The business side of fighting climate change

[MUSIC PLAYING] MARK BLYTH: From the Rhodes Center for International finance and economics at Brown University, this is the Rhodes Center Podcast. I'm the center's director and your host, Mark Blyth. I've talked with a lot of guests on this show about the policies and politics of decarbonization. But on this episode, you're going to hear from someone about how the fight against climate change looks from the business side.

Sophie Purdom is founder and managing partner of Planeteer Capital. Planeteer Capital is a venture capital fund that invests in early stage climate technology companies. She also writes Climate Tech VC, an industry newsletter that goes deep on the business side of the green transition. Sophie came to campus for an event co-hosted by the Rhodes Center in the Watson Institute's Climate Solutions Lab. And she recorded this episode with my colleague, political scientist, Jeff Colgan.

They talked about the world of climate tech as it's known in the startup community. They discussed how the industry started, where it's going, and what it can teach us about the relationship between private enterprise, and the global fight against climate change. They began by discussing Sophie's work as a climate tech venture capitalist, specifically, what drew someone concerned with decarbonization to the business and investment side of the climate change movement. Here's Jeff and Sophie.

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JEFF COLGAN: Sophie Pordum, thank you so much for joining me. And we're delighted to talk a little bit about climate tech venture capitalism today. As I understand it, the space that you're operating in is very much still focused on profits and a reasonable return on investment.

SOPHIE PURDOM: Hopefully, an extremely high return on investment in case our LPs are listening.

JEFF COLGAN: Terrific. And so tell us how you think about keeping that mission in mind but still doing some good on the climate.

SOPHIE PURDOM: Great question. How can you do both? How can you make money and have a positive impact? That's been my life's work in some ways. And a lot of that started back here at Brown where-- Brown is amazing at tossing folks right off into the deep end of lots of the problems that exist in the world. You can come at it from all sorts of different vantage points, and across all different geographies, all different sectors. And I gobbled that stuff up.

Halfway through my time maybe here, I felt like I was full of all of these different problems and felt a real deep need to go out and work on those tangibly with my life. Turns out that much of that couldn't happen without also aligning the dollars and cents. And it always struck me as strange that that operational reality wasn't being followed through into conversations I was having in the classroom, at privileged places like the UN climate negotiations, up at the Rhode Island state house passing climate legislation.

It felt like that perspective of the business owner and operator was not represented. Of course, there's all sorts of different layers between owners and operators, and let alone investors, and then folks that are writing the policy. But I wanted to bring those closer together and so over time, shifted more, and more, and more towards, how do dollars and cents impact climate outcomes?

And that winding path went in a bunch of different directions. Now that's taken me much closer to the impact, talking this relatively new language of venture capital climate innovation and to help spread the word there. We've done all sorts of things, including going as far as writing a whole new blog about it.

JEFF COLGAN: Fantastic. And so actually, let's back up a little bit because you have a really interesting role that you play in the climate space and in the venture capital space to the degree that Venn diagram overlaps. And so take us from your days as a Brown student to where you are today.

SOPHIE PURDOM: I studied climate at Brown, which is quite popular as my understanding now with all sorts of undergrads that are perhaps more part of the climate first generation, these folks who've known that they're always going to inherit this mess. And they come into college angry, and confused, and mad, and motivated, and inspired to work on it, and to study it from the ground up.

I was part of that. I just came a little bit before everybody else perhaps and also came with this deep intuition around wanting to align language from business and investing to all of the problems that we were seeing graduated. I went and worked in management consulting for a handful of years, working with all sorts of different hedge funds, and private equity shops, and figuring out essentially, whether they should or shouldn't do a deal. I was there to learn and to learn alongside really smart folks-- check the box on both of those and then scampered out of that over to the world of venture capital. Though I didn't even know it was that world at the time.

Specifically, that was up in Boston at some labs at Harvard, where all sorts of innovations are being spun out of lab all of the time including this one that caught my attention to the ability to extend the life of microbes by essentially charging it up with hydrogen gas, which these microbes are able to convert and store as a bioplastic in their bodies. And that sounds kind of sci-fi, and weird, and wacky. It turns out it's also wonderful because those bugs then live longer and can produce this beneficial byproduct, which is fertilizer.

JEFF COLGAN: To simplify even to another level, you were working on replacing or at least having a substitute for petroleum-based fertilizers, which is what most of the world runs on is petroleum-based fertilizers. And you had found a biological alternative and were helping to deliver a product based on that.

SOPHIE PURDOM: That's a great summary. And I had not found it. The scientists had found it. And I got to help-- be that person that was, again, trying to align the language and the money to take that innovation and discovery, and turn it into a commercial viable product that ultimately farmers would be willing to adopt and pay for, which is a hard sell.

Being a farmer is a tough job. You've got really to talk about margin for error and just straight up margin. These folks have neither and for good reasons. It's tricky spot. And we were asking them to suspend belief in some ways of this thing that they, and their father, and their grandfather had put on the ground for generations, and season over season that we could do it through something that looked completely different, e.g., a microbial or a biological solution.

Tons of lessons learned from that around, how do you bring folks up and along with you in adopting these clean technologies? Maybe we believe, or the science has shown us, or in the lab this thing is 10x better and cheaper. But nothing's real until you're actually deploying, deploying, deploying it. So I was there for a handful of years, helping it get off the ground.

JEFF COLGAN: And so now you're doing something different. So tell us about that.

SOPHIE PURDOM: I knew I wanted to touch more of whatever that was. And that magic was climate impact, and money going hand-in-hand together, and having tangible impact on climate outcomes while being viable business models that could scale. I wanted as much as I could get of that. But there was no word for it at the time.

We were in the ashes, if you can even be optimistic like that, of cleantech 1.0, which was this period of great investment and limited outcomes in the early two thousands where the entire space of investing into anything that sounded like sustainability, or climate, or clean, or energy-- that whole world had just frozen over. And it had been that way for quite some time.

All of the VCs that had invested hundreds of millions of dollars into these mostly clean energy businesses had pretty much lost their shirts. And most folks had evacuated the space. That's why no one really knew what to call Kula Bio. We were, kind of, cleantech. We were, kind of, impact. We were, kind of, ag. There was no great word for it. We were some funky deep tech thing hanging out in Boston.

Today, we would squarely be inside the definition of what myself and colleagues and folks are now calling climate tech, which sounds similar but is nuanced, and different in so far as thanks to cleantech 1.0, bringing down the costs of clean electrons through wind and solar cost down developments, through policy now leading, not lagging anymore, through a massive influx of talent into the space, followed by influx of-- or I guess, alongside an influx of purchasing demand from corporations and from government.

We've got fertile ground for this broader ecosystem of solutions-- technology solutions across the manifold. We count at least seven sectors in climate that are responsive to solving a climate related need or outcome.

JEFF COLGAN: What are the seven sectors? Can you just give us a list?

SOPHIE PURDOM: I've done this before. I can do this. Yes, exactly. So these seven sectors include energy, food and land use, mobility, the built environment, so think housing and infrastructure. This includes climate intelligence so extra data points and often, like, insurance applications-- also includes deep industrials and just straight up industry; steel, cement, all of those good pieces.

And then last but not least, we're also including a relatively new smaller, emerging, definitely hyped up vertical called carbon management. And so that's everything from offsets and removals and marketplaces for that segment, which when we first pulled this together-- and I'll unpack who the we is in a little bit.

We originally started with six. And then as we tracked all of these venture companies starting and these dollars flowing in the ecosystem, it became evident that there was a whole new business model and set of companies and founders and belief of change in the world that it demanded this seventh vertical of carbon. And it certainly stood up to the test of time.

JEFF COLGAN: In your newsletter, you've got some visuals that do a really nice job of showing these seven sectors are not all equal, that there's three that are dominating. And so tell us what those are.

SOPHIE PURDOM: That's right. Honestly, folks can probably guess right. So of those are energy--

JEFF COLGAN: Number one.

SOPHIE PURDOM: --mobility and transport, huge one-- all of those EV OEMs, battery manufacturers, et cetera-- and then food and land use, think alternative protein brands and little fertilizer companies like us. Those three sectors alone make up over 80% of the dollars that flow through the early venture and private equity growth funding ecosystem.

JEFF COLGAN: Great. And the reason you know that number is actually this really interesting thing that you're doing, which is you're not just a partner in a venture capitalist firm. But you're also running a newsletter called Climate Tech Venture Capital.

SOPHIE PURDOM: Creative, right?

JEFF COLGAN: And so tell us a little bit about how those two relate to each other and, especially, your decision to keep the newsletter free to people like me and to our listeners.

SOPHIE PURDOM: You bet. So CTVC was born over 3 and 1/2 years ago in the peak of the pandemic times by a woman named Kim Zou and myself, who got together to write a blog. Kim, who put pen to paper originally and gets all of the credit for the very creative name and--

JEFF COLGAN: Was this your substitute for, like, sourdough starter and instead, you guys created a blog?

SOPHIE PURDOM: Pretty much, exactly. I was in Rhode Island actually for the beginning of the pandemic with some friends from Brown. And we were planting bushes, and relaying the gravel for the driveway, and then writing blogs. No. But more seriously, I joined Kim because I'm a person that has a lot of thoughts in my head and enjoys attracting all of the various, disparate data points.

I'm also the kind of person that without some form of structure or ability to contribute back to some form of a community, I'm unproductive. And I'm certainly motivated by being able to-- and have always been, frankly, by being able to communicate about this space, and feel that it's an incredibly meritocratic community, and opportunity set for folks of all walks of life, identities, ages, experiences, perspectives to build, and bring their best selves, and all of their skills.

One breakthrough that we had where it felt like this was going to be more than a side hustle and that this was going to be an actual platform that could self-perpetuate and have unique perspective for the long term was when we realized that by tracking all of the venture funding rounds happening in this broad climate space, categorizing it, building a pretty comprehensive and complex database on the back end, that we had some unique insight into, sure, what had been happening from a funding perspective but also where it was going.

And so from that, the ethos of CTVC was born, which is what do you need to know so the data. And then how should I think about it-- these frameworks? So a perfect mashing together of being a recovering management consultant and Kim's a recovering IBanker with a whole new pool of data and massive influx of talent and support and effort and love from this group of volunteers that joined us, many of whom are other students or everybody of which has been five years, or less out of undergrad that's ever come and joined us.

So talk about the meritocracy of that. These are the voices that are now going out to 60,000 folks is inbox, built up this organization. We publish multiple times a week. There's a fundamental product of the newsletter so how to start your week off right. What do you need to know? And then what deals have been done with a tear down of a news headline-- straightforward enough newsletter stuff.

And then later on in the week, publish what we call our features or our insight pieces. And I find these to be really exciting. They'll vary from state to state of play of where all of the capital is flowing through the space so half year updates. These are big reports. And they're cited in all sorts of different pitch decks, which ironically then come across my desk in a different fashion.

We'll do huge teardowns into how to think about complex technology areas or complex sectors so Maritime emissions, clean fuels, hydrogen electrolyzers, enteric emissions. You name it. We've probably written something about it, including all of the different players in the ecosystem and where the value accrues. We publish a whole bunch more stuff.

But over time, we realized that our readership had evolved from folks that were deploying capital into climate as investors. Our core addressable market of those climate VCs had been penetrated pretty quickly because there aren't too many of us. And more and more of the folks actually deploying the solutions, the innovators-- so, the founder types-- and also the corporates, and the government procurers became a larger and larger part of our readership. And simultaneously, realized that those startup founders were not just raising venture capital but they were raising other later stage sources of funding to build out a more sophisticated capital stack.

JEFF COLGAN: So Sophie, you're doing all this work. You now are beyond just the two of you. You've got a staff doing it for a free product. So tell us a little bit about of why is it still free? And how does the whole thing work?

SOPHIE PURDOM: Sure. And all of this will always remain free and in your inbox. And I don't want to take the lid off of some exciting announcements that my co-founders will be announcing soon about net new data and strategy platform to be announced in just days coming out. So stay tuned there.

CTVC, the newsletter is free because frankly, it just wasn't that exciting to monetize it. So this business model has been run over and over, again. You can slap ads on it. You can put it behind a paywall or make people pay for it. Or you can do pay to play content. So none of that was appealing. And we had this insight, or observation, or hope frankly that if we built up this database and this pool of trust from our readers that they would send us information ahead of anybody else because it would frankly behoove them to put it out to our best in class audience. And from that, maybe something bigger than just a newsletter could be born.

I don't think that Kim nor I identify as journalists. This has always been a bit of a nerdy database with a blog layered on top of it. We now have this data subscription product more there soon, which kicks off-- more than enough to cover our journalism staff who are now full-time writing the newsletter and just amazing folks that we get to work with daily there who truly know what they're doing.

JEFF COLGAN: So it seems like there were two elements that really worked so well for you. There was one that a leap of faith that this could turn into something of a community that would build knowledge for you, that would ultimately scale up and second, that it helped your own venture capitalist side-- that you have these two hats that you wear. It's not just the newsletter. And then you became a consumer of your own product on some level or your-- consumer of your other product. Let's put it that way.

SOPHIE PURDOM: Well said. Yeah. And there was no grand master plan to start a venture capital fund just to be super, super clear that. In reality, while pouring our hearts out to our growing readership, I had the unique opportunity to counsel if you can really even call it that. It's more just chat with my friends about how to raise money for their really interesting start up businesses.

That started with, should you raise venture capital through to, who should you raise venture capital from? And naturally through those conversations, there's folks that I wanted to spend more time with. And then there's folks that I wanted a piece of what they were building. And turns out, one way of doing that besides going and joining them in starting and building the company is to be an investor. And also turns out that being-- let's call that an angel investor-- is an expensive habit. So saying yes is usually a multi-thousand dollar affair. And I did not have multiple thousands of dollars laying around for all of my friends that I wanted to invest in.

But I did have access. And it turns out, access is valuable. So with that access and strong perspective on who are actually going to be winners in this ecosystem, then I started raising what are called special purpose vehicles. So one-off deal tranches, let's call it, of originally tens of thousands, then hundreds of thousands, and then more to back these one-off founders at one-off stages of their business.

That's a lot of hustle. To get those individual deals and rounds together, you have to time everything and be able to sell and raise money for that opportunity in real time. The legal fees are not inconsequential on and on. But I didn't have a grand plan to go start a venture fund until those opportunities started crossing my desk.

Lots of folks were building climate venture funds or thinking about how to do that-- now we're talking boom macroeconomic cycle. And so crypto and climate are clearly two interesting ways where existing funds could raise more assets under management. So there were opportunities to go help folks in building that under legacy brands. And these are folks that I work with to this day and who are very close friends at amazing structures of their own.

For whatever quirks of life, that wasn't as enticing to me. I'm a builder. And I just happened to be building this time around an investment management firm. I wanted to launch a new one into the ether because I wanted it to be climate specialized through and through of which at the time, there were not a whole lot of those examples. I knew I wanted it to be a clean and fresh brand and something that I could build off of for decades and decades into the future and attract folks to come work with us who felt similarly and were bringing more of those differentiated-- to the meritocratic point earlier-- vantage points.

JEFF COLGAN: So I want to take us back to politics and thinking how to connect the day-to-day finance work that you do with the bigger environment that we find ourselves in where the Inflation Reduction Act has passed in the United States. Suddenly there is a burst of government money that is, at least theoretically, flooding the space. And I want to know, how much has this affected what you do? And what's the outlook like?

SOPHIE PURDOM: No doubt. Arguably the most significant climate legislation that has, dare I say, ever passed most certainly in the United States. And yet here we are still a year and a couple of weeks later, still celebrating the passage of era. The truth is that this innovation was booming before. And the truth is that a lot of those promised dollars depending on what analysis you're looking at, whether it's $380 bill, or whether it's closer to a trillion, or whoever's numbers you're looking at-- much of that is promised future credits, not literally money that is slid across the table in the form of a check to early stage companies. So these are incentives, which hopefully unlock more private sector dollars to go put real steel in the ground now and make commitments and build factories today to access in the future.

JEFF COLGAN: So a lot of that, for instance, the $370 billion that people talk about as the money being unlocked by that bill-- some of that money is going to go to consumers who are buying EVs, or heat pumps for their homes, or what have you. What you're saying is that, OK, that may stimulate demand down the road. But that doesn't necessarily help the small innovative firm that a VC firm is looking to fund right now.

SOPHIE PURDOM: Correct, maybe, maybe not. And I was talking about the large incumbent players who are moving and building new factories or accelerating their plans frankly to build new battery facilities in Georgia, for example. Because they think that they will be able to access incentives, or write offs, or tax credits, or any of those derivative functions from big capital investment projects.

Also you and I should make sure that we're absolutely picking up the checks that the government wants to send us for electrifying and for insulating our home. It's free money to be had for doing good stuff. I've heard it said that the Inflation Reduction Act in large part is like a new modern industrial policy. And to me, that means a shift away from oversupply through subsidies and lower costs of producing goods, more to shifting the demand levers of the market.

The way I think about this from a venture perspective is not forcing the hand of the buyer with a subsidized lower cost, higher volume supply of goods but rather aligning with their existing increasing demand for products and services that are 10x better, 10x cheaper, and fit into existing distribution channels, which hopefully through some of these mechanisms will be growing over time.

It's somewhat of the shift of the US doesn't like sticks. We love carrots. But there's a lot of carrots that are hanging out on the table. And I don't anticipate that we're going to be moving as a regulatory environment towards things like taxes or scary things like that anytime soon. And so for us as venture investors, we're underwriting for 7, 10, 12 minimum year time frames.

I don't have a crystal ball. I certainly wouldn't be doing my fiduciary duty if I were expecting policy, even something that feels as tangible and as long standing as the Inflation Reduction Act to be around with those same exact incentive mechanisms for that time period. And so we've said this before. And we'll say this for forever that a true venture investor is not underwriting to a specific regulatory schema. But certainly, we benefit from the tailwinds. And those are often indirect.

For us, it might mean that net new better talent is incented and pulled into the ecosystem. And by virtue of their existing skill sets, they're just going to be building a better business anyway. It's rarely as explicit as receiving a subsidy from the government, especially when it's so early as the venture stage.

JEFF COLGAN: So it strikes me-- and I'm not going to ask you because you don't know any more than anyone else does. But there is this question that as a political scientist I'm fascinated with. I would expect that investors should be at least curious about, which is what happens in November Twenty Twenty-Four when we have an election, and there is quite a gap let's say between the Democratic ideas and the Republican ideas about how climate change should be addressed? And so presumably, there is some implications to that about how not only the Inflation Reduction Act functions but also what other policies might be in place.

SOPHIE PURDOM: No doubt. Even things like government shutdowns are distracting and destabilizing for lots of these programs, which are midweight or in early stages of their implementation. We still don't have guidance on some fundamental things like apprenticeship, wage requirements, and hydrogen tax credits, et cetera, et cetera.

We're a year in and still waiting on a lot from the IRS. For founders, that means some of the most risk averse-- maybe you could say they're the cleverest ones-- are thinking about, how does that adjust their fundraising timelines? And so we're seeing some folks come to market earlier to raise capital sooner, which is always challenging because you've got less to show for it. Or we're seeing folks shore up and do more with less, but arguably go slower as a result of reducing their burn net.

As a founder, you really don't want to be having to think much about the super macro political landscape. All of this stuff is just distracting at the end of the day from focusing on what matters, which is building the product, and hiring the best people, and accelerating yourself through to product market fit.

JEFF COLGAN: That makes a lot of sense. Although I hope as voters, that we are thinking about that macro picture because, of course, it's super important for the direction of obviously, not only the country but also the planet on some level. And so I'm just keeping an eye on time. I want to just ask you a little bit about your own experience just last week at the intersection between politics and business because you were at New York Climate Week. And my understanding is that your experience this year was quite different than the experience you've had in the past. So tell us a little bit about that.

SOPHIE PURDOM: That's right. The first time I went, I think, I was part of the parade outside of the UN or part of the marches holding some signs around divesting from fossil fuels, which perhaps in spirit, I'm still there. But this year, I spent more time in rooms full of buyers and innovators and investors as New York Climate Week has become a much, much bigger affair and full of more diverse voices that frankly skew a whole lot more towards the innovation side of the ecosystem and private sector side, augmenting the other rooms that are still full of all of the policymakers convening around UN activities that week.

So we wrote about this in the newsletter that it felt like you almost-- in order to fully participate in New York Climate Week, you needed to bring various outfits in your bag because in different rooms, folks were wearing suit and tie. And then in other rooms, if you're not wearing a Patagonia vest, you're almost not let in. And then in other rooms, some folks are literally dressed up as heat pumps with thier paper mache costumes.

So it's a wild world at New York Climate Week. For us, it's a really significant convening of the ecosystem in our hometown where the conversation is optimistic, arguably almost too optimistic in some ways. And we're still talking about many of the same fundamental structural, systemic problems that we were talking about when I was there back in the day with my Brown crowd. But maybe we're using different words. Or maybe we're talking about, incrementally, different things. Or maybe we're frankly just surrounded by more people that look and talk the same language as us. I'm not sure.

It's easy to feel optimistic coming out of Climate Week just because of the immense amount of energy that's in those conversations. But if we really step back, there's part of me that feels somewhat concerned that a year into the Inflation Reduction Act. We're still celebrating it. And we're celebrating it at Climate Week, when there's just a massive amount of work and just implementation and deployment that's left to be done.

JEFF COLGAN: And so I'm just curious. Now I'm really going into the Vogue world here but because you mentioned changing clothes at New York Climate Week. Can you talk a little bit about some gender dynamics of the climate tech space?

SOPHIE PURDOM: Yeah, tons of ways to answer this. But at the end of the day, I really would fall back on the meritocratic point. I've been in tons of rooms where I'm the only woman. I've been in tons of rooms that are entirely white. That's true. I also convened a room with some friends at Climate Week just last week where we had around 300 women who are either CEOs, or founders of climate businesses, or are GPs, or partners at their funds actively writing checks into climate solutions. We had more than double of that on the waiting list. So it's like 1,000 women founders and funders that found our little event and wanted to come be a part of it.

JEFF COLGAN: Super exciting.

SOPHIE PURDOM: I don't know about the metrics. But you can't help but feel inspired coming out of a roomful like.

JEFF COLGAN: That's terrific. Great to hear it. Maybe we'll leave it on that note. But I want to thank you, again, Sophie for coming on to talk with us today and to wish you all the best with both Planeteer Capital, CTVC, and the newsletter.

SOPHIE PURDOM: Thank you for having me. Always a pleasure to be back and look forward to hearing from the listeners too.

JEFF COLGAN: Thanks so much.

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MARK BLYTH: This episode of the Rhodes Center Podcast was produced by Dan Richards and Zach Hirsch. If you like the show, leave us a rating and review on Apple, Spotify, or wherever you listen to podcasts. And if you haven't subscribed to the show already, please do that too. You can learn more about what we covered in this episode on the other podcast from the Watson Institute at Brown University by following the links in our show notes. We'll be back soon with another episode of the Rhodes Center Podcast. Thanks.

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