If you look at the data, the capital intensity of software and hardware companies is, over the lifetime of the company, pretty much the same. It comes in different places and might come from different sources. Hardware companies, especially in climate, get a lot of non-dilutive capital, so they might actually take more capital in, but not equity investment from VCs. The time to market is like six months or seven months longer on average. The exits are just as big 75 percent of the top 10 companies in the world for hardware companies.

Silas Mahner: 0:31

Welcome back to the Clean Techies podcast, where we interview climate tech founders in VCs to discuss all things building and investing to solve the biggest challenge of our generation climate change. Today, we are bringing to you an episode with Matthew McGraw, co-founder and GP at Anthropocene Ventures, aka Anthro Ventures. Matt has a really interesting background, having stumbled into Silicon Valley at the right time and then ended up going on to help, through his company, rocket Science Consulting, some of the biggest companies in Silicon Valley today companies like Airbnb and Lyft and he didn't want to be a VC but eventually was convinced to help start Anthropocene Ventures, where they are investing into deep tech and science technology that will enable the climate revolution, technologies that really have a platform effect on the world. We cover his story, their focus, why being a VC is a hard job, how climate tech is essentially reindustrializing the world and why that's a good thing. He also offered his advice to founders and we closed off by discussing the role of climate tech startups in the governance and ESG movement towards a more equitable future. Now, it was also a really great guest in general. I'm really looking forward to having him on again in the future and I'm confident you will enjoy this episode.

Silas Mahner: 1:40

Oh, and one last thing be sure to check out Climate Capital Summit hosted by Equal Ventures next week in NYC during Climate Week. If you recall, we recently had Rick Zullo from Equal Ventures on, and they are hosting this incredible event in New York City and be on the lookout for the content that comes from there. Another Climate Week, shout out. If you are a Climate Tech VC or startup hiring and you're in New York for Climate Week, you can reach out to book an in-person meeting with me at the best pastry shop in Union Square and we can discuss your hiring needs. Link in the show notes. Enjoy the episode. All right, welcome to the show, matthew. How's it going?

Matt McGraw: 2:12

It's going pretty well, how about you? I can't complain.

Silas Mahner: 2:15

It's been a beautiful week in New York. I leave the windows open and it's just chilly enough that you can put on a sweater, so it's nice.

Matt McGraw: 2:21

It's very nice Well it was like 95 degrees here two days ago. Today it's cold and rainy, so that's kind of San Francisco to a T, but usually not at this time of year. So yeah, interesting.

Silas Mahner: 2:31

Well, climate Change will do that, won't it Exactly? Very good, well, I guess let's get right into things, right? So just give us a quick background to yourself who you are. You know where you are today and how did you get here?

Matt McGraw: 2:43

Sure, thanks for having me on the program. Thanks, first of all. I want to start by saying I'm not really a VC by training or trade. Never thought I'd be sitting on a podcast talking about my VC life hashtag VC life and I came out to San Francisco early mid 90s and really for a girl in the music scene here at the time. But quickly the Bay area and San Francisco turned into a technology town and I got a job in technology and I was good at it and I worked for somebody else for three, four years, figured out that I that it was a venture backed startup Words I didn't understand.

Matt McGraw: 3:16

It had terrible corporate governance Words I didn't understand. Doing technical delivery and technology enablement words I didn't understand. To other quickly scaling startups that were venture backed words I didn't understand. I was lost. I was like a young kid going on every night getting drunk and having a good time and I had this job and it was good at it. It was amazing. But I hated how the company was run, especially after we got the big dollars from the VC. So I said I can do this better the story of every entrepreneur ever Right and I quit and I started a company called Rockets Science and that's really where I kind of grew up in the Bay Area Technology scene Rocket Science. At the end, our tagline was we help venture backed companies scale from precedency to exit and we helped companies as diverse as like Airbnb and Lyft and Uber and Medium and.

Matt McGraw: 4:06

Asana and a hundred other companies you've heard of go from really really small to very successful exits, sales, ipos, etc. And we did that through technology enablement, but also a lot of other things business process automation, co location, saas technology enablement large services support everything that you could think of manager services, everything.

Matt McGraw: 4:28

We had 13 lines of business and we got quite large. We had offices all over the country or we had a lot of staff, a lot of employees. I never took venture because I thought that venture dollars weren't right for that kind of business, even though we are offered it quite a bit. Great decision, by the way, not every company needs to be an venture backed, and I did it for a long time and the culture there was great. The staff was awesome. They were, and still are, some of my best friends Really had a great time.

Matt McGraw: 4:57

Never thought I'd leave, never thought I'd sell that company or ride off into the sunset or whatever. But in 2014, I did. I sold the company. We sold the company. Half of it was employee owned at the time and reasons were there were a couple of different reasons. I've been doing it for 15 years. I was tired. The companies that we were helping were not cool anymore. They were like the door dashes and postmates of the world. It was like delivery service, but not just pizza, and it wasn't as disruptive or innovative or whatever kind of buzzword you want to use.

Silas Mahner: 5:32

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.

Matt McGraw: 6:00

And the industry become kind of toxic at times. The tech row thing really had happened and I was like not interested in that, not my scene at all and so I just it kind of felt like the right time. I had a newborn too At the time. I've got a big family and but our young guest was born right around that time. I said I'll bounce on a yoga ball with baby for a while and sold that company and retired. But here we are, so that you know, this story gets interesting from there on out.

Matt McGraw: 6:26

My wife, who is the best part of my life she has a background in public health focused on food systems and food security on like a community level, but she's got an infinitely curious mind. So she decided to go back to school for food systems and global agriculture, which is like the metaversion of what she knew a lot about, and then that invariably led to us talking a lot more about climate and getting involved in climate. I was a smart cities guy, so I kind of know the built environment. She knew ag. We just started tuning our angel investments towards more climate related things. And then in 2019, I have a dear friend who is a VC, a blue-blooded VC. He's my partner and anthro. His name is Jim Betcher. He's on the Midas list. He's like got a billion dollars under management under his last fund and a couple of other funds before that, and you know he's kind of got, it's got the original Patagonian of that behind glass at his house.

Matt McGraw: 7:19

He can break it when we do deals. And he called me up and he's like look, I want to start another fund. My partner is at focus His old fund don't want to do it, they're old and want to retire. I got juice for two or three more funds and I want to do it with you. And I was like absolutely not. No way, I'm retired and I'm doing a lot of other things. You know, not, not, not working all the time.

Matt McGraw: 7:39

But but I didn't have to do anything and I knew if I got into the gig I would want to do it and venture as a 10 year minimum 10 year commitment. But if you want to do it right and I always want to do things right it's going to be a franchise and it's going to be a forever job, right? And so I said no, he and my wife kind of conspired. She was like look, you can help in the climate. She was a climate warrior at that point and I was too, but she was really into it and really knew more about it than I did. And she said you should do it. Jim said you should do it, and then they had lunch and conspired against me and wore me down. And then Jim said look, you help precede and seed stage companies scale to exit. That was your whole career and you did it really well for some of the most successful companies of all time and you need to do that for these PhD founded deep science companies that are going to solve the climate problem for us, because they've never done the business thing before. They've never scaled the business from zero to a billion dollars in three years and you have helped do that again. And 400 times, 450 times.

Matt McGraw: 8:40

And when he said that, I was like shit, I've got something to bring to the table besides being like white, relatively wealthy and in the right place at the right time. So I have something to bring. And I said I'm interested, ok, maybe. And then we took about a year a year of I think it was 2021. To think about what our thesis would be and to think how, like, where we'd fit in this kind of, really at that time, different now, very different now, but at that time, very, very small climate, VCE community and and there were big boys it was like breakthrough and I think lower carbon had just started and these were like had weight, you know, but a micro fund or a small fund.

Matt McGraw: 9:24

Doing pre-seed and seed was not a thing at that point and we really I wanted to do it right. I'm a nerd when it comes to the governance of an organization and the kind of mission, vision and values of, so I was like we've got to get this right before we start. So we took a year and really thought about that. We found a third partner named Alicia Chah who is the absolute gem of Anthropocene, by the way and agreed on a thesis and agreed on our take on the world. And then we said let's launch but let's launch a small proof of concept fund. Let's do ten million dollars, jim. As you know, he could raise hundreds of millions of dollars. I've got a pretty good network myself the founding teams at all those companies that have mentioned.

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.

Matt McGraw: 10:31

So people were like you're going to raise a $250 million fund. I was like economics don't make sense for a pre-seed and seed stage fund Over a hundred million dollars. You've got to have five billion dollar exits and I don't want to look for the Tesla, I want to look for the hundred companies that are going to have real material impact on the climate crisis but might not be unicorns or decacorns. Might be an acquisition target at three hundred million dollars and you can have a really successful fund if your funds under a hundred million dollars underwriting to that three hundred five hundred million dollar exit, where you can't if you have a two hundred, fifty or a five hundred million dollar fund. I always thought that mega fund sizes were crazy. They were just that. I thought that they were untenable and insurance out.

Matt McGraw: 11:15

there were, right at the time, everyone was like you're doing it wrong, you've got to go big. And I was like I want to find out whether Jim and Alicia and I work well together first, because if we're going to do this for the rest of our lives together, we better disagree well and come back around and like be able to evolve our thinking together and and get our governance right and get our modeling right and get our thesis more mature. But it will never be. Our main preceed and seed stage fund will never be over a hundred million dollars. I just had coffee so I'm rambling.

Silas Mahner: 11:46

No, this is great. I love this. I think there's so many really interesting things here. Obviously, I love the story. I love the fact that people conspired to get you to do something that they knew you'd be good at. I think it's cool. I also think that it's quite interesting that you're talking about the economics of the early stage fund. I wouldn't mind doubling back a little bit on that and have you kind of maybe double click on it for people who you know. I think it's You're maybe not the common situation.

Silas Mahner: 12:15

A lot of people, when they're presented with an opportunity to be here, going to be like you know, salivating over, like this is amazing, like blah, blah, blah. We've got to do this and that's really huge fun because we're going to get massive management fees and then, at the bare minimum, we're going to be living nice lives until we run out of money, and then we'll see how it goes down there. We'll worry about the reputation later. So could you talk about that and why it's important to focus on the rights as a fund? Can you give people guidelines for that? Especially, there's a lot of people raising money right now to try to build these VCs.

Matt McGraw: 12:42

So this is a really hard topic to unpack in an efficient way. This is like lots of conversations over beer late at night in the dark at the back of the bar, but I'll try. So first of all, I come from an incredible place of privilege. I don't have to work and my original privilege is I have just a fucking amazing, awesome family who love me, and I never feared failure because I could always end up on my couch at my sister's house and that would be fun and awesome. So like number one privilege, but like late 20th century America, white kind of smart, go to a good school, move to the Bay Area right at the beginning of a Cambrian explosion of money and startups Right place right, time right, look right, vibe right. So as hard as I've worked and to earn it all, I would never have gotten to the place where I am today if all those privileges weren't in place.

Matt McGraw: 13:36

And starting a fund, I had the privilege of saying no and walking away and not having to take that opportunity, and so I guess the reason that I say all that is not to put myself in place, but to say that the only reason I could do it and do it the way that I have done it is because most constraints that most people have I don't have, and so it's really hard to start a VC fund. I think three, four, five years ago everybody thought it was easy. Rolling funds were coming on all of these like micro funds were coming on and people were like we can do it. A lot of money. A lot of people had paper money here in the Bay Area in New York because the startup boom and the valuation boom from all these mega funds right, and so it seemed like going and raising a $10 million funds as a solo GP and putting it on AngelList and collecting $500K in fees or whatever fucking awesome right. All that's come crashing down. The macro is totally different. Raising money now is really, really hard. You have to convince people, not that it might be a good idea, and you like me, but you have to have real depth of thinking and data to back it up and maybe a track record and a whole lot of absolute luck and the network right. You have to know people who actually have cash, not paper, in some startup that used to be worth $5 billion and now is $300 million coming. So it's really really hard to do and I don't want.

Matt McGraw: 15:08

I want to disabuse people who are like I want to get into VC. It's the coolest job in the absolute world. I get to meet the smartest people on the planet, talk to them about something really cool that they're doing that's going to save the world and then potentially give them money. That's awesome, right, but the hard part is most of my job is raising money, is talking to people and hearing no. I hear no all the time. I'm not a guy that's been in a position in his life that hears no a lot, and I get no 10 times out of 11. And for lots of different reasons. For some valid, some not some they don't have as much money as everybody thinks they do. Most people aren't as rich as they think. So the smaller I'll get. I'll get to the macro part that you wanted me to get to, though.

Matt McGraw: 15:53

The smaller the fund, the smaller the outcome that makes your fund successful. So if you have $100 million fund, you have to model every company. You have to underwrite every company's potential exit to return the fund. Now you don't have to do that. But if you do the math over the, there's lots of real data driven information here and I implore you to go to OpenVC and you know Poffman and all other. There's plenty of resources out there to show you the math and there's a company called Tactic. I can go into startup, pay $1,000, get this tool to financial modeling tool that VC funds can use. We use it. It's fucking awesome.

Matt McGraw: 16:34

You will see that every time you add a zero to the end of your fund, you also have to add a zero to what a company has to exit at for you to make money, and you have to think that. You know most companies are going to fail. They're going to return zero X of your investment, or one X or two X. Now, as an angel investor, if I put in $100,000 and five, six years later I get $500,000 back. Big win, right, a VC fund. You do that 10 times. You have nine. Go to zero. You get $500,000 back.

Matt McGraw: 17:11

But you had $5 million that you deployed, you just shit the bet and so you need that company to exit and give you $50 million, and so there's a there's math to this. I won't go into the details there, but you most people like to say I am underwriting for every company to potentially return the fund If you have a $10 million fund, you have to have an exit that nets that grosses you $10 million, right?

Matt McGraw: 17:37

So it gets to be impossible. If you have a $300,000, $400, $500 million fund, you need a $5 billion exit and and you have to have invested in your pro-rata so you still get the same amount of money. It's really hard, basically, and you're looking for the power law to take over where, if you have 100 companies, you're going to have one or two that exit big enough to return the fund, the rest go to zero and you, you know, can go back and ask people for more money and do it again At a smaller fund size. It is higher likelihood that a smaller exit will help you return the fund. So you don't have to model for that really big outlier that exits at $5 billion. You could have a $500 billion exit that really returns your fund.

Matt McGraw: 18:24

And if you look at the data, smaller funds perform better. Earlier funds perform better and I think that's because earlier funds you're not pattern matching against your past performance. You are going out and kind of creating a pattern matching framework and so I think you just try harder and earlier funds are smaller so it's easier to show that success that you know. Three to five X. That is kind of the the ask, but now, because of the macro and interest rates, you really have to do five to seven X to be a good fund, to be worth it, because other people just you know you can invest in a mutual fund and almost make the same amount of money. So all of this is to say it's really hard to be successful as a VC and I think that people used to think it was easy because markups is what people talk about. I have a 10 Xer.

Silas Mahner: 19:09

I have a company right now in our portfolio.

Matt McGraw: 19:11

You know Anthropocene, that got marked up seven X and it's just about to get marked up and more on a subsequent round and it looks great on paper. But you know what? That doesn't matter. You know what matters is when I had a check back to them and LP and that's in seven years from now and for a while every company in the world was getting marked up on their next round by some bigger mega fund and so everybody looked like they were on track to being really successful. Almost no one is looking that way today and you know it's called DPI and DPI is the only thing that really matters to me. All of the other numbers, that kind of trap performance before you actually get a return, before a company exits and hands you cash back on your investment, it's all made up.

Silas Mahner: 19:57

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.

Matt McGraw: 20:20

Yeah, it can go away at heart.

Silas Mahner: 20:22

Yeah, I think this is interesting. Obviously there's a lot of interesting things that you've said here. I want to maybe just have people take a step back and consider the point that I think is really important, which we don't have to go into it anymore, but just have people think about. It is the intention behind when you started Anthro to test it out right, to test the waters and see if you work together. Well, because I think too many people they think, oh, you know, we've got the right people to make this work, let's go do it, and they just completely go headlong into it when there needs to be some thought about like what can we actually make as an outcome? And, in particular, your situation is good.

Silas Mahner: 20:58

I think that it'll be interesting to see some of the larger funds that do come around to help with the later stage rounds, because we will need that at some point. But just to encourage people, before you jump into VC, really consider, because I think that the money can be really, especially for young people. I think it can be really, or people who don't have it can be really tempting. And then you might want to think like do I actually want to give you the best money? You're running a.

Matt McGraw: 21:22

VC fund though, man, that's the thing. If you're getting into it, if you're like 25 and you're a hot gun and you think you're going to do this, you don't make a lot of money as a VC Like on a $100 million fund. That's $2 million a year in operating expenses, roughly, if you do normal, normal. Normal $2 million for a $100 million fund is hard. You know your salary, your partner's salary, maybe a third partner or a junior partner, and then you have to have an analyst and then you have a whole bunch of external vendors, your fund admin, your CPA, your lawyers. Your $2 million isn't enough.

Matt McGraw: 22:00

And so like maybe you make 150 grand or 200 grand as salary as a managing partner founding managing partner of a $100 million fund for fund one and you could go get a job at almost any startup and make that more probably so like it's not a path to quick wealth If you pick well over time and you have multiple funds. By the way, the fees are not what you should be tuning for.

Matt McGraw: 22:29

Like you always make more money as an investment banker. You can always make more money as an entrepreneur. Start your own company if you want to get rich. Don't become a VC if you want to get rich. And, by the way, rethink your priorities if you want to get rich, because that shouldn't be your end goal. But here's what I think. I think the question that you really want to ask is like, or kind of, the thing that you find interesting about me is like I really was thoughtful about this. I was really thoughtful because I've got a great life and like, if I'm going to spend this much time doing something, it's got to be as great or if not greater, and to do that, I want to be intentional about it, and it's not just about financial modeling, which you should know. You should figure that out.

Matt McGraw: 23:11

I was, by the way, as an entrepreneur. I had a great CFO, tisha. Out there in the world today, you're the best. She ran my company and she helped me immeasurably. I know finance, but she loved it.

Matt McGraw: 23:24

I had to learn how to love it to be a VC, because I have to like model, a fund, that's a financial model, and then I need a scenario plan every single time we look at a deal, I have to say what are the potential outcomes and the exits over the course of the next seven to 10 years on this? And that's all financial modeling. And if you don't love that, you shouldn't be a VC. You're thinking that a VC's job is to like meet people who are doing cool shit and talk to them about it. That's not your job. Your job is to meet them, figure out whether they're the right person or team to do it, figure out whether that market is actually a market that anybody should be doing anything in, figure out whether the macro is going to help build that market up over the next seven to 10 years and then figure out whether competition is going to eat them or whether the problem is going to go away.

Matt McGraw: 24:14

Another reason you have to really think historically. I think history and macro is really important for the framework. Then you have to read people really well and team dynamics really well over the course of not two or three meetings but six months and figure out whether they're the right team. And then you have to figure out whether the numbers work. And if you don't like all three of those things, you should not be a partner in a VC fund. If you're a partner in a big VC fund, you can outsource parts of that. You can just be the guy or the girl that goes out and meets people glad hands, convinces them to love you, but not in a small VC fund. You have to do all three of those things.

Silas Mahner: 24:52

Yeah, that's really helpful. I think that's a really great framework. I've never heard anybody break it down that way, so thanks for that. I do want to talk about now the thesis. So, with Anthroventures, what is the particular thesis? Why focusing on deep science and why not the other things?

Matt McGraw: 25:11

Yeah, I was in the Bay Area, silicon Valley, start up, disneyland for my whole career. So software, software, software, software Software has definitely eaten the world to some degree, as Andre said. So I kind of sick of software and when we were getting and I went to school for applied physics, so I have like a physical sciences background. I got a degree in history and polypsi for a lot of different reasons because my family is political so, and so I have this weird background but I have a very scientific mind and all those posters are like all the physics things that I love. So I just was like here's a chance to actually do that. I've been in software and in management and in the Silicon Valley ethos for so long. I was like I kind of want to get back to real-world, physical, tangible things. That feels. It felt good. But then we were kicking around thesis and we were just like generalist climate was going to be our theme. But I was like, look, there are other companies and other VCs that can invest in climate software. Why, if you have a two-sided marketplace, why would you go anywhere but NFX, great VC fund? They do marketplaces, carbon trading marketplace. They should probably look at it. They're going to. They're experts at that. I'm less so.

Matt McGraw: 26:34

So it's possible for all of the other VC funds I know and have some respect for to invest in climate-related software companies. They're going to shy away and be scared of hardware or the physical science, deep tech side of the equation, because everybody thinks that hardware is hard, or hard science or deep tech or whatever you want to call it is hard, it's more capital intensive, takes longer to exit, more failure, et cetera. The data backs up none of that. If you look at the data, the capital intensity of software and hardware companies is, over the lifetime of the company, pretty much the same. That comes in different places and might come from different sources.

Matt McGraw: 27:20

Hardware companies, and especially in climate, get a lot of non-elutive capital. So they might actually take more capital in, but not equity investment from DCs. The time to market is like six months or seven months longer on average. The exits are just as big. 75% of the top 10 companies in the world are hardware companies. So all of the conventional wisdom was wrong and I think that's because we've been investing in a new sexy thing, which is software, for the last, you know, 25 years and there was a bull run on it, right?

Matt McGraw: 27:49

So everybody was getting markups, markups, markups, but all of those markups don't. Again I'm going to say this don't fucking matter, it's about DPI, it's about return of capital to your fund and then to your LPs. So a little bit contrarian, right? I wanted to be like screw the VC world and not doing hardware. I have a love for the physical sciences, I think we, and then finally the problem on the planet is physical, and so the solutions are going to be physical too, and I really kind of felt drawn towards being part of that.

Matt McGraw: 28:21

But I mean, another thing is like it's where no one was. Three or four years ago, when we were starting out, nobody was doing deep side stuff in climate. And there were hardly anybody, I think. Third sphere, which is a fund I have unbelievable amount of respect for. Just put out a blog post or something says there's five times more software VCs per capita than there are hardware VC funds, which means it's five times easier for my fund to get into the hottest deal in hard tech climate than it is for a software deal.

Matt McGraw: 28:54

So it's just like easier path, counter prevailing thought. I have an affinity for it. It solves the real problem on the planet. Those three things kind of just added up to like yeah, I think this is where we fit. But our thesis is deeper than that. Like we first kind of thought climate. Then we said, ok, we only want to do deep tech or, like I'll say, science or engineering, leveraged companies in climate. But then and we lost with that, by the way, that was our thesis and precedency. And then since then our thesis has deepened quite a bit. It's not, it hasn't changed, but we understand it more. Now we really focus on enabling technologies, not kind of consumer end point solutions. So I'll give you an example. I would say a heat pump company probably not going to invest in it, but a company that enables heat pumps to be cheaper, better, faster, quicker to roll out, enables that market.

Matt McGraw: 30:00

We would invest in that, and you know it's the difference between a brand company that's going to be successful based on brand, like Gradient's a great company I think they're awesome company but what if Apple comes up with a heat pump? You know the Apple heat pump will win the day and gradient will lose, and I don't want to bet on. That feels like software investing to me. You're betting on like brand and network effects almost, and I don't want to do that. I want to. We're betting on founders and firms that have a unique defensibility, because sometimes the three people that start the company are the only three people on the planet that can literally do the thing that they're doing, and that's really cool.

Matt McGraw: 30:40

I don't worry about defensibility of a product. Often there's like a real, there's a real lack of copycat startup situations in deep tech, and I really enjoy that too. Every company that we look from a work perspective, every company that we look at, is very unique, so I have to learn all new things when I get introduced to a new company that we're gonna double, that we're gonna double click on or go deep on, and I like from just a personal standpoint, super care-based guy. I love to read, love to like figure stuff out. That's really fun. So that's another reason our thesis kind of went that path.

Silas Mahner: 31:17

Interesting. So just to try to re-clarify that to make sure I understand is the? It is deep science or deep technology that is going to enable broad swaths of the climate transition, essentially correct.

Matt McGraw: 31:30

Yeah, our tagline that we're trying out right now is this Anthropocene Ventures invests in pre-seed and seed stage companies that leverage science or novel engineering to more closely align the global economy with the earth's ecology.

Matt McGraw: 31:42

So that doesn't say the word climate or climate tech, which I think are jargony words that the VCs love. It is not a vertical focus on an industry or a solution, which a lot of VCs love because pattern matching is easier when you're vertical. It is any company in the world that is aligning our economic system with the planet and the people on the planet, and so it could be something like micro nuclear fusion reactors that's super star trekky. Or it could be a nature-based solution that enables biodiversity in the Amazon, and so from that perspective it's very broad. Our filters make our focus very narrow. There's 13 main filters that we use.

Matt McGraw: 32:26

I won't name them all, but it's like is it an enabling technology? And that means it has various end point, like various paths to revenue, various paths to impact. Does it have on defensibility? Is it leveraging deep science, architect, novel engineering? Is it a circular economy or an economic model? That circular economy or waste of value? Those are not necessary, but they're definitely big checkboxes that like make us like your company more. So in other words, we're just like. I think that we got ourselves into this problem because we over consumed, thinking that everything was infinite, and now we have constraints, and how to do what we wanna do within those constraints is very interesting to me, and that's we wanna help companies build. We wanna help build companies or investing companies that are gonna enable us to do that.

Silas Mahner: 33:19

Yeah, could you also, just out of curiosity, talk about this thesis in respect to some of the recent investments?

Matt McGraw: 33:28

Sure. So I'm gonna start one that's kind of surprising. We invested in a software company and it's a SaaS tool. How about that? So in the first, like when we started, we were like no software. I was like no software.

Matt McGraw: 33:42

I know software really well. I know software companies really. No, no, no, no, not gonna do it. We invested in a company called Navineer and they're back East and they are a SaaS tool that helps enable the 3D printing market become mass adoption or production scale, as opposed to R&D or prototyping. Think of it as like a you know Adobe suite or Figma floor 3D printers Really cool. Founder expert in this space understands that it's not just design, it's like physics and design have to be molded in a 3D printer world. If this tool does what he is designing it to do and it does then 3D printers become potentially production level scale. For you know, manufacturing things with supply chains being on site. That's really cool. That's a Star Trek future.

Matt McGraw: 34:39

I want to enable right and so 3D printers that the hardware technology has really advanced over the last decade or so and yet the software hasn't. It's like you know laser printers in 1999, where the printer is printing great things but like the software was like you want to stab yourself in the side of the head when you use it. Why did we do that? It's not deep tech. It's not novel engineering. It does use some physics in the model, but I don't want to pretend like that would have asked Muster when we first started thinking about this fund. We would have said it's software, we're not going to do it, but it's a company that aligned the global economy with the Earth's ecology right.

Matt McGraw: 35:18

So we've made an exception on one of our filters deep science, hard tech so that we could invest in a company that we could think could have a really big impact, enabling hardware and a physical solution to a physical problem on the planet.

Silas Mahner: 35:34

Yeah, I mean, your ideal scenario is where you can create something that's going to allow the people who are not deep scientists to actually go and actually make an impact, right? So people who are, like me, coming from the middle of nowhere, hillbillies right, we need some, we want to be a part of this, right? Yeah, but we can't. I'm not going to be playing in the lab with molecules. I don't know how to do that.

Matt McGraw: 35:56

You know I'm going to a little aside here. Another thing that drives me is I'm from a town called Troy, new York, which is an old mill town and it's like a 30,000, 40,000, 50,000 person town it was built for. It was built bigger and it was a boom town at one point A lot of like scientific equipment manufacturing mills, factories, et cetera. And there's still that ethos there, right, and I grew up and I was like the weirdo because I read books and I went to college and then I moved out here and now I'm like a tech guy, VC, right. I still have affinity for my hometown. I didn't. When I left I was like get me out of here.

Matt McGraw: 36:30

But now I go back and I'm like I love this place, I want this place to come back and I think that you know 25, let's say we have a $100 trillion world economy, which is roughly true. 25 trillion of that is like healthcare and technology, technology, software. Basically 75 million of that is like supply chain, logistics, manufacturing, energy, physical economy, stuff that we never think about and the VCs have never invested in, or at least haven't invested in, since they invented mass production, right. So there was originally venture capital going into it 340 years ago, but we are now about to reindustrialize the planet to be more green, and who's gonna benefit, or who potentially could benefit, if we do it the right way? Us hillbillies, man People I like people with hard hats, not pocket protectors, so like we're now investing in companies that are gonna like 3D printers.

Matt McGraw: 37:26

We're investing in companies in agriculture. We've got a company called Corrigin. They take agriculture waste and turn it into bio oils that benefit soil health and crop yields and they lessen the water usage and biochar. So it's a decarplay that is purely Central Valley California. That is not a tech startup that we invested in here in the Bay Area. They have a plant in Modesta, so like that's good for that community and jobs could come back to that community and the soil health could improve and the water usage could go down. And so I feel like this is also a potential game changer for politics, for culture, for the world becoming more equitable for the people on the planet, not just better for the ecology of the planet.

Silas Mahner: 38:12

So I, and I really do think that- Now I think it's actually quite fascinating, because it's one of the reasons why I was so fascinated to learn about climate, cause I came from the middle of nowhere where people didn't believe in climate change, and I was like.

Silas Mahner: 38:24

I was like, okay, I guess I'll work in renewables, there's probably money there, like I'll go and work as a recruiter. And then I started learning about cloud tech. I was like why, you know, why would anybody be against this? It's a better technology. Usually it's like a better product, cheaper, and it's better for the environment and in a lot of cases it actually provides a ton of jobs, like when they do a problem.

Matt McGraw: 38:44

That's like I don't get what people are doing. People work in soil. They're cold.

Silas Mahner: 38:48

Yeah, exactly, I was like I don't understand why people are against it, and I think this is something that's come up a few times with some of the some of the companies we talk to is seeing when they, especially when they partner, when they have to partner with quote unquote blue collar workers, and they're like they're not against it, they realize, well, this is actually not that bad, but that's a huge part of getting adoption for you know. But people buying Teslas and things like that, like my parents, you know, could really benefit from having an electric car, because they never usually drive more than a hundred miles around trip and they do it a lot right. So I just think it's really it's a good point that it can be a positive thing.

Matt McGraw: 39:22

Most of the money from the IRA is going to red states and I'm like good, you know, like that's not a bad thing. Like I know people who are like oh, but they don't even believe in climate change. I'm like I don't care about that. I care that maybe we're reinvesting the kind of money we should have been investing in those communities anyway, and those economic prospects for people are going to rise. And then, guess what, they're going to be less pissed off about us people in cities, Like it could be, beneficial to all of us to have a little less us versus them, and this is really like we're reindustrializing.

Matt McGraw: 39:52

I truly believe we're reindustrializing the planet right now and if we do it right, it's going to be better for everybody.

Silas Mahner: 39:57

I think this is quite a good point, cause if you can provide a good lifestyle for people in the country like my, my, uh, my mom was from a place up North in Wisconsin called Ashland and it used to be like a really cool place. It's actually I think at one point it was the mural capital of the world and they've got nothing there. It's a ghost town because there's no prospects.

Silas Mahner: 40:18

And if you can bring back yeah, if you can bring back good you know good jobs, it doesn't. You don't have to have, uh, you know, a six flags outside of your city, but you got to have something right Just to have a good economy, and then people can live good lives and it's and it's going to be better for the whole world. You're not going to have people piling into New York city and Chicago et cetera. People can live in different places and it's, it's a nicer forestall, I think.

Matt McGraw: 40:39

I'll tell you, last time I visited my family in Troy my brother Jim, who's awesome. I love that guy. But he was like I, I rented a Tesla. I needed like Tesla or whatever bunch of weird liberal car bullshit and I was like let's get in, man, let's try it out. Jam it like, put the pedal to the metal seat If you let. And then he was like holy shi you know, it's accelerated. The performance of the car was off the charts, right. He's like this is awesome, like it's just a cultural thing, right. But once you say, hey, you can have a 3D printer in that old mill downtown and you can produce car parts for the cars and that you don't have to ship them from wherever, it's better for everybody. And he brought 50 jobs back to Troy, new York.

Silas Mahner: 41:20

Yeah, usually people are not close to the idea that just that it gets over politicized and then it becomes an issue, obviously. But we're not. I don't think we're qualified to solve that one. I do a couple of big things I wanna get through for right now. One would be I'll leave it up to you what you wanna talk about particularly, but advice to founders when they're building. Maybe some pointers from your time advising founders or advising startups. It could be around fundraising, just whatever you think is most valuable to climate tech founders to think about.

Matt McGraw: 41:54

So I'll shrink the kind of viewfinder on that. I'll say the founders that are gonna come talk to me. So if you're leveraging deep science or hard tech or novel engineering to do what you're doing and you come to me and you wanna get funded, or any of my friends at all of these other funds that I'm friendly with, those are a couple of things. You gotta have a great idea. Ideas are a dime a dozen. You think you're the only person on the planet that's have thought of this solution? You're not, like, disabuse yourself of being a unique and special butterfly. Even if you're the smartest person on the planet about your subject matter, there's gonna be a different alternative solution that might be out of your area of expertise. For whatever you have, it really is about execution. And this is not just me as a VC, this is me as a founder and this is me as a consultant before that, helping founders. You wanna get as much done quickly as possible. Don't overthink it. But so you've gotta validate the science or the engineering. You have lots of ways to do that. But you know you get a bench scale. You might be proven at a venture lab scale and then you might prove it at a pilot scale. All of that's great, that's all a science project. Still that's it's easy to get a partnership, it's easy to get a JV, it's easy to get an LOI. Those things sound really good from your perspective. I don't care about them as much, because anybody should be able to get them. If you can't get them, that's a big red flag. If you do get them, it's kind of like table sticks.

Matt McGraw: 43:22

What I wanna see is I wanna see that you thought about your business. Now. You don't have to have clarity on the direction of your business when you're at a pre-seed or even seed. You don't have to have clarity on going to market at seed. You don't have to have a business model at pre-seed that you're going to be attached to. All I really care about is that you've thought about it, that you've been intentional about it, that you've considered it. There's so many people that I see that are like we'll figure that out later. No, you won't. You don't care about it.

Matt McGraw: 43:52

If you're not thinking about that at pre-seed, you don't care about it, and it's the last thing you wanna deal with, and that's where you're gonna fall down. You're gonna have the best widget in the world and you don't know how to sell it, you don't know who to sell it to. You don't know how much to sell it for. You're gonna change those three things 50 times before you get to your series A. But I wanna see you think through it and why you think through it and your assumptions that you're making about when you decide on how to think through it.

Matt McGraw: 44:18

Because the way, the quality of your thinking is more important to me than your decision on it. Because you can change your decision. You can. The other thing is in deep science stuff you can't really pivot your product, but you can pivot your go to market and pivot your vertical that you're attaching it to. You can pivot your business. You just can't. In software you can pivot your product pretty easy or it's easier. I should say not easy but you have a cargo container-sized thing that takes in agriculture waste and sticks out biochar and bio oil.

Silas Mahner: 44:50

That's what it does.

Matt McGraw: 44:51

You're not gonna make it you know, create unicorns or you know ferries or whatever at the end but you really have to. You have to think am I gonna sell it direct to, my products direct to?

Silas Mahner: 45:01

farmers through distributors.

Matt McGraw: 45:02

You have to think through the business decisions and, like I said, you don't get attached to them. You're gonna change them. But I wanna know and, by the way, I have to underwrite to a certain financial outcome. So when I say I don't want you to have like five year revenue projections that are detailed I think at pre-seed they're all made up anyway, but I want you to have thought through it. I want you to think here's a bull case, here's a bear case and here's what I think it's gonna be if we go into this market which I think is the right market because of A, b and C, that those are numbers that I would use to build a financial model and scenario plan, potential exits, to see if it even makes sense. The other thing that I will say and I can't say this strongly enough don't overvalue your company. We are not in 2021, and all those companies in 2021 and 2020 that had $25 million pre on a seed are screwed. They can't raise money now and you wanna be reasonable, you don't wanna give up more than, say, 20 to 25% of your company every round probably. There's definitely different scenarios for everything.

Matt McGraw: 46:16

This is not a one size fits all. I don't take my financial advice, all that crap. But I can see so many companies coming in and say we're 12 million or $14 million pre-valuation and I'm like, no, yeah, that's okay. I love your company and I think you're gonna be successful as a business if you get funded. But I won't make any money on that deal. You have to understand maybe that's the meta. Ask the right questions of people like me what do you underwrite to? What do you wanna see from a financial outcome for my company? So that I know if we're speaking the same language, even in the same ballpark? Because if your company that comes in and says we're raising $2 million on a $25 million valuation and we're gonna have five more rounds of funding, I can't make any money on that, no matter what I do. So even if I believe in you, I'm not gonna give you my money because I would not be being a fiduciary responsible for my help. Piece.

Silas Mahner: 47:16

Yeah, I think that's really helpful. I think it's obviously difficult when you're a founder, because sometimes you're well, I shouldn't say sometimes, probably a lot of times your entire identity is tied to it and kind of, is it going up? Right, is it going up? Because if it's not, then I must not be getting better, right?

Matt McGraw: 47:31

Yeah, and I see it on the other end too, where I see like a we're worth $3.5 million and I'm like that's really low, right, like be reasonable, pre-seed it is what's my valuation. Right, you're making it up, but at seed there's some signals that help you and it's don't go on market, go reasonable, right, and you don't wanna be too high, you don't wanna be too low and you wanna negotiate. You definitely don't wanna push it too high, because then the next round of funding is just gonna be that much harder.

Silas Mahner: 48:02

Yeah, got it Okay. So one thing I do wanna ask about is in terms of we talked about this a little bit before the show in terms of areas that you see is interesting. We were gonna talk about particular startup ideas, but what is the area that you're most excited about and you wanna see more people building in?

Matt McGraw: 48:20

So there's, like I said, we're a very generalist from a thematic standpoint. We invest in companies all over the market map for any kind of type solutions. One area that I don't see enough good companies focus is biodiversity, preserving biodiversity. So on the planet, something along the lines of 65% of the global GDP is tied to the biodiversity of the planet. So if that biodiversity shrinks, the potential GDP goes down too. We don't look at it that way because it's an externality that we just don't put on about the balance sheet of the planet, right, and we should really. So we're crushing biodiversity.

Matt McGraw: 48:57

It's terrible for the earth. It's terrible for the people, animals on the earth, plants on the earth, but it also is economically disastrous over the long period of time, which we're terrible at looking at things over a long period of time. But I and I see a lot of like we're gonna tokenize the forest deals and I don't. I'm not super keen on that business model. I think there's complexity under that and I think there's some good business models there, but I'd really like to see more companies come up with novel business models around preserving and indeed increasing biodiversity, because super important. Not everything's gotta be an investable VC, investable company, by the way. Maybe this is governments and maybe this is philanthropy, but I think there's probably some business models out there that were just letting that, that we haven't been creative enough on, and I'd love to see them.

Silas Mahner: 49:52

I think it's an interesting point because there's probably a lot of areas where the quote unquote tech bros haven't been. You know, thinking about these people like you know, think about industrial areas, like if you had people who are super innovative in those spaces just trying to think about how to revolutionize it, and if you could find ways to attract those like kind of quote unquote visionaries to those spaces in a young age. They can't be the people who are like done their life in VC or tech and then are coming to change it because they don't know how it works. But if people can come there because they're fascinated by growing some growing in that space and then learning how can we make this better? I think that's always a fascinating area because there's so many, so many of the coolest climate tech startups I've seen have been people who are in the industry for a long time and then just had this light bulb moment and they're like oh, wow, like we could actually really change this, how it's being done.

Matt McGraw: 50:40

Yeah, I have this pretty unique view. I'm like I came from the tech world and the tech kind of the tech bro world, right, and I'm not anti all of the people from the startup land, the startup Disneyland that we've lived in for the last 20 years coming into climate, because one thing that climate needs is venture speed and scale right now. The other reason that I was like kind of anti starting this fund was because I just was like obviously these are extractive and sometimes it's growth for no purpose. And Jim Betcher, who was like you're right, sometimes these software companies should have done the 37 signals and done like responsible, slow growth over longer periods of time and they would have made much more money for the founders and the people that invested in them. But we don't have that luxury in climate. We have to solve these problems like incredibly rapidly, and so I'm kind of like, yeah, come on over crazy growth people, let's make this. You know this capacitor company?

Matt McGraw: 51:34

We looked at a bunch of capacitor companies recently and like they need to grow quicker than you would normally see in an industrial space and like the people that work in that industry already don't ever think about like growth, quick, massive scale. They're just like going to work going home right.

Matt McGraw: 51:51

So like there's the kind of the ethos of quickly scaling has to happen in climate. Yeah, I mean I think it's a fascinating time. The other thing is I don't think there's any problem with creativity in the climate tech space. Man. There are so many cool companies. We see stuff that blows my mind every day, all day pretty much, and I think it's great. I think everyone's kind of thinking through a climate lens. I almost think that we're not a climate fund anymore, that funds that say climate that's just like an overlay or a foundation and you're like you're investing in the physical economy or you're investing in software or you're investing in ag or you're one of those kinds of funds with a climate theme.

Silas Mahner: 52:32

Yeah, well, one thing I've noticed is that so when I started this podcast, the climate tech word wasn't a thing, it was clean tech still and I started it and then, like a month later, they started calling it climate tech and I'm like damn, I should have waited. But the point being is, I do think it's sometimes it's gotten more confusing. When you say climate tech, people like it hasn't gotten clearer what you're talking about, and now you're like, oh okay, which is super odd because we've been in this for a couple of years now. So I do think obviously at some point it's going to not be that. It's just that you do it because it's the best thing to do and because if you're not doing it, you're probably not going to be achieving good outcomes because you're just doing something. That's kind of, at a point, everybody has to be focused on this way, right?

Matt McGraw: 53:17

Yeah, that's actually a really solid point. One of our filters, and probably the most important one, is the solution they're bringing to the table has to be better and cheaper than the one that's already existing. It can't be like some green premium stuff. 10 years ago, maybe, I was like, okay, you're doing it for the good, you're maybe concessionary as a fund. We're not. We want to beat the market, and your solution to this problem that people in the real world have today that's not just a climate problem but a problem in the business has to be better and cheaper and full stop.

Matt McGraw: 53:46

I think, you don't invest in things with a green premium.

Silas Mahner: 53:49

I think that's part of what's going to get more people like quote, unquote. The average Americans or the average Joe behind these things is not thinking about it Blacker cars are better, yeah.

Silas Mahner: 53:57

Yeah, we don't. I don't think that they really respond well. At least I know my relatives don't respond well to people shouting at the sky right, they care about like, is it a better business? I think that to an extent the kind of really pessimistic outlook obviously it certainly has the truth to it, but the super pessimistic outlook and just kind of doom, doom scrolling is really been counter, counter. It's been counter to getting things moving actually in a lot of places.

Matt McGraw: 54:27

I don't want to ever kind of shit on the scientists that are like painting the terrible picture because it's accurate and true, but that never really inspires people to action. And I'm not a climate doomsday guy because I just wouldn't get out of bed. I'd be like, okay, I'm done, let's play video games and drink beer for the short terrible time we have left on our on our earth, right? So like I need to be energized by saying I think we can solve this and so I just think that's a more powerful approach. Yeah.

Silas Mahner: 54:58

I just heard the term recently, the solar punk, that you're kind of optimistic about here, which I think that's super cool. I wanted to put solar punk on my LinkedIn, but it might confuse people because I'm I'm in climate now. But one last thing. I want to get one last thing out of you. You mentioned a couple of times early on this. You know bad governance and how some of these tech companies will run and how you guys care about that. Can you talk a little bit about the responsibility of let's call it again climate tech companies to build good technologies but also to run their companies in an ESG aligned way that is responsible and takes into into account all these things about including other people? I would really like to hear this, because I don't think I've had anybody talk about this before.

Matt McGraw: 55:35

Wow. So that's a huge topic. I'll try to do it justice in the time that we have, but I think I really like people who have a lot of integrity. And so if you're a climate tech company and you're doing the climate tech thing and you're solving for this one KPI and climate tech, let's say you're a CO2 drawdown company and you're a DAC company, a direct air capture company, and you're drawing this down, but your entire supply chain is shitty and you treat your people poorly.

Matt McGraw: 56:01

I I think you're terrible, I think you're like less than good, and I I think the reason that I think that is the reason that we've got in the position that we're in on the climate crisis is because we didn't think holistically. We didn't think about second and third order effects. We just thought about the thing right in front of us. We were very short order cooks and what we, and so, from a governance standpoint for our fund, we think about second and third order effects of the companies we invest in. If you are a decarbon company but you also, you know pollute water, it's six and one half dozen in the other You're just causing, fixing one problem, causing another right. If that's why we like circular economy kind of economic models or ways to value, because we feel like that's going the opposite direction. Second and third order effects are actually even better and make it a more palatable deal for us, and I think that it's very easy for domain experts to get focused on the problem. They know how to solve and I think, as a CEO, it's your job to think laterally and broadly instead of very vertically and very focused. You can hire people in each department to do the thing that you need to do, and I think it's really hard for some of the founders to think that way.

Matt McGraw: 57:18

I'm also kind of a justice and climate justice are the same thing and climate justice is part of the climate fight kind of guy. If we solve all the problems on the planet but the people on the planet are still screwed, what's the point? So I also think that companies we look at companies we invested in a company primarily not because of its kind of climate benefit, but if it's environmental impact for manufacturing facilities, like the general health and well-being, they're going to affect the general health and well-being of the communities around the manufacturing plants where their product is used and for the people that work there. And that was our first investment and people were like that's not really a climate company. I'm like it sure is.

Matt McGraw: 58:02

The ecology of the planet involves the people on the planet, so we have to think about it holistically. I kind of think otherwise. You're being like VCs love to specialize and pattern match and go vertical, and I think that's what I've always disliked about the VC industry. And I think that climate is the ultimate horizontal complex systems problem and if we don't think about it that way, we're just going to end up with different problems. And how boring is that.

Silas Mahner: 58:30

Yeah, that's a good point. I think it is a really hard topic to go. There's a lot of things I'd like to go. I especially was disappointed to see how a lot of the software climate companies did the same thing that Silicon Valley did, which is just hire a ton, do the kind of irresponsible hiring thing and then, oh, the economy is bad, we're going to lay off a ton of people Super irresponsible management and I was like super disappointed to see that, because I truly believe that the ESG and climate movement all have to go together, like they can't be separate, and, if anything, the climate people should be the champions of those things, because how are you going to create a more equitable world if you only care about one aspect?

Matt McGraw: 59:07

We are reindustrializing the planet. We have an opportunity to save the planet from deleterious ecological effects. At the same time, we have an opportunity to make the planet more equitable for the people living here. So why wouldn't we take this opportunity to do the right thing?

Silas Mahner: 59:21

Yeah, absolutely. All right. I know we're out of time, so what is your call to action for the people and where should they reach you? Where should they follow.

Matt McGraw: 59:28

Matt at anthroventures is my direct email. I'm going to open book Founders. Hit me up if you leveraged deep science or hard tech.

Silas Mahner: 59:38

All right, man, this has been great.

Matt McGraw: 59:39

All right, see you later.

CleanTechies Podcast

#121 Size Matters...Fund Size, Re-industrializing the World, Hardware is NOT Hard, & More w/ Matt McGraw (Anthro Ventures)

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