Episode 9: Matthew Nordan, Prime Impact Fund
Today’s guest is Matthew Nordan, the Managing Director at Prime Impact Fund and the Co-Founder and Managing Partner of MNL Partners. Matthew also sits on numerous boards including Greentown Labs, Sense, and Quidnet Energy.
As you may know from listening to Sarah Kearney’s episode, Prime Impact Fund is an early-stage venture capital fund focused on breakthrough climate innovation.
Before Prime, Matthew was a venture capital investor at Venrock, one of the world’s oldest and most successful VC firms, where he and colleagues drove the firm’s investment in Nest Labs (acquired by Google for $3.2 billion). Prior to Venrock, Matthew was President of Lux Research (acquired by private equity firm Bregal Sagemount), an advisory services firm for science-driven innovation that he co-founded in 2004. Under Matthew’s leadership, the Lux Research analyst team became a globally recognized authority on the business impact of emerging technologies. Earlier, Matthew held a variety of senior management roles at emerging technology advisor Forrester Research (NASDAQ:FORR) in the U.S. and Europe.
In addition to Prime, Matthew is co-founder and Managing Partner at MNL Partners, which develops energy and environmental projects in China. Matthew also co-founded and serves on the board of Prime Coalition, Prime Impact Fund’s non-profit parent organization.
Matthew has testified before the U.S. Congress four times on emerging technology issues, was a founding member of the World Economic Forum’s Global Agenda Council on Emerging Technologies, and is a widely sought-after speaker and commentator. He serves on the boards of MicroByre, Lilac Solutions, Sense Labs, Quidnet Energy, and Greentown Labs (the world’s largest incubator for energy and environmental companies). Matthew graduated from Yale, where he conducted cognitive neuroscience research on emotion and memory.
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 this episode, we cover:
The a-ha moment Matthew experienced at a conference that sparked his climate journey.
The differences between traditional VC and the investments Matthew makes through Prime Impact Fund specifically as it relates to moon shot ideas and climate focused companies.
How Matthew and Prime balance the return of capital vs impact along with the differences between catalytic capital and market based capital.
Matthews view on the role and importance of policy in the climate fight.
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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: Hi everyone, Jason here. Today's guest is Matthew Nordan, managing director of Prime Impact Fund, an early stage venture capital fund focused on breakthrough climate innovation. We had a great discussion. We talked about climate change and what a big existential crisis it is. We talked about Matthew's early career where he worked at Forrester Research and then was the co-founder of Lux Research, which he helped scale into a quite meaningful enterprise. We talked about his time at Venrock, a traditional VC firm and some of the successes that he had while he was there, such as investing in Nest.
Jason Jacobs: But also some of the frustrations, especially as it related to his ability to invest in some of the higher risk but important scientific breakthroughs that could have an outsize impact on the climate fight. We also talked about some of the work he did at MNL Partners where he was doing project finance work in China. Some of the successes there, but also some of the changes in our relationship with China as a country that's made that entity have a little more headwind.
Jason Jacobs: We talked about Prime Coalition and the important work that they're doing to enable philanthropic capital to be devoted to catalytic investing in startups that are important for the world, but that are a little more risky upfront in order to get them ready for more traditional market-based capital. I had a great time talking to Matthew and I learned a lot as well, and hopefully you will too. So with that, Matthew, welcome to the show.
Matthew Nordan: Hey, how are you doing?
Jason Jacobs: I'm doing well. I'm glad that you're here and I have to tell your colleague, Sarah, as you know, was on the show a few weeks ago. She did so well that, I mean the best you can hope for is to do almost as well as she did.
Matthew Nordan: I'm aiming for silver medal here. That's the goal.
Jason Jacobs: But in all earnestness, I'm glad you're here. We initially met, gosh probably three or four months ago when I was just getting rolling.
Matthew Nordan: Over a grain bowl.
Jason Jacobs: Over a grain bowl.
Matthew Nordan: Over a grain bowl. I felt bad. You wanted protein and I just offered you carbs in a bowl. It wasn't really appropriate.
Jason Jacobs: At your favorite Central Square spot.
Matthew Nordan: Life Alive, free plug. I hate vegetarian food. Vegan food's even worse. I think they must sneak pork into there when nobody's looking.
Jason Jacobs: But you have a really interesting story and I only got snippets of it, but the snippets I got were already interesting. I'm excited for our listeners to hear it, but selfishly I'm just excited to learn more because I think there is a lot more to the story than what we've covered so far.
Matthew Nordan: Okay. Where do you want to start?
Jason Jacobs: It seems like climate's been a consistent theme for you. You maybe moved away from it for a part professionally and then came back. But I'd love to just know when was your awakening, if there was one? I mean, was it a gradual thing? Was it after college? Was it from when you were a little kid? How did all of this come about that this is where you spend your professional life?
Matthew Nordan: I don't think I would have guessed it. I'm one of those people who is a terrible judge of my own life. If you ever asked me what are you going to be doing in five years, the answer I would give you is an excellent indicator of what I will not be doing in five years. I grew up in central North Carolina outside of Charlotte, Southern Baptist household. It's a very different kind of upbringing. It's a very different culture and I was a boy scout and heights on mountains on weekends and liked things that were green, but I wouldn't have considered myself an environmentalist and I certainly would've considered myself a iffy coastal liberal.
Matthew Nordan: That was kind of not what you did in North Carolina and I don't think I had any particular awakening around climate and resources until one really specific, God, it would've been a lunch, at the annual meeting of Semiconductor Trade Association. I guess 2005, I had started a company called Lux Research that is a information services company and advises folks in big companies and financial institutions and governments.
Jason Jacobs: It's a big firm now.
Matthew Nordan: Yeah, become a decent thing. I am very proud of the team there and we had just started our first research coverage. I had done this piece about the future of semiconductor lithography and I get asked to be part of the lunchtime entertainment for this trade association. There are three people who speak, a big semi industry executive, myself and a Nobel Laureate named Richard Smalley, who won the Nobel prize for discovering the fullerene molecule. It's a Bucky ball, carbon nano structure.
Matthew Nordan: The first guy went and then I went and then Smalley gets up to do his thing and he was going to die. I think he died about a year later of terminal leukemia, but he hadn't told anybody this and had decided that he was going to use whatever bully pulpit he had as an eminent scientist to try to wake the world up. Try to pull people out of the matrix when it came to an imminent threat facing humanity. He got up and gave this talk that he called the terawatt challenge. I'm going to get these numbers wrong, but it was something like this.
Matthew Nordan: He got up and said something like, if you took the entire energy consumption of the planet and expressed it as a rate, like a speed that the world operates at about seven terawatts of power at all times. But that's a function of people and then GDP per head of stuff per person. Then how many resources we use per unit of stuff. He said, "You can map those numbers out like we have forecasts for population and for GDP and you run the math and by 2030 you now need 15 terawatts. You need to more than double the electricity consumption of the world."
Matthew Nordan: The big stupid math that he did that day was to say, "Well, there are about 8,000 days between today in 2005 and the end of 2030 and lighting up a new nuclear fishing plant somewhere in the world is about a gigawatt. So that means that we just need to light up a new nuclear power panel equivalent somewhere on the world every day from now through 2030. Which for a variety of reasons obviously wasn't going to happen. Then the rest of his talk was all about what are the alternatives, what's the energy mix that you build? I don't know if it was the right time in my life, like I just had my second daughter and I had moved back to the US from living overseas. I don't know if those things sort of put you in the right frame of life or they pull at your heartstrings.
Jason Jacobs: A lot of people say that it was around the time that they started having kids and that they had this awakening.
Matthew Nordan: So as an aside, we had this meeting with my colleagues at Prime Coalition with a foundation recently, we had a call to action at the end and one of my colleagues put a picture of her children into the deck and said, "This is what I'm doing it for." They were like, "First of all, that's great and it's an awesome thing and we're so happy with you. Secondly, everyone puts pictures of their children on the deck, take those out. We've seen that a thousand times." So yes, I do think it's everybody, but it led to some huge changes. We were trying to figure out where to take Lux Research at the time in terms of what technologies we would cover.
Matthew Nordan: I think I had high conviction that this resource challenge was going to be a big deal and figuring out how to solve it could be lucrative. We built a bunch of practices that were all around energy and environment, but there were personal aspects to it. Like I looked in my daughter's eyes and realized we go to the grocery store and she thinks the food just shows up. Like it's just there. I realized they needed to have an understanding that we get resources from something, that they take work, that they take inputs, they take their carbon miles in them getting to your house.
Matthew Nordan: So we dug up our front yard and we planted food and I'll tell you, digging up your front yard in Boston, North shore suburb makes you initially unpopular with your neighbors. They're not big fans of that until you start bringing them delicious food. Then it also made my house super easy to find. I would say just drive around until you see the one with the corn and there you are. But what kind of bugged me was that there was another step in that chain that Smalley had laid out. He was talking about, how do you get from people to stuff, to resources to like terawatts of power, but now put a carbon footprint on every watt hour and you've got to last term.
Matthew Nordan: That represents this existential threat to humanity and you wonder why aren't people more worried, right? But like if what had hit the news when I was a child, I'm 44 when did we start getting wise about this stuff? Late 80s, early 90s?
Jason Jacobs: I mean, some people were wise about it even earlier. They were just actively trying to cover their tracks and not talk about it.
Matthew Nordan: Indeed. Well, definitely a tobacco lawsuit moment coming in this space and there's some friends of Prime's that have a lot of visibility to that. Come back to it later maybe. If the news that had hit was not that there is a colorless, odorless gas accumulating in the atmosphere, which I personally in that abstract form I find it pretty hard to get worried about. But was there's a meteor hurdling toward the earth. There is like a bad deep impact movie scenario coming in at the edge of Pluto of what's no longer a planet it was, and we can map the trajectory, and we know where it's coming, and we know how big it is, and we know how fast it is, and we have an idea of what it happens when it hits the earth.
Matthew Nordan: What would you expect? You would expect people to freak out. You would expect there to be revolution in the streets. You would expect public leaders to be called to task. You would expect some world war II victory guard moment where you're thinking, "What more can I do? How can I personally make this my problem, something that's a solution I'm making for my children?" But we don't do that because we evolved in the Miocene Savannah over 14 million years to deal with intergenerational problems that were acute like, "Man, I can't find any more cassava. This is a problem. I've got to eat something else."
Matthew Nordan: "Or there's no shelter and I'm freezing in the cold every night. I've got to solve this problem." The colorless, odorless gas problem, just hard to get juiced up about. Does that make sense so far?
Jason Jacobs: It does. It's something that I'm really wrestling with as well because to your point, there's so much urgency to this problem. But I think it's tricky because one, it's harder to see and touch and directly hard for carbon, this colorless, odorless thing to be a formidable enemy. But also it's urgent in that it plays out over decades where some of the responses that I've gotten when I'm on this path is, ""Look, you have the luxury for this to be an urgent problem, that plays out over decades because your near term is all squared away. What about all the people that are in terrible straits today?"
Jason Jacobs: That's what I'm worried about and that's my reality and that's the reality of all these people that I know. I don't have a great answer to that. That comes back around to then, do you wrap that into the climate fix or are they two separate and distinct things? So we could spend the whole thing talking just about that, which I don't want to do, but it's tricky. That's the bottom line.
Matthew Nordan: Well then there's a Spider-Man power responsibility moment here, right? The fact that you are in a position in life where you are not thinking about how you collect in a firewood for tonight or get the water up from the river without the crocodiles biting you, sort of puts you in a position that it's incumbent on you to do something about it.
Jason Jacobs: That's how I feel. I mean, I try not to judge but it does bother me that more people don't feel that way who are in similar positions.
Matthew Nordan: So look to the extent that I have any training, it's in human behavior. I studied psychology and did for my sins as an undergraduate functional MRI research where you would map what parts of the brain are lighting up when people experience certain emotions or converting short term memory to long term memory. What does that teach you? It teaches you that people are machines like beautiful, exquisite, elegant, emergent property machines, but machines. Ones that have some predictable nature to them and the future that I guess I envision isn't one.
Matthew Nordan: It can't be one where the existential threat of the colorless, odorless gas is top of mind. I don't think that's going to happen. Not for most people. Not for many people. Maybe for vanishingly almost not any people. I think that if you see that there are solutions that can work, that can work pre-crisis, the trick is to embed those so that people don't have to think about it. I think that's very much what we're trying to do at Prime.
Jason Jacobs: Can you give an example?
Matthew Nordan: Yeah, What's a good one? So the first investment that we made when we got Prime Coalition started as a 501(c)(3) public charity was in 2015 and it's in the area of energy storage. Somebody tuning into your podcast probably understands this pretty well, but it's a holy grail problem of energy. I remember when I first sort of woke up to the energy storage issue, was at my parent's beach house on like one of these 104 degree days in North Carolina. I was having this conversation with my mom while plugging in my electric razor. I was trying to get across like how the power grid works, that there's base load power stuff that's on all the time. Like streetlights, air conditioning systems, whatever.
Matthew Nordan: But every time the power needed goes up, somebody's turning up the volume on a peaking natural gas facility or turning on a new plant. I tried to get across [inaudible 00:12:45]. "It's funny on a day like this, one of the hottest two or three days of the year somewhere there's a natural gas plant that turns on for two days, built for tens of billions of dollars and goes into action two days out of the year." She was like, "Matthew, that can't be true. That's the dumbest thing I've ever heard. We don't pick exactly the amount of corn that we need to have dinner tonight for everyone and it doesn't rain the exact amount of water that we need to drink. We have silos for the corn and reservoirs for the water. Clearly we store energy somehow."
Matthew Nordan: I was like, "Well, we don't because it's just really hard." It's super expensive. The best we've ever gotten is caveman energy storage, pump water uphill and he got too much power. Let it go down and turn a turbine when you don't. So energy storage and there's one version of how you get renewables onto the grid and how you balance having intermittent sources of generation solar and wind with what comes behind them, that is really super hard. It means you've got to reengineer or how people who run the grid call power resources and you have to have smart electronics in people's homes that are turning things on and off and making the washing machine go right at the right time you want it to go.
Matthew Nordan: You have to have behavioral demand response where people are cognizant of the fact that stuff is on in their house and it's a really hot day and the power plants are going on and yada, yada, yada. That requires a lot of behavioral change. It has a lot of friction. It needs policies to change, regulations to change. All that just sounds hard to me. I feel like what would be much easier is to have something that just makes it super simple. Some translation layer between this intermittent set of solar and wind generation on one side and the way we actually use power, which frankly is whenever we damn well please. Then how would you do that? You would just have a buffer, you'd have a cache. You'd have something in between this intermittent generation and unpredictable demand that would smooth them out, and there are ways to do that.
Matthew Nordan: There is a version of that, that you would do through the battery technology we have today through lithium ion batteries. It would involve building sort of very large and very expensive facilities. Kind of hard to see even if God gave you the lithium for free, if you built things like that, how they could be accommodated without increasing the cost of power. So now you've got a debate somewhere about having a subsidy mechanism which may be eternal. Then who pays for that and how they pay for that all that sounds hard. It would be a lot easier if we could find something that was just lower cost that just worked, that didn't have to have subsidies or price supports or anything else, just worked.
Matthew Nordan: There's a company that had made the realms on Sandhill road and then the other Route 128 ring in Boston called QuickNet Energy. They had a pretty crazy idea for how you would do grid scale energy storage to store energy, not in batteries but in pressurized water underground. The insight of the founder, a guy named Howard Schmidt was a Saudi Aramco, a reservoir engineering specialist, was that when you went out and did fracking, you did off of an energy storage job. You took a lot of electricity, you put it in a pump, you jammed water underground at pressure.
Matthew Nordan: At first it cracks the rock, but when the rock starts cracking, it compresses the rock like a spring and now you've got millions of tons of the weight of the earth pushing back, pushing that water back out. You opened a valve, it would spew back up. We call that flow back water. His insight was that if you found reservoirs that had a very low leak off rate, were adjacent to transmission lines and to solar or wind power, you could actually store water just like you would pump in the uphill and letting it go down, but do it underground. Where you don't have to lop off the top of a mountain, dig out a lake and line it and then put turbines at another Lake at the bottom.
Matthew Nordan: You could do it almost really anywhere you have the right geology and had transmission and proximity to solar and wind. Everybody in the venture community and energy saw this. Everybody passed, including me, so I was a venture investor at Venrock at the time. We couldn't get conviction because it was just way too high risk. If you were going to go out and do this, what's the first thing you would do? You would take your computer simulation, which they had started with and now go out into a reservoir and start pressurizing it. If you pick the wrong one, you could blow one or two million dollars in a morning.
Matthew Nordan: Nobody wanted to do that until somebody went first who is inherently capable of taking on a little bit more risk and going a little bit earlier than a usual investor, and that's what we could do at Prime. We invest dollars that are mission-related capital, that has a longterm orientation and that cares about the social good created by the investment and is willing to take on some more risk to get it. Because they're looking for a blend of impact and some level of financial return.
Matthew Nordan: Thankfully when we backed that company then was successful in the field, went out and raised a series a round from investors with much deeper pockets than we have. Then we were fortunate enough to go out and do that. I think we're on our 13th company now, so far so good.
Jason Jacobs: With that additional risk that you're taking on, I know it's philanthropic capital, but is there also additional upside associated with that? So is it a more attractive price as an example coming in at the stage that you are?
Matthew Nordan: It's interesting, you didn't go where I thought you would with that. Let me go to where you went and then where you didn't. From an investor perspective, it's absolutely the case that when there's not a lot of capital lining up to back things that could ultimately be very valuable. There's got to be some price value arbitrage. You've got to be able to buy lower than you might otherwise, regardless of whether you sell high or kind of high or highest. From a Prime perspective, we tend not to think that way because we know that if we're going to cultivate solutions to the existential threat of climate change, we need to get capital into the field.
Matthew Nordan: But we also more than anything else, need to attract talent. You don't attract talent by brow beating entrepreneurs with sub-market investment terms that serve as a disincentive for them to go on this long journey and get to the finish line. So our terms actually tend to be fairly pro entrepreneur. We often syndicate with other investors where we ride along with terms that they said so that there's no conflict, and over the fact that we have this additional philanthropic motive.
Jason Jacobs: I guess what I was getting at is, is it priced as if the risk is baked out and then it is ready for the more market based capital or is it an earlier round?
Matthew Nordan: No, definitely an earlier round and definitely not priced. Definitely something that's not being touched by mainstream investors for a reason.
Jason Jacobs: So where didn't I go that you thought I was going to go?
Matthew Nordan: I thought you were going to go to the other side, which is what's on the other side and that's what I think the investors in our fund have understood. That there are a few paths are possible. One of them, which is likely with most areas of human innovation endeavor is that nothing works or things only kind of work and it goes sideways. We forget that five out of six venture funds never return capital net of their fees. We think of it as an asset class that is defined by winning portfolios. It's defined by losing portfolios and defined by investors who never return a dollar of money back.
Jason Jacobs: Same thing with being an entrepreneur.
Matthew Nordan: Same thing with being an entrepreneur.
Jason Jacobs: You don't think of an entrepreneur as whatever the 99 out of a 100 that don't work or something. You just think of it as that Dropbox, as in the Facebooks and the Twitters and Uber.
Matthew Nordan: Our American myth is Steve jobs. You toil away at the basement, you bring on some outside money [inaudible 00:19:20] the Belmont Aztec, but it's not the reality of life for most. So with that in mind, I think your investors know that. They understand that really well. I also think they recognize that if you are aiming with the lens through which we're aiming about only technologies and companies and business models that could have a big impact on climate, not a small one. Could be as impactful as the entire wind fleet or the entire solar fleet today. You're trying to do that in a world where things can get deployed quickly, which means you're trying not to depend on policy change. You trying not to depend on regulatory support and you're willing to take bets that others will not.
Matthew Nordan: There should be some asymmetry in the return on the dollars out as well as to the dollars in. There aren't that many big problems in energy. There's how do you have a benign base load source of power that goes after coal? There is, how do you match supply and demand for electricity that goes after gas? There is, how do you have a conflict and carbon free transportation fuel that goes after oil? Then there's an additional problem we've created for ourselves, which is how do you pull the CO2 we've put into the sky out of it because we probably can't get to a solution without that?
Matthew Nordan: Those are the big problems. Most of the other problems are small. Like water salination big problem, but if you had a free benign base load source of power, you wouldn't care. You just boil the ocean. There wouldn't be much downside to that. Be pretty easy to do. If you could solve one of those big problems in a meaningful way, you would have made tens or hundreds of billions of dollars enterprise. The probability you hit it is really low, but the opportunity on the other insight is massive.
Jason Jacobs: And the time horizons are longer. Right?
Matthew Nordan: Right. If you imagine a world where the externality is priced in, probably not going to happen in this country because we're just not very good at that. I guess we were at one point under Bush with SOx and NOx that we were able to get out of the skies and stop the acid rain plague that was going to kill us when I was a kid. But there are other places in the world that are getting better at pricing the externality. Europe is getting better. China, I think, has really no choice but to get it better and it's aligned with a set of national industrial policies. That'll change the economics for everybody. When does that happen? I'm super confident it happens in 20 plus or minus 20 years, but I couldn't give you a lot more specificity in that.
Jason Jacobs: So I guess coming back around, you had this awakening and was that pre Venrock?
Matthew Nordan: It was. I was running to Lux Research. Then I got recruited into Venrock to learn the venture capital business for some really extraordinary people after that.
Jason Jacobs: What was the incentive to make that move? I guess how did that jive with the awakening that you had?
Matthew Nordan: You're asking interesting questions. From my perch as the leader of analysts who are focused on sort of energy environment, I saw a large amount of venture capital money coming in to this category referred to as clean tech at the time in the mid 2000s. I thought, "Man, this is probably ends in tears." Because the money is mostly coming from the same people. It's coming from the guy who runs MIT's endowment or the guy who runs the pension fund for some big union or something like that. The money's coming from the same places, but somebody moved the cheese because the cost to grow and scale and internet company in the mid 2000s dropped by what? Four or five orders of magnitude.
Matthew Nordan: I mean, you'd know this better than I did. There was a point where you wanted to start a consumer internet business. You went out and put your servers into racks. Today, we just put in a credit card at AWS and the cost per cycle is many orders of magnitude lower than it would have been even a decade or two ago. The conclusion is if you've got money that has the same return expectations and it can flow to internet startups that don't require a lot of money to figure out if you've got it or not. I mean, you did a lot of growth equity. That's all money that goes on after you know the model works.
Matthew Nordan: The risk capital is actually quite small and getting smaller. Why would you invest it in things like the energy storage system or the fourth generation solar cell or the benign advanced nuclear reactor? Why would you do that? You might get the same outcome but with more time and more money and more risk. Why would that make any sense?
Jason Jacobs: This is still the calculus that you're going through when assessing your next move after Lux?
Matthew Nordan: Just looking at the universe. I wasn't looking for a next move. The job of being the head of an analyst firm where you get to think and talk and speak about cool stuff all the times, great job. I recommend it highly for anybody who is analytical and curious and fascinated by anything. Find something that analyzes that thing.
Jason Jacobs: Or a podcaster.
Matthew Nordan: Or a podcast is actually a great idea. Those are going to be big. There's an app for those on my phone. It was just there when I got it. Anyway, saw all this money coming in, thought this probably ends badly. This is probably like a bubble of some kind and it's going to end in tears because people are investing in something that looks like biotech without the exit model. I thought the problem wasn't so much with the space. It was probably in approaching it with venture capital as usual and you wanted something different. You wanted a longer timeframe, you wanted investors who had some secondary motivation outside of purely financial return.
Matthew Nordan: It doesn't have to be philanthropic, right? It could be sovereign, want to develop my economy. It could be strategic. I want to add new products to my portfolio, but some of other motivation and some other stuff. I learned something that became my stump speech and I found out that if you criticize a branch of finance from enough conference podiums, it may recruit you. I was approached by some partners at a few VC firms who had a different view of the world and thought you could build something more purpose built, suited to task around this problem of energy. One of them was a partner at Venrock, who I learned an extraordinary amount from and really became a foundational life mentor as much as career mentor.
Jason Jacobs: Do you want to give him or her a shout out or?
Matthew Nordan: That would be Ray Rothrock, one of the partners running Venrock at the time and is just an extraordinary human being. I was privileged to learn under Ray and some other folks and figure out how venture investing worked. My colleagues and I built a portfolio of nine companies over about one and a half fun cycles through some combination of luck, timing and skill. Probably more luck and timing but maybe not zero skill. There were some big hits in that portfolio. One of them is Nest Labs where we came in as a new investor in the CVC and it was a really short amount of time before that was a multi billion dollar acquisition by Google.
Matthew Nordan: Another one of the companies in that portfolio, Lucid Motors, which is a Tesla challenger optimized for the Asian market, which means it has a cooler back seat than you would expect. Because we have the car, you have a driver and therefore the cockpit matters, but doesn't matter as much as it might. The back seat matters a lot. It took a billion dollar plus commitment from the Saudi Public Investment Fund last year. That portfolio did well, but I found myself a little frustrated.
Jason Jacobs: So was the pitch coming in though, that this was impact investing or that it was market-based investing with an impact lens?
Matthew Nordan: None of the above. It was, this is market-based investing. We think there are neglected opportunities in energy. Think about the time, right? Mid 2000s, oil was above a 100 bucks a barrel and natural gas was $12 a million BTU. We talked about peak oil, not from a demand perspective as we would today, but from a supply perspective. There was a reasonable bet to make that those things, plus Waxman Markey, the Kyoto protocol, that those would change the economics of these industries and it was a worthy venture bet. A lot of venture firms went on at the time. I looked at it more as a lens by which we might build something different, but I knew that wasn't going to happen fast.
Matthew Nordan: That we would have to put some points on the board inside of conventional lyncher fund and then maybe earn the right to do something different. My Prime story is the following.
Jason Jacobs: Wait, but you're going to go back to the fact that you're getting frustrated at Venrock?
Matthew Nordan: They all come together Jason Jacobs, it's one grand crescendo.
Jason Jacobs: Okay. Because you had me. I was at the edge of my seat.
Matthew Nordan: [inaudible 00:26:13] the river, come on. When I was a newly minted venture investor at Venrock, I'm like the junior guy in the firm and I'm supposed to come up with really interesting things. So I tried to find all the really coolest professors and postdocs and PhDs who are doing the most groundbreaking work that could be really interesting companies. I want to develop relationships with them because you only develop trust through shared experiences. I want to earn the right to fund them in the future. I had, because I'm a nerd, a literalist, like my top 10 list of labs. Because I'm local in Boston, the top five are all at MIT.
Matthew Nordan: All five of them that I go to, I ask, "Hey, how's your research going?" Every single one of them, a 23 year old woman has shown up and given them a grant six months before I was there. I was like, "Wow, I've got to get to know this person. She's either going to be a terrible rival for Mindshare or we're going to be good friends." It ended up being the later. This was my colleague, Sarah Kearney, who totally different professional upbringing than mine. Had run a small family foundation that gave pre-commercial research grants to these labs and university settings doing breakthrough energy research.
Matthew Nordan: Sarah was extraordinarily successful at that. When the department of energy's advanced research projects agency issued its first set of grants, it was 37 grants in what, 2010 something like that. An outsized proportion of them were to Sarah's projects despite the fact that she had no technical training and no sort of business market background at energy. Just extraordinary judgment of character. Being able to find people who are going to push out the dome of the universe.
Jason Jacobs: You're making me feel shame because I wish that had come up on my podcast with Sarah. So then I could have said, "What enabled you to do that without that technical training?
Matthew Nordan: Anyway, she and I got to know each other and we realized we were on the opposite sides of the capital gap, that she was trying to give grants to researchers who wanted to form companies. But what would happen if their companies launched and they were never able to get funded? What if she actually misused philanthropic dollars unwittingly by launching them into a void? I'm on the other side. That's where my frustration is. At the firm, we can get Nest done, we can get Lucid done, we can get our power electronics company done. But when I or my colleagues show up in the Monday morning meeting with some crazy ass off the wall, high risk, high reward, asymmetric breakthrough now, and I'm like, "Guys, it's an antenna, but it tunes heat into power." Or guys, "It's a platform for microbes. They're going to chew cellulose and make diesel fuel."
Matthew Nordan: The answer is always the same at the early stage. It's, "Wow, we really like those people. They're really cool and this technology is awesome, but it's a little too early and a little too risky, especially given that the opportunity cost of our dollar is doing the series B round of Twitter. So how about they comeback and two or three years?" Those same entrepreneurs would then go down the road to Kleiner Perkins and get the same story and then go down the road to Sequoia. When that happened, there wasn't going to be a two or three years. If you're a bright young entrepreneur out of Stanford or Berkeley or Harvard or someplace, you don't beat your head against the wall forever.
Matthew Nordan: You eventually give up and go work at Google X. So I'm sitting here terrified that we're going to lose not just a generation of technologies of things that need to be brought into the world, but a generation of humans. If we have a gap where the best and brightest fled this field because they couldn't get financed, how long will it take us to get that back? If it's a generational problem, we might only have a generation or two.
Jason Jacobs: So at that time with your Venrock LP hat on, so with the fund philosophy that was sold when the fund was raised, would executing against that have like, was the frustration coming from that the philosophy didn't allow it or was the frustration coming from that the philosophy did allow it, but it was falling on deaf ears?
Matthew Nordan: No, no, no. It's the philosophy didn't allow it for good reasons. Like the investors at Venrock, like the investors that Andreessen or the investors that Spark or anywhere else, they don't give you the money for the following X reasons. They give you the money in order to achieve a superior risk adjusted return better than what they would've gotten by putting those dollars into market instruments in the context of a portfolio. But that's it. That's the beginning and that's the end. We were making the right rational decisions about where to place our capital according to being able to deliver on the returns that our LPs expected.
Matthew Nordan: But those didn't include how do you maintain a powerful stream of talent coming in to address an existential threat? How do you turn over every rock that needs to be turned over in order to mitigate a climate catastrophe that just wasn't part of the mission. It's not good or bad. It just is what it is. I think I had thought there are going to be enough cases where the story will be so compelling or I'll put ego on it. I will be the right messenger. I can be a catalyst to make something happen that wouldn't otherwise. Or the macro will turn in my direction or something. I woke up and realized one day the problem isn't that I'm finding the wrong investments or we're making decisions that aren't the right ones given our motives. It's that we're not motivated to solve the problem I'm trying to solve and in the wrong place.
Jason Jacobs: It's an incentive problem.
Matthew Nordan: Incentive problem. That became very clear to me at a particular partner meeting. It was a rare Monday where we had not one but two companies come in and pitch. We looked at the first that had a sort of hardware component and a long time frame and past. Look at the second, which was a fairly frivolous social media company that was trend riding.
Jason Jacobs: Want to give it a shout out.
Matthew Nordan: Not going to do that one. Not for posterity.
Jason Jacobs: Thought I had you, you were on roll.
Matthew Nordan: Yeah, I know, I know, I know. But it really caused me to have a deep realization and I left that room after we had seen sort of the company that I would have wanted to back not make it, and the one that I thought was, "Man, that's really what I don't want on my tombstone." Getting through and I made two phone calls and one was to my wife and I told her, "I'm done." Like it's clear I'm not going to accomplish what I want here. Then the second one was to Sarah who two weeks beforehand had sat across the table from me and said, "There's a different way. There is a pool of capital that is four times bigger than the entire venture asset class."
Matthew Nordan: It's just US family foundation money, forget corporate foundations, donor advised funds, the rest of the planet, just US family foundation money, four times bigger than the entire venture pool of money invested in on the shelf. There's a way to redirect it to be able to back ventures a little earlier and a little riskier than other people would do and tee the ball up for them to come and take the second and third swing once the distance to the green isn't so far. How can I push this analogy further? We could do that. Because of that experience I had had in that partner meeting, I suddenly had the ears to hear and I called her up and said all that stuff I said about like not really leaning forward and being your partner here, forget I said all that. We're going to do this, we're going to do it together.
Jason Jacobs: What year was this?
Matthew Nordan: 2013, January.
Jason Jacobs: We're in 2019 now. So what have you been up to?
Matthew Nordan: It initially was not clear, I think to me or anybody, whether what we were trying to do at Prime, at the bleeding edge in impact investing would work. It was very clear to me upfront that it was not a job. It was a volunteer effort, at least at the beginning. So I decided I was-
Jason Jacobs: Kind of like what I'm doing now.
Matthew Nordan: Yeah, exactly.
Jason Jacobs: It's all about me at the end of the day so I got to bring it home.
Matthew Nordan: So I decided to do three things. I'd only ever had one job at a time in life. So this was weird. One of them I found that as a board member I tended to be very hands on sort of by default intuitively. I got the most satisfaction out of projects that I really wanted to see brought into the world where I thought I could make a difference. There was something I could do and work that I did with the CEO that would get the company to where it wouldn't be otherwise. So I decided to pick two, three organizations to join the boards of as an independent and make something happen that wouldn't otherwise.
Jason Jacobs: Then were you doing consulting to pay the bills?
Matthew Nordan: No, so there were two problems that I wanted to spend time solving. One of them, which is very enduring is the Prime problem. How do you find the right capital source to get things started when it's just a little longer and riskier journey than it is in other technology categories? But the other problem that I saw was that we have an asymmetry in the world and where invention happens and where the ability to deploy with impact happens and that we make most new stuff. One tech center's in the US, a little bit Israel, a little bit of Europe, a little bit of China and some fields. But really overwhelmingly the US and it just doesn't matter here.
Matthew Nordan: 2003 to 2013, you look at the number of new power plants built in the US, new power plants to satisfy new demand. So not like replacing the old one that got tired out, but new power for new demand. We built a new power plant about every six or seven months, little less than two a year for 10 years. In China, they built one every five days, 500 megawatt coal fired power plant equivalent every five days for 10 years. So the number of shots on goal that you had alone, let alone whether the economic envelope or something else was more attractive was a big deal in these developing economies in China, in Southeast Asia, in sub Saharan Africa. That's what mattered a lot.
Matthew Nordan: I looked and saw that there was a whole generation of technologies that had been sort of developed in the US but nobody was going to take the risk on a first plant here. Either because there wasn't enough risk orientation to the capital or because the alternative was just too cheap. Like why would you build something that competes against natural gas fire generation in the US? You wouldn't when natural gas costs three bucks of million BTU. In China where it's 10 50 off the pipeline, the math is totally different. You have a much bigger envelope for profit taking and they care a little bit more about pollution than we do.
Matthew Nordan: So with a couple of colleagues, I set up a holding company called MNL Partners that was backed by six high net worth family offices to do that. To do sort of first of the kind plant builds in energy environment or manufacturing plant builds for things like batteries. To do that as a project developer working in concert with a big Chinese company that would provide market access and most of the Capital. Then a Western technology company in each domain that would bring something new and innovative. Probably wasn't going to build its first plant in the US, but could pull it off in a Chinese context.
Matthew Nordan: That work was really important and meaningful. It was the vast majority of my time for many years. Harder to do now where the US is politically in its relationship with China and how rules around technology transfer and foreign investment have changed have just made that interface extremely difficult, but it's important work.
Jason Jacobs: So when was that that you were having that revelation?
Matthew Nordan: A couple of years ago and I think at the same time Prime was a progressive experiment. At the beginning of the question was just, can we get one investment done? Can we use the sort of unique, I won't go into the terms we could nerd out on them, but they're things called program related investments and recoverable grants that allow you to take a dollar you would have granted that has inherently higher risk tolerance, right? It wasn't expecting any return and make an investment with that. That has some special tax and other treatment to it provided you can demonstrate that the investment is in line with a philanthropic mission and is unlikely to be made, but for the philanthropic motive.
Matthew Nordan: The first question was, can we do that? People have only used these instruments extremely rarely.
Jason Jacobs: Is it illegal to do it?
Matthew Nordan: Total question for me, right? Like is this okay? People would use these instruments in low income housing, like the housing built in Louisiana post-Katrina was largely program related investment money. There were some examples in healthcare and biotech. The Gates Foundation, for example, funded some companies including a vaccine discovery company here in Greater Boston called Genocea Biosciences, very famously using this kind of program related investment dollars. But we have no idea if you could do it in energy.
Matthew Nordan: The first goal was just do it once, then it was once a fluke. Can we do it twice? Is this a point or a line? Then it was, is it a curve?
Jason Jacobs: We're not in jail yet.
Matthew Nordan: Or the three of them. Exactly. Well, it's a good bar to reach. Like if you're not in jail, you're doing something right. Then the question was to see, could we bring that capital?
Jason Jacobs: Are we outing you on the pod?
Matthew Nordan: You are not. I have nothing to hide Jason Jacobs. Then the question was, can we bring that capital with a longterm lockup period in not millions of dollars, but tens of millions of dollars at a time to block to fund a blind pool of companies with some track record and faith in the process and the manager? That became more clear and we started to build a real team at Prime. It's become more and more of my focus and what I want on my tombstone.
Jason Jacobs: I mean, one thing I can't help but wonder. So I mean, Sarah got into some of the mechanics of Prime I think it's great. I mean there's this dearth of capital at this stage. There's also a dearth of just climate philanthropy in general. I guess one question for you, and I mean you're inherently bias so I'll ask you to check your bias at the door. But if there's a pool of philanthropic capital and someone cares about climate change, how should they think about philanthropy versus this, what's it called, blended finance that you guys do? How should they think about that allocation?
Matthew Nordan: So look, there's the higher as damn level and then there's all the nuance. But the highest level, I think traditionally how foundations have thought about their dollars is that there are two completely different pools. If you go to a big charity that has hundreds of employees, they live on different floors. If you go to some big biomedical charity that distributes medicine to people in sub Saharan Africa, there will be several floors of people who are program officers and their job is to give the money away and there might be another floor or two on top of the people who manage the endowment of the charity.
Matthew Nordan: The money that has to get invested to earn a return to, there's money to be given away. They probably view their job as being a master of the universe quaint nerd and view with some suspicion the people below them giving money away who were certainly doing a good thing but are perhaps not as sophisticated. There's nobody in between them. This is not like John Malcovich. There's no like 11th and a half floor where there's somebody in between. What happens if you bring a proposition that is, "I have an investment for you. It is earlier or riskier than would normally pass your screens, but you should do it because it's right in the middle of the cause you care about. If it did work out, it would have an asymmetric level of impact that might even be accompanied by financial return."
Matthew Nordan: What happens? You go and give that story to the people on the lower floors. The people who are giving money away, they turn you off the minute they hear invest capital. You're now one of them. You go up to one of the higher floors and people are like, "That's very nice. That's very quaint. They pat you on the head and say, "My job is to exceed an 8% risk adjusted market rate of return. Unless you can give me high certainty that we can do that, this is just probably not relevant to me." Imagine that you go into that and you sit down with that person, you say, "Sure, 8% risk-rated weighted market rate of return and I got it. What if I could give you 7.999, but a child will live? What if it was 7.998, but a village is not flooded?"
Matthew Nordan: There now become some point where you start ascribing a generic value of goodness, a common currency of goodness to the financial return you would get out of an investment, which allows you to give more money away. Then to the impact that you have by putting those dollars to work in a for profit early stage high risk company. At some point you're now achieving a local optimum for that blended financial and impact type return that's in the middle. To your question, there is every variety of in the middle. There is in the middle that is, "I am comfortable that I may lose all this money, that it's going into something very high risk and an area that matters to me, but that's okay because I didn't expect any return anyway, and even if I make 50 cents back on the dollar, I'm not a bad investor. I'm a brilliant philanthropist. Someone gave me a magic wand that turns a buck into a buck 50."
Matthew Nordan: There's another version of that that is, "Nope." One of our investors at a very large and very well known environmental foundation thinks this way. We believe that a competent manager going after these asymmetric bets has a high probability of being able to return most, if not all capital. Profit beyond that, we're not sure, but we're comfortable having an allocation of our endowments portfolio that has a higher risk return threshold. Not too much. Not going to endanger the whole of the portfolio, but a small appropriate carve out to make these high risk bets.
Jason Jacobs: How do you pitch it?
Matthew Nordan: Excellent question. I think it's incumbent on us, and I don't want this to get too technical too quickly, but catch me in the shallow waters before I get too deep.
Jason Jacobs: I asked the question.
Matthew Nordan: I think it's incumbent on us to never pull the wool over anyone's eyes to do the opposite, to be whiter than snow. When we were raising the first proper fund at Prime Impact Fund, there was a slide toward the back of the deck that said, "So is this fun going to return capital," and the answer was probably not. People would see that as some kind of shocking statement, but we would say, "Look, seed funds generally don't return capital." It's pretty upper quintile that even in mainstream technology areas that occurs.
Matthew Nordan: This is a small fund making early stage investors and fields that have a high level of capital intensity and a long timeframe. Therefore, we think it is most prudent and appropriate for you to use dollars that have a low or no return expectation where returns are upside given the level of risk. Not because we're investing in stupid ideas or stupid teams, but because we're investing very early where there's a high level of risk and a lot of things haven't been worked out. That's how we would explain it. I think what our mission is and what my mission is, is to then evolve and generate some different ways to put money to work.
Matthew Nordan: You talked about one of them earlier, a blended pool of finance where you have some philanthropic money that can take more risks and accept a lower return. Then maybe a higher amount of market rate money that wants to heavy up behind winners once they're de-risked. I think if you put those things together, you really can have the best of both worlds. If you have those two entities collaborating in a novel structure that recognizes that one cares a little more about impact and a little less about financial return, the other is on the other side.
Matthew Nordan: I think you can come to a situation that is superior for both, superior for entrepreneurs, superior for the planet, and that's what I'm personally excited about developing. What's been exciting at Prime is that I thought this would be a journey that could be so long, it might not even be climate relevant. I thought that to introduce some genuinely new thinking, some genuinely new structure into early stage venture in these categories would be something you'd have to run an experiment for 10 years and then you get to run another experiment. I think we've been right time, right place and that we've been able to raise this first Prime Impact Fund more rapidly than we had anticipated.
Matthew Nordan: The conversations we've had have pretty quickly blended into, "Okay, well what's the next thing? There are good things and bad things about your initial structure. What would you do differently if you had a bigger checkbook that would let you do more of the good things and mitigate some of the bad things?" Hopefully that continues.
Jason Jacobs: So that collaboration that you talked about between the market based and the philanthropic or concessionary capital, I mean, would you describe that?
Matthew Nordan: We usually use catalytic.
Jason Jacobs: Is that similar to concessionary or?
Matthew Nordan: Concessionary implies I'm investing in something that's going to generate a lower return. The reason we don't like that is we're not backing companies that will be small or modest if they are successful. If you're trying to find what is the nuclear fusion answer to benign base load power or what is the magic switching mechanism that allows you to time shift solar and wind, those are not going to be small companies if they are successful, but they are higher risk.
Jason Jacobs: So you've got that catalytic capital and then the market base that you're talking about collaborating with, is that a structure that Prime either has today or is considering or does that come through the collaboration with the investment committee?
Matthew Nordan: Excellent question.
Jason Jacobs: I love hearing that. That's my goal on the pod is just I should keep like on a chalkboard here.
Matthew Nordan: [inaudible 00:44:50] all the time.
Jason Jacobs: Write a little check.
Matthew Nordan: Exactly. Do people ever tell you, Jason, that was a really dumb ass question? Like why did you ask that inane question?
Jason Jacobs: That's the thing. It's like, you know what, I bet they thought it and they do not tell me, which is [inaudible 00:44:57] and is upsetting to me.
Matthew Nordan: I bet somebody thought it once or twice. I don't think many times, but I don't think it's zero.
Jason Jacobs: But I don't know if it would be more upsetting for them to think it and not say it or to say it and just put it right out there.
Matthew Nordan: Forever, for [inaudible 00:45:09].
Jason Jacobs: I think I'd want to know.
Matthew Nordan: Probably want to know. So look, there is, and I think where we operate now, is that we are putting in catalytic capital early to de-risk high risk bets and then someone else comes on after us and takes it forward. We've seen that happen in a lot of different types of companies. When our energy storage company QuitNet, those parties after us were Evoke, which is a strategic, actually an oil and gas related venture fund and breakthrough energy ventures, which is Bill Gates, Jeff Bezos, Jackman, larger club of billionaires. In other cases, data collective for example, led the series a for a carbon negative company called Opus 12 that we had a relationship with very early.
Jason Jacobs: They're purely market based, right?
Matthew Nordan: That's right. So sometimes it can happen quickly. I mean Opus 12 is an extraordinary company. It has an extraordinary CEO, Nicholas Flanders and an amazing founding team, Etosha and Kendra beside him. So to date it's been more synthetic. It's been the second place that you went, that we come in sort of catalytically and we're filling an ecological niche in a community and allowing something to thrive where it wouldn't have otherwise. I'm more interested in how, but when you're doing that, you can't be a lifetime partner to these companies. We can put in a little bit of money early. We can participate in the first few rounds.
Matthew Nordan: When there's a crisis later on, and remember our research shows that in half of all winners in energy and environment of companies that file on us wanted to go public and were venture backed, in half of all winners, there is some punitive hold your breath down round pay to play financial crisis halfway through the company. If your capacity is modest, you can't show up there. It's as much of an existential threat to the business as it never getting started. So I think it's important for us to be able to be a lifetime partner and to have a larger checkbook.
Matthew Nordan: I think the way you do that optimally is through blending inside the same vehicle versus we play this role now, and you play this role later and we're blending between my vehicle and yours.
Jason Jacobs: If you had to peg point in time snapshot today, what percentage of Prime's DNA is nonprofit versus capitalist? Then if you look five years into the future, what does that percentage look like?
Matthew Nordan: It's funny, Sarah and I and my partner Johanna Wolfson just had this conversation over lunch today at a Little Donkey in Central Square eating an impossible burger.
Jason Jacobs: You bought your table, which is why I knew to ask this question.
Matthew Nordan: There you go. Eating an impossible burger, which I recommend highly even for someone who needs protein like yourself.
Jason Jacobs: It's got quite the chatter.
Matthew Nordan: Good stuff.
Jason Jacobs: So color me intrigued.
Matthew Nordan: Dude, that was not bad?
Jason Jacobs: Evan over here is a skeptic. Climate impact. Yes, but health benefits?
Matthew Nordan: It's not health food like calorically like triglyceridy, it's not health food. Anyway, we just had this conversation. This is going to sound like some punk move answer but we don't see the world that way. It's one team. There is one mission which is to bring capital to freestanding market rate solutions in climate and energy that have a higher level of risk, involve uncharted territory and therefore benefit from a purpose matched investor. But I don't think this is something where you've got one strand of DNA that has giving and soft and one strand of DNA that is capitalist and rapacious and you're trying somehow to like engineer one side and the other to make them come together.
Matthew Nordan: I think you are starting with a new strand of DNA where everybody's sitting around the table has one part of one, and one part of the other. If you use the term impact investing, I've used it during this conversation. Sometimes we try not to, we don't necessarily want to be associated with everything in the neighborhood. There are a lot of, has been never will be propositions that are running around trying to sucker in dumb money under an impact investing umbrella. We don't want to be compared to those things.
Matthew Nordan: But if you do use that term, well it's not a question of is it impact with a side of investing, is it an impact on booze Boosh with an investing meal? We don't think of it that way. It's all one thing. Both of those things are equally important and they play equal roles in our decision making.
Jason Jacobs: So a couple of the things I want to touch on and then, although I feel like we could go on forever, we should probably wrap up at some point. But one is just, we talked earlier in the conversation about how there's things that have impact and things that give you energy. I'm curious, this innovation side that you're working on, clearly the impact is motivating to you. You talked earlier on in a very fiery, passionate way about your concern about the problem. So how much of the path that you've chosen in terms of where to spend your time is based on its ability to have impact versus because it's the thing that gives you energy?
Matthew Nordan: So look, I'm a big nerd. I've always been a nerd. I went down my initial analyst firm road in life because I realized as a college senior that I gossiped about technology the same way normal people gossiped about like the Bruins or Kim Kardashians. It was weird there were places where people would pay you to think about the future and talk about it. Like that was really a revelation to me. So would I be doing things that were high tech oriented innovation, high risk, more questions than answers even apart from this? Yeah. But with that said, I'm 44 years old. I'm probably now on the downhill slope of life.
Jason Jacobs: I turn 43 tomorrow. I hate to hear you talk that way.
Matthew Nordan: Yeah, come on. You might still be on the uphill slope. Depends on what our like life expectancy is.
Jason Jacobs: So I've got another 12 months on the uphill slope [inaudible 00:50:06]?
Matthew Nordan: Yeah, then it's all downhill from there dude. Sorry.
Jason Jacobs: Ooh, this better be one hell of a year.
Matthew Nordan: But I think about that, like there will be a moment I'm going to be laying in a hospital bed somewhere, looking up at my grandchildren's faces and motivations are different for different people. I don't want to look up at them and feel like I left anything on the field or to the extent that I have any sort of talent or drive ability to grind. I don't want that to be for nothing. I'm probably just casting about into the dark as to what that is. I think we all probably are. I think at this point in life you get enough maturity to realize that the things where you thought you had it at different points in your life or your career, there was a lot more to learn and there will be more to learn.
Matthew Nordan: But it's hard for me when you're faced with an existential threat for that not to be at least potentially one of the highest and best uses of one's time and talent.
Jason Jacobs: It's tech like you've seen, you can't unsee.
Matthew Nordan: You can't unsee it.
Jason Jacobs: Then just in terms of the, talked a little bit about this before the philanthropic landscape, I'm just curious, is your stance that philanthropic capital could be better invested over here in more of a catalytic way or is it that the existing ratio should remain, but we just need to grow the pie?
Matthew Nordan: It's hard to even give a nuanced answer to that question because I think we're barely scratching the surface of what catalytic capital can do. Again, I'd go back to the previous point. The entire US venture asset classes like three $350 billion. US family foundations alone are on the order of like 850 billion. Of those dollars which what? Like 90, a 100 billion dollars in grants goes out every year and 99.99% of that is grants. It's sort of the least creative tried and true use of this precious resource that can inherently take on higher risks than otherwise.
Matthew Nordan: There are problems we can solve with grants and problems that you can't. If we went around and granted money to a bunch of early stage companies, we wouldn't then be teaching those entrepreneurs how to work with a board. We wouldn't be establishing a capital structure and putting early evaluations on these businesses. We wouldn't be bringing in for profit market rate co-investors as early and as often as their risk tolerances will accept. We wouldn't be building an ecosystem that can develop these companies.
Matthew Nordan: It's an inferior use of philanthropic dollars in that context. Not in so many others, but in that specific one to grant versus to impact invest. I think there's something superior to the how, not just the what. I don't think it's just that we need to do more of it. I think we need to change the way these dollars are being channeled.
Jason Jacobs: The last question that I have, and this is probably outside of the scope of your core responsibilities at Prime. But just I've heard a lot over these many discussions about the importance of policy. You touch on a little bit earlier in the discussion talking about how like a price on carbon for example, or pricing the externalities I think you said maybe in the next 20 or 30 years hopefully, but not before maybe. But I'm just curious how essential is that not necessarily to your portfolio and success, but to the overall equation of getting our arms around this problem?
Jason Jacobs: I guess as a followup to that, just for people that are concerned about that and I want to see it happen, what can we do? If it's not the thing that gives us energy, do we just like leave it to somebody else?
Matthew Nordan: Are you ready for a long answer to a short question? They weren't even that short.
Jason Jacobs: Try it. But then if I knock three times on a table, that's the code for wrap it up.
Matthew Nordan: So look on the first thing, policy is very big deal. If you inserted 10 or 20 or a 100 dollars per ton of CO2 into a vast many business plans, they would now suddenly make sense. It's the area where I throw my hands up the most. There are people in the world who are really good at being able to be diplomats and to understand how to find nuances and persuade different groups to come together and make trade offs to get you to a conclusion. I'm not that guy and I'm inherently skeptical of anything that requires some crutch to be propped up on.
Matthew Nordan: So the vast majority of climate philanthropy goes to influence policy and regulation. I welcome that money. I think it's awesome. I think it's great. It hasn't done a lot for me so far. I wish it had done a lot more and as a result, people who are smarter and more talented than me at those things can focus on that problem. I'm going to focus on how can we bring solutions in place that need minimal or no policy or regulatory support.
Jason Jacobs: Given that carbon is this like invisible, insidious enemy, is it a crutch just to price the toll that the-
Matthew Nordan: Don't get me wrong.
Jason Jacobs: ... energy that we consume is having in terms of carbon emissions?
Matthew Nordan: Don't get me wrong, in a rational world, that makes complete and total sense. I don't think we live in a rational world. This goes back to being a student of human behavior. I find it hard to believe. This happened in Australia. This is a country that is one of the canaries in the coal mine for climate change and who had put in place a set of elected leaders who were very focused on creating economic incentives to lower emissions and you saw them all get voted out two weeks ago. It's just hard for me to believe that's an answer.
Matthew Nordan: I have more faith and personally want to put more wood behind the arrow of innovation than I do by getting the accounting right at least when it's going to cost somebody something. Again, plenty of different points of view that people can have on this and I wish I lived in a rational world where everybody would sit down and make that consensus and then cast their votes for people who are going to make the right choices. We tend to cast our votes for people we'd want to have a beer with. They're not the same thing.
Jason Jacobs: Wow. I feel like I've put you through the wringer enough. I'm also out of jokes, which is never a position I want to find myself in.
Matthew Nordan: Recharge that renewable resource, my friend.
Jason Jacobs: Any parting words? Anything I didn't ask or any final message that you want to leave listeners with?
Matthew Nordan: We've ended on a sort of weird note here. I think to me it's the other side.
Jason Jacobs: I'm good at that. Weird notes, it's like that's like [inaudible 00:55:35].
Matthew Nordan: Kind of your stock and trade. There's just so much potential. Every time I go walk the halls at a university and talk to grad students about their research, every time I go to a business plan competition, every time an entrepreneur comes in and tells us their story, regardless of whether it's sort of the right fit or not, there's always a surprise, and usually some invigorating, inspiring. Tell me something I didn't know, you opened a pinhole onto the world of possibility kind of surprise. At one point was pessimistic about population growth. I thought over time you're just going to have more of it.
Matthew Nordan: If you lined up in a UN population division forecast of where we would top out on people and compare it to what actually happened, we have yet to achieve the plateauing that we've always expected. I used to get bummed out about that until I realized that every one of those human beings is a new bright mind. A new source of ideas and implementation and communication and vigor that didn't exist beforehand. That's what Malthus got wrong, right. The whole idea was that food supply was growing arithmetically and people were growing geometrically and therefore we would be effed. He didn't realize that the people enabled you to solve the problem. The people will enable us to solve this problem.
Jason Jacobs: That is a much less awkward place to end. Matthew, thank you for coming on the show. You've been a terrific guest.
Matthew Nordan: Thank you, Jason.
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 my climatejourney.co. Note, that is.co not .com. Someday we'll get to .com but right now .co. You can also find me on Twitter at @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. 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.
