then a third bucket is you had mentioned earlier in the discussion, expertise, and how that's a gap.
Jason Jacobs:
So I guess which of those is the highest leverage thing to lean into? And if you believe that each of those is impactful, what are the things that we can do tactically to help facilitate those? So expertise, awareness, and structure? It might be the most complicated question I've ever asked in one breath.
Matt Eggers:
Yeah.
Jason Jacobs:
I'm proud of that. Not really.
Matt Eggers:
So do you want me to say which one of awareness expertise?
Jason Jacobs:
I'm saying, so you talked about how there should be more capital and you talked about how expertise is often what holds these funds back, right? But then I look at your fund and you've also made some structural changes, right?
Jason Jacobs:
But there's also some traditional VCs that are getting involved today without making any of those changes and so how much of it is just about awareness and not changing anything?
Matt Eggers:
Yeah, that's a good question though. I think awareness is critical and let me say that structural change is important and we have investments that that will take a really, really long time that the structural change is particularly important for.
Matt Eggers:
But for the vast majority of deals, we don't do a 20-year return analysis, we do it five, seven, maybe 10-year return analysis just like any venture capital fund. So I would say that that 20-year life isn't the biggest thing that differentiates what we're doing and enable us to take the view that that we're taking.
Matt Eggers:
I think awareness is a critical, critical piece of it and just belief in what I just said that there are so many facets of the economy that we could impact in a positive way and going after them.
Matt Eggers:
I think about, I encourage people to think of what's interesting to you if you're thinking about as an investor or potential founder or someone that wants to join a company in this space, what's interesting? Maybe you've always thought architecture was really interesting.
Matt Eggers:
Okay, so how do we build buildings? What problems do we create there from a greenhouse gas perspective? Well, one, there's massive embodied emissions in a building from the concrete and the steel for example. Could we replace concrete and steel with something better?
Matt Eggers:
We could, with wood. Could we design buildings? Could we write software that allows us to design buildings better and pick better products? Absolutely. There are companies doing that.
Matt Eggers:
Could we replace the wood with bamboo that grows in three years rather than 50? We could. There are companies out there doing that. So that's just one example of pick an area that's interesting and you will find potential technologies and solutions that can reduce emissions.
Jason Jacobs:
Out of the areas that you're investing in, do you feel like all of them are a good fit with traditional VC? Or are there some types of the most impactful climate investing that is not the right fit for traditional VC? And if so, where does it miss the mark?
Matt Eggers:
I think probably the place where it misses the mark the most is the adoption in scaling is slower in many of these companies than it is in a traditional software company. Look how fast Slack got adopted for example.
Matt Eggers:
It just takes someone getting an email or hearing about it going to a web page and signing up. For a company that has to install atoms, to make something happen, sell hardware, those things move naturally a lot slower.
Matt Eggers:
So there are less likely I think to be the the 1000X returns in our portfolio than might show up in some of the best Silicon Valley venture firms. Does that make sense?
Jason Jacobs:
Mm-hmm (affirmative).
Matt Eggers:
Just when you're selling new electric cars for example, you just don't get the scaling that you get from an enterprise software or from a viral consumer internet company.
Jason Jacobs:
Then what makes you think that this type of investing is not concessionary on returns?
Matt Eggers:
So I'm not denying that the power law drives venture returns that the returns are driven by the few outliers, but again, I go back to the differentiated approach here that I think these are big problems.
Matt Eggers:
They're some of the biggest markets in the world. So when you do hit a success, it might happen slower, but if it happens really big, eventually that still drives a gigantic return.
Jason Jacobs:
So concessionary on patients, but not concessionary on upside?
Matt Eggers:
I think so. Yeah, and although we won't have as many, we don't have the potential to have a 1000X return, I don't think or at least not as frequently as things that can scale faster because they're purely bits.
Matt Eggers:
I think there are a lot of things that could be huge. There could be 10, 50, 100X returns in our portfolio, and there are a hundred other investors looking for them and you might then say, "Why do you wish they were? Wouldn't that make it harder for you and from an economic perspective, no investor, no business person in any business sitting there wishing like, gosh, I wish there were 10 other companies or firms or founders doing exactly what I'm doing, that would make my life easier said by no one ever."
Matt Eggers:
In this case, I'm both worried about the world and my children and the ecological systems that have evolved for millions of years and I want them to be okay, so I want those funds and as those funds come in, the founders will just replicate, there will be more and more and more of them.
Matt Eggers:
So there will be more opportunity just like in the 1980s, there wasn't ... What total ventures is available right now, dry powder, I don't know, 50 billion? In 1985, you couldn't have deployed 50 billion in venture capital, right? As more capital came in, more founders, more ideas emerged.
Jason Jacobs:
And we've talked about the venture asset class, but what about the later round for some of these more capital intensive businesses, it seems like today, those are either coming from strategics or in some cases, project finance, but how do you think about those big rounds that are beyond the scope of a venture or of a traditional venture or BEV and what does the capital landscape look like there?
Matt Eggers:
It's a great question and it is a challenge and I think you mentioned what's happening today that's largely solving that is strategics. So I think what I said a few minutes ago about in 10 years, do you really believe there won't be more regulation on carbon?
Matt Eggers:
I don't and so I think the big ... A lot of the big companies in these big industries that our companies are trying to change also think that the future is going to be very different for them in the past and so they are aggressively investing in and supporting these companies and that's a great source for the later stage capital once deployment really starts happening and these companies need 50 or 100 million.
Matt Eggers:
The banks do. I mean, Goldman Sachs and another big bank, I forget, just announced a significant further tightening of their lending to fossil fuels, particularly to coal mining and coal fired power plants.
Matt Eggers:
So if you're Goldman Sachs or any bank and you say, "Well, we have this 20 billion portfolio of lending to X industry and we're never going to do that again. Does that mean they're going to shrink by 20 billion?" No, they're going to have to find something new to invest that in.
Jason Jacobs:
And why are they doing that? I mean, is it just altruistic?
Matt Eggers:
I think it's a mix of altruism, but it's mostly business, just like we were saying. I think they see the writing on the wall that these investments ...
Jason Jacobs:
They see the regulatory risk from the other side.
Matt Eggers:
Yeah, they see the risk, the risk of that investment because of regulatory risk and or consumer demand really growing and so if building a coal plant used to be note ... There was no market risk, now there is. Now there's market risk even if it's only a 20% risk, does that raise the return that you need on that coal mine to a level that you could never get in the spreadsheet that you build at Goldman Sachs to see if that's a good investment? Probably.
Matt Eggers:
So I think that's mostly driving it, but so then, where are they going to put that 20 billion in assets as that debt starts to mature? They're gonna have to find new things. What's going to replace it? Hopefully some of the stuff that we're investing in.
Jason Jacobs:
And one of the concerns I vocalized to you last night at dinner when we were chatting was just something I'm personally sorting through which is how market forces will help facilitate the transition and could be one of the most impactful levers we have, but also, I'm just sensitive to not profiting from catastrophe, but actually trying to help with the problem and I thought your perspective and your way of thinking on that was interesting. So if you're comfortable, it'd be great to hear a bit about that.
Matt Eggers:
Sure. I think we are in particular talking about insurance in real estate for example, in Florida or in California where the fire risk is getting.
Jason Jacobs:
Insurance and also shorting for example, housing is mispriced due to climate risk.
Matt Eggers:
Yeah.
Jason Jacobs:
As one example.
Matt Eggers:
Exactly. So I think that's good. I think the faster that individual home buyers, consumers and so forth can realize, can see financial pain from making decisions that don't make sense in a world with climate change, the faster they will become voters for policies and for politicians that support climate-appropriate policies.
Matt Eggers:
People famously vote for their pocketbook and this is why presidents in a good economy almost always win elections and if climate change starts to hurt them in the pocketbook, they will change their opinion about what the country and other countries should be doing about climate change.
Matt Eggers:
The same thing goes for the banks. The Same thing goes for equity investors and public equities and investors in debt when they start to lose money because climate change is impacting the value of their investments, they will change very quickly and that's what we need.
Matt Eggers:
We need banks to change what they see is a good investment. We need individual buyers of homes and vehicles to decide, "If I buy this internal combustion car, its value when I want to sell it in five years might not actually be that great if electric cars are faster, sexier and safer and I never have to go to the gas tank to fill them up except on long road trips. That sounds pretty good. Maybe I won't buy this fossil fueled car because it's going to suck in resell." Those are the sorts of financial drivers and incentives that we need people to feel.
Jason Jacobs:
So if you had 100 billion dollars, and you could allocate it towards anything to maximize its impact on the problem, where would you put it and how would you allocate it?
Matt Eggers:
I think that I would definitely invest some of it behind some of these big challenges. Could you create programs with that money, something like an X Prize to I'd create 50 X Prizes or folks to solve some of these major greenhouse gas challenges, reward people for innovation on some of the little things that aren't so obvious, embodied emissions in building construction for example is one that we talked about or Casein cheese being a big issue.
Matt Eggers:
But those are solvable problems, technology can advance and solve those problems. So if we have the right financial incentive, it will happen and then I would put a huge amount of that on trying to influence elections so that the right people are elected with the right incentives to take action.
Jason Jacobs:
As someone that's worked in this area for a long time and continues to with a really interesting perch, are you an optimist that we're going to be able to get out of our own way as a species to do the things that we need to do in the timeframes that we need to correct the problem?
Matt Eggers:
I think in the long-term over 100 plus years, I'm an optimist. I think we're going to go through a lot of pain and suffering in the meantime. I think humanity has had some pretty rough arrows and ages before in the course of history and I think we are unfortunately past the point of avoiding that probably in the middle to later part of this century, but I do think that we are ... We're ultimately altruistic and good and self-preserving and I think that we are showing ourselves incredibly capable of solving hard problems and I think we'll eventually figure out this is a problem that we need to solve and get to work on it at the scale that it's needed and we'll solve it, but I do think we'll go through a lot of pain and suffering as a species, as a planet, as a civilization and I think we'll end up having major changes and negative impacts to civilization in the meantime.
Jason Jacobs:
Well, given that, then how do you think about and how does BEV think about the role of adaptation?
Matt Eggers:
That's a great question. So that's not what we're focused on. We are focused on innovation to mitigate. It doesn't mean it's not an important problem. I think it is a very important problem and I know a lot of people are thinking about it and working on it and that's a good thing.
Jason Jacobs:
Is that true?
Matt Eggers:
Yeah, I think so.
Jason Jacobs:
A lot relative to the dollars and time being put into mitigation?
Matt Eggers:
Probably not, but these are the kinds of things that happen on a ... Some of the adaptation stuff I think happens on a micro basis that it's just hard to see. The town that I live in Larkspur, California has an ordinance if your home is below a certain see foot level, you can't do any work to it. You basically can't remodel or expand it or anything unless you raise it by a certain amount.
Matt Eggers:
Does that make the news? Is that a dollar invested? Is that? What is that? I don't know. It's adaptation though. I think those sorts of things are happening more frequently than we think.
Matt Eggers:
Many, many Florida towns have passed significant bond measures to invest in raising streets already there. It's happening now, building sea walls, building new pumping stations, that sort of thing.
Matt Eggers:
I haven't seen anybody that's summarizing that or adding them up and I don't even know how you would count the economic value of the Larkspur ordinance that I just stated, but I think it's happening.
Jason Jacobs:
And last question is just for anyone listening who wants to help with the problem and doesn't necessarily know how, what advice you have for them?
Matt Eggers:
I think there's probably some things they can do right away, impact investing is one. They should sit down tonight or tomorrow and look at their portfolio and figure out how they have their money speak for their values. Money drives the world for better or worse.
Jason Jacobs:
How does that happen tactically?
Matt Eggers:
How does that happen tactically?
Jason Jacobs:
Yeah, so like if I ... I don't know, because a lot of people, they pick from a menu from their employer's 401(k) list so if there's not an ESG option on the menu, for example, then what does one do? Which in most cases, I bet there are not.
Matt Eggers:
Yeah. So in my last company, I pushed and pushed and pushed until there wasn't an issue option on the menu, for example, so they can start to do that, push for those options and get their co-workers and so forth to do the same and if there is one, they should certainly take advantage of it.
Matt Eggers:
Then if there's not or for the rest of their capital is not there, there are a lot of things to do. Invest in an ESG option for higher net worth individuals, find impact hedge funds, they are definitely out there.
Matt Eggers:
I can recommend one. Invest in funds and maybe folks who are thinking about starting a new fund in this area, offer to support them to invest in these sorts of entrepreneurs. What else?
Jason Jacobs:
Vote.
Matt Eggers:
Yeah, vote. Vote and donate and make it known that this is an important issue. Don't just assume that your elected representative at any level thinks that it's an important issue, it matters at every level, local, state and national.
Matt Eggers:
So get out there and let your elected political officials know that climate change is an important issue to you and then press for change in your own company. Many companies can do things that are better or worse for climate change and so again, just, you don't need to lead a walk out necessarily, but you can just let the leadership of your company know that these are important issues, and you want them to err on the side of making climate responsible choices.
Jason Jacobs:
So two things that I didn't hear you say, I didn't hear you say, "Change your behavior." And I didn't hear you say, "Offset the rest." Are those intentional omissions?
Matt Eggers:
Yeah. I mean, I'm trying to think of the things that people don't ... Haven't already heard a million times.
Jason Jacobs:
But those can be impactful?
Matt Eggers:
I think they can be impactful, right? Changing your behavior is a tiny thing in the world of seven billion people, but all seven billion of us need to do it to the extent that we can and in that area, I think the most important things are if you own a home, put solar on the roof if you can and make it highly energy efficient.
Matt Eggers:
Put in great windows, insulate, put in a heat pump for your heat, start to electrify, start to think about electrification, electrifying everything that you can in your home.
Matt Eggers:
There's no conceivable near term way right now to make natural gas heating, greenhouse gas neutral other than air capture. So electrify your home and make it highly efficient. Electrify your vehicle, probably the next thing that I would focus on and then there's a host of other things.
Matt Eggers:
Try to fly less, try to eat lower on the food chain. There's probably much better sources for those things than me too.
Jason Jacobs:
So did you have similar thoughts then about for example, technology that identifies methane leaks and natural gas infrastructure to more efficiently repair them or technology that captures fossil fuel emissions at point of emission?
Matt Eggers:
If they're very carefully selected and vetted, then I think carbon offsets can be useful. I just get concerned that most of those ... I have two concerns. One, that many of the schemes are not very carefully selected and vetted to assure additionality and the second is again, this gateway drug idea.
Matt Eggers:
It's like, "Oh." Especially with companies. I worry about this more than with individuals.
Jason Jacobs:
[crosstalk 00:47:09] that same concern for those other things I mentioned? Like, for example, if we can better plug the leaks on methane, is that going to disincentivize us from getting off natural gas as expediently?
Matt Eggers:
No. I'm not worried about that. I'm not worried about it slowing us from getting off natural gas, I'm worried that the utility was probably going to be forced to do that, or should have been forced or was already breaking the regulation anyway and a better way to do that would have been to get the city to measure methane leaks and enforce the regulations on the books to plug those leaks.
Jason Jacobs:
I'm not suggesting that those will be offset projects.
Matt Eggers:
I hear you.
Jason Jacobs:
Yeah. It's more just I hear similar knocks from some of those areas, like, "Oh, if we can decarbonize fossil fuel, it's just going to be an excuse to keep mining for it and burning it."
Matt Eggers:
Yeah, it's a tough one. There are a lot of perverse incentives and moral hazards that we can create in this area. I don't think about that as much with offsets as I do worry about the big company buys a bunch of offsets and announces to the world, "We're carbon neutral."
Matt Eggers:
And now management, employees, customers, investors are like, "Oh great, that company's carbon neutral, they've done the right thing." That's bullshit. They are not carbon neutral, they've done very, very, very little. It's just greenwashing and now, all those people that might have been pushing that company to actually do something that matters are confused and misled and they stop and that's the big problem with offsets.
Jason Jacobs:
Anything I didn't ask you that I should have or any parting words for our listeners?
Matt Eggers:
I do feel like there's a groundswell of folks right now coming from other industries from traditional tech industries that are interested in this area and I think it's really exciting. We need many more founders and entrepreneurs and I think they can apply their skills and expertise to all these companies, all these folks have software backgrounds.
Matt Eggers:
Almost every company today is a software company in some way at some level. So I think there's probably more opportunities to join companies than they think there are or to be co-founders in these companies and I think there's a groundswell of interest in impact investing from family offices, from big corporates that are creating funds and I think there's opportunities over the next few years for folks to raise more capital to invest in these kinds of companies.
Matt Eggers:
So I just hope that that groundswell continues and the people work hard and use their imagination and their agency and their grit to find these opportunities and make them happen.
Jason Jacobs:
Awesome. Well, this was a fascinating discussion. Thanks so much Matt for coming on the show.
Matt Eggers:
Yeah, thank you. I love that you're doing this and good luck. Keep it up.
Jason Jacobs:
Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. No, that is .co, not .com. Someday, we'll get the.com, but right now, .co. You can also find me on Twitter @jjacobs22 where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear and before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
