CSI Climate Ventures Mornings are a chance to hear from climate solutions innovators and leaders.
This month, we got a chance to chat with Laura Witt, General Partner of the Drawdown Fund. Laura gave us insight into the mechanics of the Drawdown Fund, challenges in the sustainable investment space, and reasons for remaining optimistic about investing in climate solutions.
Read on for highlights from our conversation! (Or if you’ve got an hour to spare, get the full experience by watching the recording below.)
What Paul and his collaborators found was this: the biggest challenge climate solutions face is implementation. We already have most of the solutions we need, but they aren’t being funded and implemented on anywhere near the scale we need.
Of course, implementation requires funding. So in 2018, Paul sat down with Erik Synder, now the CEO of the Drawdown Fund. They identified existing climate solutions that could be accelerated by capital or market mechanisms, as opposed to philanthropic dollars, government dollars, or culture change.
(That’s a fancy way of saying they went down Paul’s list of climate solutions and pinpointed the ones that could be best realized through commercial ventures.)
Thus, the Drawdown Fund was created. Today, they invest in three focal areas: sustainable cities, food and agriculture, and energy. They’re continuing to look for funders and growth-stage companies alike, with hopes of growing the fund to $250M and investing $10-30M in each of the ventures.
Making the investment case
In recent years, the conversation around climate action has grown – but that hasn’t been reflected in the way we invest. Climate-focused ventures are still struggling to find capital.
“The way they manage big asset pools, they say: ‘Okay, we’ve got an allocation for technology investing, we’ve got an allocation for healthcare investing, we’ve got an allocation for investing in industrials. We don’t have a set allocation for investing in sustainable businesses,’” explained Laura. “Some people, unfortunately, look back to CleanTech 1.0 and say: ‘Venture capital had losses in CleanTech 1.0. What’s going to be different now?’”
It’s a bit of a chicken and egg situation. Investors want teams with successful track records, but few firms have proven their potential to drive strong investment returns while delivering measurable climate impact. After all, sustainable investing is still relatively new.
It’ll be a while before there is enough data to make a solid case for this area of investing. This prolonged time frame is a challenge in itself: “A lot of these companies are hard technology. They take a long time to build. It will likely take four, five, six, seven years for these companies to get through the life cycle, to get to liquidity events that show good returns to investors.”
Laura shared a story to drive the point home: “We’re talking to a company right now that looks interesting to us as a growth-stage company: millions of dollars of revenue, hundreds of customers. I was looking back at the company history and was reminded that this was a company that was founded in 2006. They signed their first commercial contract at the very end of 2013. So it took 7 years to commercialize this technology, to bring to market, to get it through pilots, and then get that first deal signed, and bring in the first revenue dollar.”
Knowing this, the Drawdown Fund is looking for investors who see the urgency of climate change, and are therefore willing to take on more risk and be patient. They’re more likely to be family offices, where key decision-makers all sit in one room, than institutions, who are more risk-averse. Institutions are seeing increasing demand from their clients for sustainable strategies, but are cautious about making commitments to these newer sectors.
Fortunately, public opinion has shifted and there have been louder, more frequent calls to support companies with sustainability built into their missions. Just look at Amazon, who recently announced a $2B Climate Pledge Fund for companies working to decarbonize the economy and protect the planet.
“We’re in the knowledge economy, and it’s all about attracting the best talent to your company. People are voting with their feet to work for mission-driven companies,” said Laura. “And consumers want to buy more from companies who have these mission statements.”
We’re all moving toward the same goals
With this sort of shift in demand, there is potential for businesses that drive climate solutions to grow fast and generate high returns for investors.
As we move into pandemic recovery, Laura remains optimistic. This is a chance for us to make decisions that build a more just, equitable, and prosperous world for all (what we at CSI call the “Next Economy”).
“I think it’s really promising. We are going to have a debate about how we direct these [stimulus] dollars in a smart way,” said Laura. “I saw the International Energy Agency release a big report outlining 60 cost-effective solutions where we could be putting stimulus money to work. […] They’re saying because these are such cost-effective solutions, you could actually generate more than a point increase in GDP growth over the coming years if you invest stimulus money in ways with positive climate effects.”
Her optimism is, in part, inspired by the entrepreneurs she’s met through the Drawdown Fund: “I’m meeting the smartest, most driven people who have chosen to dedicate their lives to this work.”
Our conversation with Laura covered so many topics, it was difficult to pick out a few to highlight in this recap. You can watch the full recording here, and do some further reading at the links below:
If you are or know a growth-stage company that could benefit from the Drawdown Fund, get in touch with Laura and her team. And if you want to hear more from the world’s climate leaders, keep an eye out for our next Climate Ventures Mornings!