The energy sector is on the verge of exponential growth as the investment momentum and conversations around sustainability and climate change are on the rise. While public facing activists like Leonardo DiCaprio and Greta Thunberg have been vocal for years about the imminent risk to society and future generations, recently activity in the clean tech sector and excitement surrounding the space is trending upwards and moving fast.
New technologies and innovation around electric vehicles, energy storage and the grid, coupled with the government’s demand to pass new legislation and meet sustainability requirements, clearly reflects the necessary and growing efforts to save our planet. Additionally, the Covid-19 pandemic has brought a fresh perspective on the environmental impact we have and the transformation that’s required. Both the bottom up and top down push surrounding climate change, combined with the increasing number of people and companies dedicated to both personal and corporate sustainability responsibility is defining the next era of this space.
For the last three years, I’ve had the pleasure to team up with Sameer Reddy, Partner at Energy Impact Partners(EIP) in NYC, whose global venture fund invests in forward thinking businesses that are entirely transforming the energy and utility spaces. EIP is the world’s largest industrial coalition comprised of innovative utilities and industrials working together to shape a better future. In working alongside Sameer and a number of founders/CEOs in EIP’s portfolio helping to build out their senior leadership teams, it was evident to me early on that this is a profound problem that will take exceptional, highly motivated and mission driven individuals — aka the “material impact executives” Daversa has built a reputation recruiting — to continue to revolutionize this sector.
I had the opportunity to sit down with Sameer, an energy tech veteran, investor, board member, and thought leader, to unpack the evolution and growth of this sector, as well as discuss future trends including mining bitcoin, and the important role great talent will play in shaping the next wave of innovation.
I would love to understand how you’ve seen this space evolve over the years. It feels like we’re finally at the tipping point now, and it’s evident the conversation has been growing.
“I think at every level, the conversation has shifted. Whether you’re a consumer, an employer, an investor, or a board member — sustainability and climate change is at the center of every aspect of society.”
What’s more exciting is that large corporates, ranging from big tech to real estate to utilities, are basically saying that they’re not going to wait for policy to catch-up which has created a wave of corporate sustainability mandates.
The big shift that gets me really excited is that corporations and more importantly, their investors, no longer see sustainability as charity but rather as existential to their business models. 5 or 10 years ago, most corporates were thinking about sustainability as a trade-off — “I can make the right choice for the climate at the expense of corporate profits.” But today it feels like corporates are looking at sustainability as the economic opportunity of our lifetime.
Probably an equally, if not more valuable stakeholder, are employees. Amazon was a great case study on the impact that employees can have in driving corporates towards more ambitious decarbonisation targets. This new generation of employees entering the workforce obviously care about something much deeper than how much money they can make or how quickly a company scales — they want to work for a company that aligns with their values so if a company wants to be able to recruit the best and the brightest, they better care about sustainability.
In terms of the climate market opportunity, what have you seen in the investment landscape and where do you see future trends and VC funding heading?
We’ve obviously seen a flood of capital entering this space from all directions which is great and has the potential to create a powerful Flywheel Effect. With unprecedented capital flows into the sector, we’re already seeing more companies being started, more talent seeking opportunities in this sector, and larger potential exits both in the private and public markets.
The focus of most of the generalist VCs moving into the sector has largely been focused on capital-light, software-oriented businesses with high gross margins — that tends to more closely align with the traditional venture model and there will certainly be plenty of those opportunities. I don’t think there’s any shortage of capital chasing opportunities in that bucket.
A lot of the groundbreaking companies that can put a meaningful dent into climate change happen to have a high degree of science or tech risk, are highly capital intensive, and might take much longer to materialize. There are a ton of really exciting companies emerging from this bucket, like our very own Form Energy, and already a few major public outcomes like Quantumscape that are really shifting the narrative, and I’d expect more capital moving into this segment of the market.
One of the biggest trends we’re focused on right now is the electrification of pretty much everything. Whether it’s cars, homes, buildings, back-up generators, heating, you name it. Electrification is our fastest path to decarbonization and will be a multi-trillion dollar opportunity over the next decade — and we’ve only barely scratched the surface. As an example, Moxion Power is a startup that’s displacing heavily polluting diesel generators at construction sites with cheaper, cleaner battery gensets. This is really just the beginning.
Electrification is also going to significantly increase demand for electricity and the need for better reliability across the country. In order to prepare for that future, the grid is going to need to be more resilient, we’re going to need a lot more of everything — more transmission, more microgrids, more energy storage, more nuclear and a lot more flexibility on the customer side of the meter. I think the events in Texas during the recent winter storm really highlighted the potential outcomes if we’re not prepared for this new climate reality where “tail” events are the new normal. One of our portfolio companies, Enchanted Rock, kept the power on for several critical infrastructure customers during the winter storm and are really seeing unprecedented demand for their microgrids which I think is a pretty good indicator of where this market is headed.
How much of an impact has big tech had on the clean energy space? In my eyes, I see some clear pros and cons, but would love your take.
There are incredibly smart folks that work at those companies, and I think they see the imminent threat that climate change poses to their business models, particularly around the resource intensity of cloud computing and I think that’s causing them to really get out ahead of that.
Most of big tech at this point have aggressively leaned into various forms of a climate pledge and we’ve seen a lot of evidence through some of their commercial relationships with some of our portfolio companies to suggest that they’re really taking this moment seriously.
On the flip side, I’d love to see data center owners more aggressively move away from their reliance on diesel generators for backup power. There are better alternatives that exist today like renewable natural gas that are not only cleaner but also more resilient solutions.
Let’s talk about a vertical that has taken the tech world by storm…crypto and Bitcoin. There are implications on sustainability, the energy space, and our environment as it’s understood that mining bitcoin is extremely energy intensive and not eco-friendly. Do you see a world in which crypto and energy collide, and what are the opportunities there?
It’s no secret that mining Bitcoin is incredibly energy intensive with a terrible environmental footprint. But I’ve accepted the reality that it’s here to stay and I suppose if we have to mine it, we should at least optimize mining operations for emissions. For example, it’s fairly easy to envision a world where we can curtail Bitcoin mining during times where the grid is producing the dirtiest electricity, and then resume mining at times of the day when the grid is over producing or curtailing renewable energy, for example. So I think there are ways to leverage the flexibility needs of the grid with the resource requirements of mining to reduce the emissions impact of crypto mining.
We’re also seeing business models where people are setting up mining operations adjacent to wind farms. This allows miners to access electricity straight from the source of generation and eliminate a lot of the transmission and distribution losses of shipping electricity, as well as a lot of the wasted curtailed generation that never makes it to the grid.
I think we’ll start to see a wave of some pretty successful startups that are pairing the energy intensity of bitcoin and balancing it with the real-time needs and emission of the power grid.
When it comes to finding and retaining talent, do you feel the energy and sustainability space has an advantage or disadvantage? Is it a difficult transition for people to make without having experience in the sector?
Maybe I’m naive but I think there are more people than not whose primary motivation in life is to do good and have their life’s work to be impactful. For those individuals, there is really no better place to spend your career than climate tech.
But there is also an equally important need to see success and feel like they can make a career out of this and that their equity is going to be worth something meaningful and that the company will scale to a level where it’s going to have a meaningful impact on society. Seeing a precedent of success in this sector will help give more people the confidence that this is the right place for them to bet their 30+ year remaining career.
That’s why a lot of the recent success in the climate space has been so critical — with all of the big exits we’ve been seeing, we’ve been seeing a ton of talent flock to our portfolio companies.
On the talent side, some of the best CEO/founders in our portfolio have really focused on bringing in talent from outside of the core climate tech space. Many of our companies have recruited folks from unicorn tech companies like Datadog, Palantir, DoorDash, Pinterest and several more. If we’re going to solve this problem, we need to bring in folks that have built and scaled businesses and who know what success looks like. And the reality is, the broader climate tech space has not had enough success in the last 10–15 years. It’s only up until the last couple of years that we’ve really seen some breakthrough outcomes here.
I also think we as an industry would really benefit from more diversity and have a long way to go on that front. We’re actively seeking to foster more diversity not only within our own team but also inside our portfolio and making sure we’re increasing our focus on backing founders from underrepresented backgrounds.
Hopefully this conversation encourages more people to explore careers in climate tech — there’s certainly no shortage of problems that need solving. I think it’s the growth and success that we’re going to see in the sector over the next decade that will make this the single best career bet any professional could make. And I really appreciate the creativity that Daversa has shown in helping us build and scale teams to solve some really important problems.