#117 Early Stage Hiring Decisions, Heeding the Lessons from CleanTech 1.0, Energize's $300m Growth Fund Close, & More w/ Eileen Waris (Energize Capital)

In this episode Silas Mahner (@silasmahner) and Eileen Waris (@eileen_waris) have a conversation about her experience, what they are doing at Energize Capital (FKA Energize Ventures), the state of climate tech VC, advice to founders, and a lot more.

We had the pleasure to speak with them on the day they changed their name and announced the close of their second growth fund ($300m)

Reach out to Eileen: ewaris@energizecap.com

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Links:
**Electrifying Everything 2023: https://www.energizecap.com/news-insights/electrifying-everything-2023-edition-2
**Connect with Eileen: https://www.linkedin.com/in/eileen-waris-98632564/
**Energize Capital Website: https://www.energizecap.com/
**Check out our Sponsor, NextWave Partners: https://www.next-wavepartners.com/
**Follow CleanTechies on LinkedIn: https://www.linkedin.com/company/clean-techies/
**HMU on Twitter: @silasmahner

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**Something Totally Different: Sawdust to Chemicals; Building a BioChemical Startup w/ Julie Kring (Khepra)

Transcript

Eileen Waris: 0:00

The number one thing for me is to hire well. It's really hard to overstate how important it is to find the right team members and how costly it can be when you get it wrong.

Silas Mahner: 0:18

Welcome back to the Clean Techies podcast, where we interview Climatek founders and VCs to discuss all things building and investing to solve the biggest stone in our generation of climate change. Today we have the pleasure of speaking with Eileen Waris from Energize Capital, which, until the date of this recording, had been known as Energize Ventures. We spoke with Eileen on the day they changed their name and announced the $300 million close of their second growth fund. In this episode we cover Eileen's career story, what they are doing at Energize, why they focus on software, where their thesis came from, her thoughts on the state of ClimateTech funding, her advice to Climatek ClimateTech and a few other topics. So, without any further delay, enjoy the episode. All right, welcome to the show, Eileen. How's it going?

Eileen Waris: 1:02

Good, how are you?

Silas Mahner: 1:04

I am fine as frog here. I can't complain. I mean it is a little bit warm in New York at the moment, but listen, it's better. I guess better warm than sleeting or something outside you know.

Eileen Waris: 1:15

Yeah well, I am in San Francisco today and I always forget that, even if it's super hot everywhere else in the country, especially during summertime, that it's still 50 degrees here, so I was ill-suited for this trip.

Silas Mahner: 1:28

That's actually really. I always forget about that. People have said, oh, you need to always wear a sweater and sleetkin valley. I never think about that. I've never been there so I don't remember because I've never been. But everybody says that, right, they're always like, oh, it's so chilly here and I'm like, well, that doesn't make any sense, it's in California, Shouldn't it be warm, you know?

Eileen Waris: 1:46

Yeah, they say the coldest winter I ever spent was the summer in San Francisco.

Silas Mahner: 1:51

Certainly that's quite interesting. Well, it's good to have you on the show, Really excited to chat to you today. I guess let's just start off by just give us a quick introduction to who you are and kind of what you're doing today.

Eileen Waris: 2:01

Yeah, yeah, great to be here. Well, as you mentioned, my name is Eileen Laris. I am the principal on the Ventures team at Energize Capital and I focus on making investments and helping to build companies in the climate software space.

Silas Mahner: 2:17

Very nice and tell us a little bit. How did you get into climate, in particular, what led you here?

Eileen Waris: 2:22

Yeah, I mean I've always been passionate about trying to find solutions for climate change. You're at least passionate about sustainability. Actually, it was my high school Spanish teacher that kind of got me into it for the first time. Her name is Senora Noltz. Senora Noltz, if you're out there, I'm giving you a shout out. She started this club that I was a part of, called Save, which is an acronym that stood for Students Against Violating the Earth, and I was the president and I also was. I implemented the first composting program in my high school. I have no idea if that's still in place.

Eileen Waris: 2:57

That was a long time ago, but I guess I would say that was kind of my start. I started my career in management consulting, and my focus in management consulting was on M&A advising on both the buy side and the sell side, pre and post merger integrations, and, while not immediately like relevant to climate, I would say definitely was relevant for venture. We've seen a lot of consolidation happening in many of our portfolio companies. As they get to the later stages, have also considered their own acquisitions, and so it's been really helpful. But there was one project that I spent a long time working on. That was kind of pivotal in terms of changing the way that I thought about my career and what role I could play in climate change. While I was there, I worked on one of the largest pharma chemical companies in the world was acquiring the largest pesticide and GMO producer in the world and, as someone who at the time, really cared deeply about sustainability, I had a lot of internal conflict when I got staffed on the project and I think in part that was due to a lot of preconceived notions that I had around what it meant those words, gmo, pesticides, chemicals all these things that I thought were kind of inherently evil and I realized that it was just a lot more complicated than I was making it out to be. And I learned so much through that experience about the tradeoffs of sustainable food systems. How do we grow enough food to feed a growing population in an environment where weather patterns are changing and our resources are increasingly constrained? And all of those different tradeoffs and that really complicated equation just got me thinking like I feel like there could be something I could be doing here Instead of just being personally passionate like being a vegetarian. This is not enough. I need to figure out a way that I could dedicate my career to solving some of these challenges.

Eileen Waris: 4:51

And it was around the same time that I was applying to business school and Stanford had a program where you could get your MBA and then your master's in environmental sciences. At the time that was called Yipe Art. Today it's getting rolled up under the Dors School of Sustainability, which I also think is people aren't familiar. The famous venture capitalist, john Dorf, kleiner Perkins, recently gave gifted a billion dollars to the university to start the School of Sustainability and I think it's a really cool reflection that, like you know, 10, 20 years ago the whole thing to do at Stanford was to get your CS degree and now it's to go into sustainability. So I love that. But anyway, I spent three years there in the program that kind of ended up turning into that and I test drove a bunch of different options.

Eileen Waris: 5:34

I worked in corporate sustainability, I helped out a couple of different startups, I did a ton of academic research, but ultimately it was the time that I spent in venture capital that I really loved the most. I loved the day to day opportunity to work with entrepreneurs and learn about all of the different solutions that they were making. I also kind of at the time was feeling like I was more of a jack of all trades. I couldn't pick just one problem that I wanted to focus on, and I think with venture, it's really exciting to be able to index across a bunch of different megatrends and you know, one day you're talking to an entrepreneur in the energy space, the next day it's electric vehicles, the next day it's carbon markets, and I just thought that was really exciting to be able to have exposure to all of those things, and so I fell in love with venture capital and that's kind of what brought me to energize.

Silas Mahner: 6:23

Hey there, quick break to remind any founders or VCs listening. If you are looking for deal flow, seeking to raise funding, looking for partners to help service your needs, or perhaps you're looking for corporate investment partners, feel free to reach out to us through our Slack channel, which can be found in the description, because we meet a lot of people in this space. We set aside time each week to make introductions to the various people that we encounter. This is something we do free of charge in order to help these incredible companies solving climate change to scale. Looking forward to hearing from you in the Slack channel. Very nice, so I like a couple of things you said there Interesting. I want to maybe just go back on which is the one thing you talked about, where you had the kind of how do you say, personal, like inner conflict of that project, but you've then realized, hey, there's, there's certain tradeoffs that have to be made right, like the reason why these.

Silas Mahner: 7:21

I'm also somebody who I would classify in the same bucket, right, I'm not a big fan.

Silas Mahner: 7:25

I'm from parents who were farmers, right, so I have mixed feelings about those big, those big agricultural companies, but the point being, a lot of people need to be fed right, and we can't just just because it may not be, may not be the most sustainable method of doing it.

Silas Mahner: 7:41

It's also what kind of what feeds people right, something that has to be done right. So I think that it's interesting to consider those challenges and have the kind of realistic perspective and this is something that a lot of people debate right now right, what can we, what can we really become sustainable at and immediately? And what things do we have to find a way to like transition out of that Right? And I do find those problems to be really challenging and fascinating, so it would be maybe interesting to hear your thoughts about that a little bit more later on. But one thing I do want to ask about is and you alluded to this essentially but how did you so? When you started out your career, you didn't have this goal to get into, into VC particularly right. It came along the way through that, through that experience with the business school.

Eileen Waris: 8:24

That's right.

Silas Mahner: 8:25

Okay, yeah, I think it's. I just think it's really interesting. Maybe we can hear your thoughts candidly right now about, you know, being in VC now. A lot of people, especially a lot of people I know young people they're like, oh man, like VC, is this exactly where you want to go? You should work towards it, and for a long time I thought that I would want that myself, but over time I realized I don't know if I necessarily want to be somebody who, who manages money. I'd rather be building companies. So I'm kind of curious to hear your kind of candid thoughts about what it's like to be a VC now and how do you think about that now.

Eileen Waris: 8:55

Yeah, I mean I first off, I think if I had one specific idea that I thought I was the best person to execute on and make an impact on climate change, there's there's probably no more fulfilling career path than that, and so for anyone that has the entrepreneurial itch and wants to go out and build something themselves and feels like they know what that looks like, then I think that that that you should absolutely pursue that path, and I think today, even today, I mean I love my job right now.

Eileen Waris: 9:24

If I felt like there was one thing that I could be the best person in the world at to solve in terms of climate change, then I would absolutely go after it. But for now, what I love about my job is that it marries two of the things that I love the most One, you know, just the mission of trying to extend the life of this planet and two, building relationships. That's pretty much what I spent most of my time on day to day, and for me, that's really enjoyable. And whether that's, you know, bouncing ideas off of my team members during investment team meetings, or reaching out to entrepreneurs that I think have really compelling ideas, or helping a portfolio company overcome an existing challenge. All of that stuff, all that work is very relationship based and for me it's just really rewarding to have those two things come together.

Silas Mahner: 10:08

Hey, there are you building a climate tech business and looking for very specialized talent? Consider reaching out to our sponsors, next Wave Partners. Next Wave are experts in talent acquisition, recruitment and retention across the climate tech, renewables and ESG spaces globally. So if your team is growing or you're looking to make a career change yourself, feel free to reach out to Next Wave at Next-WavePartnerscom or reach out to one of their consultants directly via their LinkedIn page. Yeah, that's interesting to hear. One thing I'm also curious about is how did you end up landing the role with Energize? Because I'm curious like was it specifically the school, the schooling experience that really was like hey, this is great, they really wanted to chat with you. How did that process look?

Eileen Waris: 10:48

Yeah. So this is a piece of advice actually that I would give anybody that was looking to get into venture capital. I was specifically trying to get into venture capital at a firm that was focused on climate solutions and I had done a ton of work while I was in school on carbon markets and this was like four years ago before carbon markets was really like a big thing, but I had done a ton of my own work on it. I had a little bit of a nuanced take on what kinds of solutions that I thought could be helpful. I had tracked a few early-stage companies that were emerging that I had heard of through my network, through the Stanford Ecosystem and just kind of climate more broadly, and I had come up with sort of this mini thesis and when I first started having conversations with Energize, it turned out that they were also beginning to start an investment thesis in that space, and so it was this really natural thing for us to just engage over and have a really productive discussion, and it was fun to kind of jam on ideas together and then ultimately that led to me joining the team and then, once I got there, I helped along with many other people on the investment team that contributed to this helped do a lot of our analysis. That eventually turned into one of our core pillars, which is carbon platforms.

Eileen Waris: 12:08

So we've now made three investments in that space and it was really organic, came from interest on their side and interest on my side, and it was just a really good fit. So I guess, to summarize it, advice I would give to people looking to get into venture the relationship-building piece is important. The networking piece is important. I think people index on those a lot when they're looking for a job in venture. But also just follow your own curiosity. Do a bunch of research in a space that you think is interesting, pull together your own ideas and then share those and those will naturally create opportunities for you.

Silas Mahner: 13:06

I think it's interesting if you can think critically about something and come up with a new idea. It's helpful in some ways if you're new because you don't have preconceived notions of how things are or you may be missing the details that other people are already aware of and by putting it out there in the world, you essentially are finding it's so random how people say. They usually say you put it out the world and it'll find you. Right, the right people will find you. And it sounds really silly, but it actually does work, because it doesn't take more than one person to be like, hey, this seems interesting, I have a friend working on this or whatnot.

Silas Mahner: 13:41

Or when you are pursuing that job opportunity, you then can demonstrate listen, this is not something I decided to cook up last night. I didn't suddenly become interested in your company just because of the job, right, like, I'm interested in this because of this opportunity. And here's the social proof and the timestamps that demonstrate I've been, you know, writing blog posts or doing projects on it, right, things like that. So I think that's really fascinating. I'm a big fan of that line of thought. Right, let's go into, let's talk about energize in particular. So let's kind of break down for us exactly a little bit of the history of energized capital now and how they got started and kind of what they are now, today and what they focus on.

Eileen Waris: 14:22

Yeah. So you caught us on an exciting day, because today is the day that we've actually transitioned from being energized ventures to being energized capital and we are an investment firm or based in Chicago and we're focused on becoming the leading investor in climate software, and we got our start back in 2016. And this was kind of like the valley of death for climate tech. It was a few years post clean tech bust. A lot of the firms that had kind of entered the space and had been scared away by all of the terrible returns that had been happening, and so there weren't a lot of investors in the space. And we saw an opportunity. We saw that a lot of the investments that had been made in the hardware space were beginning to pay off.

Eileen Waris: 15:10

Solar and wind were coming down the cost curve. There was buy for a lot of these solutions and there was a lack of capital providers in the space to serve the entrepreneurs that were innovating, and so we said why not us? I think one of our goals when we started the firm was to learn from the mistakes that had been made before, and if you look at some of the companies that were successful from the first climate tech or clean tech, as they were calling it. Then boom, a lot of them had a heavy digital or software component to their business model, and so we kind of took that learning and said what if we created a firm that was focused on partnering with entrepreneurs that were building digital solutions for this space? And that's really how Energize was formed.

Silas Mahner: 16:02

Interesting, I do. Okay, that's helpful. I love. I love the fact you guys actually look at the mistakes last company's made, because it's so. It's so ridiculous to think that there's actually a relatively good data set. It's not, it's not huge compared to what it is now, but there's a pretty good data set on some of the things not to do. But yet still a lot of climate VCs, or VCs that are now branding themselves or changing into climate supposedly, are just completely like overlooking all that insight from the past. So let's talk about this then. I think that's pretty clear what the areas focus on the stage that you work in. So maybe, if I understand correctly, it's now across various stages. Can you talk about that? What types of entrepreneurs and where in their journey should they reach out to kind of be part of the ecosystem?

Eileen Waris: 16:52

Yeah, I mean, I think one of the exciting things now is we're serving entrepreneurs across a much broader swath of the journey. So we started with our core fund, which served entrepreneurs in series A through C, and we've now executed a growth strategy and so that pretty much just picks up right where our venture's fund leaves off series C through IPO or whatever exit comes next for you. And then maybe just to dig a little bit deeper on the areas that we focus on, it's the same across both funds, so at a high level it's climate software. But if it's helpful I can kind of drill down into maybe some of the specifics.

Silas Mahner: 17:32

Yeah, I would be curious to understand that, maybe the different verticals you focus on and you already mentioned, kind of why you focus on software but I would be curious to also dig a little deeper. Why not consider some of at least the light hardware spaces, you know, because there's a lot of things that need to be decovernized in that space as well. So I would be curious to also ask that question.

Eileen Waris: 17:50

Yeah, I can cover both of those. Maybe. First I'll kind of cover the spaces that we invest in and then that'll provide a little bit more clarity into you know, what are the software solutions that we're looking at. Why the focus on software? So I guess, when we think about where software has, you know, the biggest opportunity.

Eileen Waris: 18:10

We believe that roughly 60 to 80% of emissions are going to come from two things getting more renewables and clean power deployed, and then electrification of carbon intensive industries and equipment. On the renewable side, that means like how can we design, deploy and optimize the performance of more solar, wind and clean firm power? And then on the electrification side, we're really talking about the electrification of industries and equipments so that we can help maximize the benefit of all that clean power that's being unloaded to the grid. And so this includes things like electric vehicles, home electrification, things like heat pumps and smart energy systems, commercial building electrification, energy storage. And then also on the demand side, how do we optimize our consumption patterns so that we're consuming the most energy when wind and solar and clean power is at an all time high and then when those intermittent power sources are producing less energy, we're tailing and consuming less energy. So that covers a decent chunk of emission reduction.

Eileen Waris: 19:20

But then we recognize, you know, there are going to be areas that we can't electrify away and so in that case, kind of going back to the initial investment thesis I was talking to you about, we have we invested what we call carbon platforms, and what that really means is that you know there are solutions out there that make it easier to determine first, what are your emissions and what are the biggest sources of those emissions, and then how do you model it, what are the costs for that in the time. There's a really interesting company in our portfolio called Sinai Technologies and their decarbonization software platform, and they do a really good job at this. They go beyond just the basic carbon accounting and they do something that very few, if any other software platforms that I've seen out there can do, which is they can create a marginal abatement cost curve. That means they can tell you what the marginal cost to abate each emission is, so you can focus on maximizing the ROI of your decarbonization dollars. So go after those lowest cost projects first and maximize your decarbonization potential.

Eileen Waris: 20:23

Finally, sort of the last area that we invest in, I think, acknowledging that unfortunately some damage has already been done and that you know certain effects of climate change have already been locked in, as we're seeing now with each day this summer like a new record breaking heat streak. You know we're looking for digital solutions that can help us to adapt and be more resilient to the extreme weather and the climate change that we know that we're going to have to face, and so this might look at solutions that are better at identifying and preventing wildfire risk, or helping our grid be more resilient to extreme weather, or helping frontline workers and families make plans for extreme weather and climate disasters. So we're also interested in solutions like that. Very nice.

Silas Mahner: 21:15

I just interject real quickly. That's a pretty good, I think covers a lot of the major things and it's really interesting to hear. I'd be curious. I'll have to look afterwards through all the portfolio companies. It sounds like there's a lot of really fascinating ones in there. But let's move on to the topic of why just software, right? Why not a little bit of farware at least?

Eileen Waris: 21:34

Yeah.

Eileen Waris: 21:34

So I think, first, it's important to acknowledge that, like it is impossible to solve the climate crisis without innovation and hardware, and many of the solutions that we invest in touch hardware in some way.

Eileen Waris: 21:49

Many of them are layered over solar panels, wind turbines, transmission lines, and so it's not that we're totally avoiding touching hardware, but it is our belief that there are now other forms of capital that are better suited for deep tech innovation at the early stages, and actually, in some cases, traditional venture capital is not the right choice for innovation. There you have project finance, you have non-dilutive funding and grant money or, like in some quick cases, there have been new funds that are creative, longer dated funds that keep scientists and PhDs on staff, and those are really well suited. I think Breakthrough Energy Ventures is a great example. Those funds are well suited for those early stage hardware and deep tech plays. But for us, the best case scenario is for us to invest in solutions that have the potential to accelerate technologies that have been already proven out today, that are commercially available and economically viable, that have some sort of problem or bottleneck that can be addressed with software.

Silas Mahner: 22:56

Yeah, no, I think it's really good to hear I mean, obviously it's a bit of a question that I'm trying to kind of trap you in some ways but the point being that you've recognized what a venture capital firm, what a VC firm specifically, is good at.

Silas Mahner: 23:09

And I think that the issue that I'm noticing with a lot of the VC's that enter, they're willing to go headlong into hardware and they expect the returns to be like software right, and especially software in a space that you know like traditional tech world, where things are relatively built out. That's a good ecosystem. But even if you're just doing a software company in you know a legacy industry or something, you're still going to see more difficulty right and achieving that timeline because it's just there's no ecosystem built out. It's a little different. So I do appreciate that, the honesty and people recognizing where they can do well. One thing I'm curious about is, given that hardware is so difficult to, you know, to innovate and it takes a lot longer, are you partnering with companies that are more on that research side, where you can take your insights from what you learn in the software space to then feed them in to those companies to help them accelerate what they're doing a little better?

Eileen Waris: 24:06

Yeah, absolutely so. That's actually a core part of our strategy. If you look at our limited partner base, about a third of our capital comes from corporate strategic. So we have a number of companies that are leaders in the hardware, energy and heavy industry space that we talk to on a weekly basis to learn about what are the biggest challenges that they're facing. Where can software help move the needle in terms of, you know, helping to deploy more renewables, helping to optimize the performance of the assets that they have, helping to decarbonize? Just to name a few, we've got InVenergy, which is the largest private developer of renewable energy projects, was our first LP and the founder and CEO, as well as a CFO of that company said on our investment committee. We've got Schneider Electric, general Electric, caterpillar a handful of utilities that, while they don't necessarily build their own hardware, they interact with it on a daily basis, and so a lot of our most proprietary insights come from those relationships.

Silas Mahner: 25:16

Okay, very nice. Now, that's good to hear. I just think it's interesting to see how people are collaborating, because obviously, information is key and a lot of people don't want to share it, so it's interesting to see how we can help, because this is more of a collective right. The whole world has to kind of work together for us to solve this problem. What would you say are the? So just to clarify one thing for me do you typically invest at an early stage as well, or do you start around series A?

Eileen Waris: 25:42

You started series A. That's the early stage.

Silas Mahner: 25:45

So, from series A, when you're looking at the first time to write a check into a company, how, what would you say are the traits or the typical characteristics that you look for in a company at the top, like the really big ones, to help you identify? Hey, this is something that we think has likes for us to invest in.

Eileen Waris: 26:06

Yeah. So I'd say, first and foremost, we're focused on team. Is this the right team to solve this problem? Do we have a great working relationship with the founder? Usually we've known the founder for several years before we invest in a company. I think the second thing that we look at is more so than over focusing on the product or the technology that they have, because we know that there will be many iterations of that, and this is just version one, especially the series A stage. We try to focus on the problem that they're solving. Is this a real mission critical problem? Are the budgets growing? Is it serving a market that is growing? And so I think we really try to zero in on that and answer some of those questions, and if we like those answers, then that's typically enough to pique our interest at that stage.

Silas Mahner: 27:01

And then along with that. So I'll get to this in a little bit. But we saw that there's an uptick in early stage funding in the first half, but less late stage. I'm just kind of curious if you in some ways collaborate with the early stage VC's like the seed stage to help them understand, hey, with your portfolio companies, they need to orient themselves towards this objective, because that will help us to know that, hey, we can make this investment and we can continue from there. Is there collaboration there between those funds, Because there's obviously a lot of new entrants? I'm kind of curious.

Eileen Waris: 27:38

Yeah, no, we make great efforts to be highly collaborative and build relationships at the early stages, both individually with entrepreneurs Like it is never too early if you're an entrepreneur to reach out to energize, Even if you're just in the days of ideation. We're happy to bounce ideas and make introductions if we can be helpful. But we also have more formal partnerships. So I'm on the investment committee of a firm called Evergreen Climate Innovations and they are a nonprofit venture capital firm based in the Midwest and they make early stage investments in early stage companies that are helping the climate change. We're also investment partners of an organization called Third Derivative and that's Rocky Mountain Institute's Climate Accelerator. And then we have partnerships with a number of pre-seed and seed stage funds across the ecosystem that we nurture and then go and invest with.

Silas Mahner: 28:38

Okay and along the same lines with the collaboration topic are there. It might be slightly different if it's just software, but are there ways that you're trying to help your portfolio companies navigate between some of the government issues, like policy things and just kind of bringing all the science, the policy and the technical commercial things all together? Is there a way that you're trying to offer some in-house services, because a startup, even if they got serious A, they've probably not going to have time to hire or have money to hire a policy analyst to just sit there and read what's going on in policy or lobby DC, for example? Is there anything you're doing on that front?

Eileen Waris: 29:17

Yeah. So Katie McClain, our one of our managing partners and COO, has had a long career between the public and private sector, and so she's worked, held various roles in the public sector, also worked for the Clinton Foundation and has many deep ties in that space, and so she's been really helpful in helping some of our portfolio companies that either have challenges or opportunities in the space navigate that world.

Silas Mahner: 29:49

Okay, very good. Yeah, I've talked to a lot of people who seem to think that VC's job is not to really get involved at all and help. But it's a matter of resources and if you can have people who've been in their careers longer, in a lot of cases, obviously some founders have been in their careers a while, but a lot of them are more junior. They don't have the connections Not necessarily. So that's interesting to hear. I appreciate that. So let's move on a little bit to more of this topic.

Silas Mahner: 30:18

On the funding report, so I'm kind of curious to hear I guess just to set the stage for people the Climatech VC H1 funding report for 2023 came out and the broad strokes. There's a lot of different things that were mentioned in there, but the thing that I picked up on that I thought was interesting was or at least the most that stood out the most was that late stage funding substantially dropped year over year and there was more seed stage rounds that were more seed stage money that went into the space. So I'm just kind of curious to get your thoughts on why that is and where you see things going in the second half. Just want to make sure that people do they have an optimistic or negative. Pessimistic look on the future of how companies are going to come through that product market fit stage and get to series A.

Eileen Waris: 31:03

Yeah, so a couple of things to unpack there. Maybe I'll just start with just blanket reaction to the report. First of all, I love CTVC and all the work that they put out. It's really high quality stuff. Really, when we're reacting or interpreting market signals, we try not to be too overly prescriptive in one direction or another, especially when you're looking at a relatively short period of time.

Eileen Waris: 31:28

I think when other investors in the climate space were out there saying, oh, we're untouchable and we're totally protected from all of the downturn that's happening across the broader market and technology space, we knew that that was not totally true. And while I do think the climate space is resilient and that we're insulated from some of these forces, due to long term enduring generational tailwinds that are bolstering up the climate revolution and we can get into all those in a second but despite those tailwinds, I think at the end of the day, if you look at an economic downturn that's impacting every corner of the economy, we would have been foolish to think that it wasn't going to affect the space that we operate in and affect our customers. So I think, because the downturn was slower to hit the climate sector, we had more time to prepare and react. So I think, both on the investor side and on the entrepreneurial side, steps were taken to mitigate that. I think on the later stage entrepreneurial side, a lot of founders decided to reduce, burn, extend their runway. Maybe they lowered their revenue targets a little bit and just got a little less aggressive with what their plans were, and that enabled them to delay getting out into market. Another thing that we've also been seeing at the later stages is that many entrepreneurs are going out with actually a lot of runway left to maintain optionality. So rather than seeing entrepreneurs raising with four to six months of runway, we're seeing entrepreneurs that have eight to 18 months of runway and they're getting out there, they're testing the waters, they're figuring out if they can raise. And if you raised in 2021 at this crazy high multiple, then it can be a really big challenge to grow into that valuation. So you want to figure out if you can raise again, edit up round or at least set a flat round, and if not, you're going to wait it out.

Eileen Waris: 33:31

I think there are also dynamics at play on the investor side of things. We talked about the denominator effect a lot in the news recently, but as public market valuations came down before private market valuations came down. The proportion of those two things was skewed for limited partners, and so they didn't have the availability to make more private investments, and so a lot of investors were forced to think about extending the lifetime of their funds and they were in less of a rush to deploy capital, and so I think there was less urgency on both sides, especially as you got closer to that late stage private market getting close to the public market. I think at the seed stage it's easy to say you have a lot of time to wait out those effects, and so it's natural to be more active.

Eileen Waris: 34:18

I also think the seed stage has benefited from talent shifts that have been happening in the technology market more broadly. We're seeing so many entrepreneurs that weren't necessarily in con before, but maybe we're doing something else in technology, moving out of that as shifts were happening, and trying to start things in the climate space, and so there's been a lot of early stage activity for a number of reasons. I'd say the other thing to just keep in mind as we interpret these trends if you're comparing year over year, like H1 of 2022, even though the rest of the venture market had slowed down, it was still a pretty active time in the climate space, and so when you compare it year over year, you're comparing it to still one of the hottest periods that we've ever had in terms of deal flow. So the downturn may not be as bad as it looks.

Silas Mahner: 35:10

Yeah, I just think that the biggest thing I was just wondering is, like, are the companies that got funding in the seed stage last year not getting to the point where they can actually raise serious aid? So that'd be my next question is are you actually, in terms of, maybe total deal flow maybe you could comment on that from last year to this year, are you actually seeing as many companies that make the basic criteria to qualify for that round? Is that something you're seeing more of, or the same as last year, roughly?

Eileen Waris: 35:43

Yeah, so I think it's a mixed bag of things. In terms of quality, what I will say is that if you are a high quality company in this space, you will be able to attract capital, and we actually have a body of work that I can point to for this. We've gotten in the annual habit of publishing our electrification of everything work, and so that's a composition of a lot of our analysis and investment. Theses related to electrification, and within that body of work, we talk about a subset of companies that we are calling our top 30 innovators in the electrification software innovators in the electrification space, and it's a group of early stage companies.

Eileen Waris: 36:24

And if you look at the performance of the 2022 cohort over the last 12 months and we're talking about in an environment where the best public SaaS companies in the world were trading at 25 to 50% plus below where they were trading at a year before this cohort of 30 early stage private companies had a median enterprise valuation step up of 2.4. Cumulatively, they raised $1.8 billion, and if you had invested in that cohort Today, you would have a 2x money on invested capital. Not a single one of them went out of business and I also think there were five or six M&A activities amongst that group. So I think if you look at what we need to be a very high quality subset of that market, it goes to show that if you are a high performer, you will be able to continue to attract capital, you will be able to continue to attract customers and there will continue to be exits.

Silas Mahner: 37:28

Okay, interesting. Yeah, that's helpful to understand. You mentioned something else, which was the people shifting from markets. We saw a lot of layoffs at the beginning of the year. I think that it was obviously very difficult for many people, but there was a certain silver lining that you know. Being in the town space, we noticed it that companies were able to fill especially software companies were able to fill their job requisitions very easily in the climate space, because there's a lot of people who want to work in climate right, and this was simply their excuse to go take that slight pay cut to go work in climate instead of continuing to work at Meta. So I think that there's a couple interesting things that happened there. It certainly has been. I would say it's probably been very good for the climate space from a talent perspective, based on what I could see. Also, help them save money from recruiters? Yeah, certainly. So let me see. What else do I want to go over here? I think one thing I would be. I guess we can move on to some of the advice pieces here.

Eileen Waris: 38:28

Actually, if you, had one thing I was going to comment on. You had sent me your and I had just seen you release today the your and some emails discussion on that CTVCH1 report and you had a quote in there that I actually really liked and I wrote it down.

Eileen Waris: 38:43

And you said, when talking about scaling solutions at the early stages with software, the problems are no and it's about execution to scale, and I thought that actually really eloquently sums up a lot about what we think about this market, especially the growth stages.

Eileen Waris: 39:01

I think one really good example from the Energize portfolio is our most recently announced investment that we did at our growth fund in a Lithuania based company called PV Case.

Eileen Waris: 39:12

In getting to know the utility scale solar space through a lot of the partnerships that I've already mentioned, one of the things that we noticed that there was a need for better tools to reduce bottlenecks in the design and deployment phases of utility scale solar development.

Eileen Waris: 39:30

And we did our research and we found that there was really like one undisputed leader and that was PV Case and their software was really good at helping unclog those bottlenecks. And this is a capital efficient business that was growing quickly in a market that was also growing really quickly and they had recognized a need upstream that there was a bottleneck in the site selection process for utility scale solar development and they had identified a target that they wanted to acquire and they needed a partner to help them do that. And so at that point Energize and we partnered with Highland Capital on this deal as well helped to finance that round so that they could acquire that company, and it's been off to the races ever since then. But to bring it back to your quote, I think with software the problems oftentimes are no, and it's really just about executing and finding the right partner to execute that strategy.

Silas Mahner: 40:24

Yeah, I think the partnership is really big. Right, this is something that's come up with a couple of shows ago, where the issue was not the technology per se, it was who they were selling to. Right, they were trying to sell to a brand and the brand was all in for it, but the brand didn't have the authority to change the technology. They were selling some kind of a supplemental thing for plastics, right, and you can't just tell the brand, hey, we're going to use this, they're going to be all over it, right, but as soon as the manufacturer finds out that I'm not putting experimental liquids in my very expensive machinery, so you have to understand the right execution, you need to have the right people, because these are in a lot of cases, at least when it comes to hardware, legacy industries, even on the software space too. Right, you're trying to get a legacy industry to do something differently, you might have to understand how their space works, right, and some of these, unfortunately, it's just kind of a good old boys network and you've got to know the right people. Still, obviously, the hope of that changes, but that's how a lot of these industries operate still. So then it's interesting. Appreciate you, appreciate you having to listen to it and bringing up that.

Silas Mahner: 41:33

Let's see, I want to go to I think let's just start a little bit broadly for advice to other founders and VCs. We obviously have a lot of people. We've talked about this. The whole world essentially has to operate to some extent in collaboration to solve the climate crisis. So what would you say is your advice to other VCs or founders, depending on what you're interested in in talking about, on how to make good decisions, on what companies to build or, as they're building their companies, or for VCs, what investments to make and how to make really good decisions so that the money is not being spent in a place that's really, really silly.

Eileen Waris: 42:09

Yeah, maybe I'll start with advice to founders, specifically when it comes to building companies. I think this piece of advice is something that will resonate with you and your work at Next Wave. But the number one thing for me is to hire well. It's really hard to overstate how important it is to find the right team members and how costly it can be when you get it wrong and this is a mistake that is inevitable. You're not going to make the right hire every single time, but it's really important to find the right partners, especially if you're super early on your stage and you're looking for that co-founder.

Eileen Waris: 42:51

There's a saying, and it's a little bit cheesy but if you want to go fast, go alone. If you want to go far, go together, and I think anybody that's joining this movement is in it for the long-awaited. Finding the right person to be on that journey with you is so important. The second piece of advice that I would give to founders is to stay focused. I think a common mistake that we see with founders is losing focus on what is the core problem that they're trying to help solve. I think this can get especially muddled in the software space, because oftentimes you're building these digital solutions and, as you're doing this, you're finding all these new applications and use cases for what you're building. It can be tempting to go after every shiny object that you see, but when we see entrepreneurs lose focus on what their core problem is, they lose touch with their customers, and it can be a really easy way to throw a lot of money away, and so, especially at the early stages, maintaining that focus, I think, is really important.

Silas Mahner: 43:51

Yeah, that's helpful. So when you say, maintain the focus, how do you help them define what their focus is? Is it just basically, hey, what problem are we solving, and stay focused on that, and then they'll figure out the solution to it. Or what's the advice there?

Eileen Waris: 44:05

Yeah, I would say, be able to define the core problem that you're solving in one sentence, know where the budget to solve that problem is coming from, know who controls that budget and also know, the end of the day, who's going to be in charge of using that solution or implementing that solution throughout the organization.

Silas Mahner: 44:23

The one sentence thing is so powerful so many people have no idea how to define it. But it needs to be. It needs to be TLDR. Everything needs to be brought down to the very granular, because this is the reason I originally started the podcast was I was like I grew up in a place where nobody I'm from Wisconsin originally and nobody that I grew up around believed that climate change is real.

Silas Mahner: 44:44

And they're like oh, why would you invest? Like why would we have solar and wind? It's going to like it's bad for the economy. And I just had I was like okay, I guess, whatever. Like I didn't know anything any different until I started talking to climate founders. When I, when I started working in renewables, I started talking to some of the founders like, well, you're telling me that the technology is cheaper, a better product and better for the environment. And you can also like and I can, I could easily summarize these things and I was an outsider right, I could summarize them in one sentence and it just made total sense. But the issue is that a lot of people don't understand the big words, right, they don't understand all of these like fancy terminology and it needs to be. It needs to be very concise.

Eileen Waris: 45:21

Yeah, keep it simple. Solving climate change is difficult enough. Keep everything else as simple as possible.

Silas Mahner: 45:28

Yeah, on the. On the talent topic, I appreciate you bringing that up. I'm curious to understand. You know you mentioned in particular it's super important to have the right team early on. You know we've done a bit of work with really early stage companies. That extremely difficult because we have to work on on the promise that we're going to get paid at the end of the day right, because usually are. You know they're raising money at them at the moment in order to, to, to pay this co-founder or whatnot. Have you seen any ways that companies kind of make big mistakes? Or how do you help them to make sure they have the right team in place at the beginning, even when you know they don't necessarily have? They don't perceive that they have the money in the bank to afford paying a recruiter. They're just trying to go off their network. Maybe their network is small and they just go with whoever they find Any any thoughts there?

Eileen Waris: 46:16

Yeah, I think sometimes the mistakes happen when the entrepreneur waits until it's a hair on fire problem to think about that position and then they are tired, they're in a rush to get it off their plate and they want to hire the first person that meets like the minimum bar, and I think that's a really easy recipe for hiring the wrong person. I'd say, not having a very clear idea for what you're looking for, not having kind of your higher hiring scorecard in place and knowing what are the, what are the must-haves and what are the nice to have, is another mistake. And then you know for, for the key senior hires, like we absolutely say, it's worth making the investment and if that, if that means you have to partner with a recruiter because that person doesn't exist in your network, you know finding the right person is worth the investment.

Silas Mahner: 47:01

Yeah, I think it's hard to convince people that when they're really really tight in the budget, right. But if you think about it, it's also a lot of new founders, right. That's one thing I've noticed with at least the hardware side. You've got a lot of like really really sharp PhDs, and they're used to just meeting somebody through their network, but sometimes it takes a little bit extra effort to find them, and sometimes in the hardware space this may not apply to software as much, maybe on the sales side, but on the hardware space you oftentimes you you want somebody from the conventional industry that you're trying to change, and those people don't necessarily advertise broadly. You know that they're looking for a climate opportunity, right, it takes a lot of sorting and finding the needle in the haystack. Okay, let's go to. Did you have any particular advice for the VCs then as well?

Eileen Waris: 47:50

No, maybe just for the people looking to get into VC. I think I already gave my two pieces of advice, but I think it's one focus on building relationships, not just with VCs, because you're trying to get a job there, but with entrepreneurs. I think you'll learn a lot more through those interactions. And then two is just like start doing the work before you get the job. Think about what are the areas you want to invest in. Come up with a nuanced take on a different area. I think that will make you better at the job and it will also make you a more attractive candidate.

Silas Mahner: 48:22

What about when it comes to taking pitch? Obviously, you probably see pitch decks every single day. What are some of the like? Keep a piece of advice you'd offered the founders on what to include in there, because I think that in some cases I've heard a mixed bag is being presented to them. So I'm kind of curious your thoughts there on the pitch deck itself.

Eileen Waris: 48:40

And I think it goes back to what we said earlier just keep it simple, be clear and crisp. Make sure that you're getting to the point quickly. If investors can't answer the question, what does this company do? After reading the first slide, you probably waited too long to get your core message out there, and so I think it's just be really, really crisp and concise and focused when you're communicating the message 100%.

Silas Mahner: 49:07

I think it's very difficult sometimes for people to do that, because sometimes you're so wrapped up in things and it's this way with many things not just pitching right so many things is easy to get wrapped up in your own ideas of how things are. But no, this has been really great. Is there any other kind of final things that you want to close us off with where people should reach you, Any calls to action for people?

Eileen Waris: 49:26

No, I mean, I know we talked a lot about the slowdown, but I will say, like, energize Capital is still investing. We're still looking for entrepreneurs to partner with. So if you're building something exciting in the climate software space, reach out to us. My email is aileen at energizecapcom, and it's actually eware. It's the energizecapcom Now. Remember when we changed our emails this morning? But yeah, reach out and get in touch.

Silas Mahner: 49:53

Very good. Well, I appreciate you coming on. It's been a pleasure to have you and I'm really excited to see the investments that you guys pump out this in the coming year.

Eileen Waris: 50:01

Yeah, thanks for having me on, I really enjoyed it Absolutely.