Episode 183: The Evolution of Cleantech Investing with DBL Partners' founder, Nancy Pfund
Today's guest is Nancy Pfund, Founder and Managing Partner at DBL Partners. DBL Partners is a venture capital firm whose goal is to combine top-tier financial returns with meaningful social, economic, and environmental returns in the regions and sectors in which it invests.
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Can you give a quick snapshot of DBL Partners?
DBL, which started as part of JP Morgan back in the 2004 timeframe (so yes, we've been at this almost 20 years) is a double bottom line venture capital firm. That's what the DBL stands for. And basically, our mission is to invest in successful, innovation-driven companies, and make great returns for our investors. That's our first bottom line. But our second bottom line is to drive social, economic, and environmental improvement with our investment approach. And over the years, we have been doing this. And we always thought that this would be a dynamic, no-sacrifice approach to investing. And, and would be a win-win on many fronts.
But we didn't really have data in the early days. Well, today we have tons of data. A, we've been able to help create some, some companies that are leading the charge on climate change. And B, we've been able to bring along a lot of great people and institutions, and f- investing professionals and entrepreneurs with us. This is a big field now. We're honored to be pioneers in impact investing and sustainability-driven venture capital.
So if there were a greedy capitalist out there or a group of them, that saw the success that you've been having, and set out to essentially just mirror your strategy and approach, and then called it SPL Partners, single bottom line. And they're only about being a greedy capitalist, but they have your exact approach, what's different about being double bottom line versus being single bottom line with the approach you have, given that you're not concessionary on return? I really want to understand what it means to be double bottom line practically, if you're double bottom line and maximizing returns, how does impact manifest differently than it would if you were focused in these same sectors, but only maximizing profit?
Sure. Well, first of all, I'm all for traditional investors coming in and replicating what we and others have done. I'm here for that. That is important. And that's how we move impact investing into the mainstream so that everyone does it someday. The challenge is that with any investment trend, and we've all lived through various cycles, there are people that kinda jump on the bandwagon, because it is trendy and attracts lots of capital, that perhaps aren't as committed to the mission. It is just this, as you say, the stereotypical kinda greedy capitalist. And so we want to make sure that we answer the criticisms that will come from that evolution, and stress our authenticity. And to do that, what we have really built our practice around is metrics.
And so we measure so many things in our portfolio. We measure how many jobs we create, how many are for low-income people, how many of our companies are in low-income neighborhoods. How many of our, our employees in our companies are women, are people of color? So we are able to track how we're doing, and where, what we need to do to improve. You know, there's no perfect company out there. We want to make sure that we have a compass based on data, in terms of where we're heading and how we're trying to really address the key social and environmental issues.
So without metrics, you manage what you measure. And so without the metrics, it's harder to be an impact investor. Because you can make claims about what you're accomplishing, but not have any way to actually show what your results are. And so I think that's, this is a big debate within our, our field. [laughs]. You know, the role of metrics. And some people don't want to take on that effort to do the measuring, and some do. And there's everything in between. And so that's, this is definitely a work in progress.
Given that this transition needs to play out across every sector of the economy, across every geography around the world. It affects everything. So how do you prioritize areas to invest and is there anything that you won’t do?
Well, we follow the carbon. That's why we started doing ag in 2014, uh, a long time ago. That's why we looked at transportation, and obviously energy production. It's why we look at something less obvious, which is the space-Earth nexus. We feel that advances in satellites and space tools, making it cheaper, better, faster, more, more accessible, will help us understand our own planet much better. And just, for example, our app allows you to track where the carbon is in your region. Or allow you to see images of the Earth and discover that someone put a mining operation in the middle of the Amazon, and mucking up the rivers.
That would've taken decades sometimes to find in the past. And now you can find it just as it's happening, because of advances in space tools, locational software, and such imagery. So that's, eh, that's a really important piece of the puzzle that a lotta people don't understand. And those companies can also be very highly valued. I mean, the aerospace industry has a very high valuation. So that's an example. In the example of conservation I gave you, we know that trees can sequester a lot of carbon. And yet, the California Air Resources Board came out with a report saying that all of these wildfires kinda knocked out over two decades worth of advances in carbon reduction that we've been engaged in.
That's super depressing. All this work we're doing, a few fires can release so much carbon, and remove so many trees that we're back to where we started. That's untenable. So that's another area that's of interest to you, as I've mentioned a few minutes ago. One of our companies, DroneSeed, that just did a round, is literally collecting seeds from pine cones and other trees, because we can't regenerate all the forests naturally that burned. We need someone to do that in a much more efficient manner, and one that respects the landowners, the native tribes, the environmental considerations. Or we're not gonna be able to regenerate forests in the next decade.
We talked a bit about how in the 90s and climate investing. It'd be great to just kind of get your take and post-mortem on the next decade after that.
Well, I'm gonna push back on the oft-cited, miserable, doomed before it started, cleantech 1.0. And the reason I'm gonna do that is, and I'm sure many of your guests say this if you look at renewable energy today and the price per watt, you know, it's 80% of all energy investment is cheaper than fossil fuels now. EVs are taking over the planet. You know, how do you think we got there? Why do you think that is?
It's because people 15, 20 years ago invested in companies to implement solar and wind technologies, and EVs. Went through all of the pain of, uh, working through incumbent opposition, regulatory opposition, technical difficulties. And persevered, and found investors who, even though that wasn't very easy. And so when I look at that first generation… take the solar sector, for example. Look at SolarCity. Look at Sunrun, s- First Solar, Powerlight, which was then sold to Sun Power. Nextracker, which pioneered in tracking systems for solar.
These are amazing companies that helped get us to the statistics that I just talked about, that allow people now to scale those technologies and make them dominant. And so if we had just been sitting around, eh, not doing that 15 years ago, we wouldn't be where we are today. And while there were mistakes made, there are many companies that didn't make it, cleantech is not alone in that distinction. There are plenty of venture-backed companies that don't make it.
And yet, I will argue that because investors, and we're just one of them, other firms did it too. Investors took that risk in that early 2000, mid 2000 timeframe. We now have vibrant renewable and electric vehicle, and battery storage sectors that are now going to play a very important role in fixing the problems that past generations have caused. So I guess I would just challenge people to do the homework, and understand how did we get to these amazingly low prices of renewable energy, without making investments a long time ago?
And are there any key lessons looking back that you think could be applied, or should be applied? Or that you think that the new money coming into the space now should hear so that they're not repeating history and stepping on some of the same landmines that they could otherwise have avoided?
There are. For one, there's a continuum. And at the end of the continuum, on one end, there are the people that think technology alone, innovation alone is going to solve the problem. And I'm sometimes, [laughs], in that camp. And I feel, "Oh, this is so exciting. This is gonna help us solve X, Y, Z problem." And then on the other end, there are folks that say, "Well, we need to get the laws right, the regulations right. The popular culture needs to understand why this is important, 'cause that's how you'll get through all of the difficulties, those near-death experiences as you grow."
And so there's sort of tech versus the exogenous variables that surround your investment. And I would say, just be in the middle of that continuum. Don't think you can do it all with technology, or you can do it all by moving the masses. You need to do both. You need to make sure you invest in a way that is moving regulatory codes as it's moving, breaking records in, you know, battery storage, or whatever it is you're pursuing. We have a saying at DBL. We have this, we have a few trifectas. But one of them is, when policy and innovation, and capital come together and work together, that's magic. That's how you get things done. It isn't just one or the other.
And rapid-fire questions here but are offsets problematic? Are they impactful for climate? Do they help? Are they better than nothing? Are they detrimental? Is it greenwashing? You know, should we invest in improving the system? Should we trash the system?
Well, that is another subject that has a lot going on in it right now. You saw that Green Peace just yesterday came out against carbon offsets. We believe they play an important role because it's a way to monetize protecting natural lands, for example. And we need to do more of that if we're to enlist every single facet of activity that helps reduce carbon on this planet.
So the problem with carbon offsets. And, and we see it just because it's, eh, we see this as a problem of it's still a young field, is that, uh, you need to get better metrics, as we were talking about early, earlier. Like the permanence of carbon sequestration, there are ways that are being developed to measure that. Because you shouldn't, you shouldn't get an offset if it only lasts for six months. And so there have been some stumbles along the way in these early days, in terms of really making this, this work and make it authentic and legitimate.
I think we're solving all that. You know, the White House has had convenings about this. There are not-for-profits, there are various clearing houses. And so we would like to see that activity work. And certainly, in the natural lands practice, I think protection of forest and protection of oceans, it will play a role. And it, and can be an important one. It's not alone. You can't do that alone. You have to combine it with efforts to reduce your carbon footprint. It should be, you get a free pass because you've got all these offsets.
But I think everyone's smart. You're kinda understanding that the way we thought about this five years ago is not the way that we're thinking about it today. And I also would add that carbon abatement is another part of the strategy. It's a lot easier. One of our companies, Farmers Business Network, is able to help farmers develop a carbon intensity score for how they grow their grain, or whatever. And then tell them, "Well, if you, if you did this, that, and the other, you reduce your score by 50%." And so you're not saying, "I'm sequestering this carbon forever because I'm using no-till agriculture." That is a harder thing to prove. But you are saying, "I produce this crop of corn, or wheat, or whatever, with using 50% less carbon. And therefore, ADM or Unilever, or whoever, I'd like to be paid more for that. Because it's helping with your sustainability efforts as well." So I think you'll see a lot more of that abatement of carbon, rather than just sequestration.
If you could wave your magic wand and change one thing outside of the scope of your control, that would most, be most beneficial to accelerate the progress of what you're trying to do with DBL, and addressing the problem in general, what would you change and how would you change it?
Well, of course, the easy answer there is put a price on carbon. But that's kind of expected. And that would be wonderful because it would help to level the playing field. Another way to level the playing field would be to remove energy subsidies. And it's so unlevel now. For every investment tax credit solar or wind may get, there are still centuries-old subsidies that support traditional fossil industries that are much bigger. And so I would love to level that playing field once and for all.
Are there efforts underway to address that? That's kind of a lot. And I still don't have a clear idea of where those subsidies come from, and what it would take to make them go away. And maybe that's not something you focus on every day. So if it's not your core competency, just say so.
I mean, many of them are embedded in our tax codes. Just sorta arcane ways that you treat losses in an oil field, or whatever, and accounting approaches like who pays the insurance for a nuclear plant. There are little things that you kinda have to be really wonky to care about. There had been in, I think it was the last session of Congress, there had been some senators, congresspeople that have said, "Let's, let's change this." It's just, you're up against a very big wall, and an old wall. [laughs]. And so it really takes a political will and working across the aisle to get this done. And that's not a good characterization of what Washington is like at the moment, unfortunately. But someday. I feel the same way about how to impact investing, all investing will be impact investing. I feel the same way about subsidies. Some day we'll, we'll make it fit the needs of this century, not the last century.
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