We’ve been watching with delight as the tech community reorients towards climate and sustainability, and have been responding to an influx of inquiries on what lessons we’ve learned (or not…!) over the last 16 years from investing in the space. Our greatest concern when founding Congruent in early 2017 was that we would create an impactful venture-quality early stage cohort of companies, and that our companies would die on the vine due to a lack of venture appetite at the Series A and Series B stages.
The best fears are those fears left unrealized: the tech community has filled the breach, with Sequoia announcing their interest while backing our company AMP Robotics, Union Square announcing a focus on climate and backing our company Leap, large corporates like Microsoft and Stripe getting into the game, and of course, BlackRock’s announcement. We need more!
Our hope is that we can help convert climate despair into climate hope. And we are increasingly hopeful that the venture toolset can indeed address a subset of climate challenges. While we certainly don’t have all the answers, I would humbly offer up five learnings from the last 16 years.
Understand what your company can prove early in its lifecycle, and with what amount of capital.
Some color: If you’re starting with a blank sheet and working on manufacturing or process technology (think direct air carbon capture, chemistry, materials innovation, etc.), multiply your expected cost by 3x and your timescale by 2x. If the number is greater than $50M, you had better be exceptionally good at raising money.
More color: Understand where your company/product/service sits in the capital stack; if you need/can access project finance, think about this early in the company’s life and plan accordingly.
Be in a position to control the sale of your product or service, and avoid channel businesses early in a company’s life unless you’re selling through a dedicated channel.
If you’re not in control of the channel and the sales process, your product/service better be 10x cheaper and 10x better than the incumbents.
Assume that nobody cares that your product has environmental benefits; just make it better.
Turns out some people care. If your product is dependent on people caring, you better be really good at finding them cheaply.
Margin matters; in hardware, margin is everything.
Mind the working capital gap: go find an excel ninja and have them run cashflows for a quickly ramping hardware business. If you’re growing a hardware business at less than 40% margin, you need A LOT of balance sheet support.
The venture model works for some, but not all, of the solutions necessary to fight climate change.
Try to identify what does, and doesn’t work; and make friends who have different flavors of capital. Venture is awesome, but only for a company that has the potential for a venture-sized outcome.