Episode 183: Nancy Pfund, DBL Partners
Today's guest is Nancy Pfund, Founder and Managing Partner at DBL Partners.
DBL Partners is a venture capital firm whose goal is to combine top-tier financial returns with meaningful social, economic, and environmental returns in the regions and sectors in which it invests. The firm focuses on cleantech, information technology, sustainability products and services, and healthcare.
Nancy is the Founder and Managing Partner at DBL Partners. Before founding DBL, Nancy was a Managing Director in Venture Capital at JPMorgan. She started her investment career at Hambrecht & Quist in 1984. Nancy has also worked at Intel Corporation, the State of California, Stanford University, and the Sierra Club. She sponsors or sits on the board of directors of several companies, including Farmers Business Network, Andela, The Muse, Zola Electric, Bellwether Coffee, Spatial, and, before their public offerings, Tesla and Pandora. In September 2020, Nancy was named to the FORBES 2020 Impact 50 List of the most notable impact investors, was featured in the 2014 FORTUNE Inaugural World's Top 25 Eco-Innovators, and appeared on Fast Company's 2016 List of Most Creative People in Business.
I was looking forward to sitting down with Nancy. She explains DBL Partners, why the "double bottom line" is vital to the firm's success, and what led her to focus on climate change. Nancy also shares what she learned from cleantech 1.0, how climate investing has evolved over the past two decades, and the sectors DBL focuses on. In addition, we have a lively discussion on carbon removal, nuclear energy, and the role fossil fuels play in the clean future. Nancy is a fantastic guest.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded October 20th, 2021
In Today's episode we cover:
Overview of DBL Partners and how DBL defines impact
Nancy's climate journey and what motivated her to focus on climate
Sustainable investing at DBL, including company stage, check size, and criteria for investment
What has changed since the early days of DBL investing
The difference between single bottom line and double bottom line
The importance of mission alignment among DBL's limited partners
How DBL prioritizes sectors within climate and if there are any areas that DBL will not invest in
Balancing being a generalist fund but still having expertise across climate sectors
From Nancy's view, how cleantech 1.0 unfolded and key lessons learned from the early 2000s
How Nancy's sees DBL in the ecosystem of climate investing
How Fossil Fuel companies work into the DBL investing strategy and portfolio
Nancy's view on carbon removal as a solution and how she sees it through a venture lens
Nancy's view on nuclear as a solution and how she sees it through a venture lens
Nancy's thoughts on carbon offsets and if they will bring us into the clean energy future
The importance of policy as it relates to cleantech investing
A price on carbon and what's holding it back
Links to topics discussed in this episode:
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Jason Jacobs: Hey, everyone. Jason here. I am the My Climate Journey Show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey, or MCJ as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So we set up a Slack community for those people that's now mushroomed into more than 1,300 members. There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for, determination to tackle the problem of climate change, ambition to work on the most impactful solution areas, optimism that we can make a dent and we're not wasting our time for trying, and a collaborative spirit. Beyond that, the more diversity, the better.
There's a bunch of great things that have come out of that community. A number of founding teams that have met in there. A number of non-profits that have been established. A bunch of hiring that's been done. A bunch of companies that have raised capital in there. A bunch of funds that have gotten limited partners, or investors for their funds in there. As well as a bunch of events and programming by members and for members. And some open-source projects that are getting actively worked on that hatched in there as well. At any rate, if you wanna learn more, you can go to myclimatejourney.co, the website. And click the Become a Member tab at the top. Enjoy the show.
Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change. And try to figure out how people like you and I can help. Today's guest is Nancy Pfund, Founder and Managing Partner at DBL Partners. DBL Partners was formed with a double bottom line investment strategy to invest in companies that can deliver top tier venture capital returns, while working with their companies to enable social, environment, and economic improvement in the regions in which they operate.
Now I was excited for this one, because Nancy and DBL Partners have been around for quite a while. She and the firm were some of the pioneers in double bottom line investing. And I had a lotta questions coming into this discussion about double bottom line, and whether it's concessionary, and if it isn't concessionary, why do you need the second bottom line if it's gonna generate outperforming returns anyways? And we talked about DBL's approach, the origin story for the firm, what type of investments they make, how they measure, how they report. What kind of LPs that they attract, and what kind of screen they use when selecting their LPs.
We also talk about what kind of criteria they use when making their investment. A- And what type of impact they're striving for, what types of risk are okay. And just a broader discussion about the market. What some of the lessons learned are from the last wave in clean tech. We talk about the new money coming in from Silicon Valley and more traditional tech firms. What it means, what to watch out for, how Nancy's feeling about it. And we also talk about her advice for founders looking to anchor and build companies in this area. And for people in general that are looking to accelerate the clean energy transition. Nancy, welcome to the show.
Nancy Pfund: Hey, thank you, Jason. It's great to be here. Thanks for having me.
Jason Jacobs: Well, this whole podcast thing is really just an excuse to get to spend time with amazing people like you. I can't believe that I've been working in climate for three years, not saying that three years is a long time. But, but the years are kinda flying by. And I've been so familiar with you from a distance, but we've never met before.
Nancy Pfund: It's amazing. And I have enjoyed your podcasts. And, and so grateful for the work your doing. And I'm glad we're meeting today. So the start of a new era.
Jason Jacobs: Yeah. No, and I'm particularly excited, because for someone like me who's coming in, and who grew up in a small, high growth technology startups, but is trying to navigate the climate tech landscape, and wasn't around for the whole last clean tech wave. And doesn't have the scar tissue and the lessons learned, and things like that. You not only were around, but have stayed around and are thriving. And so I just have so much to learn from people like you. So I'm so appreciative that you're making the time to come on our little show.
Nancy Pfund: Yeah. Happy to be here. And it wasn't so bad that, those early days of clean tech. And we can get into that later maybe. But yeah, it's a, it's a wonderful community. And long term orientation is something we need a large dose of I think, on a, on many different levels.
Jason Jacobs: Absolutely. Well, to kick things off, typically I just have guests talk a bit about their firm and, and what they do. So do you wanna just maybe give a quick snapshot of, of DBL Partners?
Nancy Pfund: Sure. DBL, which started as part of JP Morgan back in the 2004 timeframe. So yes, we've been at this almost 20 years, is a double bottom line venture capital firm. That's what the DBL stands for. And basically, we are, eh, our mission is to invest in successful, innovation driven companies, and make great returns for our investors. That's our first bottom line. But our second bottom line is to drive social, economic, and environmental improvement with our investment approach. And over the years, we have been doing this. And we always thought that this would be a dynamic, no-sacrifice approach to investing. And, and would be a win-win on many fronts.
But we didn't e- really have data in the early days. Well, today we have tons of data. A, we've been able to help create some, some companies that are leading the charge on climate change. And B, we've been able to bring along a lot of great people and institutions, and f- investing professionals and entrepreneurs with us. This is a big field now. We're honored to be pioneers in impact investing and sustainability driven venture capital.
Jason Jacobs: And given that you are double bottom line, as you said, which came first for you? Or what's, you know, what's kind of your professional origins story? Was it climate that led you to investing? Or was it investing that led you to, to climate? And, and also, it'd be interesting just to kind of hear how you think about impact f- versus climate as that relates to DBL, just so that we have the perspective of how you define impact at the firm?
Nancy Pfund: Sure. Well, I'll take the second question first. Sustainability is a huge part of our impact practice. We do future of work, we do health and nutrition. We do other sectors. But sustainability is the biggest one, and will always be, because it's obviously affecting so much of our economy. So we view sustainability as part of an impact practice. In terms of how I got here and how, how DBL came to be, I would say that from a very young age, I was very outdoors oriented, outdoor sports, hiking, backpacking. And pretty much a tree hugger from the begging. The first job I had getting out of college, I went to work for the CR Club in Washington [crosstalk 00:07:27]-
Jason Jacobs: Well, see, I knew that. Which so, I, I kind of had-
Nancy Pfund: [laughs].
Jason Jacobs: ... and inkling of what the answer was, just from the prep that I had done for, for this session. But I still want to hear it from you.
Nancy Pfund: Yeah.
Jason Jacobs: [laughs].
Nancy Pfund: And I mean, that was, I mean, it was a wonderful ... I was an intern. Stayed there almost a year. And really worked on some important environmental laws, the Alaska Wilderness Protection Act, others, the Clean Water Amendments. So really got to see how important and how policy driven environmental protection could be, way back then. At the same time, I'm very interested in entrepreneurship. I'm interested in innovation. And I worked at Intel right outta business school. So those two aspects of my being came together, the belief in protecting nature, and fostering an environment in which we can all thrive. With the belief that innovation can play a significant role in that, and is a fun place to be.
And so through my career of course, I wasn't able to invest in environmental companies, you know, 30 years ago. Even though we tried. I worked at [inaudible 00:08:31]. We had an environmental fund way back in 1990. It was way too early. We, we made some good bets. But had to go back to internet investing and life science investing, which was a wonderful place to be in the 90s and early 2000s. And then it all came together in that early 2000 period. I began to see that while we were too early back in the 90s, that the climate investing is something that was not just important, but that the world was ready for it. Popular sentiment was going to move in our direction. That's the bet we made. And fortunately it came true. [laughs].
Jason Jacobs: And what was it in the 90s that made it too early? Because from a science standpoint, it certainly wasn't too early.
Nancy Pfund: You're so right. The early, you know, we've been reading about global warming for many, many decades. The problems was that, for example, the regulatory map, the agencies were still young relatively speaking. There wasn't the body of work that we have now, and the, the data that's applied to policy that helped to steer investments away from traditional energy sources, or ag sources. And so that was embryonic back then.
It also wasn't consistent. There were administrations that liked it, and administrations that didn't. And so that's what was difficult. At the same time, you saw the germ of public sentiment moving away from the traditional energy sources. And I gotta give Al Gore so much credit. An Inconvenient Truth really helped to differentiate the future from the past, to raise the issues and tell people, "We've got to do something," in a very popular way. So a lot of things happened. The first generation of the electric cars were, that was a bust. But it did show that there, there was this group of, of drivers that really loved electric cars. Even though the structure of the industry was not able to thrive with electric cars, because everyone had a vested interest in gas cars at that time. So little signs along the way that you were able to move from advocacy and regulation, to using the power of the private sector, using the power of entrepreneurship to fix these problem, and, and build badass companies in the process.
Jason Jacobs: And ca- I know you do more than just sustainability at the firm. But on the sustainability side, can you talk a bit about just kind of stage, and typical check size, and also just criteria for what makes a good investment. And also maybe just touch on how much of that is the same from when you started many years ago, and, and maybe what's changed in terms of that criteria today.
Nancy Pfund: Well, a lot has changed. Our first fund back in 2004 was only 75 million. And it was a big effort to get every single penny. [laughs]. So we didn't have a, eh, you know, we didn't have a huge checkbook to write mega checks. So we were, we were the small but mighty impact firm that would put in money, and try to help the companies in other ways besides just writing checks. Now today during COVID, we raised our fourth fund, which was over-subscribed at 600 million. So big difference in terms of the check sizes we can write.
However, we still stick to our roots. While we can do later stage investments and put more money into deals, which we always wanted to do, but just didn't have the, the assets under management. We don't wanna ignore the early opportunities. Because we act as a signal. Because we've been doing this so long, if we invest in a new field, people take notice. And so we take that responsibility very seriously to not just keep investing in solar and wind, and batteries, and EVs. Those are great, great things to invest in, don't get me wrong. And we, you know, we still have those aspects to our practice.
But we want to do more. We wanna see ... We, we invested in ag back in 2014, because we saw, "Wow, 30% of carbon comes from agriculture. We need to do something about that. And it's also a broken system. The farmers that take all the risk are not thriving the way that the, the vendors." So there was a lot wrong with ag. And now today in 2021, you know, we're building unicorn companies, and everyone is focused on that. An area that we're just very early in, and that we'll, we'll write a very small check to begin, is the whole, the area of conservation and forest, and coral, and natural lands protection.
And that, the reason why we're, we'll write smaller checks for that is 'cause there aren't any big companies out there that are, you know, can take a huge chunk of money right from the get-to. They, they all start small when the field is new. And what you see in conservation is that we have wonderful not-for-profits, the CR Club being one of many. But there are no large private sector leaders that monetize conservation. There just aren't. I mean, we, we looked for them. And so that, eh, you know, that can not be the case in the 21st century. We need to create companies that monetize the protection of forests, the protection of coral reefs, or the restoration of forests after fires. Or the restoration of oceans and, and rivers. So this is a paradigm shift. So we will make the exception in terms of having a big fund, we will make some bets there that are smaller, and use our signaling power to bring others in as those companies grow.
Jason Jacobs: So what I'm hearing from you, and correct me if I'm wrong, is that in no way are you concessionary on returns, financial returns. And if that's the case, then why do you even need to say that you're double bottom line? Why can it, if you really believe and you have the results to show that your thesis and strategy will deliver top-tier returns, then what's different about being double bottom line versus being single bottom line with the same exact thesis?
Nancy Pfund: Well, it's an excellent question, Jason. And we have many a philosophical discussion around this. And I always say, some day there will be no impact investing. Because all investing will be impact investing. What you have to understand is that when we started, that was a very heretical things to say. And it made a lotta people uncomfortable. And there was a huge bias that if you introduced anything other than return on investment criteria into your investment decision, you would diminish your returns. And some people still believe that. It's a shrinking number, and generationally it's going the other way.
But back then, that was a very, very common belief. And so that's why we, we explained the difference of what we were doing. And our belief is that for impact to scale, you need the private sector. Because no amount of, you know, you could have a gazillion grants to, to for example, feed low income children in schools, and the Federal Free and Reduced Lunch Program, and such. But with that approach, you're not serving millions and millions of kids a week. A company in our portfolio, Revolution Foods, one of our first investments does just that. Feeds low income children in schools, and food insecure communities at a level where they're doing millions a week.
And so the scale that the private sector allows, the scale of a Tesla, the scale of a, a SolarCity, of a Pandora, another one of our investments. These are not able to be established without the private sector, and without the markets. And so that's why we feel that impact investing is better investing. Because we're able to tap the power of markets, the power of innovation, and apply them to quote, unquote, "Problems," turn them into opportunities. And, and these are some of the largest opportunities out there. You know, any time you see government programs, you know that you're spending a lot of money, as those are trillions of dollars, not billions, as, as we see.
Jason Jacobs: So if there were a greedy capitalist out there, or a group of them that saw the success that you've been having, and set out to essentially just mirror your strategy and approach, and then called it SPL Partners, single bottom line. And they're only about being a greedy capitalist, but they have your exact approach, what's different about being double bottom line versus being single bottom line with the approach you have, given that you're not concessionary on, on return? So I'm pushing on that, because I, I really wanna kinda get to what it means to be double bottom line practically, if you're double bottom line and maximizing returns, how does impact manifest differently than it would if you were focused in these same sectors, but only maximizing profit?
Nancy Pfund: Sure. Well, first of all, I'm all for traditional investors coming in and replicating what we and others have done. I'm here for that. That is important. And that's how we, we move impact investing into the mainstream, so that everyone does it some day. The challenge is that with any investment trend, and we've all lived through various cycles, there are people that kinda jump on the bandwagon, because it is trendy and attracts lots of capital, that perhaps aren't as committed to the mission. It is just this, as you say, the, the stereotypical kinda greedy capitalist. And so we want to make sure that we answer the criticisms that will come from that evolution, and stress our authenticity. And to do that, what we have really built our practice around is metrics.
And so we measure so many things in our portfolio. We measure how many jobs we create, how many are for low income people, how many of our companies are in low income neighborhoods. How many of our, our employees in our companies are women, are people of color? So we are able to track how we're doing, and where, what we need to do to improve. You know, there's no perfect company out there. We want to make sure that we have a compass based on data, in terms of where we're heading and how we're trying to really address the key social and environmental issues.
So without metrics, you manage what you measure. And so without the metrics, it's harder to be an impact investor. Because you can make claims about what you're accomplishing, but not have any way to actually show what your results are. And so I think that's, this is a big debate within our, our field. [laughs]. You know, the role of metrics. And some people don't wanna take on that effort to do the measuring, and some do. And there's everything in between. And so that's, this is definitely a work in progress.
Jason Jacobs: How important is mission alignment amongst your limited partners?
Nancy Pfund: Well, we are so grateful, [laughs], s- for our limited partners who helped us build this field. Because it, it wasn't ... In early days, it wasn't something that your boss would kinda patient you on the back for and congratulate, [laughs], you. It was a risky decision. So it worked out well. And so we were able to then grow our fund size, grow the nature of our LP base. And so fast forward to today, we are, eh, very, very aligned with our limited partners. Because they wouldn't come into our firm if they didn't value our philosophy, that there is no sacrifice between financial and social return, and that you can drive both at the same time. So it is critical to our field to attract these larger, more traditional limited partners that sign onto this mission. And fortunately that's what we've been able to do. And we're very grateful.
Jason Jacobs: Given that this transition needs to play out across every sector of the economy, across every geography around the world. And it affects everything. I mean, it has hardware implications, it has materials implications, it has infrastructure implications, it has financial tools implications, it has insurance implications, it has risk model ... I mean, I can go on and on, and on. But how do you prioritize in terms of ... Well, I was gonna say in terms of sector, but tha- now I'm starting to lead. So just, how do you prioritize, and what won't you do?
Nancy Pfund: Well, we follow the carbon. That's why we started doing ag in 2014, uh, a long time ago. That's why we looked at transportation, and obviously energy production. It's why we look at something less obvious, which is the space-Earth nexus. We feel that advances in satellites and space tools, making it cheaper, better, faster, more, more accessible, will help us understand our own planet much better. And just for example, allow on our app to, allow you to track where the carbon is in your region. Or allow you to see images of the Earth and discover that someone put a mining operation in the middle of the Amazon, and mucking up the rivers.
That would've taken decades sometimes to find in the past. And now you can find it just as it's happening, because of advances in space tools, locational software, and such imagery. So that's, eh, that's a really important piece of the puzzle that a lotta people don't understand. And those companies can also be very highly valued. I mean, the aerospace industry has very high valuation. So that's an example. The example of conservation I gave you, we know that trees can sequester a lot of carbon. And yet, the California Air Resources Board came out with a report saying that all of these wildfires kinda knocked out over two decades worth of advances in carbon reduction that we've been engaged in.
That's super depressing. All this work we're doing, a few fires can, [laughs], can release so much carbon, and e- remove so many trees that we're back to where we started. That's untenable. So that's another area that's of interest to you, as I've mentioned a few minutes ago. One of our companies, DroneSeed, that just did a round, is literally collecting seeds from pine cones and other trees, because we can't regenerate all the forests naturally that burned. We need someone to do that in a much more efficient manner, and one that respects the landowners, the native tribes, the environmental considerations. Or we're not gonna be able to regenerate forests in the next decade.
Jason Jacobs: Are there examples of sectors that are high impact that don't meet the bar when it comes to the second pillar of that double bottom line, the financial one?
Nancy Pfund: We don't really look at it that way. Let me first state, we don't invest in fossil. We don't invest in sort of the sin categories. Just, you know, other people can do that and, and make a difference. It's just something we, we didn't want to do. And there's room for everybody in this field, don't get me wrong. And so we, we don't do those. And we don't actually say, "Hmm, that sector is, is not gonna make money for us," without understanding what the dynamics are. Because you have to look at the technology, the innovation, the management. But also, what is the incumbent scene look like? Are they gonna like go after you from the get-go? Do they have all kinds of regulatory advantage?
So it's a big mix in terms of making an investment decision. Are we gonna be able to rise above centuries of dominance in a particular sector? And, and that's a pretty, pretty hard thing to do. But that's how we go into it, rather than just sort of X'ing off an entire sector. Because always, the success is, it's easy to say now that electric vehicles was a good, good thing to invest in, back in 2006. But back then it, it really didn't feel that way. [laughs]. I mean, we got a lotta flak for that.
Jason Jacobs: [laughs]. Well, there are firms, for example, that only do biotech, or only do enterprise SaaS, or only do AdTech, or only do transportation. As an impact firm that spans across these different verticals, impact or even sustainability, it's hard to call that a vertical given how many sectors it touches. And so you could have a sustainability solution, as you know way better than I do, that's a material solution. You could also have one that's a marketplace. You could also have one that's a SaaS platform. You could also have one that is electrifying some big mobility sector, boats or trains, or whatever. So I mean, now that you have a larger fund, and I presume that you're out leading some, if, if not all of the investments that you do. How do you deal with diligence when you're essentially a generalist, and all these sectors have such different dynamics?
Nancy Pfund: Yes and yes. [laughs]. I mean, fortunately our team has been at this for a long time, and has, you know, I was a life science investor when I first started out. I did internet. My colleagues did, you know, some of the, you know, telecom. And we've had food and ag. So when you do this long enough, you develop a way of analyzing investments, and accessing your network, expertise, and developing a theory of change, a theory of investment that enables you to span, uh, several sectors. Now, we don't do as much hardcore life science as I used to do when I was a life science investor. But we won't automatically say no, especially now the ecosystem is so strong that you can go in with a, a really strong life science investor if it's related to ag, and you're super interested in that, for example.
And it's important to us to invest across a broader scope of sectors. Because we wanna show people that impact lives in any sector. It's not, while, there are a lotta people that wanted to work for a battery company, and I'm so glad there are. There are a lotta people that aren't interested in batteries. And yet, they're interested in sustainability. They wanna go to some place and make a difference. So we need to create those companies for everybody, so that we can create the icons, the leaders of the 21st century economy, irrespective of, you know, what your particular sector focus is as an employee. If you're interesting in fashion versus battery storage, [laughs], there's a place for you in sustainability. As we see with the circular economy becoming such a potent force in combating climate change.
Jason Jacobs: We talked a bit about how in the 90s it was too early. It'd be great to just kind of get your take and post-mortem on the next decade after that.
Nancy Pfund: Well, I, I'm gonna push back on the oft cited, [laughs], miserable, [laughs], doomed before it started, clean tech 1.0. And the reason I'm gonna do that is, and I'm sure many of your guests say this. If you look at renewable energy today, and the price per watt. You know, it's 80% of all energy investment is cheaper than fossil fuels now. EVs are taking over the planet. You know, how do you think we got there? Why do you think that is?
It's because people 15, 20 years ago invested in companies to implement solar and wind technologies, and EVs. Went through all of the pain of, uh, working through incumbent opposition, regulatory opposition, technical difficulties. And persevered, and found investors who, even though that wasn't very easy. And so when I look at that first generation, it ... Just take the solar sector. Look at SolarCity. Look at Sunrun, s- First Solar, Powerlight, which was then sold to Sun Power. Nextracker, which pioneered in tracking systems for solar.
These are amazing companies that helped get us to the statistics that I just talked about, that allow people now to scale those technologies and make them dominant. And so if we had just been sitting around, eh, not doing that 15 years ago, we wouldn't be where we are today. And o- and while there were mistakes made, there are many companies that didn't make it, clean tech is not alone in that distinction. There are plenty of venture backed companies that don't make it.
And yet, I will argue that because investors, and we're just one of them, other firms did it too. Investors took that risk in that early 2000, mid 2000 timeframe. We now have vibrant renewable and electric vehicle, and battery storage sectors that are now going to play a very important role in fixing the problems that past generations have caused. So I guess I would just challenge people to do the homework, and understand how did we get to these amazingly low prices of renewable energy, without making investments a long time ago?
Jason Jacobs: And with the benefit of hindsight, you mentioned that there were mistakes made. And granted, I mean, at any point in time in any sector, of any, [laughs], industry, doing anything or any facet of life for that matter, there's, there's mistakes made. So no surprise there. But are there any key lessons looking back that you think could be applied, or should be applied? Or that you think that the new money coming into the space now should hear, so that they're not repeating history and stepping on the, some of the same landmines that they could otherwise have avoided?
Nancy Pfund: Sure there are. For one, there's a continuum. And at the end of the continuum, on one end, there are the people that think technology alone, innovation alone is going to solve the problem. And I'm sometimes, [laughs], in that camp. And I feel, "Oh, this is so exciting. This is gonna help us solve X, Y, Z problem." And then on the other end, there are folks that say, "Well, we need to get the laws right, the regulations right. The popular culture needs to understand why this is important, 'cause that's how you'll get through all of the difficulties, those near-death experiences as you grow."
And so there's sort of tech versus the exogenous variables that surround your investment. And I would say, just be in the middle of that continuum. Don't think you can do it all with technology, or you can do it all by moving the masses. You need to do both. You need to make sure you invest in a way that is moving regulatory codes as it's moving, breaking records in, you know, battery storage or whatever it is you're pursuing. We have a saying at DBL. We have this, we have a few trifectas. But one of them is, when policy and innovation, and capital come together and work together, that's magic. That's how you get things done. It isn't just one or the other.
Jason Jacobs: As you were talking before, you were talking a little bit about the, about your role at DBL of helping educate, helping prove out that certain sectors, or track of helping prove out that not matter what your skillset, or what industry you're in, that you can put sustainability front and center. And I hear elements in that of catalytic capital. I think of like a prime coalition or prime impact fund, for example. But at the same time, I hear double bottom line, no, no compromise on returns, not concessionary. And so do you view your place in the ecosystem as catalytic? And that for some reason, I always ask my questions in two's. And a followup for that is, when you get to a company and love the company, and love the team, and love what they're doing. And then find out that there's multiple term sheets, and that there's fund swarming, does that alter your interest level in the company one way or another?
Nancy Pfund: Well, first of all, I'm a pro-bono investment committee member for Prime. And I've been a huge fan of theirs since the beginning. And, uh, see that they are playing a very significant role. Prime and other groups like it, the, the accelerators, the incubators. So again, the ecosystem that we all participate in is growing in strength, and is something that I depend on. I know that all the folks at DBL try to keep as open communication as possible with those earlier stage s- pre-seed kinds of investment groups. So definitely admire and have, you know, played my small role in helping some of those groups get launched. So, what was the second part of your question?
Jason Jacobs: So I mean, Prime for example, they would say that if the market based capital's already there, and doesn't need them to get over the line, then it's not for them. Because they're trying to be catalytic where they find opportunities that are either one step before that, or where they're like a blanky for the market based capital that can help them feel comfortable taking a plunge where there might be a little more risk in a certain area than they're, than they're used to. But it's an area that they know if Prime is involved, then, then it's kind of a, an endorsement and a skillset, and a pattern recognition that they don't have. And so my question for you, given that I heard some similar kind of catalytic elements of your mission, is if, you know, how do you think about that relative to a Prime, let's say where if the market based capital is already there, are you more interested or are you less interested? Or is it a non-factor? And that, that kinda gets to, I didn't use this word before, but additionality.
Nancy Pfund: Right. Well, in a certain sense, DBL is a hybrid. Because we all come from traditional venture capital backgrounds. And so our DNA is, take risk, work hard, get the company to grow, and exit and make returns for our investors. And if we don't do that, we're not gonna survive. [laughs]. So that's kind of the ABCs of venture capital. And then catalytic investment, that super early pre-seed stage, you know, you're going to have higher risk, obviously. And so you're, you're not necessarily going to be able to follow those ABCs. And I would say that DBL, sometimes we've made what could've been called catalytic investments at the time.
But then they, once they become successful, all of a sudden, you know, they're not that. And so I think that the catalytic term is one that we embrace. It's just that w- we put into our decision mix, scale, timeframe. You know, we, we don't have 30 years. You know, we wanna do this over the next decade. And so, uh, those are some of the differences that set us apart. We wanna kinda get this locked and loaded and, and out there. And that's just because that's our DNA. That's where we worked in the past.
And in terms of your question about the more firms coming in, and the term sheets getting band-aid about. Yeah, it's, it's happening. It's something you have to navigate, and make some pretty important decisions around whether you're willing to pay more for a deal or not. Now, a good tonic for that is what I was talking about before. You know, our, our conservation, our forest deals aren't the ones that are bid up. They will be, [laughs], as this field matures. But right now, there are plenty of sectors that you can invest in where the crowds aren't there yet. And that's a place we like to live.
Jason Jacobs: Uh-huh [affirmative]. And a- I guess a related question, but if, it seems from speaking with some of your peers in the industry that have, you know, that have been around f- through the different cycles, and are still around. And it seems like after the last, and I don't know if you would use the word, "Bubble." But the word, "Bubble," gets tossed around. But after the big influx of capital in the early and mid 2000s, it seemed like there was almost some, I don't know the right word, but call it quiet years. Where there were less firms. And the firms that were there essentially, they kind of have their pick of the litter. And if they didn't choose to back a company, then often times that company didn't get funded. Where now, it seems like, and I'm exaggerating. But it's like if you have a pulse and you use the right words, and you maybe have some logos on your resume, [laughs], from certain companies that are credible, then you're gonna get funded. And so how has that changed how you operate as a firm, if at all? And do think it's a healthy thing or do you worry about it?
Nancy Pfund: Well, if you're in venture capital long enough, you see this, eh, it's a wave that hits many sectors. I mean, the internet bubble is an example. And yeah, I mean, there are gonna be too many companies funded at some point, and there won't be the strength of returns there if this pattern continues. That's just as sure as the Sun sets in the west. Because we've seen that before. When you get new investors that don't understand a sector, and they pump up the valuations. And, it's just not, it doesn't last. And I think people at DBL have lived through those, those bubbles in other sectors. And, and so we try to navigate around them. And part of the strategy is to be able to say no. And understand that, eh, getting into a highly bid, early stage company has risk that you can a few, few times in a portfolio. But you don't wanna have a portfolio full of those very expensive, very early deals.
Jason Jacobs: Eh, I just have kind of a punch list I'm curious just to kinda flip through to get a sense of how you think about these things. One is science risk.
Nancy Pfund: Yeah. Science risk is, is something that we try to steer clear of. Because we're not Prime, we're not an early stage pre-seed investor. And while we don't need to have everything done and dusted in terms of the science. We certainly need to see some evidence of a path to commercial viability. And unlike some of the big, you know, family offices that can have a span of 30 years or whatever. That's not a luxury we have. And we also philosophically, we're much more, "Look, we don't have a lotta time to fight this battle. Things are getting worse." So we want something that will help us in the next five years, not the next 50 years. So we think there's a role, don't get me wrong. Uh, we are very supportive of those investors that do the science projects, that invest with very little data. And some of those will be very important companies some day. But that's not what we're set up to do.
Jason Jacobs: I don't know if it's the same question, or maybe it's just a slightly different twist. But capital intensity pre-product, if a company is out raising a B or C for a $100 million, and there's no metrics yet because they don't have a product, because they're doing something crazy like fusion, is that a non-starter for DBL?
Nancy Pfund: Well, again, it's all a matter of portfolio construction. And the capital intensity of clean technology, uh, 1.0 is something that people always complain about. And it's true. It did some companies in that they needed so much money before they've made milestones, that they weren't able to find attractive investors. So again, you can, a portfolio can accommodate a few capital intensive deals. But you have to be super cautious and not have a whole portfolio full of them. And when you win in capital intensive deals, it's pretty nice. I mean, look at w- Tesla. Super capital intensive, lots of reasons back then why people got upset about that. And the, the conventional wisdom was, venture capitalists should never make that kind of a, a bet. But wi- if they do succeed, those capital intensive companies tend to be some of the most iconic of our age.
Jason Jacobs: Uh-huh [affirmative]. And you, you mentioned no fossil before. I'd love to just double click on that. Does that mean that you won't back solutions that are working on fossil fuels, or does that mean you won't collaborate with the big fossil fuel companies in any way? What does that mean, "No fossil."
Nancy Pfund: We are happy to collaborate with fossil fuel companies. And we do. It's just that our brand is really to create the alternatives. And certainly, we will help fossil fuel companies invest in alternatives, or become, uh, users of products that our companies sell. But in terms of making fossil fuel less problematic, we don't think that's the greatest use of our investment experts.
Jason Jacobs: So you wouldn't plug methane leaks for example?
Nancy Pfund: I mean, that doesn't seem like a venture opportunity. But yeah, probably not.
Jason Jacobs: Uh-huh [affirmative]. What about things like carbon capture and storage at point of emissions?
Nancy Pfund: Well, of course that's our whole forest practice is carbon capture and storage. We are investing-
Jason Jacobs: Would you do it like on a semi-truck? Or, you know, using more technology based solutions rather than, than [crosstalk 00:43:19].
Nancy Pfund: Well again, we, since we've been in this so long, we've seen carbon capture and storage deals since our inception. And I, I don't know how many we have in our deal log historically. But we have a lot. And we made it, you know, we've just, it's not that we have a, an allergy to them. [laughs]. But w- we're sure glad we did invest in them when we could. You know, when you have only limited funds, like Tesla or this carbon capture and storage. I mean, it's like, the decisions we have made have been the right decisions by and large. And so because there's been just a long, painful evolution in CCS. Not to say it's not going to ... Maybe now this is when it's going to start becoming more cost effective and more important. And we're all for that.
Jason Jacobs: Uh-huh [affirmative]. And my next two questions, I mean, I'll, I'll ask them two different ways. One is as investments. But the other is just like, should they happen. Do, are they helpful for the transition? And the first one is carbon removal in general. So I mean, that could be CCS. It could be direct air capture. I mean, the- there's a lotta talk about how we'll need it. But do you think it's a distraction? Do you think it's a waste of time? Do you think it's important? That's kinda one. And then the second is, how do you think about it through a venture lens, for potential investment?
Nancy Pfund: I think it's, it plays a role. I think it's very early. And it has a lot of variables to it that will take it out of our timeframe really. I think it's one of those longer term investments. And we just philosophically think there's so much we haven't been doing, that we need to do in terms of just replacing fossil generation with clean products. That's kinda where we feel more comfortable. Not to say that there won't be a role for that. But we just, it's not in our timeframe.
Jason Jacobs: And I have a similar question about nuclear. Advanced nuclear, fission, fusion. And we talked a bit from an investment lens, but what about just overall in the climate fight? Is it a good thing? Should it happen? Should we pack it in? Should we decommission the big plants?
Nancy Pfund: Yeah. I mean, eh, nuclear has kind of a religious aspect to it. There are people that love it regardless of X, Y, Z. And there are people that hate it for the s- same reasons. And so we feel it's still fraught. I mean, there's still a lot of public opposition. There's still a lotta subsidies to nuclear that when you rip those away. It's, you know, effect the economics of it. And then there are just places in the world that will say no to it. And whether that's right or wrong is really not for me to judge. It's just, that makes it a problematic investment for us. I think certain regions of the world will certainly see a resurgence in new nuclear. But there are many regions of the world where it won't happen in the, the new future.
Jason Jacobs: What about carbon markets, offsets and these different, whether it's carbon removal projects, or other, other projects that can serve to help these big companies essentially work their way towards net zero through carbon accounting, while they're trying to do the hard stuff that takes longer in some of the thornier areas to decarbonize in their infrastructure. Are offsets problematic? Are they impactful for climate? Do they help? Are they better than nothing? Are they detrimental? Is it greenwashing? You know, should we invest in improving the system? Should we trash the system? How should we think about those? Or how do you think about them?
Nancy Pfund: Well, that, eh, is another, uh, subject that has a lot going on in it right now. Um, balance, and you saw the, the Green Peace just yesterday came out against carbon offsets. We believe they play an important role, because it's a way to monetize protecting natural lands, for example. And we need to do more of that if we're to enlist every single facet of, of activity that helps reduce carbon on this planet.
So the problem with carbon offsets. And, and we see it just because it's, eh, we see this as a problem of it's still a young field, is that, uh, you need to get better metrics, as we were talking about early, earlier. Like the permanence of a carbon sequestration, there are ways that are being developed to measure that. Because you shouldn't, you shouldn't get an offset if it only lasts for six months. And so there have been some stumbles along the way in these early days, in terms of really making this, this work and make it authentic and legitimate.
I think we're solving all that. You know, the White House has had convenings about this. There are not-for-profits, there are various clearing houses. And so we would like to see that activity work. And certainly in the natural lands practice, I think it will ... Protection of forest and protection of oceans, it will play a role. And it, and can be an important one. It's not alone. You can't do that alone. You have to combine it with efforts to reduce your carbon footprint. It should be, you get a free pass because you've got all these offsets.
But I think everyone's smart. You've kinda understanding that the way we thought about this five years ago is not the way that we're thinking about it today. And I also would add that carbon abatement is another part of the strategy. It's a lot easier. One of our companies, Farmers Business Network, is able to help farmers develop a carbon intensity score for how they grow their grain, or whatever. And then tell them, "Well, if you, if you did this, that, and the other, you reduce your score by 50%." And so you're not saying, "I'm sequestering this carbon forever, because I'm using no-till agriculture." That is a harder thing to prove. But you are saying, "I produce this crop of corn, or wheat, or whatever, with using 50% less carbon. And therefore, ADM or Unilever, or whoever, I'd like to be paid more for that. Because it's helping with your sustainability efforts as well." So I think you'll see a lot more of that abatement of carbon, rather than just sequestration.
Jason Jacobs: Uh-huh [affirmative]. And you talked before about the importance of policy, and how it's really the intersection of where innovation meets policy that the magic happens. How do you think about companies that are reliant on future policy? I mean, given that the magnitude of the problem to some degree, it seems inevitable at some point the policy will come around. But have you or would you bet on it where it would be required for company success?
Nancy Pfund: Well, I always say, impact investing, you can't be afraid of, of jumping into policy. I mean, you're just not gonna get the results without making an effort to undo a, you know, century old regulatory structure that, no surprise, helped the new entrants of a 100 years ago. I mean, we've got to redo that. We're not gonna win every battle. And we may win for five years and then have a setback. But if you engage and you have the data, and you also very importantly have the jobs that politicians care about, you're gonna change policy. Just don't expect it to be a 100%. But it, they go hand-in-hand. And you don't have to do it yourself necessarily. But you have to support those that do it and, and jump in. It's fun.
Jason Jacobs: Uh-huh [affirmative]. And we talked a bit before about how much the landscape's been changing and how it's getting a lot more crowded, and capital's becoming more abundant for climate and sustainability, which is great. One term I've heard a lot as I've been making the rounds over the last few years is, "Valley of death." And these kind of capital gaps like, "First of a kind plants," and, and things like that. Where it's, you know, not the right fit for equity capital, but it's too early or risky for, for project finance. Has the increase in capital affected those valleys of death at all? Or are they still as acute as they once you were? And how do you think about those when it comes to investing as well with equity capital?
Nancy Pfund: Yeah. So as I mentioned a few minutes ago, fortunately the investment to make solar and wind more cost effective, and, and just better, was made a long time ago. So the valley of death there is almost going away. I mean, that's why you're seeing so much project finance going into large scale, offshore wind, rooftop solar, community solar. This is becoming the norm. And so that's why I think it's so important to, to learn from that first period of clean tech investing. 'Cause tha- that is happening, because we did all of that a long time ago.
And so if you look at say, energy storage, you're actually seeing that pass through the valley of death phase, to getting more mainstream larger investors. But that again is because those storage investments, I remember Tesla, SolarCity, I think 2010 we got some, uh, CEC grant, or CPUC grant to do energy storage. I mean, so when you actually peel at the layers of the onion, you see that people have been working on this for a long time, and got through those valleys of death. And now what you're seeing as more money comes in, they don't have to take the same risk profile that early investors did. So I, I think that it's much healthier now.
Jason Jacobs: With all these years working in this area, are you an optimist?
Nancy Pfund: [laughs]. In this business, you can not survive if you're not an optimist. There are so many pitfalls, you take so many shots. You know, you just get into some rough places. And if you're not an optimist, you, you ... I mean, there are easier ways to make a living, let's put it that way. [laughs]. And certainly, you know, waking up and reading about another wildfire or a flood, or a hurricane, it's troubling. Uh, it, you know, we all have our bad days, don't get me wrong. But on the other hand, when you are confronted with the magnitude of, of climate change and its negative effects, I think most of us just go back to work and say, "We just have to work harder. We have to be smarter. And we're gonna, we're gonna fix this."
Jason Jacobs: And if you could wave your magic wand and change one thing outside of the scope of your control, that would most, be mo- most beneficial to accelerate in the progress of what you're trying to do with DBL, and addressing the problem in general, what would you change and how would you change it?
Nancy Pfund: Well, of course the easy answer there is put a price on carbon. [laughs]. But that's kind of expected. And that would be wonderful, because it would help to level the playing field. Another way to level the playing field would be to remove energy subsidies. And it's so unlevel now. For every investment tax credit solar or wind may get, there's still centuries old subsidies that support traditional fossil industries that are much bigger. And so I would love to level that playing field once and for all.
Jason Jacobs: Are there efforts underway to address that? That's kind of a lot. And I still don't have a clear idea of where those subsidies come from, and what it would take to make them go away. And maybe that's not something you focus on every day. So if it's not your core competency, just, just say so.
Nancy Pfund: I mean, many of them are embedded in, in our tax codes. Just sorta arcane ways that you treat losses in an oil field, or whatever, and accounting approaches. And so, or the [inaudible 00:55:07] who pays the insurance of a, for a nuclear plant. There are little things that you kinda have to be really wonky to, to care about. There had been in, I think it was last session of Congress, there had been some senators, congresspeople that have said, "Let's, let's change this." It's just, you're up against a very big wall, and a old wall. [laughs]. And so it really takes a political will and working across the isle to get this done. And that's not a good characterization of what Washington is like at the moment unfortunately. But some day. I feel the same way about how impact investing, all investing will be impact investing. I feel the same way about subsidies. Some day we'll, we'll make it fit the needs of this century, not the last century.
Jason Jacobs: For anyone listening that's inspired by the work that you do, who do you wanna hear from? How can us at MCJ and listeners be helpful to you?
Nancy Pfund: Well, there are so many ways. I mean, if you want to become a impact venture capitalist, you know, contact us and, or check our website and some of the writings, and podcasts and just the Zoom meetings that we've been doing to develop a knowledge base and, you know, get to know us. And, and also if you're interested as an entrepreneur in building a company that will change the world for the better, and also bring significant returns to its investors, of course we're eager to, to talk to you. That's our bread and butter. And we would love to, I just wanna encourage the entrepreneurs to contact us. And it's pretty easy to do.
And then if you're more of the advocacy orientation or journalist, you know, please engage with us and all the other firms out there. Because we share a lot of common goals. And we don't talk enough to together. And, and then finally, if you're in the public sector, don't be afraid to invite us to come to Sacramento or to Washington, and share our work. And I'm not talking about just DBL, I'm talking about the community of sustainability and impact investors. Because we really value the work that you're doing, and feel that we can help accomplish your goals as well. So, you know, it's a big tent. And we just encourage folks to, to develop their network and jump in, and join us.
Jason Jacobs: Great. And is there anything I didn't ask that I should have? Or any parting words for listeners?
Nancy Pfund: I think we covered a lot.
Jason Jacobs: We did. Yeah, that was a wide ranging discussion. It was awesome.
Nancy Pfund: Yeah. I felt we covered a lot of the important historic, future issues. And kind of got into a little bit of the controversial subjects, which is good.
Jason Jacobs: Right. Well, thank you, Nancy. I can't thank you enough for coming on the show. What we can do is, of people listen, and then they have questions after the episode, then they can get in touch and we can connect them with you. And also, if there's enough interest and enough questions out there, sometimes we how AMAs with guests from the show where it's like an asynchronous Q&A in our, our Slack community. So if that would be of interest, that's something that we could definitely explore as well.
Nancy Pfund: I'd be happy to do that. I'm not on Slack, but I can get on Slack. [laughs].
Jason Jacobs: Sounds great. Well, Nancy, thanks so much for coming on the show. Best of luck to you and the DBL team. And hope to be more frequent collaborators.
Nancy Pfund: Yeah. Absolutely. Me too. Thank you, Jason and your team. Really appreciate it. And look forward to the finished product.
Jason Jacobs: Hey, everyone. Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note, that is dot co, not dot com. Some day we'll get the dot com. But right now, dot 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 words made me say that. Thank you.
