The Clean Tech Network Effect - Ep127: Emily Kirsch

Michael Liebreich  So, Emily, thank you so much for joining us here today on Cleaning Up.

Emily Kirsch  Of course, Michael, thank you for having me. I'm happy to be here, especially because you generously joined us on our podcast Watt It Takes back in April of 2021. So, I'm happy to be here.

ML  Well, I think you were generous to have me on your great show. You know, let's start with the plug, right? What is your podcast? Tell us tell us the name and where to find it, we'll come back to why you do it in a second.

EK  Sounds great. Thank you. So, Watt It Takes is our podcast, watt like a kilowatt, so w-a-t-t, and we feature founders of some of the most innovative companies in the climate tech space, and they tell the personal journey of how they built their businesses, but also how they became who they are. So, for your listeners who want to hear all about your childhood, and how that shaped you, I encourage them to check out Watt It Takes with ML.

ML  Why I'm such a damaged person who has to get their revenge now on all these awful people, these awful entrepreneurs who are more successful than me. Anyway, so we got that bit done, everybody's got a podcast, yours is Watt It Takes, and is brilliant. Not my episode, obviously, but the sort of people... We'll come back and talk about it a bit more. But give the full sort of thumbnail of yourself, in your own words, what is it that you do?

EK  Yeah, absolutely. So, there's two entities. There's Powerhouse, which is a company, and then Powerhouse Ventures, a venture fund. And the company works with leading corporations, and we connect them to startups that have the technology that those corporations, and corporate venture capital arms, are looking to become a customer of, or invest in, or acquire. So, we basically connect the two sides of the ecosystem: big players, energy, tech, utilities, to startups who... they both want to find each other, we make it efficient, and effective for them to collaborate. So, that's the company. And then Powerhouse Ventures is a seed-stage, software-focused climate tech fund. We're backed by some of the world's largest energy, automotive, utility, financial services, property tech and tech companies, along with a bunch of great family offices in the US, and then a whole bunch of individuals. And one of the things I'm most proud of is that Powerhouse Ventures is women-founded, we're women-led, it's a majority women team. And the majority of the individual investors in Powerhouse Ventures are industry leaders who are women, which I think is an industry first.

ML  Now, both parts of that, Powerhouse and Powerhouse Ventures, they're both focused on climate - you said that about Powerhouse Ventures, but didn't say that about Powerhouse. But it's all around climate, is that right?

EK  That's exactly right. And I should have said that; it's so in my blood that sometimes I forget, because I'm like, of course it is! But yes, you're exactly right.

ML  And define for us: when we talk about climate, some people would say, well, that's mainly energy and hard infrastructure and transport; some people go, oh no, it's agriculture, and it's the carbon cycle and the oceans and so on. How broad is climate in your definition?

EK  Great question. And you're exactly right, I mean, there's so many solutions to address the climate crisis, including food and ag[riculture] and water solutions. But in our case, it is really focused on energy, the automotive sector. And so, when we work with clients like Google, who's one of our customers, their focus is achieving 24/7 carbon-free energy; so, 24 hours a day, seven days a week, every electron they consume is from a clean, carbon-free source. So, that's one of the projects that we've engaged with them, connecting them to startups that have the solutions that can help them achieve that goal. And then other clients, like Enel the Italian-based utility, which has deployed more renewables than any utility in the world, we've done everything from autonomous solar O&M, to turbine de-icing, to infrastructure risk solutions. So, those are just a couple of examples of the types of climate solutions that we're able to bring to these massive tech companies, energy companies, utilities, that want to embrace and adopt those solutions.

ML  So I was once told, actually, by my strategy professor at Harvard Business School, that if you don't say no to things, you don't really have a strategy. So, have you ever said no? Have you said, look, we're just not the right people, or that's not climate? Can you think of an example?

EK  Oh, yeah. I mean, many, and we've gotten better at this. I think when you're earlier in your offering, you just want to do everything for everyone and say yes to every project. And we learned the hard way that that is not the right way to do it. We did a couple of projects, one focused on, you know, connected worker, or the future of work, and it had some ties to the climate space, but it was really not our area of expertise. And the client wasn't happy, and we weren't happy, so... So, yeah, things that are outside of our area of expertise, we don't do. And if there are certain products or services that a client might want; if they want us to spin up their own corporate venture capital arm, there are entities that do that - we don't. Our job is we connect you to deal-flow, we do workshops, we do trend analysis, we do top of the funnel startup management. But we know what we're really good at, and we know what's going to make the client happy, and our NPS score is 80, which is world-class, and we want to keep it that way, by saying yes to stuff we're good at, and let others do the things that we're not

ML  Now, you're gonna have to explain... We have a rule here, which I forgot to brief you on...

EK  The acronym rule?

ML  It's the Acronym Klaxon. So I'm sorry, what is an NPS score?

EK  That's good, you can hit the 'err' button anytime I forget: Net Promoter Score. So this is the idea of, for your customers or clients, how likely are they to promote you to their peers and colleagues? And so anything 75 and above, world-class, as good as it gets. And so the fact that ours is 80 is something that we're really proud of.

ML  Now that makes me really worry, because I've never found out what my NPS is...

EK  You gotta find out.

ML  It could be very high, because I might have sort of - not put too fine a point on it - pissed off all the people who don't like me, so they don't listen. So, then I get very good loyalty amongst those who do...

EK  Exactly. It's all about the data sample you're pulling from...

ML  Yeah, it might be a biased sample; maybe there's a way of adjusting for that. Okay, but let's go back to those two different pieces, and talk about them separately. Because you've dived in, you've talked about some of the services, that, I'm guessing, those are generally things that you're providing - because they didn't sound like venture capital - so they're presumably, through the Powerhouse part of the business? So, slow down and take us through those services that you provide. Because I think we get the idea there's a bunch of coaching and informational type services, and then there's an investment piece, which I think probably most of my audience would understand a bit better. So let's start with the difficult stuff...

EK  Yeah, and you're exactly right. The venture fund, pretty straightforward in terms of its structure, you know, we can dive into thesis. Whereas the company is unique: there's nothing quite like Powerhouse. So, the foundation of our services is the same across all the products, and the foundation is a database of thousands of climate tech startups that we've built over the past six or so years. So, we think it's the country's, if not the world's, most comprehensive database of climate tech startups. The data comes directly from them, so we're not scraping what we can find publicly on their website, or from CrunchBase or PitchBook. The fundraising data, the technology information, it comes from the founders directly, and they share it with us because they know that we're going to use it to make introductions to potential customers and investors on their behalf, for free, to them.

ML  Okay, now I've got to dive in here because I'm a data guy, and I started New Energy Finance by building a database of startups. And in my case, where it actually started - and some people who listen to these shows will find it funny because they've heard me on hydrogen - but it started with hydrogen and fuel cells. And it was classic tech startups initially, but it was global. And there was some in Malaysia, and there were some in Bulgaria, and it was hard to find, but that's what we did. Is yours just US? Is it global? And how tightly is it just tech? What's the boundary?

EK  Yeah, it is about 60/40 US/International, and the rate of increase in international is higher than that of the companies in the US, which is interesting. So, 60/40 US/International; and then about a third / a third / a third pure hardware, pure software; and then the remaining third is a combination of both. And that is also increasing, because as you can imagine, you don't have one without the other. So yeah, 50/50 hardware/software, 60/40 US/International.

ML  What about the split? One of the things... Going back to 2004/5/6/7, this was my life; trying to train people to distinguish between, for instance... We expanded quite quickly from hydrogen fuel cells and started to do solar, started to do biofuels, etc. But how do you distinguish between somebody who's got a - it might be a next generation biofuels technology - and somebody who's building a plant? Because the person building a plant is not really a startup in the same way, as somebody who says they've got this fantastic enzyme...

EK  Right, yeah. So, we do - to your point on stage - we track every stage, so from pre-seed, and it's not even publicly known yet, to public companies. But most of the companies in the database are at that seed, Series A, maybe Series B, in part because that's where we can add the most value. If you're already Series B, or beyond, our clients can find you, you know, our clients don't need us.

ML  But it's just a question of stage. Because somebody could have, you know, the magic enzyme, and it goes through pre-seed, seed, Series A, Series B, Series C, but separately, there'll be a bunch of people taking that enzyme and starting up some cellulosic ethanol, sustainable airline fuel, projects. And the reason it's an interesting question is because that's one of the really difficult fault lines between these physical technologies - hard tech - that then has to go off and get embodied in assets. And we kind of have two financing systems: we've got a financing system for tech, and we've got a financing system for infrastructure; but we don't have a financing system for where the two, the gears are grinding.

EK  Yeah, yeah, it's a great point. And in terms of what is in the database, it is not lab, early R&D; these are startups. So, every company in the database - maybe a few minor exceptions - everyone in the database is an incorporated company. And then in terms of what we find, and spend our time digging into, that's based on what our clients want. So, you know, Google, Enel, Black and Veatch, DNV, FRV; these are all clients of ours, and based on what they tell us they're interested in, that's what determines who we go out and... First, look within the database, who do we already know; but then also go out and do the research and find the other companies, so that we can give them a comprehensive landscape of, here's every one you need to be aware of; if you're interested in this kind of tech, these are the startups that you need to know about, and we'll help connect you to them, and help you filter who is the best fit for what you're looking for.

ML  Alright, but the focus is very much on the tech and not the asset. is what I'm hearing?

EK  Yeah, that's generally right.

ML  So, the core of the service, you've got the database. How many entries have you got? How many companies?

EK  Nearly 7000. We add about 600 every quarter, because that's how many we're finding, and how many are being created. Which that, in and of itself, is pretty incredible. And our value-prop to our clients is, you can't possibly keep up with all of them, that's not your job to, but that is our job. So, let us make your life easier by doing that comprehensive analysis, pull from every incubator, accelerator, prize competition, DoE grant, LPO loan, and package that and make that quickly accessible for clients.

ML  And who do you come up against as competition? Is this Lux Capital's-type work? We had Gina Domanig, Emerald Technology Ventures, from Zurich who... she didn't talk about the database, but I know - I'm an advisor there - I know she's got one, and it's huge. But those are sort of, is there anybody else? Or is it more of the kind of pure-data players, the kind of VentureSource whatever they're called now?

EK  Yeah, there's a couple different categories, and it's worth mentioning, while I've talked about the database, and I'm very proud of it, this isn't a SaaS product, we don't sell direct access to it; it's what we use internally as the foundation for more consulting-based work, based on what the client wants. And when we do the NPS, the Net Promoter Score interviews, we're asking what do you value most? And it's not, oh, I want to just go in the database, it's the conversations with our expert team of PhD physicists and battery chemists who are helping them evaluate these technologies and understand the market. So, in terms of competition, a couple categories. One is people compare us to incubators and accelerators, which we used to be way back in the day, which we can talk about. And our response there is they're great, they play a really important role, but they're just inherently limited by the number of companies they can fit in their physical space, or in their cohort-based program, if it's an accelerator. Whereas we pull from all of them, so we're gonna see everything they see and so much more, so that's the incubator and accelerator group. The other group that you mentioned are more kind of generalist consultants, maybe with some climate focus, some without, but entities that do help CVCs spin up, or help them operate, and are responding...

ML  Klaxon: CVCs?

EK  Oh, thank you, thank you very much. Corporate Venture Capital arms. So, for corporations who want to set up venture arms that are either directly tied or indirectly tied to their operations, CVCs - Corporate Venture Capital. So, that's the second big category, is kind of generalist consultants. And our argument there is, they might be great; they're not going to know climate the way we do. So, if your focus is decarbonisation and innovation in that space, we're going to be better. And then the last group you mentioned is just database services: CrunchBase, PitchBook. And similarly, they're great, but the data is not going to be as accurate because they're not getting it directly from founders, and they're not climate-specific. So, if you search, managed charging in CrunchBase, for example, you might find, I don't know, a handful of companies; in our database, there's maybe 30 or so. So, just to give an example of how that's different.

ML  This is fabulous for me, it's a real sort of walk down memory lane, because this is how I started New Energy Finance. Very interestingly, we made the decision - partly because I come from a publishing background - it was a SaaS product. So, right at the beginning, actually, with my co-founder, boss cut, who came out of venture capital, he wanted to raise a fund; I didn't know how to do that, but I didn't know how to sell Business Information Services. And so, we built it very much as something that other people could then interrogate. But then we discovered - I think which is also what you've discovered - is that people don't really pay for raw data, or they don't pay much; they pay for insight, and they pay for introductions they pay for

EK  Exactly, exactly.

ML  So, what are your services? How do you then service-ize, how have you product-ized? So, that gives you the credibility, it makes you confident, you know, you meet, you've got all this information. What are your actual services that you deliver to your clients?

EK  Yeah, so for products - and this is also a little unique, oftentimes consultants are kind of like, we'll do whatever you want, but as we've talked about, we don't do that - we say these are the four products, we do them really well, if you sign up for them, you're going to be happy. So four: one is workshops, that's kind of the primary flagship product, and what that means is, throughout the course of a year, each quarter, the client selects a topic that they're interested in; it could be let's say, managed charging. We come up with a list of - depending on the topic - usually 20 to 60 initial startups based on their criteria. And then we meet with them every two weeks to just narrow it down and narrow it down until we have a group of about half a dozen startups that could actually be a source of technology for the client. Or, if it's a corporate venture capital arm, if they want to make direct investments, there could be investment potential with the startup, or it could even be an acquisition target. And we measure ourselves based on outcomes, meaning customer agreements, investments, acquisitions; that's how we know if we've done a good job, is if the client actually decides to partner with a startup. So, the workshops are, one topic per quarter, start with a big list of companies, narrow it down, narrow it down. And then we actually bring the startups in to meet directly with the heads of the business units, or the heads of the CVC, and then we track those outcomes. So, we're not taking it all the way through, we're not investment bankers, you know, enabling transactions. But we are enabling the connections that result in those transactions.

ML  I'm really thrilled actually, because I heard somebody.... there was an investment transaction - £30 million transaction, decent size - and it was somebody who heard about the business because the principal came on Cleaning Up.

EK  I love that, that's the best.

ML  It's always a good feeling. That happened when I was doing New Energy Finance, people came to one of my summits, and then created a billion-dollar fund, and the first time it happens you're like, wow, it's working...

EK  Totally, I love that. Yeah, the outcomes from the podcast are the best, like stuff that you just don't know about.

ML  So, that's one service, the workshop. You've branded these services, though. So what's that one called?

EK  That's Catalyst.

ML  That's Catalyst. Okay. Catalyst is these workshops, right. What are the others? You've got three to go.

EK  That's right. So, the second is Conduit. And Conduit is connecting clients, mostly corporate venture capital firms, to deal-flow. So they say, we want to make direct investments into startups, here's our criteria, here's what we're looking for, you Powerhouse, tell us who we should know about. And sometimes they get inbounds from startups - I mean, they do all the time - but the question is not, are you getting what's coming to you, it's how is what is coming to you, how does that compare to the entire landscape of what you could have access to if you had the whole picture? So Conduit is deal-flow, both based on what the client wants, but we also send them the top 50 startups. So, every quarter I mentioned those 600 startups that we add, of those that are our favourites, we come up with a list of 50 - whether it fits the client's criteria or not, because sometimes clients just want to see like, well, what else is out there that we may have not expressed interest in, but if we saw it, we might want to dig in deeper? So they get their list of startups that could be of interest for investment, and they get active deals that we find, that we think are interesting. So, that's Conduit. And then the last two, one is called Capacitor, and this is top-of-the-funnel management for corporations, or CVCs, who are just overwhelmed; these are huge corporations, but their CVC teams are usually pretty small, and they get inundated with inbounds, and they don't always have time to just filter through it and help decide what should actually get in front of the team and what shouldn't. And so, we take that burden off their shoulders, and we say send us everything; we love it because it's good for the database, it helps us build our database, and based on their criteria, we filter, we tell them, alright, here are the ones you should talk to, ignore the rest. So, that's Capacitor. And then the last one is called Compass, and that is trend analysis. So, because we have all this proprietary data, because it's so accurate, it comes from the founders, it's free to startups so they're incentivized to share it; we get to do all this interesting data analysis in terms of what sectors are growing most quickly, what's happening with fundraising rounds, are earlier stage or later stage companies and long duration energy storage raising more money and why? So, that's a really fun one that kind of gives that, 50,000-foot view relative to things like deal-flow, very specific investment opportunities.

ML  Okay, so you've got these four services. And to me, it's kind of obvious that they're valuable, and our audience is very diverse; we've got everybody from, we've got academics, we've got civic society, we've got big project investors, we've got some VCs, a lot of policy folks. To some of the audience it will be clear why they're so valuable, because this is kind of like this whole venture process is a bit like dating; you don't know what's out there, you don't know whether the people you're meeting are... are they the best of the crop, or are they just.... And so what you're really doing is kind of, it's almost... it's not so much a dating service, but it's almost like structuring the dating services.

EK  Yeah. No, I love it. I love the analogy. I never thought of it that way, but now that you say it, that's pretty good.

ML  Well, if you if you ever want to diversify, then you could probably use the same sort of software.

EK  Yeah, totally, totally.

ML  Okay. But now you didn't, when you started, though... When you started initially, you were not doing, you hadn't structured it? I love these stories about... I love seeing where the mature of the species is this very structured set of services, and I understand the value-prop. But you started doing something different, and then we need to get back to the venture piece as well. But let's now back up, and go back to when you started, which was, when was it?

EK  It was like 2013, 10 years ago.

ML  10 years ago? There's kind of... I don't know, am I allowed to say this, there's young you, deciding you're gonna start providing some kind of a dating service between climate tech providers and climate tech investors? And how did you go about doing that? And why?

EK  Yeah, and you're exactly right, so it started 10 years ago, and when we started the business model, completely different. So, we were an incubator and accelerator, that was the need that I saw 10 years ago, that didn't exist in the San Francisco Bay Area, which blew my mind; like, global head of venture capital, global head of climate tech innovation, and how does this entity not exist? And I was young and naive enough to say, you know what, I'm just gonna try it, I'm probably going to fail, but I'll be happy if I try.

ML  What were you doing just before? You just woke up one morning? How did things come together, and that epiphany, I'm gonna actually, this is what I'm going to do?

EK  Let's see. So, at the time, I was working at a nonprofit organization founded by somebody who's well known in the US, but might not be to all your listeners, named Van Jones. He mostly does political commentary now on CNN, but also a whole bunch of venture investing in climate and infrastructure. And I worked at the nonprofit organization that he started back in, starting in 2006, and worked on workforce training, local climate policy, state ballot initiatives related to climate solutions. And through that work, had the opportunity to work with a startup. And that was my first exposure to entrepreneurship, was helping them establish their pilot, which was here in Oakland, California, and seeing how much value I could add to them just by knowing who their customers were, and connecting them to their initial customers. The light bulb for me was, well, every startup needs connections to customers and connections to capital, and they need community, and so that's when I looked around for months to see if this thing existed, and I couldn't believe that it didn't. And so, I think because I was at a nonprofit, I hadn't taken that somewhat traditional path in our space of going to an elite school, and working for a consulting agency right out of undergrad, and having these golden handcuffs. I was living very cheaply and said, you know what, let's try it, and see what happens.

ML  So you didn't come through, I don't know, Environmental Sciences...

EK  No, I can tell you for sure.

ML  You don't have a kind of biochemistry from wherever, MIT, Material Science. So, you came through a much more... Was it a social sciences background?

EK  Yeah, well, it was. So, when I went to undergrad, there weren't climate-focused programs, it just didn't exist. But that's what I wanted, I wanted to study solutions to the climate crisis. And so, I was able to create my own major, and this kind of fits into this entrepreneurial journey of just, do it yourself, figure it out, experiment mentality that I think I've always had. And so I was able to create a major that looked at things like energy and water and transportation and infrastructure around the world, and who's doing it best and why, and so I felt really fortunate to be able to put that program together. And that led me to the work with Van, and then the work with the startup, and then eventually starting this incubator and accelerator.

ML  And the incubator / accelerator, that's a physical space where you were bringing people together? And so you went into the real estate business?

EK  I did. I was in my late 20s, and I took out a $50,000 per month lease for the top three floors of this old brick building in Oakland, and it was amazing. At one point, we had 120 entrepreneurs in the space, over a dozen startups, hackathons, happy hours... It was, and continues to be; that community, that's still the foundation of Powerhouse. But about five years into it, I was like, I don't want to be a landlord, this is really risky, I don't want to do facilities management, and this model doesn't scale. It's really fun, it's really important, but I want to make a global impact; I want the largest corporations in the world and investors to decarbonize their operations by embracing innovation, and we're just not going to get there with a couple dozen startups in our physical space, or this accelerator program - that adds a lot of value, but to such a small number of companies at a given time. And so that's when we decided to make that pivot to what we are today, which is this innovation firm that can connect global entities with startups that are also global, providing thousands of different solutions to the thing that we're all trying to do.

ML  Okay, so you went from the physical space, to the set of scalable services, right? That's the first piece of... Where you started was that service piece, Powerhouse, right? But along the way, you also created Powerhouse Ventures. How did that, where did that start? Where and when did that start? Where are you on that?

EK  Yeah, so that started in... We launched our first fund and started investing in 2018. And it came about because we just realized, we were sitting on this treasure trove of data. You know, I mentioned Compass, the trend-analysis offering; and we were like, we know all the startups, we know them at the earliest stages, and we know what their potential customers, investors, acquirers, we know what they want, we know what they want to become a customer of, we know what they want to invest in, we know what they want to buy. And so we had the idea that one, we have this proprietary information; two when we started Powerhouse Ventures, there were basically very few, if any, other seed-stage climate tech funds, which is hard to believe now, because there's so many. But when we started, it was like angel investors and DoE grants, and that was kind of it for early stage companies.

ML  Well, of course, that's because they all went bankrupt. I meant the funds didn't, but the portfolio companies. Because of course, when I started 2004, there were none, and then I remember there was something like, at one point, there were 1500 in my database, investors in either climate tech, clean tech, energy tech, whatever, however you wanted to define it. And it was hilarious, and I was telling people, this is going to end in tears, I've been there, I lived through dot.com.... It was all the penguins, you got to do it for the children.... I'm like, okay, let's wait and see. And sure enough, then we got the clean tech 1.0 bust, and then that's presumably about...

EK  That's when we started.

ML  That's when you started, at the bottom of the next wave.

EK  Just like Buffet: join when everyone else is leaving.

ML  It's amazing that it felt like a desert, to you, because it had been so overcrowded in about 2007/8.

EK  It was, and like you said, yeah, no, it absolutely was. And then you know, that dip. And so then, there were very few other funds, but there's a cohort of us that all started around the same time, like Congruent Ventures, Wireframe ventures, who we frequently co-invest with. And now, of course, we're back to that, there's many, many, dozens if not hundreds now. But yeah, so we started it because one, there was a market gap that we could uniquely fill, and two, we have this proprietary set of data, and this proprietary network and community, that we could tap into. So, that's kind of the impetus for starting the fund.

ML  And so Fund One you closed in which year? And how big was it?

EK  Fun one, we closed in the summer of 2018, and it was a tiny pilot software-focused seed fund of $7 million dollars. We set out to raise five, and we were very happy with ourselves to raise seven. And it was mostly individual investors, and we made 26 initial investments. So, you can imagine given the fund size, initial checks were you know, 100k, 200k. But we've invested in some pretty incredible companies, some of which are now valued at, quarter of a billion dollars, and doing really amazing work. And yeah, happy to mention a few of them if you'd like.

ML  Yeah, no, absolutely. What are your... who your favourite children? It's the question you ask any parent, but what are your favorite investments from that fund?

EK  Let's see. So, a few that are that are furthest along; so this is in part just because we invested in them early in the fund life, but also a testament to who they are; and I think they represent a good diversity of our thesis, which as I said, is seed-stage, software-focused climate technology, mostly in the energy transition and electric mobility space. So, the first is called TeraBase, they've closed a series B, and they provide an interconnected digital and automation platform to reduce the cost and increase the scalability of utility scale solar. They were founded in 2019 by a bunch of SunPower execs who left. They've done 30 gigawatts of large scale solar projects, have used their software and now they're getting into the robotics and automation space. So yeah, they're currently active on more than 15 gigawatts of solar in 10 countries; they've got over 100 people on the team all over the world. And they've raised over 70 million dollars.

ML  Cool. Okay, very cool.

EK  So that's one. Another very different space but related, they're called Leap. They've also closed a Series B; they connect Distributed Energy Resources, or DERs to wholesale energy markets, and they've raised 30 million in equity, and then more in debt, have about 75 people on the team, half of which are just pure engineers. They've got about 60 distributed energy resource partners, and they're managing about 70,000 devices; so we're talking EV batteries, Nest thermostats, any smart device that can contribute to a virtual power plant. And thus they're aggregating about 700 megawatts of authorized load.

ML  Nearly one big power station worth, that's something.

EK  Exactly. Their whole thing is, don't run peaker plants if you don't have to; they're dirty, they're expensive, we can do it with distributed energy resources, if we aggregate them thoughtfully through software. And then the last one also in the solar space, they're called Raptor Maps. They've raised a series B, and their whole thing is advanced analytics for solar ONM, and they create a digital twin of solar projects; they have analyzed more than 75 gigawatts of solar across 45 countries. They started in 2015. So yeah, the overall thesis of the fund is we can get to 90% decarbonisation of the electricity sector with existing tech; we don't need new tech breakthroughs to do most of what we need to do to decarbonize. Yes, that remaining 10%, we got to figure out, and that's decarbonizing industry, and sustainable aviation fuels. But most of the tech we need, we just have to get it to scale. And those are the types of bets that we make.

ML  Okay. Emily, I've got a reputation to uphold here, of being difficult. Three great successes in that fund... What are the stupidest investments that you did from Fund One?

EK  Wow. I don't know if I can categorize any of them as stupid. There are certainly ones that have been slower...

ML  Have any of them just disappeared? They're just gone?

EK  Incredibly, no. Which, I mean, I think it speaks in part to the value of a software-focused fund, is that it's relatively way lower capex; you get relatively higher multiples when you do exit; and exits are relatively faster; and margins are higher. So, there's a lot that kind of is in our favour in terms of that structure, but we actually yeah, we haven't had anyone go under...

ML  So no one's gone under, but you do have some zombies? Come on, admit it.

EK  There are some that are struggling and especially in this market. You know, we started in 2018, it's been nothing but sunshine and puppies in climate tech since then up until recently. And now everyone's experiencing life in a down round, and most of our companies started in this boom time. And so, we are spending a lot more time supporting the portfolio versus what we were doing up until somewhat recently, which is just always seeking new deals and you know, supporting them; now it's like alright, we got to double down and support those that we've backed and make sure that they can get through the hard times if that's the right thing for the fund. Or, you know, help them sunset gracefully if it's not, but thankfully, that hasn't been something we've had to deal with yet. But I'm sure we will...

ML  Any exits?

EK  We have had a couple of exits. So, we have had some early exits out of Fund One; nothing that's returned the fund... Those exits take longer to develop because they need the time to become worth more. But yeah, our very first exit was a company called Ensemble Energy, they were doing advanced analytics for wind operation and maintenance, and they sold to, or were acquired by, a company called SparkCognition, which is a global leader in AI. And SparkCognition had an energy practice, but not a renewable practice, and so they acquired Ensemble early so that they could just have that be a part of their offering. So, that was our very first exit and that was probably a year and a half ago.

ML  We good any others?

EK  We've had two others. One, a company called Solstice, a community solar company that sold to Mitsui, and that was about six months ago. And then a company called Mobilized, focused on EV charger utilization, and that was acquired by another company called FreeWire Technologies. So, those are the three: all good, but all small. But we do track company valuation appreciation.

ML  Right, how's the fund doing overall? Because you've raised a second fund, which we're gonna get onto in a second. So, presumably, overall, you can tell a good story?

EK  Definitely, I think the traction, especially those ones that I mentioned like TeraBase, and Raptor Maps and Leap, I think those are indicative of the types of companies that are worth a lot more now, and if and when they exit are going to be those that really make the fund a success. But even today in Fund One... So, we track what was the value of the startups when we invested, relative to the value today? Based on an actual round that has closed, so not projections. And so for those that have raised subsequent rounds, which is the majority of them at this point, we've seen a 5.7x valuation growth rate or valuation appreciation, with the top performers being closer to like 10x or 11x. So, that's where we are in terms of fund performance to date.

ML  And for those who are not VCs listening, there's a very standard methodology of valuing your portfolio. Of course, you only really know when you actually get the exit, and the cash is in the bank, which might take years and years and years and years to get the last bit of cash. But you do revalue based on, oh, well, if there's another round, and that share price effectively has gone up at that point, you're allowed to sort of say, right, I'm doing well. So, you're at that point in the proceedings.

EK  And then it's worth saying, the company valuation appreciation isn't one of those standard metrics, it's something that we track because we're still early enough in the fund-life that things like multiple on invested capital, which I think is really the Holy Grail, sometimes people talk about IRR, which is important, but ultimately, I think that is the metric and, you know, still a little early in the fund-life, but on the right trajectory. And the company evaluation appreciation is a nice way to see if we're on track or off track, and I think, on track based on what we know.

ML  So, my experience as an angel investor, and sometime VC, is that for the IRR, you either need to get it in very early, or just before the exit. But that doesn't make any difference, because what you really want to do is have money and spend money; it's cash-to-cash that really makes a difference to your lifestyle or to your ability to cause trouble and so on...

EK  Exactly, which is why MOIC, or Multiple on Invested Capital, is really the metric that we're going for.

ML  That is the gold standard. What about Fund Two? So, Fund One was only $7,000,000, 26 investments, you've done that, you finished investing that a couple of years ago. Fund Two.

EK  Yeah, so Fund Two. We did a big jump; most funds, maybe you like 2x, or 3x, from one fund to another, but because Fund One was so small, we set out to raise $50 million in Fund Two, and there was definitely that valley of fundraising death when we were at about $30 million, we just weren't getting any further, and we were like, this isn't going to happen, we're failures, this sucks. And then, lo and behold, you set a deadline and all the LPs decide to join you, which was incredible. And so we ended up having Fund Two being $25 million over-subscribed, so it was a total of $75 million, which... So, more than 10x from Fund One to Fund Two, which I don't think we'll 10x from Fund Two to Fund Three, because... I mean, that would be difficult. But also it would take us away from the seed focus, which is what we love most. So, $75 million, backed by... We wanted at least one of the world's largest corporations to join us as a limited partner investor, across all the areas we invest in. So, that's energy, the automotive space, utilities, financial services, property, technology and tech. And we somehow miraculously were able to do that. So we brought in Total, Toyota, Energy Impact Partners, which is a 3 billion AUM utility consortium... a venture fund made up of utility investors, Fifth Wall on the property tech side. And then Microsoft, who was our very first investor in Fund Two. And they anchored the fund, and the fact that they came in so early, and their credibility, their reputation, I think that made it possible to bring in the rest of the capital. So, both the corporate investors, but then also family offices in the US, so, prominent names from the Walmart family, and Hewlett Packard family, and the Schmidt family, through their entities. And then a whole bunch of industry powerhouses who... the people who would have had incredible exits already, you know, they as individuals have doubled down and said, I want to back the next generation of entrepreneurs and benefit from their upside. I'm going to help you with sourcing and diligence and supporting the portfolio companies, and that's, I think what makes us so unique, is: we have many, many investors and a lot of fund managers, when I tell them that they're like, that must be awful to do that fund-investor management, and it's the opposite. We love it, it's so beneficial to us, it is that community that Powerhouse... That's how Powerhouse began.

ML  And I'm very much hoping that when you do get on to Fund Three, I might have found a little bit of cash down the back of the sofa, and be able to come in on it.

EK  I hope so.

ML  Fund Two, I was really... You kept sending these emails: we're doing a first close, we're doing a second close come, come on Michael. I just didn't have the liquidity, and I still don't. Fund Three, let's keep our eye on the prize. And how much of Fund Two have you already put to work? And have you already got your favourite children, your favourite, star portfolio companies?

EK  Too early for favourites, but happy to mention a few that are doing great. We've deployed $7.7 million. So, it's also incredible, this is just the first year of Fund Two deployment, and we've already deployed more than all of Fund One combined. So, that's been interesting. Cheques now, average cheque is a million, or $1.5 million, versus the $150k we were writing out of Fund One. And yeah, a couple that we're most excited about, that also give a good sense of the breadth of the fund: one of the earliest investments we made - actually the very first - out of Fund Two is a company called BattGenie. And they use software to dynamically charge and discharge both consumer and EV batteries in a way that optimizes battery health, battery life, battery performance. So, pure software play, which hasn't really been done before; there's always been a physical or hardware component to solutions like this. But that's one. Totally different space, a company called Salient Predictions, which improves seasonal to sub-seasonal weather forecasting. So, that two to fifty-two-week period, which, as you know, has everything to do with energy, energy trading, but also ag and insurance. And, you know, you need accurate forecasts to do anything in energy well.

ML  So, I know Salient Predictions. Because one of the people involved is somebody that I got to know very, very well during the earlier years of New Energy Finance. But I wasn't able to get in on the round; I actually wanted to, I was very interested.

EK  If you had joined Fund Two, you would be in the round, through us.

ML  Yeah, well, that's one that got away from me. But I love it, because the salient refers to salinity. One of the things they do is they check salinity in the oceans, and based on that, they know how much evaporation and therefore how warm the sea must have been, and that gives them the edge.

EK  Yep, exactly, exactly. They're a phenomenal team. Last one, totally different space, they're called Adaptis, in the built environment space. And they help building owners and developers plan for operational and embedded carbon and waste during the design phase. So, they can do hundreds, if not thousands of iterations, of design in order to optimize for what building owners and developers care about, which increasingly - either because it's regulated or because they're doing it voluntarily - is about embedded carbon. So, those are just a couple examples from Fund Two.

EK  Okay, now, thank you. We've got a few minutes left, and I want to do what you did to me, which is the rapid-fire round.

EK  Okay, here we go.

ML  I don't know how rapid-fire will we'll be able to go, because these are some of the kinds of areas of, I don't want to say controversy, but challenge, difficulty... There is this huge debate between research versus deploy, right? And Vinod Khosla wrote a piece in The Economist saying we shouldn't do wind and solar, we shouldn't be rolling them out, because they don't do baseload, and we should be doing fusion, and we should be doing Small Modular Reactors, and we should be doing super-cooled transmission lines. And I wrote a piece saying, well, actually, none of those things will meaningfully - meaningfully as in more than a few percent - deliver energy, electricity by 2050. And therefore, we have to do what we've already got. So, where are you on the Khosla-Liebreich scale, between deploy nothing and go for the breakthrough, or deploy what we've got... Actually, the Liebreich position is not actually just deploy what we've got, it's actually deploy, deploy, deploy, and also prepare for the things that really will be - in the 2040s, but certainly in the 2050s - major contributors. So where are you on that?

EK  Yeah, definitely closer to your end of the spectrum, which maybe is why I'm on the show, although I know you have people on the show who you disagree with, which is great. But yeah, I mean, I'm right there with you, and our whole thesis backs that up, which is we absolutely need both. And anyone who says it's just one or the other, I don't take them very seriously. You know, there are these hot debates on Twitter about it, and I just roll my eyes, because I think anyone who's really in the industry knows, like you said, we need both. But the reality of climate science, and the timeframe that we have is, we have to get what works deployed globally as quickly as possible, and you do that with software and financial technology. And so that's the whole thesis of our fund, is, we don't take tech risk, we don't have to, just get the good stuff out there. We've had government backing for things like wind, solar batteries, EVs for decades, and that's why solar is the cheapest form of electricity in almost every energy market globally today. We will get there with other tech, but there are other funds, and there are government programs, especially here in the US, the ones that we know most about through Office of Clean Energy Deployment and the Loan Programs Office, led by Jigar Shah, who is absolutely on this train with us, who just... his whole tagline is "deploy," and that's what he's enabling. But also, DoE, is playing the role, Department of Energy is playing the role they should play, which is supporting those breakthrough technologies that do have that ten to twenty-year path to commercialization. We need both, but let's buy ourselves time to get those longer-term solutions to market, because that is going to take time, and that's time we don't have. So, if we ignore what's working today, or don't focus on deployment, I think we're making a mistake. And we're losing out on upside; that's where there's less risk and higher, faster multiples, which we're very happy to be leveraging.

ML  Very good. And Jigar Shah, whom you mentioned, was on this show, actually, before he took over as head of the government Loan Office, so we'll put a link in the show notes. And Vinod, if you're out there, you're listening, I'm sure you are, and you want to come on the show, you'll be welcome anytime, just have your people reach out to my people, or to me. IRA versus carbon price? Klaxon alert on myself: IRA is the US inflation Reduction Act. So, Inflation Reduction Act versus carbon price?

EK  So, you're gonna get a lot of this from me, which is the "yes, and." So, you know, less exciting from a content standpoint, but it's true. It's, you know, ideal world, we have both, and we do; we have the Inflation Reduction Act, and there are many markets, a few in the US and more in Europe, that do have a price on carbon, and we've seen the impact of it. There's research that pricing carbon in the EU led to a 10% increase in the number of clean tech patents and innovations since that price has been in place. So yeah, both, "yes, and." And the fact that IRA is now giving Europe FOMO, the fear of missing out of, on-shoring these jobs and keeping them there? That's great, that's the way it should be, that's the way these policies should work, is that we're trying to one up each other in a way that serves... addressing the climate crisis, but also creating incredible investment opportunities. So yes, I'd say "yes, and."

ML  Hardware or software?

EK  "Yes, and." Of course, of course. And these days, it's really rare that you have one without the other. Even some of the most prominent hardware-focused companies... We had Mateo Jaramillo from Form Energy on our podcast, Watt It Takes, and when they started, it was a pure hardware play, but they realized they had - and he talks about this on the show - they realized they had to develop software to help utilities value what they were offering, because what they were doing didn't exist. And so, that's now a product that they're able to monetize. So, even in what seems like the most hardware-focused of innovations, even they are focusing and building software teams to really optimize the value of what they're creating.

ML  Let me come back on that one, because the VC model is not... Well, I should phrase it as a question: is the VC model ideal for businesses that are hardware-based, but also that inevitably require substantial assets... It's back to the question at the beginning of our conversation: when you have a company that fundamentally at some point has to go and build a hell of a big plant, does that company fit the VC model? Yes or no?

EK  Maybe. But, I'd say there are so many types of startups in climate, and VC works for some, and it doesn't work for others. And this idea that VC works for all climate tech or no climate tech - it's just not, I think it's not that black or white. Venture capital, to your point, it requires high reward potential in a specific timeframe, and there are certain startups, certainly those that we've backed, that we think will enable that. But there are others that, like you said, just take more time, take more capital take different types of capital. And so I think, at various times in a startup journey, there are various types of capital that make sense or don't make sense. And in the US, we mentioned a couple of the government-focused programs, you know, Office of Clean Energy [Demonstrations], which is doing not just loans; like Jigar is doing loans, which is great - one, two billion dollar loans at a time, totally incredible - but then OCED, Office of Clean Energy [Demonstrations] is doing $26 billion over the next four years just in grants; you don't even have to pay it back. So, those sources of capital, especially for things like direct air capture, sustainable aviation fuels, decarbonizing industry, really important. But there's also entities in the US, like, Generate Capital, which Jigar was a founder of before he joined the Loan Program Office, and Spring Lane Capital, that provide different types of, of first-of-a-kind project financing, or when they start to scale up that project finance, before you can get more traditional investors to take that risk. So, that industry, you know, didn't exist 10 years ago. But these entities have popped up to kind of fill the gaps between DoE, venture capital and then kind of later stage, less risk-tolerant financing.

ML  I love the way you've described that because, we talked about how, when you started, there was the desert, but before the desert, there was this sort of flowering of venture capital in clean tech 1.0. And I think one of the big reasons why it almost all failed, is so many of the people in it just did not understand anything beyond the venture model. They didn't understand that you had all these other pools of capital that you needed to assemble. They had no expertise in assembling them, they had no understanding that they were even needed, and it was a big surprise to them that hard tech, building businesses around actual kit and then potentially around even big plants and constructions and so on, it was a huge surprise to them that that didn't work just like, I don't know, Snapchat or Palantir, or some software play and so on. And it is very different now, you do get people who understand that.

EK  Yeah, exactly right. Yeah.

ML  Oakland bias. Is it a thing? And how do you deal with it? You're sitting in Oakland, right?

EK  Oh, yeah. Yeah, this is our office in Oakland. That's our headquarters. We do have people now across Powerhouse and Powerhouse ventures in Toronto, Michigan, Houston, Pittsburgh, Washington, DC.

ML  But not in... But you don't have people in Lagos, Kuala Lumpur... I mean not even Berlin, London. But when I say Oakland bias, I'm talking about... There's so much of the world's venture capital is Sand Hill Road, it's California, it's very specific, and has a very limited outlook on the world... In some people's view, I wouldn't possibly comment...

EK  No, I mean, I do very much agree with that. I think Oakland... I live here, which is part of the reason the company's here, because you get to do that when you found a company. But it's also you know, it's sunnier and cheaper than San Francisco and it scrappier and that's a part of our identity. You know, Powerhouse started with this kind of scrappy, DIY, community-building culture, and that has continued through to today. The reasons our clients love us at Powerhouse, and our founders, I think, love us at Powerhouse Ventures, is because there is that community focus, and it's not just transactional. Venture capital is such a transaction-based industry, and while that is the case, we don't have to be as people. And so in terms of Oakland, I think it is indicative of who we are, which is pretty personable. We're people first; when we're evaluating companies, we're seed-stage, we don't have a tonne of data to analyze, it's really who are you, as a person? And that's what we figure out really well.

ML  Okay, but that's the... You've done something very elegant there, you've said, oh no, Oakland is this tremendous advantage, because we have our own culture... I was really coming at it from the perspective of... Climate is a global problem, and, frankly, we are, in the developed world, decarbonizing. You only have to look at the trends, and you look at the OECD, and we're all over the peak, and we're coming down... We're not coming down fast enough, but we're coming down the other side. And then you look at China, and you look at India, and you look at the big countries in Asia, the Indonesias, Malaysias, the Pakistans of the world. You look at Africa, which is the big coming power in terms of population, and hopefully in terms of wealth and lifestyle... Are you really working on the right... can you address any of that from where you sit?

EK  Hmm. I think we can, in this in this global world, especially post-COVID. But we were doing deals remotely before because you know, we're software investors, we don't have to be on site to analyze an opportunity. The fact that at Powerhouse, the fact that the database is already 40% outside of the US; at Powerhouse Ventures, the fact that our portfolio companies are working in every market in the world, including those in Latin America, and Africa and Asia. Yeah, I think we feel very capable as a team; most of us are digital natives, and have never known anything other than this interconnected world. We feel really comfortable and confident doing deals and making connections that are global.

ML  But would you fund a startup in South Africa? Or in Kenya, or in Ghana, or in or in Kuala Lumpur? Would you do that? Or would you say, look, let's be serious here, we just can't do our job in this kind of high-touch incubat-ey, early-stage venture, with that geographical distance and cultural distance?

EK  It's a great question. We have made bets for companies... We want them to be incorporated in established markets, but they can be operating anywhere in the world, and we do have companies whose first market is Nigeria, or, you know, other parts of Sub Saharan Africa. And the question we ask ourselves is, can we support them meaningfully? And if the answer is yes, then we will make those bets. But if the answer is no, because we just, like you said, we don't know the market, we don't have the same kind of connections and the ability to offer value to the founder, then we might direct them to others in our network who could do a better job of that. So, it's really a case-by-case basis, and you know, do we see the opportunity for a venture-returning company or not? And regardless of where they're operating in the world, we absolutely look at all of those opportunities.

ML  Okay, final rapid-fire topic. I've had three VCs on Cleaning Up: Nancy Pfund, Gina Domanig, and yourself. You know where this is going. I've also, by the way, I've had some fantastic women but also men entrepreneurs. But my question to you is, are you going to outperform the guys?

EK  Data says yes. I mean, every study of fund managers and startups, those with diverse executive leadership have better financial performance, period. Plenty of studies to back that up, and so, you know, data is on our side, but to be determined. That is my hope, though. I hope that the fund, Powerhouse Ventures is one of, if not the most, successful startups in the climate technology space. And for VC, that means top quartile is like 15% to 27% IRR; S&P is about 10%, so just to give some kind of relative context. But again, the multiple on invested capital, that's really, that's kind of what we're going for.

ML  But if I challenge you, you said that diversity is what brings the results. But you're not diverse, you're almost all women - that's not diverse!

EK  Fair, fair. One of my mentors and advisors pointed that out, and it was really funny, he was like, don't claim diversity. But no, so, three women on the team, two of us are partners, myself as managing partner. Two men on the team, one Latino man, we have a Native American woman. So, when we think about diversity it is geographic, it's gender, it's nationality, it's language, many, many elements of diversity that we think about.

ML  And you've got about now 26 investments in the first fund, and seven in the second. So you've got 33 investments; how many of them have got women CEOs? Because that was something that I found very hard as an investor to find and invest in women-led companies. And when we were doing the Bloomberg New Energy pioneers, year after year, we would try really hard and have like one or two women out of ten on the stage, when it came to prize-giving, when it came to finding the best startups. And we really tried. Do you find that hard? Or is it easier now, or where you are?

EK  I'm guessing it's relatively easy compared to how it was when you were doing it. But I think it is still hard and it still requires a lot of intentionality, and it will not happen without that intentionality. So, you know, I think a lot of venture managers want to do the right thing, but if you don't put in effort, it's not going to happen, and if you don't have a goal, and you're not measuring yourself, and tracking data, you're probably not going to achieve a goal, especially if you don't have one. So, at Powerhouse Ventures, we've said that at least 25% of the investments we make will have a founder that is under-represented, and that captures not just women but under-represented people of colour. You know, plenty of Asian, South Asian representation in our portfolio, but in terms of black, Latino, indigenous, that is much harder to find. And so that's the goal that we've set, and we're on track for that with Fund Two, that a quarter of the investments that we've made are led by under-represented founders, which is hard, but we're proud of and yeah, we're excited to have the goal and we're excited to be on track to meet it.

ML  I love the word under-represented in this context, because I did lots of work, running BloombergNEF, building the BloombergNEF Summit, and making sure that we had women thought leaders, but I was not switched on to other under-represented groups. And that's a regret and something that I've tried to address, because it does encompass so much more than just... Gender is almost, it's the sort of visibly easier one, or the one that's easiest to start and to talk about, but that journey can't possibly stop there. I also love the word intentionality, because of course, in the English language, I don't even know if it exists, but I do know exactly what you mean. You have to really focus on this stuff and talk about it and so on.

EK  Agree, and it does, I think it helps that because we are women-founded and women-led, I think we are more... we have some competitive advantage because women want to work with other women, and women investors are more likely to back other women and other underrepresented people. So, I think there's some competitive advantage there.

ML  Emily, I've kept you beyond the hard stop time that you gave me, and I apologize for that, but it has been absolutely fascinating talking to you. Thank you so much for your time.

EK  Thank you so much, Michael, I really am a huge fan of what you do, and all the provocative ways you do it. So, just grateful to be on the show and grateful for your listeners to learn more about what we're up to.

ML  Thanks so much. Thank you for joining us.