Welcome to the latest episode of the ESG in VC podcast where we are joined by Matt Ward.
Matt is a Partner and Syndicate Investor Lead of 4WARD.VC's early stage climate syndicate, he is also the host of The Startup Tank Climate Investor Pitch Show. Since graduating from Georgia Tech with a degree in Mechanical Engineering, Matt spent the last 10 years in technology, startups and venture capital. Matt’s built and exited multiple ecommerce and media companies.
Together with Matt, we discussed what are the key differences between traditional venture investing and investing in climate tech and can we use ‘climate economics’ as we have been using unit economics to evaluate companies. We also spoke about ESG frameworks and about Matt’s views about it and which sectors within climate tech Matt finds exciting.
Guest: Matt Ward
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Hello and welcome to ESG in VC, a podcast where I continue to interview top players in the ESG space and where we dive into ESG-related topics, exploring how investors, regulators, and founders try to build a more sustainable and inclusive society. I'm your host, Oksana Stowe, and today we have Matt Ward joining us.
In addition to being the Partner and Syndicate Investor Lead at 4WARD.VC’s early-stage climate syndicate, he's also the host of The Startup Tank Climate Investor Pitch Show. Since graduating from Georgia Tech with a degree in mechanical engineering, Matt spent the last 10 years in technology, startups and venture capital. Matt is a serial entrepreneur and has built and exited multiple e-commerce and media companies. During his career, Matt had a chance to work in numerous sectors and with hundreds of businesses to help them grow and scale their operations.
Let's dive straight in.
Hi, Matt. Thank you very much for joining us today. You have a very interesting background. You have been an entrepreneur and now you have turned into an investor who is very passionate about ClimateTech. I thought it would be quite good to start from the basics and hear what makes something a climate company, in your view and in the industry.
Oh in the industry and in my view that's very different.
But you can go ahead.
I will do my best to enlighten the audience. So the reason I got into this, I was tired of working with B2B SaaS and D2C companies just selling more junk. And I wanted to do something that really mattered. And for me that was climate and impact.
So about a year ago, I started 4WARD.VC and have been working though, we're a climate syndicate, we invest in early stage climate companies just 4WARD.VC. We invest in companies that move the world forward. And that's kind of how I view climate and climate companies.
So a lot of funds, they have specific metrics. You have to reduce X amount or X gigatons or X megatons of CO2 or prevent certain amounts of plastic pollution or save X number of animal lives. And I think all of those metrics, while albeit valuable, are also problematic because they a) block us out from looking at companies that are great but don't quite satisfy those metrics. So what about a company that's reducing greenhouse emissions while also making the planet or making the oceans cleaner or doing things that don't fall into those metrics?
For me, I have a concept called climate economics. So there's unit economics. You have a product, you sell it, you have a customer, you sell to them a service, et cetera. Are you making money on every single sale? That's unit economics. Certain companies have got that wrong in the past, and VCs have funded that and they went out of business.
But climate economics, for me, that means for every sale, every product, every service, every new user. Are you making a positive impact on the climate, in the environment, in a proportional way? So as you grow and scale, do you make a proportionally more epic impact on the world? And if the answer is yes, you are a climate company in my mind, and those are the type of companies that we focus on at 4WARD and with the start-up tank, our climate Shark Tank dragon’s den.
And without maybe getting a little bit too technical, but measuring impact is something that is quite difficult. So you say, some existing measures are problematic, but then how do you measure the impact?
So there are measures out there to measure impact, and what I say to those is, I'm glad people are doing them. But they're spending a lot of time, energy, and money on doing metrics. And if anyone's ever started a startup, you know that nothing goes according to plan. Everything's pretty much made up and you're going to pivot, which means all of those metrics that VCs and companies are creating and evaluating, they're all BS anyways when you have to completely change the company.
So that's why I kind of created the concept of climate economics. As this company goes forward and becomes larger, are they making the world better? And if the answer is yes, it's a climate company and if the answer is no, I don't want to invest.
I don't have the time and energy to put into very specific metrics and monitoring. I think a lot of those just create jobs for ESG consulting or for large kinds of scope three emissions tracking. Certain things are pretty straightforward.
You're producing plastic. That's 5% of global emissions. If we can decarbonize, for instance, a percentage of that, so 40% of the plastic, you're reducing 30 to 40% of the emissions. That's a major unlock, despite the fact that we don't have absolute numbers on what the impact's going to be.
Or with our largest investment to date, Eexion, a battery company out of Israel, they have a new type of battery chemistry, not lithium ion, which is highly pollutive, only lasts about a thousand cycles, can't be recharged very quickly and is leading to a lot of the problems that we have in the energy transition.
These guys can charge a hundred times as fast, they have just as much energy density. And that means Bird did a study. Bird could get rid of 65% of their scooters if they had technology like this implemented there. And just something like that. Maybe we can't exactly quantify what the climate impacts are. But if we had 65% less of those scooters crowding our streets, that's a lot of material costs, that's a lot of climate impact.
And that's how I evaluate things. And I like to look at them in terms of making the world better. Not necessarily, always in an absolute sense of “this needs to be vegan because if we don't transition everyone over to veganism, then we're never going to save the world.” I like to look at, okay, can we have large incremental improvements as well?
Because that buys us more time and improves things from where we are as opposed to being overly idealistic and then failing to succeed or to achieve what we need.
Yeah, great. And thank you for providing an example that always helps to contextualise. Just moving a little bit, maybe back to broader definitions. Many consider climate venture, specifically climate and venture, as more complex and much harder than typical traditional venture tech investing. What are the key differences in your opinion, and are we going to get to a place where ClimateTech is not going to be viewed as hard?
I think there's two answers to that.
You're kind of mass parading as a climate company. So software to help companies do X, Y, Z. We're only going to get so far in solving climate by “softwaring” our way out of this problem. There are big real-world problems that need to be solved as well. And I think that a - that's the first part. And hardware, hardware's hard and expensive is kind of the catchphrase.
It takes twice as long, costs twice as much. With climate, that is definitely true, and a lot of the technologies that are being commercialised are going to need long times to market and lots of capital for building them up into real venture scale companies that can change the world.
How we look at that is twofold. A - We target the very early stage, so pre-seed and seed. In the next 5 to 25 years, there's probably going to be 5 to 25 trillion at least coming into the climate space. As governments start to mandate it, we start to have more carbon credits in markets, LPs start to push out of polluted fossil fuels and into green investments.
More investors like you and I want to do the right thing with our career and transition into this space. But all of those are big ticket checks. That's trillions of dollars. You can't put that into early stage. They want to write big checks because that's what they can do, and that's where they get big management fees, which means later stage there's going to be almost unlimited dumb money funding for growing and scaling, but the early stages where the crunch is.
So that's also where we see the big value and how we work with 4WARD is we invest in those companies, and we help them get to those next stages because the next three to five years is really going to be a capital crunch.
The companies that survive, a lot of companies are going to die out over that timeframe. That's just how it works. But the ones that survive will have almost unlimited runway to grow and scale. Be that from venture or what I like to look at from a venture debt or a revenue financing or debt model, once you've got a business, it's working well, okay, it's kicking off cash. Why give up more and more and more and more equity when you can just take later stage money from a bank or from a venture debt provider?
The other thing I think comes into play is the fund timeline. So the traditional 10 and 2, that makes a lot of climate tech investing potentially problematic. I see Evergreen funds as a better way of handling that.
And if I were to be raising a fund, for instance, that's kind of the route that I would go. You can't say anything more about that, but I see Evergreen as a much better green solution to long-term climate investing.
Yeah, I agree. And gives you more flexibility. In terms of 4WARD VC, which obviously you put a lot of effort into launching, and as you mentioned, it's a syndicate, but you have done a lot of community building which includes angels, enthusiasts, investors, founders, a very wide range of people.
What are the key findings from doing that and what surprised you while you were building a community?
It's really been just hardcore hustle. In the last year, I've connected with a thousand plus climate funds, incubators, accelerators, CVCs, and everyone wants to be in the space and making things happen. But collaboration was still problematic. I basically spent the first six months building up our syndicate, sharing all the best deal flow that we were seeing from the Startup Tank, which is our climate Shark Tank. You can find it at thestartuptank.com.
And then everything else I had through my network, and I found that by taking that kind of initiative and having probably hundreds of calls at this point, it's been quite a great way to get connected and try to create that collaboration and network in this space.
I like to think that we're all on the same team. We're all on team planet. That's why we published our Climate VC database. You could check it out at The Ultimate Climate Tech / Cleantech VC Database (4ward.vc). We've got a whole bunch of resources there, and that's what we've been trying and I've been trying to do is create that community, be the person who helps bring it all together through 4WARD.VC, through the startup tank, through the slack communities that we have, so that as the climate movement moves forward, hopefully some karma comes back our way.
And it's definitely been coming back our way in terms of great companies, in terms of investors joining our syndicate in terms of possible things that we discussed earlier that were hypothetical, whereas a lot of trends that a lot of traction happening in that space. And it's really just been, sometimes the hustle and grit pays off would be the biggest takeaway, and that there was really ripeness in this space.
So with the Startup Tank, we haven't been doing that that long. It's been less than a year. I think we're probably around the baby timeline of nine months, so, oh, it's going to pop out kind of deal. But we're probably the biggest climate tech pitch show slash like network in the world. Now we get pretty awesome viewership. We finally turned the corner on the network effects and companies are pitching and now investors are reaching out cold and saying, “Hey, we saw you there and we should set up a call”.
And that's kind of when you know you're winning is helping those companies get the exposure they need investing in those top companies. And then seeing how that all moves the space forward. Because we're not going to solve this one fund, one syndicate becoming a fund. That's not going to solve this. We need a lot of movement forward.
Agree. And so would you say that doing pitch demos, videos and days that you have organised, gained the most traction or which are out of the activities you feel gains the most traction, and why do you think that is?
I would say the most organic traction would be the pitch, but I think you can't really separate, I reached out cold to at least a thousand funds and even more investors than other players.
I don't think you can kind of discount that and basically I said, look, I'm just here to be helpful and show you companies. And by the way, here's a helpful database if you're looking for investors, and by the way, here's something if you're looking to find co-investors, and by the way, here's a slack community.
It's kind of been pushing it all together to see and create the flywheels that power themselves a little bit. And I know that's not the answer people necessarily want to hear. But I think the answer is just hustle, which is what I'm good at. It's not something that's easy to scale.
And a lot of determination and hard work.
Yeah, and stubbornness. Basically I wanted to do something that really effing matters that I can be proud of. And I decided I'm going to do it no matter what and burn the boats.
Great. And coming back to your criticism of reporting and ESG in itself, because there has been a lot of debate in the press around ESG, and you had some strong views. So what are your thoughts on this? How do you think it would evolve? Should we scrap it altogether, or do you think that there is some merit in keeping that framework?
We need some type of framework for sure, but when Exxon's an ESG company and Tesla's not, that's a big problem. I think we need more transparency in this space.
I said when we spoke last time as well, I think going with ESG is just the wrong model. It needs to be at least E squared SG, because E is significantly more than S or G in terms of importance in my opinion. If we get the environment and the climate wrong, we have worldwide crisis of the scale we've never witnessed. Tons, hundreds of millions of people die, mass displacement, huge wars.
If we get the other ones wrong, we're basically living in the same world we're living in today anyways, so the worst-case scenario on those is kind of the status quo already. So why would we put S and G at the same height as E is something that I don't see all that logical, to be honest.
Well, the counter-argument is that, and I don't want to go into a very long debate about this, that if you solve S then there is much more awareness around E and much more collective desire to solve E, which would help and.
And also if you solve G, for example, where you have a very disproportionate wealth distribution, which I think comes partially from S and G, you could benefit from more investments into E.
So in many ways they are very interconnected, but I agree the impact of E is much greater.
My issue is the absolute best model in the entire world is the theory of communism. The problem is it doesn't work in practice. So if we could actually live in a communist, perfectly communist society, everybody's happy things work well because of course it goes all according to math. But then we put humans in the equation then things go poorly wrong.
And I think that's kind of similar with S and G. If we can improve the incentives of how we align things up, I don't think necessarily having it on a per company basis, but more on a structural basis would be valuable. Certain things like optimising for dividends rather than capital gains so capital gains incentivize unsustainable growth because you pay less taxes when your stock is high into your selling those offer versus actually making money in the business. So we have to grow on sustainably, and there's only one thing in the universe that continues to grow with no end, and that's cancer and then it kills you.
I would say the other side of that, that I think could be beneficial, would be looking at how we can have more incentives or more systems in place on the kind of governance and social responsibility built into the law itself. I think when people need to opt into doing something, we know how to eat healthy and exercise, it's very obvious. And yet what percentage of the population is overweight?
I think when the incentives are built wrong, it's hard to blame the player. You've got to blame the game. So Elon Musk is an a-hole, but he's playing the game well. Google does things that people aren't happy about. Facebook does things that people aren't happy about, and that has nothing necessarily to do with the S or the G. It has to do with the game that they're playing of capitalism and how the rules are set.
So I think instead of fixing that on a company, I don't think you can because if you fix it on a company level, then they're playing on an unlevel playing field. And when we have two different sets of rules, one's going to win more than the other.
I agree with you for sure. And this is why one of the problems of ESG is that at the moment it’s self-assessed, and as you say, it's self-regulated. Perhaps if that framework reaches some sort of standardisation and evolves, that would be what, as you describe, the rules of the game will be slightly different, and those rules can become an ESG framework.
But to move a little bit back to 4WARD.VC, you have quite broad geographic coverage, which is US, Europe, and Israel.
Do you feel that there are noticeable differences amongst startups from these three regions, and have you noticed that there are some kind of natural clusters around different regions?
Yeah, absolutely. I would say, and that's our focus, primarily just because A - that's where we see the biggest potential, and B - that's where our network is the strongest.
So the Startup Tank has hubs and basically the 20 top tech cities outside of China and in Israel, we see a ton of very deep CleanTech, AgTech, IoT, things that relate to defence, things that relate to energy. We did the battery tech company. There's some really cool BioTech and AgTech plays coming out of there.
And Israel does an incredible job of both grant funding and then matching funding and other programs to incubate and create successful startups to help them expand out of the country and to turn university technology into commercial products. Those are a couple of the companies we've seen and had a lot of success with in Israel.
In Europe you see a lot happening on the governmental side of things in regards to pushing Net Zero, pushing more sustainability. There's a lot more grant programs that are available in Europe. Places like France, the UK, Austria, have some pretty awesome grant and matching programs that can get startups up and going.
You see a lot happening on the circular economy. Things that are related to consumers. I think consumers care more in Europe than they do in the US or other places about sustainability. So you see more D2C, more consumer. There's a good bit of carbon capture happening here in Switzerland. We have two of the top tech universities in the world so you see some really strong spinouts.
And then you see a lot more diversity of business and of model throughout Europe because of the diversity of the various countries. Obviously, there's some complications, different countries having different laws, potential EU, what the heck's happening with the UK and Brexit, things of that nature. But still, we're very big and bullish on Europe because our network's very strong there.
In the US, things are improving a bit now with the IRA, the Inflation Reduction Act, that has nothing to do with inflation, but that's providing some pretty nice funding for companies to grow and scale there and roll out their programs.
We just invested in a Mycocycle. We actually just publicised that today. A mushroom tech company. They're eating garbage from construction and demolition and turning it into new, reusable raw materials for the construction and demolition industry. And that's another one where I'm not sure if it would necessarily hit the perfect targets of carbon reduction or specific metrics, et cetera, but we're preventing landfills from getting bigger and putting that into new materials that then don't have to be produced. It's a win-win, and they get paid on both sides to do that.
In the US you do see a bit of everything. Interestingly, the two companies we're investing in now. So Mycocycle in Illinois, another one's based in Texas. There's a lot happening in California, but there's more investors there, so valuations are a little bit overhyped.
You see a lot happening on the EV and the mobility market in the US because public transit there is so broken and everyone has to have a car. You also see infrastructure plays that normally would be handled by governments having to be handled by private corporations because the US doesn't believe in building things for other people, and that may be a controversial statement, but a lot of things are left to the private markets versus being solved by the public institutions and that would just be a couple of takeaways.
Very good overview. And in terms of specific sectors that you are excited about, what are those? I know I don't particularly like that question because I think that interesting companies come from different sectors and founders as the ones who really identify white space, but if you had to generalise a little bit around the ClimateTech space specifically, what excites you the most? Which sub-sectors?
So I like the three Ts framework for evaluating investments. So team, TAM, timing. TAMS, I like to see massive TAMS, so absolutely a billion is the absolute minimum, but we like to see much larger and either TAMs that are growing very quickly, i.e. the sector's developing and moving forward, or ones that are enormous and possibly declining, but are old and outdated. And that's where I think you find a lot of very interesting opportunities in the hard, sexy areas of decarbonization. So construction, manufacturing, agriculture, energy, waste reduction recycling, things that just aren't sexy.
Certain things have been a bit overhyped, like mobility, like food tech, like plant-based meat, like direct-to-consumer business models. Those are places that we generally avoid, but in terms of the big hairy problems of “this is going to have massive scale potential”, there's a pretty big difference between selling a product to a consumer and selling optimization or an improvement to a corporation that has massive scale.
I'm an advisor with climate crop for instance, and they've discovered a protein that exists in all plants that can increase yields 20 to 90% and double the carbon capture. That's not something where you're dealing on a one-off basis of trying to sell another gadget. You are talking about doubling the carbon capture of our entire planet's trees.
You're talking about big scale impact and that's the kind of stuff that we like to look at.
And in terms of your future, how do you see 4WARD.VC evolving? What are your sort of near term goals?
We're growing in scaling as much as we can. We've got a couple deals we've done lately, but one of the problems with the syndicate as well is it's kind of like herding cats to cat food. Cats can be a pain, even if it is tasty cat food, sometimes it just doesn't happen.
So a fund is definitely in the cards. I can't really say more about that. If you want to learn more, you could obviously reach out about what we're doing. We're looking to grow our syndicate, and that's just 4ward.vc/syndicate if you want to learn more about our credit investor syndicate and what we do.
But my goal is really to be the player in the space that is the most helpful in network. So the top companies come to us. We invest, we feature them on the startup tank. We introduce them to 20, 30, 40 investors, a bunch of corporates, get the pilots in place. and help them with really growing and scaling quickly.
In addition to that, I want to see more winners just happening in the space overall. So collaboration is something that we're very big on. How can we help other investors, help other startups and just be generally speaking as valuable as possible so that there's not really, I say to investors, I say to founders, we won't necessarily be the biggest check at the table, but we're damn sure going to be the biggest hustler and helper.
If you save a hundred, 200k, 500k, whatever for us in the round. We're going to work our butts out. We're going to work our asses off. That's kind of my background in bread and butter is hustling, networking, helping, and then the growth and scaling side of things. How can we take this business to the next level without blowing 30 to 40% of your VC money on Facebook and Google ads?
Yeah. Well, thank you so much for your time, and thank you for sharing a little bit more about what you do and that’s it.
Awesome then, thanks for having me on. It's been fun. And if anybody's listening, thestartuptank.com, that's our climate Shark Tank. We don't have a Mr. Wonderful, but we do have a lot of awesome investors and companies if you're looking to pitch and get some exposure.
Yes, please check it out. Thank you so much.
Now go change the world.
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