Storage Enables, VC Proves, Science Validates: The Full Case for Climate Investing

Up next on the SMRI 360 podcast. One of the key things about the trust is you cannot just go, whoops, I provided too much power there. The need to balance things in real time and the inhibitency created by renewables are on bottom with each other. And that's where the magic blue of batteries, a more generic energy storage, comes into the picture.

I would say the norm at that time was to think it was absolutely ridiculous. If you introduce non-financial metrics into your investment paradigm, you will diminish your returns. Humans are not only causing planet crisis, we are also causing the biodiversity crisis, the forest crisis, the soil crisis, an ocean crisis. We are creating this everything crisis, and we are leaving the safe operating space for humanity.

We desperately need an economy within these planetary boundaries. Unlike the potential of your investors to improve the world and make high performance return. Welcome to Sustainable and Responsible Investing 360. My name is Scott Arnell, and this week I sit down with a world-class investor to uncover their secrets of profitable ESP, impact, and socially responsible investing.

Find out more at SMI360.com. Hey everyone, this is Scott Arnell, and welcome to Sustainable and Responsible Investing 360. Over the past few years, one question has come up again and again in conversations with investors.

Is climate investing genuinely delivers strong financial return? Or are we still in constant sense taking all of that out of faith? Because for a long time the narrative has lived somewhere between aspiration and obligation. The idea that capital should play a role in addressing climate change or climate adaptation has to become widely accepted.

But the harder question, the one that really matters for long-term allocation, is whether it can do so while generating consistent marketplace financial returns. In this episode, I wanted to explore that question from three very different angles. You'll first hear from Ben Gell, who approaches the energy transition from an infrastructure perspective, building and operating large-scale battery storage projects that sell a very effective constraint. How to balance a grid increasingly powered by intermittent renewable.

It's part of the system that updates into the background, but without it, the transition simply doesn't scale. From there, we moved to Nancy Fund, one of the early pioneers of what she called double bottom line investing, long before impact investing became part of the mainstream vocabulary. Through multiple cycles, she's demonstrated that infiltrate environmental and social considerations doesn't detect from returning. It can in fact enhance them.

And finally, Lena T brings a more recent evolution in the space, introducing scientific rigor into early stage ventures using life cycle analysis to quantify impact, and importantly, tying that impact directly to investment outcomes. Three perspectives across infrastructure, venture, and science. Together they offer a clear picture of how climate capital is not just being deployed, but how it's performing. So stay tuned.

And if you want to dive deeper, links to the full episodes are provided in the show notes on your podcast app or head over to SRI360.com. Please enjoy it. And as always, thank you for listening.

Thank you first and foremost for being a part of this community. But it's driving me crazy that over 83% of you that listen to or watch this show regularly haven't yet subscribed to this show. So can I ask you for a favor before we start today? If you like the show and if you like what we do here and you want to support us, the free and simple way that you can do just that is by hitting the subscribe button or following us on your podcast app.

It helps this channel more than you know. Thank you and enjoy this episode. Today, the name of my guest is Guest. Ben Guest.

Yes. Thanks for coming on the show with me today, Ben. I know you attended boarding school in North Yorkshire in the 80s, Ampleworth College, to be exact, known as the Catholic Eton, probably by people who didn't go to Eton. But did you grow up in Yorkshire?

No, no. I've got parents who grew up in different parts of the world, marching my mother and father who grew up in Africa. So they they pursued an adult. Well, they were uh my mother was a the daughter of a diplomat, and and my father grew up in Africa and pursued a diplomatic career, and uh they my parents met in Japan, and my father was post-diplomatic posting, and and they continued then many trips around the world, so for some educational stability, I was assent to a boarding school at the age of 10.

So well, we always had a base in London, but we were always in different parts of the world. So I I spent 10 years in France, in Paris, approaching five years in Japan, in a later posting that my my father was given, and then in Sweden as well. And then in my adult career here, um I lived uh in New York for a short period as well. Ah, that's brilliant.

Oh so that's quite an international upbringing then. It's about as international as it gets. I mean, of course, there's always someone who's more international, but yeah. How did you end up at Ampleworth?

That was the educational sort of choice. So obviously it was my parents' decision, and uh you know that was Catholic, and so um I spent my time um that was brought up as a Catholic, and um you know, my the the decision was taken to to send me there. It was a great school. How was it in Yorkshire?

Beautiful? Cold. I wasn't used to it. Cold and dark in the winter months, but very very interesting.

Yeah. If I'm correct, Ample was on the grounds of a Benedictine monastery, you know, where some of the Harry Potter films were shot. No, they weren't shot there, as far as I know. They were shot somewhere else, and I I forget where it was, but they were not shot there.

Although you'd you'd be forgiven for thinking that, because both that uh look look similar, you know, sort of if you squint. So you didn't learn to fly or anything. No, no, I forgot the name of the sport that you you were wearing in Brune, but no, none of that. Now, while you were there, you studied electronics for your A levels.

I did, as happens. Why? I've always been interested in, you know, in simple terms, how things are made and in making things, inventing things, creating things. In a young brain, I thought of myself as you know, potential inventor.

Really, that was really thinking of as a potential engineer. And so that's not what I pursued as a career, but I found myself interested in investment in areas that are emerging, and found myself able to evaluate what the key uh directions of travel are for different technologies by understanding what they're made of and what the potential cost curve is and the functionality and the competing ideas and so on. So I chose electronics and probably the the one school where that sort of thing isn't really studied um or or seen as very popular, being being the kind of school that was um things like history and English and geography and all the and the classics, which I did study for quite a long time.

Uh by classics, I mean classical languages, Latin and Greek were much more popular. So I was one of a class of three doing electronics at A level. Um alongside maths and physics, which were a little bit more popular. Did you finish at the top of your class?

Well, I did an A level and you don't get ranked relative to here. I think I was the only one to get an A, but I couldn't do it. We're off to London, went to Imperial College, and there you went into engineering, correct? Mechanical engineering, yeah.

Yeah. And then what was the idea to follow that at that point? Yeah, I mean, you know, obvious obviously I spent eight years up in in the middle of nowhere and sort of wondering what I didn't want to do with my life. You know, that at that and you know, unlike some people, while I didn't know what I wanted to do sort of in terms of applying myself, I didn't really know what I wanted to do for a career.

So I studied what made sense in terms of what my interests were and studied engineering. It gave me the most options thereafter. In 2007, you struck out and founded Hazel Capital. You were the founder, managing partner, and CIO for I guess over 10 years.

And this was just pre-financial crisis. So again, interesting times. Why did you decide to jump from one of the leading UK hedge funds at a time when they were making good money? I'd made a lot of money.

And the balance between making more money for the sake of making money, because you're absolutely right, when you're running a hedge fund, you're not creating anything, you're not creating value, you're moving value around. And this is a very blunt point. And hope I didn't touch too many listeners by saying that, but it's just a simple reality that you are trying to make money, and typically, especially in the hedge fund world at the expense of others. I was feeling detached from the real world, you know, and and and felt the need and the ambition to do something real, and was feeling increasingly, and have been for some time while I'd already been a hedge fund manager, drawn by the cleantech sector, as it was called in those days.

Um realizing that it was starting to grow to burgeon. Clean tech was a small subset of what I could invest in. And I realized that the cost of wind turbines and um solar panels and so on, while still very much needing government subsidies, were heading in a very interesting direction. And bearing in mind that from an investment perspective, I could have been seen as an expert in semiconductors, applied very much to you know, sort of the things that benefit from Moore's law, you know, making things smaller and more efficient from a computing perspective.

There were aspects that applied also to the to this to the photo solar photovoltaic space, you know, which is very much a semiconductor industry, and saw an enormous reduction in the cost of solar panels, which then subsequently collapsed, you know, a further 95 plus percent, having already fallen 90% then. So we're really really, really shrinking and seeing the the volume versus the price or cost trade-off as as you get more volume of demand. So I felt that it was about the right time to jump, and the timing couldn't have been worse, which is a great battle on the fire in terms of launching things.

Because of course in the start of the great financial crisis or or recession, it was the expectation that all support for clean tech would disappear. And in many countries it did, and in many times, in a few countries, it even became retrospective. So even if you had subsidies and they try to take them away from those who already had them rather than just not refreshing them. And it has been thus ever since, actually.

Every country that has felt itself oversubsidizing a sector very, very quickly tries to correct its course of action. I think we grew to call the solar sector the solar coaster, because it wasn't exactly that, you know. Um and and and the hazel capital, we we started out with with with focusing on very much the way I'd invested it so far. So a long only and a long short fund, and a small VC initiative, the venture capital initiative with with a partner ahead of the time, while also being very interested in in infrastructure.

You know, I was really aware that I I worked really hard in a very odd way, frankly, to me today, to eke out you know double-digit return, which I managed to do every single day well on a compounded basis. Um I had a good track record as a hedge fund manager, but every single day you have you have to make sure that you're on track to to generate that return. And um investors are much more short-term than your own investment horizon, which is a good thing to keep you focused, although it is a little bit odd to invest to very much focus on monthly and quarterly performance when really the whole year mattered most.

But it was a good, good uh to have that pressure. But it was it was odd. Well, I realized that infrastructure investment, if you got it right, and appreciating that there's very little upside on infrastructure, and appreciate there's lots and lots of downside if you get it wrong because you're building something, and if it's not fit for purpose or the market moves away from you, you're sitting ducking um then but then if if it's you know long-term subsidized, especially in terms of the earlier projects, then you've got the opportunity to generate returns from assets that are sitting in the ground that are real, and can look at them and touch them.

They've got resale values, even if it's less liquid than shares. It was very attractive to me. And so I wanted to move into that area, and I did by making some small initial investments with prop capital, you know, my own capital. Hazel started out primarily in solar, right?

That's right. But then I think you started to invest in energy storage even in 2008, but then got more serious about it in 2015 when you teamed up with Norker. Can you maybe t tell me about that transition and the investments we made in storage in 2008 and then gradually over a couple of years were in the venture capital part of the business. So it was very different to what we ended up doing from an infrastructure perspective from 2015 onwards.

But it gave us a great grounding to understand what batteries do. You know, what is a good battery, what's a bad battery, what are the different features of a battery, what are they made of, where do those minerals and materials come from, and what does the manufacturing look like, and so on. So yeah, we invested in a business trying to create an alternative battery space in lithium sulfur, which I think remains a really interesting space. While most of the market was a combination of lead acid, primarily used in vehicles, nickel, sort of nickel cadmium batteries and nickel metal hydride for all sorts of different applications, including AA and AAA batteries and all types of domestic batteries.

And then increasingly lithium batteries, lithium cobalt used in you know laptops, phones as they were emerging, and so on. So they were all this was all very early stage in those days. But you had button batteries, which are very popular in digital watches and handheld uh devices where there were typically sort of Donkey Kong kind of game game machines and so on. So this was a different application um really targeting the transportation market because of the energy density, which is one of the key features of a of uh of a battery.

Um so just to conclude, venture capital was the investment initially in in batteries. Knowing that electric cars were coming along, we made a small investment in a in an E company that didn't make it. And then the we were very different animal by the time we were in it got to 2015. We pivoted and focused entirely on infrastructure, invested in in lots and lots of different solar projects, um helping develop them and build them out and commission them and run them for investors through uh both a fund and project by project, and then and decided to focus on on energy storage as it was emerging as well.

Right. So that was the big shift in around 2015 at that point. 2015 onwards, yes. Yeah.

And then I guess only a couple years later, Hazel was acquired by Gresham House. That's right. And that I guess provided the seed assets for the then new 100 million quid energy storage fund. So the seed assets for the energy storage fund were actually created within Hazel Capital in terms of assembling the project rights inside their construction and funding their construction initially.

But Gresham House also provided some of the incremental capital needed to take things to a full conclusion. And both both through the uh mainly through a fund, an infrastructure fund that still remains. And then remains a shareholder in in the energy storage fund as well. Um and I might switch to calling the energy storage fund grid because that's the ticker.

Um yeah, absolutely. So so with and starting to work increasingly closely with Gresham House, we got uh the C portfolio uh that worked as the C portfolio for for Grid for the Energy Storage Fund in in November of 2018. So yeah, that was that was the transition. Can you just give an introduction to battery storage and the need for battery infrastructure that's really driving or the core of your whole strategy?

Yeah, absolutely. So I'll never forget in the in 2008, 2010, people telling me that you know the renewable sector is really interesting and and everyone wants to decarbonize, of course, but the market won't be able to absorb all the intermittency when penetration of renewables gets above, you know, different numbers were quoted, 10%, 15%, and so on. And surely it's slowly but surely, of course, the the levels of penetration rose. And you know, in 2011, you were at about 11% as it happens.

And when you got to 2015, you're up to 20% and up and up and up it went. And then, of course, the need became really obvious. Once you did get to those higher levels, even though it was still quite low overall, that the intermittency was starting to make balancing of the system. And electricity, one of the key things about electricity is that the supply and demand has to be balanced in real time frames.

In real time. You cannot just go, whoops, you know, I I I provided too much power there. That that sends the voltage and the frequency of the electricity totally out of its needed parameters and starts taking things off the grid from both the generation and the devices and or breaking them. The need to balance things in real time and the intermittency created by renewables are at odds with each other.

And and that's where the magic glue of batteries comes in. And and and more generic energy storage comes in to the picture. You simply just absorb power that's not needed at any moment in time, and you can release it when it is. So this is true not only of renewable energy, this is true of traditionally produced energy or not?

That's true. To the extent that you've got baseload, which is delivered in blocks, you know, whether it was nuclear or coal, they're basically blocks of power, and you don't vary the output, but demand would be varying. So you still have to deal with, I wouldn't call it intermittency, the fluctuations in demand, and therefore the big the blocks of power needed something. And that something typically was things like pump storage and smaller gas engines or peakers, as we call them, to meet the demand.

So you had a base load power which would always be below the demand level, and you need dialed up the what you needed to make up the difference. The difference with renewables is that they can generate more than you need as well as less than you need. And that's the that's the challenge that where you need batteries to absorb power, not just something to you know, dial up. You need something to take power off without ideally switching it off and losing it forever.

So your business is buying energy when there's oversupply and reselling it when there's short supply, and you're storing it. So your investments are actually into we'll get into it, but battery farms or whatever, and you're storing energy and then you're reselling and effectively trading, I suppose. Absolutely right. We're trading power.

Are you doing this only with renewable energy or you don't care where it comes from? We have no choice. We we have we we connect to the network. Well, we we could have a choice and decide to only connect to renewables projects.

That would make our business very odd and very limited. We really have to connect to the national network. And so we need to store power that comes from the entire network. And so it'll be the electrons that were taking off the network will be from the average renewable, just overall generation mix that that it prevails at that time.

What is interesting though is that when you tend to absorb power, the power price is low, so it tends to be a function of there being too much renewable generation. And so it is skewed to absorbing renewable generation, and then you release it. But the more important point is that this is being installed so that we can then, when we get to 80% renewables, actually have a way of balancing it. You can't start investing in batteries when you're 100% renewables.

You need a journey there. You need to get you need to deal with intermittency as you get there. So we have to absorb the power that is there to unlock the investment in renewables from current levels to much higher levels. It's not a sustainability play per se, but it you're providing a key piece of infrastructure that is very conducive to enabling a transition towards alternative forms of energy production.

There are all sorts of definitions for sustainability. I would call this sustainability. I wouldn't call it natural capital, you know, sort of um we're not Article IX under SFDR. We're not investing in trees and landscape and things like this, which are natural capital, which I think is really the toughest bar in terms of achieving Article IX, because we're actually putting things in the ground, and you can then say that you know we have to buy product that used materials that were mined, and you know, that's the simple reality of what we're doing.

But we are unlocking the collapse in uh carbon emissions, and and that allows us the the world to sustain itself. And you're investing primarily in these do you call them battery farms? Solar tests would be called a solar farm, but we don't call them solar, we call them battery projects, one energy storage projects. Battery projects, right?

Some people call them best battery energy storage systems. These are something like, I don't know, 30 million quid batteries. We're not talking about batteries like you put in your TV remote control. No, very, very different.

Yeah, how big are these things physically, like size-wise, just to paint a picture in the mind here? A relatively large project based on what's getting built these days, at least anywhere up to in the region of five acres of ground covered with not densely covered, you've got to space the containers, but covered with containers filled with batteries. And those batteries obviously operated, not obviously so many, but operated at direct current. And while the network operates at alternating current, you'll be familiar with AC power.

And so you need other pieces of equipment to make sure that the batteries and the grid can convert the power. That's stored on site into the power that's needed for the network. And what you need for power for the network is to take it to AC power and then take it up to the voltage that the that the network that you're connecting to is operating at. And that can be 33,000 volts, while the network on the site might be a thousand or fifteen hundred volts.

So you need other infrastructure on site to make it all possible. So you have these containers that are filled with batteries. Like what's the size of a battery? The individual battery cells, as they're called, are are called pouch cells, about the size of a large mobile phone today.

In both shape and size. And where are most of these batteries made? Today, they're still mostly made in China, but manufacturing facilities are being established all over the world right now. Mostly, and this is an important uh sidebar, is is that lithium batteries are being used more for electric vehicles than for stationary purposes today.

So the stationary energy storage market benefits hugely from the volume demand created by the EV market, even though the manufacturing lines are configured differently to meet the specifications for the cells that we need versus those that go into electric cars. But they're very similar devices, otherwise. So if I understand right, you build these giant battery storage plants. They sit next to do they physically sit next to the grid or Yeah, yeah.

On our website and in our reports, we show you have substations all over the country. These substations are basically nodes where the electricity can be change direction, essentially, and and and and or be taken off the high voltage group to then sort of siphon off into population centers and/or industrial bases. And we connect at oftentimes at these substations. You don't have to, you can connect onto cables as well, but typically into substations.

And you try and position yourself as close to that substation as possible so that your cable route, you know, the cable that runs between your own project and the substation in question is as short as possible. Just makes life easier. You plug these in and they're used when the grid needs spare capacity. And so they're a fallback mechanism, essentially.

Is that correct? Except they're used all the time. All the time. All the time.

Many, many times a day, if not continuously, depending on the service we're providing. For listeners who are unfamiliar with this structure, can you just explain what investment trust structure is? An investment trust is a vehicle that can then invest in whatever its investment investment policy allows it to. So you've got investment trusts, the two biggest areas of investment trust in anywhere in the world, frankly, but but in the UK as well, are in real estate, REITs, real estate investment trusts, and investment trusts that just simply invest in stock portfolio.

Those are the two largest areas. And of course, those real estate areas cover residential housing, commercial housing, you know, medical associated housing, warehousing, uh, all sorts of different specialties. And there are several investment trusts in the UK. It's become a popular way to raise funds, and actually it's an important point to raise here.

One of the reasons why we went down the investment trust route is because there are already lots of renewable focused investment trusts in the UK. So, you know, the most famous one is called Greencoat. Um, the largest and most famous is Greencoat with a market cap of, I think, in the region of three and a half to four, but it might be upwards of four now, um, billion pounds. It's a very big business, and there are lots of others that also invest in solar.

And so all we were doing is launching another investment trust in this space with renewable energy at least sort of in its core theme, but very much being the other side of the coin from an investment perspective, in that we were absorbing the excess generation from renewables and releasing the power when when they weren't generating, dealing with their intermittency created by by these generation uh portfolios. Right. So these shares are listed then. They're listed.

And so it's a completely open fund with immediate liquidity. Absolutely. Yeah. And you said the AUM is somewhere 800 a million?

The NAV is is somewhere in the region of 840 million pounds. The market cap today is in the region of 600 million pounds. So is trading a significant discount to its NAV today. Why is it?

Lots of different reasons. The entire investment trust sector, I think there might be one or two exceptions, but I can't think of any right now, trades at a discount to NAV today. So what's happened over the last couple of years are two things at a macro level. Very simply, interest rates have gone up.

That's the main thing. And then that naturally means that the cost of capital goes up in the investor's eye. But very specifically, in the investment trust sector in the UK, in a world of zero interest rates for many, many years, yield seekers basically turned to the investment trust space. And so the double whammy here is that not only were people going, okay, well, the valuation of these investment trusts needs to come down because in my mind the discount rate's gone up, they actually left in hordes because attractive opportunities simply existed in areas that they were more traditionally wanted to invest for lower levels of risk yield.

And so we've had an interesting dynamic in the investment trust sector in the UK over the last couple of years. I'm very confident that just is the aware in a cycle that this will come back. Investors will are are attracted and will be and continue to be attracted in in these yielding assets. So one of the key aspects, the two or three aspects of investment trust that I can share with you are they have a favorable tax status.

So income generated from within the portfolio can be paid straight through to the investor base and received untaxed. So there's no corporation tax at the top code, if you will, at the listed vehicle level. But you cannot, you cannot, and and 85% of all income that is passed to the top level has to be passed through to investors. It's intended to be a yielding vehicle.

And then you are not able, so that you don't dilute existing investors to raise funds when you're trading below the NAV. And that's that's a theme and a reality in investment trust, I think, everywhere in the world, at least all the major. Your targeted returns are what? Our target returns are in excess of 10%.

I think the last two years you were in healthy double digits. Yeah, absolutely. It depends what you're you're looking at. The the NAV, the total return from an NAV perspective has been extremely healthy.

Unfortunately, the share price rolling over has taken down the return. But yes, absolutely, just despite that, we're we're in we're in pretty healthy territory. You announced last year a battery storage project in California alongside NextGen, which was your first project that you've launched outside the UK and Ireland. How transferable is the system that you've developed in the UK or GB when you're looking to expand into a new market?

Why aren't you going everywhere? There's a huge degree of transferability. First of all, if you know how to analyze a market, and bear in mind my my background going back to the beginning of the conversation, if you know how to analyze a market, which we did initially for Great Britain and helped develop it as well, you can then know where to look and how to look at the new market. And the US is a very interesting market.

In particular, California is a very interesting market. It's benefiting from the Inflation Reduction Act's sort of introduction of the investment tax credit for batteries or battery projects, and especially standalone battery projects, but also co-located battery projects with solar. And that meaning that you get a significant rebate. There's also a much more contractual structure in the US, where I mentioned capacity market contracts as a string of our as a layer of our revenues, they're there are higher levels of the more generous payments in the US than in the UK.

And I think the UK should revisit the way it subsidizes or supports batteries because I don't think it's doing the best job. So there's much more support for batteries from a fully contracted basis over there. But otherwise, batteries, and bear in mind that the electricity industry evolves around the world at the same time. And so different governments and/or national grid companies share their experiences and develop networks in very similar ways.

And of course, their regulatory structures are slightly different and sometimes very different, but essentially they all rhyme with each other. They all they all look at frequency as the as the goal to maintain. They all appreciate that electricity needs to be balanced in real time. They all deal with what we call ancillary services or frequency response services to address those short-term, real-time imbalances that can't be traded.

They all have wholesale markets. And so there are a lot of similarities. It's just that the way they're implemented can vary. And then it's just a case of learning what that is.

And so that's one category from the operational project perspective and the modeling of a project before you build it. But then the development of project rights also chimes. You know, you need this sort of but but the but the rules vary. Sometimes you need a construction license, sometimes you just need a planning permission, sometimes you need a something else.

So it just varies. But you always need a grid connection offer. You need a permission to connect with a network. But again, that can be broken down in different ways.

And the timings of payments can vary. But essentially it's highly transferable because you're just rerunning the analysis with the rules that are that apply to the locality. The tech is the same. You install the same stuff.

Are there other competitors like you out there doing this? We've had a competitive advantage in Great Britain. We were the first to launch. We're still the biggest in the country with with approaching 25% market share.

So we're still very significant in this country. Internationally, though, the markets have developed in a lagged fashion to the UK, but or GB, but which was the first major market, although Korea actually sort of built more earlier because it's got a large battery market, and so have the Chinese. But the US has grown very, very rapidly, and other European markets are catching up fast, like Spain, Italy, Germany, and others. So the whole world market is evolving.

It's its battery energy storage market. So ostensibly you could scale abroad. Well, absolutely, you need to scale internationally. Absolutely.

I mean, the UK, as I like to share, is just one and a half percent of the global electricity market. You know, don't want to miss out on all of the rest of it. That was Ben Gast, and what he lays out is a part of the energy transition that rarely gets much attention, but is essential to making the system work. Because before we even get to questions of innovation or capital allocation, there's a more fundamental constraint.

Can the grid actually handle or powered by renewable? And as Ben explains, solving that through storage is not just necessary, investable and already delivering needful retards. But that's raised to the second question. Once the infrastructure is in place, what happens to the relevant capital tax?

We have a lot more skepticism around whether climate focus invested capital. That's what Nancy Fund comes in. Nancy has been investing at climate adventure capital for more than two decades, long before infected investing became a recognized category. Through DBL partners, she's built a platform grounded in what she calls a double bottom line, generating strong financial returns while driving measurable social and environmental outcomes.

What makes her perspective particularly valuable is not just the philosophy, but the track record behind it. Here's Nancy Funk. Nancy, welcome to the show. Hey, thank you, Scott.

I'm very happy to be here. Thanks for inviting me. So I'd like to start by setting a backdrop of your journey to becoming an impact venture capital investor for people listening who don't know you. And in doing my homework for this show, I was only able to pick up your trail in the Bay Area, which we'll get to in a short little while.

But could you first please describe your childhood starting where you grew up? Because I couldn't find that. And I'd you know, I'd like you also to talk about your parents and maybe your siblings, just to give us a bit of color so we understand the environment and get a good idea from where you've come and how that influenced your journey to doing what you're doing today. I was born outside of Washington, DC in Bethesda, Maryland, lived there for about five years, and then our family moved to a suburb of Boston, Massachusetts, Newton.

What happened is that I am one of five girls. I had no brothers, and so everyone did everything because there were no boys, there were no sons, there were no gender-specific chores, and my really into chores. And so, you know, one day I'd be having my mother make an apple pie, and the next day I'd be sanding the front porch so that my father could paint it. I mean, so I feel that in retrospect that was helpful because in this journey on impact investing, we had to, you know, basically do everything and anything and not think that we weren't supposed to be on one assignment versus another.

That's kind of a backdrop. And then the combination that my parents represented is pretty much my mission today. My father was a patent attorney and an inventor, and he would invent products that helped our family life. He invented one of the first anti-auto theft devices before those existed.

You put buttons on your steering column and you had a combination. And if the combination was not correct, then the horn went off. What we did is everything, as I mentioned. We were in the basement, we were the manufacturing line, we were making these three button devices.

Then all of a sudden, our father asked us for a marketing effort. What should we call this product? How should we market it? And mind you, I'm I'm like eight years old or a little older and one younger.

But I really got into the marketing project because my father said the prize will be an extra large ice cream when we go to our local ice cream store. So I was very motivated being a lover of ice cream. And so this product was called Stop Thief. That's what we called it.

And I got my large ice cream, and that was kind of the beginning of my interest in the power of innovation. You attended Stanford and Palo Alto, and you earned both a bachelor's and a master's, both in anthropology of all things. So you're known as a pioneer in impact investing, but that's clearly not where things began for you. So let's start with why Stanford, why besides the pretty trees on Palm Drive, and then on to the elephant in the room.

Why two degrees in anthropology? Spoiler alert. I use my anthropology degrees every single day of my job. So we we can get to that.

The school I went to, which I said was very competitive. The in school at the time that I was applying, one of them was Stanford. And our family had taken a trip, a Western trip, several years earlier, and I had fallen in love with Northern California on that trip. And so the fact that it was a great school, I had sort of discovered how much I liked Northern California, and our guidance counselors and my friends were all supportive of this.

That's how that happened. I was thrilled. My parents, of course, wanted me to come go someplace closer, but in the end, it it all worked out. And the interest in anthropology, how did you come to that idea?

I took a obviously a lot of different classes. It's a liberal arts university and took biology and social science and math. And when I took the anthropology classes, I just loved the discipline of how to understand culture that is so much more complex than the sum of its parts, and uses a participant observer methodology where you're in a culture studying it, but you're not of that culture. And so you're observing it.

And you're trying to figure out what makes this group tick, what, what makes this culture strong, and what are the norms, what are the rules, what are the unspoken traditions and and use uses of of symbols and and all of that. And that's pretty much what a you know a startup is. You're trying to figure out, okay, how do we how do we take this group of people, accomplish what many consider to be impossible? There's there's there's a blank slate here.

How do we develop a culture? How do we how do we get through all the pitfalls? So that that's kind of small group behavior. What was the series of events that led you to first come up with this idea to start an impact strategy in-house?

And and I know we're covering early chapters here in your career, but I really like looking at these things closely because it shows your development that you went through before you reach escape velocity. And I think it makes a fascinating study because, as we've seen, this wasn't a straight-line to DVL for you. Yeah, I tell the story sometimes in the classes that I teach because it really was it's an example of adversity prompting you to do something new and different and risky.

Because what happened is when we went public, very soon after that, there was this the dot-com crash. And so actually, AQ was sold to first Chase, then Chase bought JP Morgan. So we became part of JP Morgan, and that was super difficult. And there were two dynamics.

One was that we had been a very close Bay Area focused firm, and all of a sudden, all the VCs, all the mangers, everyone was in New York. So we're like flying back and forth in New York all the time, and we were expected to become part of a New York-based venture group. That was not my cup of tea. I wasn't, I was like, this is not what I signed up for, but I didn't really need the choice.

And then super important and very sad is that the the CEO of HQ, a very good friend, Dan Case, he contracted glioblastoma, and which is a fake form of brain cancer. And I mean, he was just such a beloved, such a talented leader and a very dear friend. And so he asked me during this time, so everything was changing. It's like, do I have to go to New York?

Do I have to work, you know, with a whole new group of people that a continent away from me? And then my friend and my boss got this horrible disease. He asked me and said, I'm gonna start a foundation and see if we can find translational cures or or treatments that will help people with this disease and see if we can make a dent. And no one was going into the field because it was so horrible.

I mean, the outcomes were just very depressing, and so it wasn't that popular. So he asked me to help them set that up, and I, which I was thrilled to do. And while it was wrenching, because you know, the meetings we would have would be pretty blunt, and and you would see what the the outcomes were. But we had the best scientists, we had a lot of Dan's friends from the Silicon Valley, like Brooke Byers and John Doer, and the head of Genentech, was very involved.

So we did this, and and Dan's brother and sister-in-law, Steve Case and Gene Case. So, but it was so it was intense, you know, it was sad, but we were making the best of it. We were thought, well, what we're doing here will help in the future. So all of this was going on, and and then the Bay Area Council, which is one of the business groups that I had worked with, with Dan, with my community policy hat on, they came to us and said, look, the dot-com boom didn't really lift neighborhoods out of poverty in the Bay Area because most of the companies were in the same places.

And it didn't, the benefits didn't spread through evenly through the county, through the nine county area. And they said, we want to raise some funds like for housing and one for venture that pays attention to place and tries to promote investment and job creation in neighborhoods like Oakland or East Palo Alto. I mean, places that didn't have the economic base and and were were troubled. They came to us and and because they knew that we were active members and that we kind of had had we got that the community affairs mattered.

And so Dan, I talked to Dan about it, and he said, you know, Nancy, you should do this because you have two jobs now. You have your policy and community hat and you have your venture hat, and you love them both, but this would combine them into one job. I had to admit, yeah, actually that's true. And because of all the turmoil and the sadness, I was more open to doing something new.

And so I signed on to do that. And that is how our first fund was raised, the Bay Area Equity Fund. It's a 2004 fund. It took us forever because no one was interested in venture capital after losing all their money in the dot-com crash by that time.

Plus, the sort of do good or pay attention to job creation and the neighborhoods, that was not very popular. So that's how the first fund got raised with the help of the Bay Area Council and the Forge Foundation, which was you doing this as an experiment to see if innovation could help with community improvement and development. This was very early doors for impact investing. Did you have a hard time getting people on board with this idea to be part of that?

I would say the norm at that time was to think it was absolutely ridiculous. Why are you doing this? If you Introduce non-financial metrics into your investment paradigm, you will diminish your returns. That was prevailing belief.

And it was a very strongly held belief. So we were, yeah, there were a lot of doors slammed in our face. What was it the AUM of that initial fund? We clawed our way to a $75 million.

So you launched this in-house impact VC strategy at a time when like nobody was really doing impact and even rare in venture capital, I think. And so you say, okay, buckle up, here we go. Do you remember what was your first meaningful win after that? What comes to your mind?

It could be small or big, but maybe it was the first time when you were like, okay, this isn't a fool's errand. I think we're actually on the something here on the right track. So I mean, we built this little team. Some of our people, well, we were raising the fund, it took us so long, they had to work for free because like Jake would subsidizing us.

And my partner, Mike Dorsey, at the time, who had worked at HQ and why they'd gone to Stanford with, he was right in this with me, but we were a small group. We were like four people. We did make a few investments, and then we had the breakthrough that the Bay Area, in addition to being a home to technology, we began to see there were some climate kinds of companies being started there, solar companies, an EV company. Because we we had to create jobs in this fund, the Ford Foundation, we had social metrics, which is old hat today, but back then no one had impact metrics.

But we had to create a certain amount of jobs, and they had to be not just for people that had great education or were tech people, they had to be accessible to folks that didn't have that background. And so we thought, well, wow, a solar installer or a car manufacturer employer employee, those, you know, if they worked, they could create a lot of jobs and we would check off that box. And because of my experience and affinity for the CR club and environmental issues, I was all, we were all in.

I mean, we felt, wow, let's we're we're environmentalists, we we want the we want to save the world. And you remember Alright's movie was just was just coming into the forefront, an inconvenient truth. And so we were like, let's let's put this layer of environmental of clean tech on this social impact fund. And so when we started to do that, we saw a community being being built around us.

We weren't as a loan, and one of our first investments was in a company called PowerLight, which is a rooftop solar installer for commercial applications that was eventually sold to Sun Power pretty soon after we invested. And so to get an early exit, to get which was a good exit, to be one of the first to invest in in solar and have that, that was a huge shot in the arm. So you launched this fund in 2004, clawed your way to 75 million of AUM. I guess it was around 2006 you made an early investment in Tesla, is that right?

Right. And how did that come about? Because I can't imagine there was a lot of impetus behind transport decarbonization at that point. At the time, I think it was 40% of the Bay Area's or California's emissions came from transportation.

We were like, this is terrible, this can't stand. And so when we were introduced to Tesla, the early team, we had a meeting at Stanford with JB Straubel, who was one of the founders, a huge technical contributor and leader there. And this is how the secret sauce or the sort of superpower of impact investing, it's like you want to accomplish something in the world and you want to make money. And so it opens you up to things you wouldn't have done otherwise.

So the fact that we could create some jobs if this if this company even was modestly successful, and we would be uh working to decarbonize transportation. We're like, this is great, it's risky, but let's do it because this is this is why we're here. That's why we made the investment. There was no, you know, it was the almost the proverbial garage stage.

And it was, you know, there were so many, as is well chronicled by by many, it was a very difficult path. And it had many near-death experiences, but of course it had all worked out. But had we been traditional investors without this need to create these manufacturing jobs, without this need to make a difference in climate in global warming, we probably we wouldn't have made that investment. It would have been far too risky.

So I think that is a little bit of the superpower of impact investing, is that it opens your eyes to opportunities that you would but it it sounds like from what you've just explained, though, the key metric that got that investment over the line was employment. Is that a fair statement? Yeah. I mean, but I mean, because you can imagine we're sitting here, we lived in the Bay Area forever, the jobs are all so oriented toward tech.

We were nervous. We were like, how are we gonna find some jobs that you don't have to have a software or computer science background to get? Because that was kind of the mandate for people who went to community college. And so the job creation played a big role in our decision and also the environmental potential.

And then in 2008, DBL was essentially spun out of JP Morgan. So what led to the decision to do that? Well, it wasn't my decision. What happened is that when Jamie Diamond became the CEO of JP Morgan, he had an approach that was different in terms of the investing, private equity and venture investing.

He didn't want these funds that were in the bank that had third-party LPs. He thought that was kind of too risky, that we shouldn't, that if we're going to make investments, we should do it on the bank's balance sheet and withdrew something like One Capital Partners, which was what what he had had in his previous bank. And so he went about spinning out a lot. There were a lot of these funds, and they were spun out in various ways.

And I was just petrified about that. I was like, wait, I worked at the same place forever. I like entrepreneurs and I like to invest in them, but I am not an entrepreneur. I'm like very happy where I am.

That was my first attitude. So I did everything I could to try to keep us there and went to New York several times. But the handwriting was on the wall, other funds were being spun out, and so I finally got comfortable with that and negotiated a way to spin out. And that did happen in January of 2008.

And Mike Dorsey, who I mentioned earlier, had been my partner in the first fund, he decided at that time to take kind of a more traditional venture job and not have be the in an impact firm. So it was very perilous because we we we had a very slim budget on a $75 million fund. JP Morgan had subsidized, say, our rent. And so we were in a very small office, and we won't needed to raise another fund in order to get enough management fees to cover our expenses.

And then when Mike decided to leave, I was left without having a senior partner with me. And so that makes it very hard to raise a next fund. And then the financial crisis of 2008 happened in the world. Oh, yeah, that's right.

Good timing. Yeah. It was it wasn't until our third fund that we because the first fund was the dot-com crash, the second fund, it was the 2008 economic crash. So it was like we were like, we should never run it, raise a fund again.

Well, you had a front row seat to that, huh? Wow. So how did you come up with the name DBL Partners? I'm always interested to know how you settled on that.

We went through the traditional sitting around our conference table, what should we call ourselves? And the term double bottom line investing had some visibility. And impact investing didn't, you know, that that had that had just started to be a thing. But that was never something we considered because we preceded that term.

And what we used before impact investing came along was double bottom line investing. And even the California Pension Fund had a knowledge where it was just investing for financial and social return. And so we just went through a lot of options, but we said, you know, what we do is double bottom line investing and it's DBL. Let's just call ourselves that.

So you took the entire team and the fund out of the bank, right? Yes. That was in January. The crash happened.

We had to delay the raising of our next fund because you know no one was doing anything but weak portfolios. That brings us to the start of DBL partners. So can you give me a high-level overview of DBL Partners and maybe start with your mission and just give me a high-level your main activities and key strategies and structures and so forth? DBL is one of the original impact VCs with a climate emphasis, although we do other non-climate investments as well.

Our reason for being is really to make great financial returns for our investors, but also drive significant social, economic, and environmental progress in the regions in which we invest and now sort of more broadly across the globe. That's the double bottom line that we just talked about. And it's really our sort of a yin yin yin yang. We feel that those two missions do not detract from each other, as was the belief when we first got started.

And in fact, that they enhance each other, and that being able to invest with the broadened lens of what the social and environmental impact is opens your eyes to opportunities that you might have missed. And so, and we firmly believe that what we do, there's no sacrifice, that you don't have to have concessionary returns, that in fact we feel that this investment approach can enhance returns. I think you started out initially in California and then you expanded. And then, but are you investing internationally now?

We have a few international investments we do. And we don't have the very confining geographical scope that we had in the first fund. A lot of our investments are we've spent a lot of time and effort, and so many of them are still in California. I believe you invest across verticals of clean tech, information technology, sustainable products and services, and healthcare.

Is that everything? Or is there anything I'm missing? That was kind of the beginning of our focus, I would say, and and the and it was accurate. We don't do as much healthcare anymore.

We look at the climate opportunity. We have what we call a trifecta. We want to invest where the first leg is where there's too much carbon in an industry. The second is we want to move the needle, we don't just want to have a small effect.

And then the third is when we look at the leaders, the icons of the industry, if they were founded 100 years ago or more, it's it's time to invest because the last century was characterized by carbon generation rather than reduction. And so those businesses either need to adapt or they will be replaced. And how many funds do you have now? Right now we have four funds.

So the one we ranged, JP Morgan, the 2004, and then we finally did a 2010 fund as once we spun out. And then in 2015, we raised our third fund. And then during COVID, the early part of COVID, we raised fund four. And we went from 75 million first fund to now we have about a billion and a half assets under management.

I was wondering if you could maybe give me another example or two of an investment that DBL has made that demonstrates your end-to-end investment process that we've been discussing today. And maybe you could tell me both the financial results and the impact results that that were achieved just to make all this real for people listening to the output of what you're doing with your investing activities. Yeah, I mentioned this electric coffee roaster company that we have, which is still little, but I don't know if you know James Hoffman.

He's a coffee influencer in in London, and and he actually this is a roaster that runs on electricity, not natural gas. And so it saves a lot of carbon. And it also is small. So you get you could roast it in a cafe and get freshly roasted coffee that's dangerous and cheaper and also has a sustainability benefit.

And he, James Hoffman, who has lots of followers who are into coffee, he went to the Mojave Desert and he took a van and he took a roaster and he used solar power to roast it. And because he wanted to wake up in the desert and have coffee that was roasted by the sun. Anyway, you know, that went viral. And so that company is just off to the races.

They just won in Amsterdam this spring, the best coffee product of the year at the World of Coffee, which is a pretty important trade show. We helped the company realize how much carbon was being saved by not using natural gas roasters, not driving to the roaster, keeping the roasting local, not packaging after it's roasted. All of that reduces up to like 87% the amount of carbon that's that's used in roasting coffee. And then in the US alone, there's over 400 million cups of coffee consumed per day.

So this is not a niche. This is like a huge issue. And it's also a teachable moment for people because people love their coffee like they love their cars. And once you tell them that you are contributing a lot of carbon with your coffee habit, they're like, how can I avoid that?

And so that helps develop the solution. And we helped get a grant from the California Energy Commission for the company to have customers in a low-income neighborhood of Oakland who are big roasters for the Bay Area. The government paid for them to get some electric roasters as a way of showing, demonstrating that food production in California needs to decarbonize and that it can be decarbonized in neighborhoods that are already highly polluted and so need to get rid of particulates that come from natural gas kinds of boil roasters.

We feel that everyone's an impact investor, that eventually impact investing will go away someday because everyone will infuse their investment decisions with these kinds of variables to enhance their returns. And to if you can make a difference for future generations and for your planet, why wouldn't you want to do that? That was Nancy Funn. And what her experience of over two decades makes clear is that climate impact and financial performance don't have to sit in opposition.

In many cases, they're deeply aligned, particularly if you're willing to look where others aren't. But it does lead to a more difficult question. If impact can guide you toward better opportunities, how do you actually verify that impact is real? Not a two, not well-intentioned, but measurable and meaningful in the context of systems that we're trying to change.

That's where Lena Teeth's work becomes particularly interesting. As a co-founder of Planet Adventure, Lena has taken a distinctly different approach of embedding scientific analysis directly into the investment process. Every potential investment is assessed through a full lifecycle framework with a focus on understanding its true environment effect before capital is even deployed. And importantly, that impact isn't just evaluated, it's tied to outcomes.

Here's Lena Pay. Thanks for coming on the show today. Your company Planet A is headquartered in Berlin, but you're living in Cape Town, but you grew up in Germany, so we need to make some sense out of all this. First, tell me where did you grow up and what was your early life like?

So I grew up in a small town close to Hanover, Germany, as the eldest sibling of four. My passion has always been with the environment. When I was in middle school, I saved the whales and I did big school campaigns, and then I spent my summer holidays saving sea turtles in the Mediterranean Sea. Maybe it comes out of that responsibility of being the eldest.

I always had that feeling of taking responsibility for something larger than my own little life. And that is why I then decided to study political science, because I was so interested in understanding how do we bring about positive change and how can we improve environmental protection? And so I studied political science in Heidelberg and at the University of Massachusetts, which gave me a super interesting kind of uh cross-Atlantic perspective on international policy regimes.

And then I did my master in Berlin at the free university in Berlin. Was any of this distilled in you by your parents? I mean, it's not necessarily normal for the oldest child to always take on the world's responsibilities. I don't think it was something that my parents were particularly passionate about.

They were both doctors, and we had a lot of interesting political discussions around the lunch table. That is true. But I also felt sometimes a bit lonely in my family, being the eco-warrior and bringing the milk home every single day in the glass bottle, so to avoid the plastic. And I was also heavily educating my smaller siblings that did not enjoy that too much.

I I guess. So it was rather something that came out of me and maybe the friends I gathered around me. In 2006, you went to work for another government agency. The acronym is BMZ, which I'm not going to try to pronounce, but I think English translation is roughly a government agency in the federal Ministry for Economic Cooperation and Development.

It's a Ministry for Economic Cooperation, and it's uh in charge of the international cooperation that Germany has with other regions and states. And I was very interested in working on things like sustainable finance, for instance. So, how do you transform these huge, huge tanks like the World Development Bank or the regional development banks? How do you transfer them to less fossil heavy institutions?

So I was working a number of years on these bigger issues, and I loved working as a government official. I'm not one of those that bashes the big bureaucracy and the slow pace, because I think there's a reason for that as well. And what I loved about the work was that it was always very systemic. I was never the one that was motivated by improving that one orphanage.

I was always much more motivated by the question how can we change the whole health system so that all orphanages in that country can improve? And as Germany, you have, because you have some resources and a good reputation in your back, you have a voice at the table. So I felt that it was good work that I was doing that. I also knew that I didn't want to do that work solely from the desks of an industrialized nation.

I wanted to do the work in one of our partner countries and really understand how they see the challenge and what their possible answers are. Because there's a lot of talking about seeing eye to eye and developing ownership in the partner countries. But in the end, I felt: is it really that we as the West want to learn from Tanzania? What do we want to learn?

Is there a single thing where we think, oh, that is really something that we are doing so badly, and Tanzania is excelling in that? And I didn't have that impression. It was more like, okay, we know how success looks like, and we can show you. And I wondered how that how that was different if I worked in the partnering country.

And so I took the chance in 2013 to move to Tanzania. And I had three little kids. My youngest was only six months old. And my husband, he's an entrepreneur by heart, and he said, I will follow you wherever you go, at as long as it is at the ocean, because he loves the ocean and he's a passionate kite surfer, and he took care of the kids.

And I did my work at the embassy then. So during your time there in Tanzania, you did some cool things. One point you were in charge of the Serengeti and the Celis game reserves for the German government and working from Dresalem. And you financed the first elephant census.

So tell me about that. Yeah, it was a fascinating time. When I came to Eastern Africa in 2013, there were a lot of rumors. Around poaching.

And to me, poaching was something that we had left behind in the 80s. So I was utterly surprised to see that it was still going on and really causing so much damage. But no one really knew. And I still remember talking to the local World Bank director at that time, saying, and he said, listen, I heard I hear all the rumors, but I can't react on it as long as I don't have any data.

And so Germany, who has felt very passionate about the Serengeti and these other unique biodiversity-rich ecosystems since the times of Professor Jimek, was ready to finance and launch the first elephant census in the SLU that had been done for a long, long time. And the results were shocking. We found that two-thirds of the elephants had been killed within five years. So the SLU was had gone down from 43,000 elephants down to 13,000 elephants.

It was really a cemetery. When you flew over the SLU, you saw carcasses everywhere. And that was a super important signal. And it brought the whole donor community together.

So there were more than, I think, 30 or 40 donors trying to support Tanzania in various sectors. So what we wanted to try is not duplicate efforts, and we set up a donor group. It was a very political time, and we we tried to support Tanzania as best as we could. And I think we did make some progress.

The larger problem was that there was such a high demand in mainly China and also Vietnam, and that these poachers were, when it came to technology, just very advanced. And it was easy to beat the rangers that sometimes did not even have walkie-talkies. And I think education is also key because a lot of Chinese people take it as a sign of wealth. They have this tradition and history of beautiful carvings of ivory tusks and put them into their living rooms.

And interestingly enough, I had the chance to meet Jang Godel, one of my heroes, the chimpanzee researcher, and she shared that some Chinese think that elephants shed their tusks like deer. And so for her, it's also a lot about education. Your time came to an end in Tanzania. It seems that you moved down to Cape Town, took your children and your husband in a car.

What prompted the move? And tell me about your journey down to Cape Town, which is where you're at today. I love my work there, and I would have loved to stay, but after four years, the ministry usually calls you back to headquarters, and then we decided no, we don't want to come. And we always wanted to spend some time in Cape Town because it's such a beautiful, energetic city, and the children had gotten to know it's during a Christmas holiday, and we all felt we wanted to be there for a while.

So we just took our car and drove the 5,000 kilometers first to Western Africa and then down to South Africa and just tried to make it happen. There was nothing, nothing waiting for us there. There was no job, no family, no friends, no school. We took an Airbnb, we applied for a school, and my husband found a first job, and I took a leave of absence from the ministry, and it all worked out beautifully.

And after 10 years, we are still here. That leave of absence turned into the founding of Planet A Ventures. And I think you founded it in 2020, so you did that just in the nick of time for the COVID pandemic to hit. You were a co-founder, you had some co-founders that joined you in doing that.

And tell me how that came about. That leave of absence from the ministry really gave me the headspace to think something new. And one of my dear friends, Frityov Detzner, he's also a co-founding partner at Planet A. Whenever he came down to South Africa, we were like nerd around what it takes to scale innovative green technologies faster.

That is how the idea for Planet A came about. And then we Fritjov pulled together four other founders. So in the end, we became six co-founding partners that brought Planet A into the world. And we were all not VC guys looking for greener pastures.

It was more the question okay, what does it take to address green technologies and scale it faster? And how do we use that small window of opportunity that we still have? And we all felt that venture capital has a super important role to play, but it hasn't played it so far. It hasn't really shown that uh tremendous strength in anything that is relevant for society at large, addressing social and environmental challenges.

So we set out to create a very new kind of venture fund that puts science into the heart of it and addresses those sustainability solutions that really move the needle. And we co-founded just before COVID. So I co-founded a venture fund without knowing four of the other five co-founding partners at all. We met one and a half years purely remotely, and only after one and a half years I got the chance to meet them in person.

And it was astounding how small the surprise was. Like we felt so comfortable with each other, and we had built up so much trust over these thousands of Zoom calls that it felt like we had known each other forever. Let's get into Planet Aventures and maybe we can start if you can give a high-level introduction, an overview of Planet A Ventures, maybe starting with the mission, what sectors you focus on and asset center management and number of employees. For someone listening who never heard of Planet A Ventures, and to get a snapshot in their head before we drill down on some more of the details.

Clive A is Green Tech Venture Capital Fund that invests in European startups that have a positive, significant impact on the environment while building scalable global businesses. And we invest in early stage companies. So in the in the VC jargon that would be pre-seed seed series A. So more than an ideal, but not the commercial plant yet.

Because we understand the challenges are quite broad. So the answers also need to be quite broad. So we invest in manufacturing, we invest in energy, we invest in food, in software solutions, in ag tech. So a broad range of six categories that we invest in.

But then we look for, we are very specific in what we are looking for. We look for innovation in four key categories, which is climate mitigation, biodiversity protection, resource savings, and reduction of waste. The fund is based in Berlin, and we, as a first-time team, first-time fund obviously was a very interesting journey up till now. What helped us raise our first fund was our very strong network to successful founders.

And when we told them what we wanted to do with Planet A, they said, this needs to happen, and I want to be part of it. And then they sent a check. Founders have a very distinct risk profile, and it's it's amazing. If they believe in something, they go for it.

Um, so that first seed money allowed us to do the first investments and showcased what we could get into, showcased what our signature was, and then slowly, slowly, family offices gained trust, and then in the end, we were able to attract the big institutional investors, which take 12 months sometimes for a due diligence, but then also bring in the bigger ticket sizes and also bring in a lot of knowledge on processes, ESG. So they really make your fund more robust. And now we have this beautiful kind of broad-range LP base and managed to raise 160 million euros with our first fund last year.

So it's one fund until now, is that right? Yes. Yep. And about how many employees do you count that you have?

It's a bit bigger than usual early stage VC because we opted for that science team. So now we are 18 people, and there's an office in Berlin, but we are remote first. So you can work wherever you want as long as you're in the same time zone, more or less. With that, we attract the best talent in Europe.

And the front structure is that open or closed-ended? It's closed. What's notable in your first fund? You have support from some big name investors like BMW and KFW Capital, which is one of the world's largest development banks, and REWE, one of the largest German retailers, and the Wachstefunden, uh, the Danish states investment fund, as well as a couple of high-profile serial entrepreneurs like Rolf Schwomgens of Trivago, Maximilian Bachhaus of HelloFresh, and Ruben Ritter from Zalando.

How did you get that type of exposure and the confidence of those big corporate players and those high-profile well-known entrepreneurs to invest in your first ever fund? A mixture of having a good network from the start. So with uh some of my partners, they are really well grounded in the, especially in the DAC entrepreneurial ecosystem, but also the wider European ecosystem. And I think key was the credibility that we brought.

Because before us, there was no venture fund that brought that kind of scientific depth and authenticity with it. And a lot of people are still and were impressed by that approach and said, yes, we get it. If you want to invest in climate tech, especially in hardware, you not only need to understand the tech itself, which is challenging enough if you look at nuclear fusion, alternative proteins, etc., but you want to understand the impact of that onto the wider environment.

Does it really make a difference? And so people understood that our approach was unique and yeah, and they believed in our mission and they thought this needs to happen. Explain to me, Planet A's theory of change and the problem or problems that you're trying to solve. So scientists have identified a safe operating space for humankind and defined quantitative boundaries.

They're called planetary boundaries. And the bad news is that we as humanity have transgressed already six of these nine. So we are doing badly when it comes to climate change, when it comes to biodiversity, freshwater consumption, chemical plastic pollution, nutrient pollution, land use change and forests. So humans, us are not only causing a climate crisis.

I think this is super important. But we are also causing a biodiversity crisis, a forest crisis, a soils crisis, an ocean crisis. And in fact, we are creating this everything crisis and we are leaving the safe operating space for humanity. And when you listen to some of the climate scientists, especially last year, they lack the vocabulary to express their concern.

They have been shouting on the top of their lungs for 30 years now, and they really don't know what to do anymore. And so we need, we desperately need an economy within these planetary boundaries. And I am deeply convinced that we don't have the time to just throw money into the air and see what sticks. We need to understand what are the solutions that really move the needle.

And that is why we anchored impact into every step of our investment process. And our theory of change is very clearly on we want to shape an economy within the planetary boundaries and we want to make impact investment the new norm. We don't want to invest money into something that is not contributing to an economy within the planetary boundaries. We just cannot afford that.

And how do we do that? We support startups with capital, obviously, but also with network, with impact, with collaboration, and we thus support these founders in scaling and maximizing their impact potential faster. And we also very importantly, we demonstrate that impact not only goes hand in hand with financial returns, but for us, it's quite the opposite. Our thesis is that by being able to identify those founders that really provide the solutions to the huge challenges that we are facing, for instance, the solution for green steel or decarbonizing cement, like the big, hard-to-abate questions that we are facing, those will be the winners of tomorrow, and those will generate the outstanding returns that we promised to our LPs.

You value impact as the highest metric, but it is an investment fund. So how do you think about the relationship between impact and financial returns? The one does not exist in our context without the other. So I would not say impact first, financial returns first, but they they they we always look at it parallel.

This is also how we work. Like the science team and the investment team always work in parallel. And whenever the one side thinks, guys, there's I don't know, the market is not promising, the cap table is disastrous, or on the science side, look, there's just no significant positive impact, then the other side just drops the pen and that's it. So we look at it very holistically from both perspectives.

Either side can veto an investment, either the investment side or financial side or the scientific side. Exactly. I think that's quite unique that the science really has a veto at the investment committee meeting. You look after the science impact measurement aspect, and it seems to be core to your investment strategy.

Explain what science impact measurement means. Tell me how Planet A measures the impact of its investments. I need to make you aware that you're speaking with a finance guy who only made it out of his high school physics classes because my girlfriend did my homework. So you have to explain this in a way so that even I can understand what you're doing.

When I came into the industry, the VC industry, I was surprised to find that even in the year 2020, we were not in a position to really understand the impact of an investment on the environment. And every fund that tried to had their own proprietary little assessment method, little scorecards and methods that might work internally, but that does not allow us to compare impact across funds. And so we set out to change that. And what we did is we installed an in-house science team.

I think we might still be the only ones doing that. So that's me and then my lovely two senior lifecycle assessment analyst colleagues. And what we do is we assess the environmental impact of an innovation, be it a product or service. And unlike ESG funds that like to understand the negative impacts and the financial risks, we only want to understand the positive potential of an innovation.

We look at the ESG side as well, but the core is really understanding the positive potential of an innovation. And we do that by calculating lifecycle assessments. Now, lifecycle assessments are nothing new. They have been around for decades.

But what is new is to put them into the investment process. And what it means is that you look at the life cycle of a product or service from the extraction of the raw materials to the transport, to the use case, to the very end of life of that product or service. And then you take it even one step further. This is what we do at least with the consequential lifecycle assessment.

We want to understand what is the systemic impact of that product. So, what is the effect of that product when we bring it to the market? And that is why we look into okay, what products are being replaced by this innovation, what feedstocks are being replaced, and get a very holistic understanding of the impact of that innovation into the system. And it allows you to not only calculate the carbon footprint, but also the energy consumption, the water resource, the land use, etc.

And it gives you a very precise scientific and quantitative understanding of impact. The question would be where do we take the data from? So the data comes from the companies themselves as as far as they have them, because they are very early. So sometimes they have very little data on their processes and products.

And the rest of the data we get from globally available databases like EcoInvent or Garbi that contain the results of millions of scientific studies. And if you purchase your plastic granulate from Croatia, it has a different footprint than from Albania. So it's super granular. And you take these data and you work with assumptions, obviously, how the, for instance, electricity grid in Europe evolves, and then you can understand how much better that innovation really is compared to what's on the market right now.

Everyone wants to have a positive impact, right? I don't think anyone will argue with that. But what is the criteria for an impact to be sufficient? How do you determine that, yes, this is sufficient impact or this is not sufficient impact?

So we have not set any thresholds. We feel that we are not only looking at climate, we are looking at biodiversity, energy, and a lot of other parameters that are absolutely impossible to set an absolute threshold because it's highly localized. And so what we are looking for is the disruptive systemic impact. And I might want to give you an example of one of our portfolio companies to make it to illustrate more what we are looking for.

So let's take Traceless. Traceless is a Hamburg-based, bio-based material startup founded by two amazing female founders. And the problem there is that almost 80% of all plastics ever produced are still in landfills or in our oceans. And they cause serious marine and environmental pollution.

And so far, close to 0% of the plastics currently produced are degradable in a live environment. And so Tracer has developed an innovative technology that for the first time allows us to use agricultural byproducts to replace to create a material that can replace plastic. And it has the same qualities as plastic, but it is fully compostable in the environment. So now the science team, we were super excited about it.

And our LCA found the following, which then convinced us that we want to do that investment, and we did. So first, they do not compete with food production because they take agricultural residues. So thereby they're preventing a land use change. That's the one parameter.

Then, in contrast to conventional bioplastics, they do not need any harmful additives, solvents, or chemicals. Then, thirdly, it requires up to 80% less energy to process compared to conventional plastics. And then lastly, the LCA showed that the overall net reduction in greenhouse gas emissions is up to 76% lower than the virgin fossil plastics that we use every day. Clearly, that is significant positive.

And that is why we invested. Your website also highlights that you tie carried interest to an investment achieving its impact objectives and key impact-based KPIs. Can you give me an example of what that means in practice? That means that we will be held accountable for achieving certain impact objectives that we set at the point of investment and we define them over a five year time frame, considering the average holding period of an investment, and we'll need to reach certain multiple in order to get 50% of our carried interest.

And so our LP base will look at how well we do. And if we only achieve, let's say, 20% of these impact objectives over the lifetime of the fund, we will only get that fraction of the carried interest. You've been listening to SRI 360. If you enjoyed it, please hit the like button and subscribe to get future episodes.

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