Capital Series: Irena Spazzapan, Systemiq
This episode is part of our Capital Series hosted by MCJ partner, Jason Jacobs. This series explores a diverse range of capital sources and the individuals who drive them. From family offices and institutional LPs to private equity, government funding, and more, we take a deep dive into the world of capital and its critical role in driving innovation and progress.
Irena Spazzapan is Managing Partner at Systemiq Capital, the climate-tech VC spin-off from the world's largest pure-play climate advisory firm, Systemiq. Irena built the current team and led most investments in Fund I, including companies like Charm Industrial and Brimstone. And in 2022, she led the spin-out of Systemiq Capital from Systemiq with the launch of Fund II, which continues to back early-stage companies across the UK, EU, and North America.
In this episode, Irena and Jason have a great discussion about the origin story of Systemiq Capital, their approach to climate investing, and how they evolved over time. We also cover a bevy of related topics, including what's been happening in the macro, some of the bottlenecks that are holding up progress, what we can do to accelerate progress and, of course, where Systemiq Capital and early-stage climate tech innovation generally fit in. Enjoy the show!
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Episode recorded on July 11, 2023 (Published on July 26, 2023)
In this episode, we cover:
[2:17] An overview of Systemiq Capital
[3:17] The fund's origin story spun out of McKinsey
[5:17] Irena's background and professional journey
[7:26] The impetus for Systemiq's investing efforts
[10:49] The fund's investing matrix and their rationale for it
[14:42] The role of family offices in Systemiq's pilot fund
[16:43] Systemiq's goals for its pilot fund
[18:36] Systemiq's views on impact vs returns
[21:21] Why are LPs mostly climate folks?
[24:36] The working relationships and collaboration between Systemiq and Systemiq Capital
[27:27] How learnings from Systemiq's Fund I informed Fund II
[31:27] The importance of timing and impact on returns
[33:38] Irena's thoughts on regulation and upcoming directives
[35:45] Risks Systemiq is comfortable taking vs. non-starters
[37:13] FOAK projects and Irena's views on how they should be funded
[40:06] Differences between real assets experts vs. Silicon Valley founders
[44:19] Differences between climate tech innovation in Europe vs. the US
[47:05] Challenges of getting financially-driven institutional capital allocators to invest in climate
[52:32] Systemiq's current deployment status and returns
[54:05] Types of capital Systemiq doesn't take and Irena's thoughts on the topic generally
[59:21] How Systemiq measures and tracks success
[01:01:16] Irena's theory of change
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Jason Jacobs (00:00:00):
Today on the MCJ Capital Series, our guest is Irena Spazzapan, who leads Systemiq Capital, the climate-tech VC spin-off from the world's largest pure-play climate advisory firm, Systemiq. She built the current team and led most investments in Fund I, including companies like Charm Industrial and Brimstone. And in 2022, Irena led the spin out of Systemiq Capital from Systemiq with a launch of Fund II, continuing to back early stage companies across the UK, EU and North America. We have a great discussion in this episode about the origin story of the firm, their approach, how that approach has been evolving over time, what's been happening in the macro, some of the bottlenecks that are holding up progress, and of course, what we can do to accelerate progress and where Systemiq Capital and where early stage climate-tech innovation in general fit in. But before we start-
Cody Simms (00:00:59):
I'm Cody Simms.
Yin Lu (00:01:00):
I'm Yin Lu.
Jason Jacobs (00:01:02):
And I'm Jason Jacobs. And welcome to My Climate Journey.
Yin Lu (00:01:08):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (00:01:13):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change, and all the ways people like you and I can help.
Jason Jacobs (00:01:27):
And with that, Irena Spazzapan. Welcome to the show.
Irena Spazzapan (00:01:31):
Hello. Thanks Jason. Thanks for hosting me.
Jason Jacobs (00:01:33):
Thanks for coming. We share a portfolio company charm, and I've seen you and heard you ask questions on those investor updates and such, but we've never actually met or spoken before. We started recording just now, so we're really doing it live. But I have to say, as I prepped and learn more about your background and your work, I'm quite excited for this discussion. There's a lot of things I think I can learn from you, so thank you for making the time to come on.
Irena Spazzapan (00:02:03):
It's a pleasure, and look forward to learning from you too.
Jason Jacobs (00:02:07):
Well, thank you. Well, for starters, typically we just have guests give an overview of the firm and what you do. So maybe talk a bit about Systemiq Capital and the origin story.
Irena Spazzapan (00:02:17):
Sure. I am one of the co-founders of Systemiq Capital. We are two GPs in the fund. We're now at Fund II. We are a climate-tech fund based in London. We typically invest in series A companies. What we have done C, we have done B. We started in 2018, that's when our Fund I started when a number of family offices got together and backed us to start on the journey. And we launched Fund II a year ago in July, and we're now, I guess, in the final round of the closing.
(00:02:49):
So we've backed 21 companies so far. We exited three. It's about 50/50 between Europe and North America, so we are very much a transatlantic team. Come from lots of different backgrounds, and we have this strategic relationship with the advisory side Systemiq, which I can tell you more about, but that's what makes us different, that we've got access and support from the 400 people that are specializing in climate and Systemiq.
Jason Jacobs (00:03:17):
Yeah, and I'm embarrassed to say, I hadn't really heard of Systemiq before, doing research for the show, but Systemiq sounds amazing. Can you talk a bit about how Systemiq came to be, and also because it was a McKinsey spin out, and I know McKinsey is doing sustainability stuff. Maybe talk a bit about the distinction between what happens at Systemiq, versus what happens at McKinsey. And I know they're obviously different organizations now, but didn't start out that way.
Irena Spazzapan (00:03:44):
Sure. So I guess, everything starts in December '15. That's when the Paris deal was signed, which was an incredibly historical momentum that, I guess, nobody even a few months before believed could be done. That's when the two people that led the sustainability practice at McKinsey Globally decided to spin out and set up a new firm, which was then born during 2016, which was Systemiq. And the idea was that unlike non-pure place, such as McKinsey or many others, it would be fully dedicated to climate, starting from the three pillars that are the core of the transition, so energy, nature and materials, where you have to work across the system to really get things done. So if you pick shipping as a topic, it's great to advise a bunch of shipping companies and maybe do a report, but you really have to work together with whether it's the corporates, the policy side, the civil society, which in climate is really important, the late stage investors and the tech side. You really have to push the same agenda and work together as a system, and that's what Systemiq is.
(00:04:48):
So Systemiq, as I said before, it was set up in mid '16. I joined about the year in to build the VC side of it, which then spun out and it's an independent firm now. But it's interesting that after Systemiq was set up, which is now a while ago, it's still the only pure-play climate firm that works like that, from the think tank side to the consulting and VC. It's still the only play that works like that, which makes it super fun to work in and being part of creating this from scratch.
Jason Jacobs (00:05:17):
How did you come to do this work in the first place?
Irena Spazzapan (00:05:21):
I'll say this is my third career, and they were all completely different from another. So I'm from Italy originally, from the north of Italy. I came to the UK to study. And then my first job was at the UN. So I come from a family of political refugees from many years ago. And so, I worked with refugees, I worked with Palestinian refugees in the Middle East, so that was my first job in Damascus way before the war. I then being in a more financial role, I got to see the inefficiencies of the UN and how money was being spent in a crazy way. And so from the UN, I went to the other opposites, to Goldman Sachs, where I was for more than a decade in power and carbon. So I very much come from the asset side of things. For my decade there I would be involved in buying, selling assets, doing financing agreements, off take agreements around power in Europe and globally.
(00:06:16):
And as '16, '17 came in, 2016, '17 cost curves just completely changed from being from the first solar tariffs in Europe at $400 a megawatt hour, all of a sudden you start seeing these PPAs signed in Mustar in the Middle East at $20 a megawatt hour. It was clear that history has shifted, and with the electricity becoming that cheap, it was going to change everything else. And so, at Goldmans Steel I started looking more at the innovation side of things, particularly on the battery, the optimization side of things, how you look at realtime power.
(00:06:54):
And once I stepped into that world of innovation, there was no step back really. And then that's when I moved to Systemiq and built the investing side out of it, which has been a fantastic experience really. It's been a great learning curve, and as you will know from your own work, backing this super smart people, way smarter than whether we will always be and at the edge of what they do and learning every day fundamentally, is what has always kept me going. So that's been a great privilege, and fun to do it.
Jason Jacobs (00:07:21):
And when you joined Systemiq, had Systemiq been doing investing already?
Irena Spazzapan (00:07:26):
No. No. We started it from scratch. So initially, five family offices got together, then we added a few more. And we were incredibly fortunate that we had five family offices that trusted us to start from scratch, knowing that this ecosystem that we have created around Systemiq was going to be most likely a great source of deal flow, but also a value add post investments once investment are done. And that's very much what we've been doing for the past, I would say, six years.
Jason Jacobs (00:07:53):
Got it. And so, what was the impetus from a Systemiq standpoint to start heading down the path of investing in the first place, and then what were the initial thoughts in terms of what to focus on from an investment standpoint, and how that could benefit from the Systemiq work, but also how Systemiq could benefit from doing investing?
Irena Spazzapan (00:08:14):
Sure. It might sound a little bit cheesy in a way, but it's very much if you operate as a system thinker and climate is so much about the system, you can't look at things in an isolated way. It's really not particularly realistic that you'd look at, we talk about shipping, anything, aviation, whatever you might talk about, it's really realistic that you take the incumbent view, and you'd not go deep on the innovation part of things, because everything is going to be different in 20 years. Technologies are going to change, everything, no matter which sector of the economy you look at.
(00:08:47):
And so, when Jeremy Oppenheim, when he started Systemiq, there was this will, this understanding that we need somehow to have something to do with an investment site, and we know it's not going to be us, we are consultants, we know it's not going to be the same governance, because it's a different business model, but we want to have whatever you want to call it, a sister company, something that is part of the ecosystem where we drive knowledge so that when we go and speak around the world and we write our reports and we talk to CEOs, we know a bit better what's going on the tech side than the typical consultant.
(00:09:25):
And then obviously, what we drive for them, it's much more obvious, but it's very much relationship that has really worked together really well in the past six years, so we both draw a lot from each other. Things evolve, they always do, but for the time being, we are very much sister companies. We collocate, so I'm now sitting in an office of more than a hundred people, even if we're just nine. So you get the vibe every time you go to make yourself a coffee, you get what other people are working on. So you always feel part of this broader climate world, which really matters, because investing in climate is not like investing in consumer tech. It's harder, and it's really creating that village, that community that helps companies grow faster. I think, and climate measures more than possibly in any other sector. And so, I think having access to that, has been really great for us.
Jason Jacobs (00:10:16):
Now if you look at traditional tech, some venture firms for example, they might invest only in SaaS, or other investors, they might only invest in consumer social as an example, or fitness or very specific, so either vertical or business model specific. In climate, as you know, especially coming from the systems thinking side, it is a systems problem, which means that our entire global economy needs to get rewired. If you're a climate focused firm and a climate focused fund, in some ways that isn't specializing at all, that is everything. How did you think about prioritizing in terms of where to focus and where to invest, and did you wrestle with how broad or narrow to go, given the systems nature of the problem?
Irena Spazzapan (00:11:10):
Yes. I'll describe you first the matrix, the way we invest, and then I can tell you how we got there.
(00:12:04):
On the tech side, we've done quite a bit of FinTech over the years. We've done a few PropTech deals, some more services. No B2C, we would never touch any B2C. If you then cross it with the real economy, that's where we only invest in areas where the advisory side of Systemiq has deep content, deep networks. So we can go very deep, as opposed to being a generalist, we can go very deep in a number of areas. Food and materials, transport, climate intelligence, that's the world of enablers, and then what we call climate restoration, which is fundamentally nature and carbon. That's how we think about the matrix. And it takes a few minutes to explain, but that's because climate is not just saying, "Oh, I do vertical SaaS." It's a lot more complicated, and you really need to pick areas where the passion of the team overlaps with the knowledge, the networks, and where you fundamentally think that you can generate the biggest returns and impact.
Jason Jacobs (00:12:58):
Now, when you came into this investing role, were you the first boots on the ground focused on investing at Systemiq?
Irena Spazzapan (00:13:07):
We were a team of two, and then we gradually added more. So yeah, it was a blank piece of paper. We could have done anything. The first five families didn't say, you have to do Series A. We could have done funds of funds, we could have done anything. And I think we started, as you do, as part of a consulting company at the beginning, you go through numerous strategic reviews and where we can really have most value add. Then I think Series A was clearly where we can add most value. Why? If you're a seed company and you just have an idea, then all the networks introductions we can make are going to be less helpful, because you're still about refining an idea. Equally, when you go towards B, C, D, it becomes much more about operational excellence of a company. And Systemiq advisory is not an Accenture.
(00:13:54):
It looks at the macro side of things, not so much at the micro. A, B is typically where we can be most helpful, because there is an MVP, there is something we can help to sell, commercialize, think about better how you think about your story, your impact, think about how you best access late stage capital, because the advisory side of Systemiq works with all the growth funds and bigger funds in the space. And so, it's a space where we've always felt that the full potential of Systemiq comes out more than in other stages. So we very happily to stay in that range. We've done seeds when there is a team that is doing exactly what we've been searching, or when there's a team of founders that we've known before. And so, it's one of a less unknown variable, but A is typically the sweet spot.
Jason Jacobs (00:14:42):
Got it. And then I heard on another show that you did recently that it sounds like you started with a pilot fund that was pretty small and did some initial investments, I think you said 20 companies or so from that vehicle. What was the thought in terms of starting with a pilot fund, versus jumping to a more proper fund out of the gate? And did you come in and then think about what source of capital there could be? Or how did these family offices come into the picture to begin with, and what was the timing in terms of that chicken and egg of deciding to build the fund, versus sources of capital?
Irena Spazzapan (00:15:19):
I know it sounds a bit odd, but literally those first five family offices came in without a strategy.
Jason Jacobs (00:15:25):
Were they connected to the firm already?
Irena Spazzapan (00:15:27):
They were definitely connected to, because they had been initial backers of the advisory site.
Jason Jacobs (00:15:34):
And what motivated them to do that in the first place? Was that an investment? Was that a grant of some sort?
Irena Spazzapan (00:15:40):
It was an investment. It was an investment. And they had known the team for the first year and some many decades back. And there was this conviction that a team of people like that ought to be able to do something different that would make a difference to the climate world. I mean, I know that this is not the way fundraising usually works, but that really was the origin story. It came from a history of deep trust and deep conviction that this was the right team to build something different. And those five initial investors have been our best cheerleaders and backers ever since, because they've gone with us through the whole journey.
Jason Jacobs (00:16:23):
And how did you arrive at the initial decision to start with that pilot fund? How did you think about sizing and strategy relative to once you had the more fully fleshed out fund, and what were the goals with that pilot fund when you set out to raise and deploy it?
Irena Spazzapan (00:16:43):
The pilot fund was raised at the very outset of Systemiq, and it was meant to be an experiment. That's what it was. It was an experiment. Can we hire a team? Can we make a bunch of investments to show that A, we have access to the best deal flow, B, we can add value to these investments, and C, build the case to then build something bigger. That was the intention of that first fund. That first fund did well, we have charmed together, we did Arabia, we did Jupiter, we did NatureMetrics, we did 19 investments. As I said, three exited. So the investors got most of their money back, which means that there was great momentum to then move into bigger fund. And as we had the support of our investors, we then went through the journey of building a bigger team. So when we spun out, we were eight as opposed to two.
(00:17:32):
And so, we were able to build the team with a 30 million fund that was effectively subsidized, in fact by the advisory side. So it was subsidized to build it in a way so then we could get to Fund II, we would be in a different size. And so, Fund II is now at 110 million. So we did a big step-up, and we'll do a final close later this year. But the big step-up was possible, because we were able to build a team in a tiny fund that would never have been able to stand on its feet usually. That's the way that the journey has gone.
Jason Jacobs (00:18:03):
Got it. And then as you thought about expanding from these initial family offices to the broader LP market, how did you think about the profile of investors, and what's the story as it relates to impact versus returns? And is the criteria of the check writers beyond these family offices similar to the family offices, which it sounds like were driven by climate, or is it more purely, I don't want to say greedy capitalists, because that sounds disparaging, but strictly return seeking?
Irena Spazzapan (00:18:36):
Right. The vast majority of our LPs are very much climate people, but equally we are not about, we are firm believers that we invest in a type of strategy in climate-tech that is not giving up returns. That's not true for all funds. You can definitely come up with a strategy in climate that is going to be giving up some returns. We are not those people. Equally, we're not the people that say, "Oh, we're just going to do the easy deals in climate." Assuming there are such things as easy deals in climate when we're not really going to bother about the impact. We are in between. If you know something about the European classification of SFDR, we're an Article eight fund, which means that we don't have two PhDs in our team that spend their days calculating the impact of your company's hypothetical in 30 years. That's an Article 9.
(00:19:25):
And equally, we're not an Article 6, which is like, yeah, whatever. It's an afterthought. We have certain KPIs that we monitor. Each company will have a bunch of impact KPIs, which we monitor, but fundamentally, climate is our thesis, if that makes sense to you. So it's not that we are investing climate, because we want to feel good, but we believe that there is a massive industrial revolution happening, which is driving industrial and societal change where climate is very much at the core. Because if you think about the first 20 years of VC have really been all about internet, you had mobile, commerce, internet. Now, in addition to obviously the tech side which is continuing to evolve, you also have other massive technologies that are converging. You have electrification, which we mentioned. As the cost of energy goes lower and lower, you start enabling a bunch of things which were not possible in the past.
(00:20:25):
As energy prices get crazy volatile, like last weekend, Germany had minus 500 Euros a megawatt hour. A year ago we were at a 1,000. That's just insane volatility, hour-to-hour, day-to-day, week-to-week. And thirdly, again, looking at our world, you have the whole world of genomics and biology, which is coming fast down the cost curves, which is equally crucial to the world of climate via chemicals, via food, which is a massive part of the emissions of the footprint. So as all these things converging climate, it's a generational shift, which is the one we are investing in. That's very much our ethos. So we're not coming to it because we want to back great companies that might have an impact in the future. It's very much, we believe that these are technologies which are based on cost curves coming down with new markets that are going to explode, and we're going to back those.
Jason Jacobs (00:21:21):
Something that we wrestle with, and I'd love to get your take on it is, if you're not concessionary and if you believe that you can generate market returns or even outperform market returns, why is it mostly climate people that are showing up as LPs? If it really is going to perform or outperform, then why aren't the greedy capitalists that don't care about climate showing up? And that's less of a Systemiq Capital question, honestly just a question for the sector at large.
Irena Spazzapan (00:21:52):
That's a great question. You have capital which is doing the concessional that's been around for decades. You now have increasingly capital that is in our camp, that will say climate has shift, you don't have to give up returns. And there is tens of billions from institutions and family office in the world. You still have the, I wouldn't call it the greedy capital, I'll just call it capital that just hasn't understood yet what's going on. I spent quite a bit of my time in the Middle East. When you go to the Middle East, you can't say climate, they will say you're a charity. You have to come up with something else, new infrastructure, something else, because you have entire parts of the population where there's massive pockets of capital that haven't really gone around understanding what's going on, because they might live in societies, or media messages that, it's that's not what I hear every day.
(00:22:47):
So we climate people tend to live in a bubble, and we speak a lot with ourselves and you think that everybody is like you and reads all this data and has all these reports. The vast 99% of the world out there has no idea that there's all this shifts happening, and they hear a bit of scare on the media and some will think that it's overdone, but a lot of the people that allocate capital outside of Europe and some of the most enlightened part of America, are not like that. And you have to be able to communicate with those two, because until you convince those people that they have to invest in that, we're still not where we should be.
Jason Jacobs (00:23:24):
Now, was it always the plan to spin out Systemiq Capital from Systemiq?
Irena Spazzapan (00:23:29):
No, I mean they won, of course not. That was the, maybe if we are successful, but when you start something from scratch, it could go in many different directions. I'll say two, three years in, that became the goal, and then it took another two years to execute. But no, you cannot know, and we're still very much, you build a plane as you fly, because we are still a startup fund. We are Fund II, so there's always learning to be done, and every time you look back six months, you're like, "Whoa, we've come so far." So you are always on the journey, which is I guess one of the great parts of the job.
Jason Jacobs (00:24:02):
What was the primary motivation and hypothesis behind why the spin out made sense?
Irena Spazzapan (00:24:10):
It needed separate governance. Our C has always been separate, so there was never that problem, but every time we had to make, whether it was hiring decisions or capital location decisions to invest in something, you had to meddle with the other parts of the organization that just didn't work. So that was the practical reason. If you want the more formal reason, is that if you have a GPLB structure, the GP has to be independent, just no way it can work in any other way.
Jason Jacobs (00:24:36):
Now that you are separate and distinct, what is that working relationship like? And maybe could you give me an example of how that collaboration occurs and what impact that has, either on the deal flow and capital allocation decision side, or on portfolio company support?
Irena Spazzapan (00:24:59):
It's very much both. We can succumb people from Systemiq, we have two people in each practice at Systemiq are captains with us. So they have calls with my team where they understand what kind of projects they're working on, what we're working on. So when we look at a company and whatever, supply chains on textiles, we know exactly who to go to and then they will tell you, "Right, we've supported these three things. This is in the pipeline." And so, then we try and find connection points with our companies. We then have a number of almost like scientists in residence at Systemiq, a bunch of PhDs that focus on lots of different things. And those are particularly helpful when you look at something deep tech that has a technology angle.
(00:25:39):
So you can go and have a conversation with them in one hour, you will know whether this is something distinctive or not. We have a lot of that in our team as well, but we cannot cover all branches of science, whereas they will. And then finally, Jeremy, who is the founder of the advisory site, has always been an IC member of Systemiq Capital. And so, if we've missed anything, he will then have a good oversight on the other side as well. So there's numerous points where we overlap. There's then the social bits, lots of events and things that happen together. And I would say that the value of Systemiq has always been very much post-investment, not so much in the source. The sourcing is very much down to us. There's always stuff that has come through, but the post-investment is invaluable. This fact that you can plaque founders in a ecosystem of the world stop leaders and thinkers and climate, is something that is the exceptional bit.
Jason Jacobs (00:26:31):
And when it does come to that sourcing, how much of what you do on that front is opportunistic versus thesis driven?
Irena Spazzapan (00:26:40):
I would say historically 70, 80% has been thesis driven. There's a bit of opportunistic, but we'll never invest in an area unless we've gone really deep before. We're not going to do deals just because, oh, this person looks fun, but we know nothing about the space. So we typically do deep dives. Every year we'll do a bunch of deep dives together with advisory site. Sometimes the deep dives leads to, well, this place is not really investible. But then if you find the right company two years after, you'll be like, "Ooh, you've got to prepare mind." You'll know what's good, what is bad. Opportunistic things have typically come from founders we've known before, things you have to jump on fast, but it has never happened. We've never backed someone that comes through the door and it's like, "Oh, great third time founder", but it's in a space we haven't looked at. Then we would most likely say no.
Jason Jacobs (00:27:27):
And when you look at this Fund II that you're currently deploying out of, how much of the strategy in Fund II mirrors what you were doing with Fund I, or were there any learnings as you deployed Fund I that led you to evolve or shift course as you set out to pull together this next vehicle?
Irena Spazzapan (00:27:47):
Strategy is the same. Obviously, the checks are now a little bit bigger. We now lead more in Europe. We always try to lead our co-lead in the US. We will not lead, because we don't believe in geographical distance from the team if you're leading. We've narrowed a little bit, I guess, from Fund I. In Fund I, we've done some deals which were deep on GovTech, which we don't really like anymore. We've done a bit of edge tech. That's also space where I don't think we have that much to add, to be frank. The whole battery optimization space, we've always been very wary about that.
(00:28:22):
We had one investment in Fund I. I think we've crystallized more that we're not invested in batteries, alternative batteries, chemistries. We're not invested in things like electrolyzers. I think we got a lot better at narrowing down things. Obviously, it's still broad, but we can get way faster. I mean, VC in a way is all about sourcing. You have to optimize the velocity of deals, and I think that's where the main lessons really were, to make us much more efficient in the way we source and move fast.
Jason Jacobs (00:28:49):
And so, it sounds like typically the sourcing is because there's a category that you're interested in, so you're making a concerted effort to get to know some of the most promising companies in that category as part of the deep dive on the category itself?
Irena Spazzapan (00:29:02):
Yeah. And then there's more and more, we try to do a lot more if you want content. So there'll be blogs, there will be meetings, breakfast, we do on a particular topic. And those then get us into the right founders. But it happens all the time. We would have done a deep dive two years ago and then we only find the right founders two years. And that's fine. And the more of those you do, the more you are prepared to recognize and have this pattern where you know this is good, this is bad, and you don't have a deal where every time it looks like, "Oh, I have to Google what is this." You really want to be able to recognize extraordinary ideas and founders as soon as possible. And that really only comes from becoming more and more content experts on the areas where we want to invest in.
Yin Lu (00:29:48):
Hey everyone, I'm Yin, a partner at MCJ Collective. Here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning. And doing that, goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn, and a bias to action around ways to accelerate solutions to climate change.
(00:30:15):
Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a of hiring has been done. Many early stage investments have been made, as well as ongoing events and programming like monthly Women in Climate meetups, idea jam sessions for early stage founders, climate book club, our workshops, and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks, and enjoy the rest of the show.
Jason Jacobs (00:30:50):
How do you think about, I mean, it's hard to argue that directionally this is not an area from a system standpoint that's going to get more attention over time, especially as the symptoms continue to get more visible and obvious, and the governments, both of individual countries and international collaboration, those efforts continue to pick up steam, et cetera. But Funlife is only 10 years plus a couple of one year extensions, something like that. Do you worry sometimes that the directional interest over time may not overlap cleanly with the returns in a 10-year fund?
Irena Spazzapan (00:31:27):
A 100%, but I would also argue that this is the same across VC, because it's not just about getting the right team, it's also about getting the timing wrong or right. And the timing... I'll give you another example, which is my favorite, shipping. We talked about it earlier. From next year, shipping is bring broad into the European Trading Commission. So basically it's in the European trading scheme for emissions. It's being brought into paying for emissions. At the same time, IMO has been stricter and stricter, yet nothing is really happening day-to-day in the industry. And so, if you had invested in most decarbonization technologies around shipping in the past three years, it would not really have made you much money, because the sector is so slow. So getting the timing right, it's not dissimilar to the rest of VC.
(00:32:20):
But once you get something with the timing right, I think unlike many of other classic, whatever it might be, internet tech, you still have to work hard to get your returns out, because climate is harder. And if you want to invest into a vertical SaaS company, maybe that's a little bit easier, but certainly, we have companies like ZeroAvia in the portfolio. To make ZeroAvia a massive success story, is a system working as it gets. You need the infrastructure piece, you need a demand piece, a supply piece. And putting that all together, I think it's very different to the people that did Facebook Zero. It's a little bit more of an effort. If it makes sense, that's where we are.
Jason Jacobs (00:33:02):
And given the importance of regulations in many of these sectors, not all of them, because again, this is our entire global economy, so I think oftentimes people talk past each other, because one person will be talking about carbon accounting software and the other person will be talking about flow batteries, but they'll both be saying the word climate-tech and thinking that they're talking about the same thing. But when you think about regulation, how do you think about it? Are you, okay, for example, betting on future regulation? Do you resource to influencing regulation, or is it a non-factor?
Irena Spazzapan (00:33:38):
It is definitely a factor. You cannot do climate without having a deep foot. And on the advisory side, they are deep in the policy side of things. We have invested in areas where we expected a change to come. We did circular here in the UK. A year before, we expected the digital passport directive to come into place. There is a number of these directives that are coming into place in the next 18 months, which we are obviously actually looking at. So that's one aspect, which is the European stick style. I regulate, you know it's coming. It's usually pretty well communicated. There's no surprise. The thing we struggle as Europeans is invest on the back of IRA style. I really noticed a year on into the IRA that many climate-tech funds in the US are literally betting the house on IRA.
(00:34:31):
We can't do that in Europe. The European Union is not a fiscal unity. The UK has a tiny balance sheet, so can't do it. And so, I think in Europe we have maintained a bit of the CleanTech 1.0 disaster scar tissue in betting the house on that kind of regulation. We are more comfortable looking at single pieces of regulation that will bring the stick, as opposed to the carrot. IRA I think is an incredible game changer, and it's going to leave Europe behind potentially for generations to come. Even if Europe has many of the other cars which are way more ahead than the US or many fronts, history will say where we end up, but that's to an extent being reflected. Valuations in the US have not been as further apart from Europe in the recent history, so all that has been reflected, but I think it's fair to say that the regulation piece is now much more prominent in the way US climate-tech funds invest, as opposed to Europe, where we tend to be a little bit more wary on that front.
Jason Jacobs (00:35:35):
What types of risks are you okay betting on or taking on, and what types of risks are third rail or non-starters for you?
Irena Spazzapan (00:35:45):
Yeah. So as I said, we don't do B2C, so we don't take any branding marketing risk. That's just not what we do. We take technology, we take technology risk, but when it comes to first of a kind, we are very, very careful. When we do first of a kind, we want to back teams that understand how you access capital markets. Understand they're not just a bunch of engineers who have never looked at the way the world of finance works, because that's going to be very, very crucial and that's where most of these companies fail. When it comes to regulatory risk, betting on something that is purely going to fly, because somebody's going to pay them subsidies, as I said before, we are very wary of that. I generally have an aversion to back something that is only going to fly because of subsidies.
(00:36:27):
There needs to be a journey on cost curves where you believe that in the timeframe of your fund, such a thing is going to be in the money. Regulation is different. As I said, the stick regulation is a little bit different, because that creates a barrier to entry to an extent, but the big subsidy style invest is now happening in the US. We are a bit weary on that. Europeans in general tend to be a bit more skeptical on everything, and that difference post IRA has definitely come to life.
Jason Jacobs (00:36:55):
And when you think of that first of a kind, I mean that comes up a lot in our portfolio and it sounds like in yours as well. Is equity capital today the best way to fund those first of a kind plants? And in an ideal world, how should those first of a kind plants get funded?
Irena Spazzapan (00:37:13):
Sure. Look, I come from the asset side, so I know what it means to put together boilers and pipes and valves and all that. So sometimes I see the disconnect between people who just don't understand the difference between backing a SaaS company and building an asset from scratch. It's a different world and the project finance people just don't speak the language of taking technology risk, and most of the gross funds out there won't take technology risk, to be fair. So you have a very limited window, which you need to be incredibly clear. Right now, if you're in first of a kind, there's only two pools of capital. I call them strategics and Arabs, that's it. Obviously, two years ago it was different. Maybe in two years it will be different, but you need to be the type of founder or founding team that is exceptional and understanding how you're going to get to your two, 300 million equity until maybe you get access to something else.
(00:38:06):
Obviously, in the US you have the loan program, which is incredible. In Europe, I don't think it'll be ever possible to have something like that, because there is this subsidy of a fiscal union. And so in US, first of a kind, but even to get money from them, you won't be a Series A company. You have to be a little bit more advanced. So you still have that, Series B is where in my mind, in the next 12, 13 months, a lot of the revenue CapEx heavy companies that are not touched by IRA, are just going to go under. We're just at the beginning of that. There's been a period of pain, and now you have the period of realization, so the next 12, 13 months are going to be really bad. And it's there, it's Series B.
(00:38:45):
This pre-revenue companies that typically see an evaluation trap, because they raised like crazy Series A two years ago, and nobody wants to give them money. And then you have the typical thing where the value of the company is lower than the preference shares, in which case you might as well go back home or do something else. There's so many of that stuff out there. But if you have dry powder in this market as an investor, it's a great time to invest. I do believe that some of the best returns in climate-tech will come from this first of a kind hardware companies. You just have to be very selective, very, very selective and really back people who understand the real world, don't come from some crazy Silicon Valley world where they think that money grows on trees, because this is not how you build assets.
Jason Jacobs (00:39:29):
Well, that triggers a question that I wrestle with and I'd love to get your thoughts on, which is, what Silicon Valley brings that some of these real asset background people do not, is blitzscaling, hiring, storytelling, fundraising, exits, but what they don't bring, as you said, is expertise with real assets. And so, when you think about innovating in some of these real asset areas, how do you think about insiders versus outsiders when it comes to founding team composition, if you have a bias at all?
Irena Spazzapan (00:40:06):
Great question. I don't think a person that comes from the assets' life, the asset world, would make a good founder, full stop. Because they will be too conservative. They won't have that mentality of, I can do it different, because founding anything from scratch, it's hard, but you need founders that have that mentality of, right now is the time to do things different, but also living in the real world of, I can understand, I know I'm doing something hard, but I know where I could go. And it's not this idea that, oh, just because I have some VC, X, Y, Z backing my Series A, I'm going to make it all the way to Series COVID. I'm not giving you a straight answer, but every time we speak to founders who come from poor infrastructure investors before, those just won't make good founders.
(00:40:58):
There's always exceptions, but usually that's not the case. Equally, the former Silicon Valley people who go into hardware, some are exceptional, but the vast majority is not, because they don't understand. You want to pick those exceptional people that can marry the world of conservative capital location infrastructure with the things that's possible. It's possible to do things different, but those are 1% of the founders out there and those are the ones you want to back, because those will create the HundredX companies.
Jason Jacobs (00:41:27):
So if I'm hearing right, the real asset founders, or as founders, and again, there's always exceptions, but generally maybe too conservative and rooted in the realities of today, versus the dream of what the future can be, but then the Silicon Valley founder that isn't rooted enough in reality and is just beating their chest and getting lots of capital on storytelling without being rooted enough in reality to actually connect the dots or build a bridge, where is the happy medium? I mean, I know you said it's 1%, but what does that needle in the haystack look like?
Irena Spazzapan (00:42:05):
We have some of those in our portfolio. You can see some pattern. Those will typically be people who have a global view, which is not necessarily a given in the country where we come from, it's not a given, not many people will have a global view. They will understand that markets turn, that as important it is to devote resources into R&D and make your technology better, is as important from a very beginning to look the bull in the eye and go exactly where the future commercialization is going to be. There are way too many founders that spend precious time before or around Series A in R&D, and then it comes to Series B and you just don't have the metrics, because you have nothing in terms of external recognition to show. And being able to do those two, to advance your R&D, try and limit, push the impossible that nobody's done before, but at the same time have a dialogue with the real world, not, how do you want to call it, like the corporates, the people that will eventually be buying your product.
(00:43:04):
You have to do that from an early stage, and not many founders can do that. We certainly push all our founders to do that, those that are in the pre-revenue stack, to go and speak to the corporate world very early on, because what is going to be the difference between a successful and an unsuccessful Series B, is the amount of successful LOIs membership, partnership agreements you have, external validation. So it's not just use, and a bunch of maybe grants, people that give you grants in the government that say this is a good thing, but there's an initial stage of a future pipeline that says, "If this becomes reality, I'm going to be the first buyer." And you'd be surprised how few companies do that well, from seed onwards.
Jason Jacobs (00:43:51):
From a macro standpoint, it sounds like, and correct me if I'm wrong, but that from other shows I've heard you come on that Fund I was a dual focus of US and Europe, it sounds like, or it sounded seven months ago, I think, that you were leaning more towards focusing on the European market. How are you feeling today, and what differences are you seeing, if any, between the early stage climate-tech innovation market in Europe, versus in the US?
Irena Spazzapan (00:44:19):
I'll just tell you that since IRA, we haven't done a single deal in the US, because the entry points, we cannot make sense of them. The gap is as wide as it's always been. Of course, Europe is always going to be cheaper, but not to that extent. You're much better off backing great companies here that then either already have or are close to having a presence in the US. You're much better going the other way around. Maybe we were wrong and actually the IRA was a permanent shift, but for the time being, we prefer to really be careful about entry points. There are so many climate-tech companies in a evaluation trap out there, so many. You don't want to be in a evaluation trap into three years, because most of those companies would just go under. If you're a founder and you just have no equity, because the valuation is lower than the price stock, there's too many of those companies out there, and I think that many of the deals that are being done post IRA, seem to be leading to that path. And so, yeah, that's where we are.
(00:45:23):
That's, I think, the big difference. I think, if you wear the climate activist hat, what is going on in the US right now is just extraordinary, because the IRA has emboldened VCs to do things that they would never have done in the past, which from a climate activist perspective, is amazing. I know, I said before, we still as Europeans struggle to invest, based on subsidy stories. And that, I think, is the biggest difference between the US and Europe today. I equally don't see European tech VCs who have a subsidy based strategy, whereas in the US, many do. This location in history, they will merge again somehow. I don't know how we converge again, but they will converge. We have a busy geopolitical world, and nobody knows how things turn in the next 12 months.
Jason Jacobs (00:46:10):
I want to go back to something that we talked about earlier around the big purely financially-driven institutional capital allocators, the pensions, the endowments, et cetera, that are still largely on the sidelines in climate-tech. And to the extent that they are coming in, it's like some big multi-billion dollar, late stage fund from a big well-known PE shop or something, versus what's happening in the early stage innovation landscape, the way that they're involved in traditional venture. And one of the reasons that I've heard is that they were involved in Clean Tech 1.0 and they got burned pretty bad. And so now there's some reputation risk where it's like, if you're one of the first to stick your neck out again, it's like only downside kind of thing. And so, are you seeing that as well? And if so, how do you get past that chicken and egg, and how important is it to get past that chicken and egg and get these big institutional allocators active in the early stage? Do we need them?
Irena Spazzapan (00:47:05):
Well, first of all, any institution is typically not going to have more than 20% in alternative assets, some will go higher. And of that 20%, VC is going to be maybe 5% or lower. So you're talking about a very small location already, which they will then split based on whatever, their own metrics. This is in North America. In Europe, large institutional investors barely do anything in VC. Those that have historically done anything, they would invest on the West Coast. We can talk about that in another, but that's one of another massive problem that we have in Europe, which is that you just don't have risk capital from those pools. Hopefully, last night there was big speech at the Mansion House here, so hopefully they are whipping enough the UK pension fund to change, but it's very hard to change, that because it's so part of the system.
(00:47:52):
I would say on the contrary that big institutional capital is quite active in climate. I don't think that this is something that they're just not touching or not doing. Of course, we see they're a bit more cautious, but I'll say rightly so, honestly, the kind of deals that people were doing the past three years were nuts. Of course, if I weren't in PL, I'd also be like, "These people are all going to fall over each other." Now is the right time to invest, because valuations have come back to where it should be, but it's also the journey. How is climate-tech going to evolve? People have different theories, but is this a mature asset that has graduated? Are we going to go three, four or five years from now where you're going to have clear losers, clear winners from everything that's happened in the past six years, just like in any other asset class?
(00:48:37):
Or is it going to be like 2010 to '15 where just everybody was a loser? People will give you different answers. There are some LPs that will tell you, "Oh, the stuff that happened in the three years, just everybody's going to be losing money." We obviously don't subscribe to that. We think that just like in any other asset class, you'll have winners and losers. You'll have people that misallocate, and then you have people that allocate it properly. And I think the moment when you start seeing climate-tech funds with proper track record, then it becomes an asset client like any other, but we're not there yet, because the Clean Tech people from 15 years ago, they all got burned. And the people that emerged in '16, '17 when this started being an asset class on its own again, there's not been enough time to understand if anybody's actually going to make money of it. In three, four years it will be different, because the first funds that from '16, '17, '18 are going to come to the end of their term, and you will start seeing where's my DPI?
(00:49:36):
Obviously, that's where we wake up every day, and we believe that this is now a mature asset class where there'll be winners and losers, and it's not just they're all the same. But many LPs I hear are still in that camp of, I want to wait a little bit more. I'm still early days in figuring out what's my strategies. Yeah, but again, there is a lot of capitalistic come into climate. I definitely don't come across LPs, depends on which part of the world you go that will be like, "Oh, I have no allocation for this."
(00:50:06):
It's more, lots of emerging managers, little track record, and so then they give money to the P shop that does something in climate, because they feel that, that's like a stamp of. Well, at least they won't be doing silly deals, because they have an ICO grownups, that's how they think. But in three, four years from now, it'll be different, because all these emerging managers, you, us and all the others that are coming up, there will be winners and losers. And the winners will get more money, the losers will shut down, just in any other asset class.
Jason Jacobs (00:50:33):
That lack of DPI is something it seems like is not just on the mind of LPs, but on the mind of GPs too, where I had one on the show a few weeks ago and he was saying, "Look, on paper, they've got great marks, but there's still no DPI." And then it's like, "Well, who buys these companies?" And even the strategics that are active, what multiples can they pay, given their size, et cetera, in the market? So how do you think about that? What gives you the conviction that ultimately some of these companies can make it into the billions or tens of billions, versus the 100, 200, 300 million exits that we're seeing today?
Irena Spazzapan (00:51:10):
Let's pick two portfolio randoms. One has lots of zeros, and one, 100 X. The other portfolio has two, three zeros, lots of two, three X and a few 10, 20 X. Which one would you rather be investing in?
Jason Jacobs (00:51:24):
The power law one.
Irena Spazzapan (00:51:25):
I don't think so.
Jason Jacobs (00:51:26):
No?
Irena Spazzapan (00:51:27):
No, because you got lucky. I would much rather back the second, because it means that you've got-
Jason Jacobs (00:51:31):
Oh, I was just thinking from an absolute returns standpoint.
Irena Spazzapan (00:51:34):
Sure, but that's not necessarily the way of this thing. I want to back people who not just got lucky, but who have a structure, who have thought process of a prepared mind to clearly pick not just one winner, but a few that have done quite well, and they are able to return capital. If you want to be in the top 5%, you want to be in a place where every two funds, you return the capital. So between Fund I, Fund III, you return the capital. And that you can consistently only do if you think about how you build, how you optimize your portfolio, how you think about risk across all your holdings, how you don't duplicate the same business models and risks.
(00:52:10):
If you have pre-revenue for first of a kind risk, you counterbalance with stuff that maybe gets a faster exit. That stuff really matters, and in climate more than anything, because we have so many of these four opportunities that you cannot fill up your fund with, because otherwise you will never make it into the top quartile of returns.
Jason Jacobs (00:52:32):
How far are you into deploying the current vehicle you're investing out of? And as you think about whenever you end up going to market for that next vehicle, what's the dream scenario in terms of the position that you hope to be in with this current one?
Irena Spazzapan (00:52:47):
Yeah. So we've deployed about a third of new investment. If I take away the reserves, about a third. We are, I think, on track that by the time we get to Fund III, Fund I will be fully returned. So we think very hard about not just which are the great companies to back, but also how do they fit in our portfolio and how we construct a portfolio that is going to have the right returns, but also the right impact. Because we talked a lot about the return side of things, but we do spend a lot of time thinking about, what's the system change story of an investment we make, and how is it transformational as opposed to just something a little marginal that makes things a little bit better on the edge. That's not the Systemiq Capital deal. We want to back deals that have the potential to transform a sector, not put the plaster on wall.
Jason Jacobs (00:53:39):
And as it relates to LPs, we talked a bit about what types of LPs are investing in the space, what types of capital would you not take? And specifically, I'm thinking about how you might think about oil and gas money, how you might think about sovereign wealth. And I have a sense of what your answer is based on some of the research I did before, but it's something that we talk about internally and something that we get asked about externally as well. And I'd love to know how you think about it.
Irena Spazzapan (00:54:05):
We'll never take money from an oil and gas company, for sure. Sovereign funds, I would say it depends. The whole ethos at Systemiq and Systemiq Capital is that you need a share of outside change, but also you need also a share of insight change. And Systemiq Capital advises some of the biggest producers in the world. If they are genuine about the change, and equally Systemiq and withdrawal and say, "You guys are not genuine about what you do, I'm not going to help you anymore." Some of the biggest pools of capital in the world today need to be educated. That's why I say about sovereign funds. An oil company, there's nothing to educate about. Most of these businesses will be dead unless they convert to something very different in the next 30 years.
(00:54:52):
But sovereign funds are different. Sovereign funds will generationally change. And so, if you feel that you have the right in way, so you're dealing with sufficiently senior people who actually have an ear to what you say and will then adapt their largest strategy to what they learn from you, that I would say is way more impactful than taking money from a bunch of the gains and system people who don't want to engage with the polluters of the world.
(00:55:22):
But it's a very subtle line, because there has to be a genuine, you really have to be convinced that the people on the other side would want to invest in you, or do you want to invest in one of your companies, because they genuinely want to learn and change. And yet Germany, when it comes to the Middle East, it's a very subtle line. I know as many people there who are fully aligned and are way behind and putting big money into renewables or transition, as the other side. I think the biggest renewable development company in the world today is Mustar, which is owned by the Abu Dhabi government. You have both sides of the coin there, and you have to navigate it carefully, but those pools of capital will be so critical to the way we deploy capital in the next 10 years, 15 years.
(00:56:12):
You can't ignore them. In a world which you and I live in every day where people are terrified of first of a kind, in that part of the world, that's all they want to do. They're used, they love capital deployment, they love infrastructure. And so, you'd be a fool to ignore that and discount it fully, but at the same time, you have to make sure you deal with people who are not using you to green wash some of their own intentions. And that's why it's so subtle, but you can't just say, "Oh, that whole part of the world is, I'm never going to take capital from them", because there's some pretty impressive change going on there. If you go from a social to economic perspective, there's an impressive change going on there. But again, COP is coming, we'll be at COP. We're doing hopefully a larger event at COP, and sometimes you have to navigate a line, which is uncomfortable.
(00:57:08):
The one that you and I would not be used to threat every day, but you have to be always convinced that you're dealing with people who have the power to change, because they're young people in many of those regions. They're just like you and I. It's not like they believe that they're going to be drilling out oil for the next 100 years. It's the old generations that are still holding so much power. And the educational piece, we have to do that too. The educational piece is really, really important. You can't just say, "Oh, you guys are backward and I'm not going to come and interact with you."
Jason Jacobs (00:57:39):
I mean, that resonates with me. I think the thing that's surprising in your answer is that you don't look through the same lens at oil and gas.
Irena Spazzapan (00:57:46):
No. First of all, we don't take money from corporates. There's a different reason to that, which is much more about internal resources.
Jason Jacobs (00:57:55):
Is that like a managing conflict thing with the consulting side of the business?
Irena Spazzapan (00:57:59):
Not really. I think you can't mix the two. You either take money from corporates, or you don't. And if you take money from corporates, you have to set yourself up to be essentially an educational, you just have to do a lot of... They outsource a lot of the knowledge to you. We don't want to do that. So that's where we started.
(00:58:15):
If we were to take money from corporates, I just think you have to structure the fund in a different way. I think it's very hard to mix financial capital with strategic capital, because they have very different reasons why they invest and how they come to it and how they participate in it. Yeah, that's what we choose. I think that if you choose the strategic path, it can be an incredible rewarding and fulfilling path. We are deep the corporate world, but through a different route. But I think if you do that in climate, it can be incredibly fulfilling and very important,. It's just not us. It's not our DNA. So I guess, taking money from oil and gas would be even less natural for that reason.
Jason Jacobs (00:58:57):
And coming back around, and I know we're running up on time here, but we talked about how the capital is not concessionary, and you're measuring yourself by market returns, but that impact runs through the fiber of, and motivates everything that you do. How do you know, as a fund or as a firm if you're having an impact, and how do you think about tracking in that regard?
Irena Spazzapan (00:59:21):
In the due diligence process, we discuss impact and what's the system. Again, how is this company transformational? Then as we advance, we decide to make the investment, we'll set a bunch of KPIs, impact KPIs, which we then track sometimes quarterly, sometimes annually. I would say that two, three years after you've made an investment, you can start making a good guess whether this was an impactful investment or not. When we get things wrong, and we did, is on timing usually. You have a thesis that your company is going to transform a sector, because X, Y, Z is going to happen. And guess what? X, Y, Z doesn't happen. And it's still maybe going to happen, but it hasn't happened. In that case, the impact story doesn't really materialize.
(00:59:59):
Where I think we often get questions, and it has happened once in the past, is where a company is in that situation where X, Y, Z hasn't happened, "I need to make money. I'm going to pivot." And let's say they pivot to something that is not really in line with your impact thesis as a fund, we have this conversation once in a company. Then eventually the pivot didn't happen for other reasons. That's a very hard position to be in. I think you need to do a very good job in a due diligence space to make sure that as much as possible to limit those situations, because if they do happen, then you have a fiduciary duty to your investors to return the capital.
(01:00:35):
So if the only way for a company to make money is to go in a particular way, it can be as simple as you invest in a company that wants to decarbonize chemicals and they just can't make that work, and so they go in pharma. That has nothing to do with our impact phases. But at the same time, if that's the only way for the company to return capital, you're not going to say no, because you'd be going against your fiduciary duty. Those situations, if they happen, are really hard to deal with. Luckily, we didn't have too much, and I think the reason we didn't have too much, is because we like to back founders who are very much mission-aligned. They wake up every day, because they want to solve the climate problem. And if you do that, then I think these pivots are less frequent.
Jason Jacobs (01:01:16):
The last thing I wanted to ask you about is just this balance of, if you look at the systems and nature of the problem, there's a transition that needs to occur, and if progress is too incremental, we're never going to get there, we need big bold action and transformation. So the big bold action and transformation people look at incremental progress as a distraction, but the incremental progress people look at the big bold stuff and say, "If you're only elephant hunting and you're not just putting one foot in front of the other, you're going to get nowhere." And that small progress leads to big progress. And I'll give you an example, plugging leaks in natural gas pipelines as an example, because of all the methane that gets released into the sky. Some would argue, well, of course we should do that, because methane is a huge problem. And then others would argue, well, we got to get off natural gas, and doing anything to prolong the life of these pipelines is actually harmful from a climate standpoint. How do you think about that tension, and what's your theory of change?
Irena Spazzapan (01:02:12):
Yeah, great question. The way I balance this ethically as a person as opposed to the fund, is the methane block, the stuff you talked about, which is the nasty stuff that we have to put the plaster on today. I don't think we'd invest in that kind of stuff, but I do engage with that stuff personally. I sit in a bunch of boards of nonprofits and I try to help that way, because those are massive problems, and you can't just assume that we're all going to forget about fossil fuels, because it is not that easy. But there's numerous ways you can engage and help the system in those. I helped set up an NGO which is called MIQ, which is now the biggest certifier of lower methane emissions, natural gas. They certified by 20% of US gas.
(01:02:57):
I remain on the board, and I'm very engaged in that world. The world of carbon removals, for example, which is the opposite. It's the world of the bold new. Equally, we make investments in that world, but I try to help on the policy, so the Carbon180 equivalent in Europe is called Carbon Gap, which is hopefully really going to do the needed work on policy, because Europe is 10 years behind of CDR compared to the US. The beauty of being in climate-tech is that you see the system, and you can choose how to allocate 24 hours every day across the system, because everything you do will eventually help your companies in a way. Everything has to move forward so that these companies become in the money, and I firmly believe that part of that is also doing a bit of nonprofit, is also whatever your passion might be.
(01:03:45):
Some people engage more, like policy you have to be careful, there is potentially a conflict. That unlike other asset classes, climate is the one that really requires you to have this bird's eye view, and don't ignore the natural gas problems of the world, because if you don't plague those, then there will be nothing left for us to save, because we're going to go to four degrees before you know it. But you can balance your time and what is investible, as opposed to what is actionable. Choosing where you wear your activist hat, and where you wear your investor hat is definitely something that I think is one of the privileges of this job, that you could never possibly do if you were a VC investor in something else.
Jason Jacobs (01:04:25):
For anyone listening that is inspired by your approach and your work, who do you want to hear from, if anybody?
Irena Spazzapan (01:04:33):
I always love to learn from people. Just search on Google, and you'll see the areas where we tend to work most in. Reach out founders, just other thinkers, NPs. I'm very, very happy to just chat with people, because you always learn from each other.
Jason Jacobs (01:04:49):
Is there anything I didn't ask that I should have, or any parting words for listeners?
Irena Spazzapan (01:04:53):
I think it's been quite extensive. I definitely feel like I've been through an LP conversation.
Jason Jacobs (01:04:59):
This is my payback, as I'm on the other side of these all day long, so that's why I started this series.
Irena Spazzapan (01:05:03):
You should have told me this is going to sound like a fundraising pitch.
Jason Jacobs (01:05:09):
No, I didn't want to spoil the surprise.
Irena Spazzapan (01:05:11):
Great. Yeah. No, I think you've asked all the right questions, and climate is not a sector, as we discussed. There's numerous ways to be a climate-tech investor and be involved in this space, and you have to find your path. And no path is the same, which is just like, even if it looks like there are 200 climate-tech fans, actually, if you dig deeper, they're all different. Not two of them have the same strategy.
Jason Jacobs (01:05:38):
Well, I learned a ton. Thank you so much for making the time, and hopefully it was worth your while and that you get some good high quality inbound connections from it as well. I'd be surprised if you don't, but Irena, thank you so much for coming on and looking forward to continuing to collaborate with you and to watching the progress of Systemiq Capital as well. It's very exciting what you're doing.
Irena Spazzapan (01:05:58):
Yes, same on your end. Then hopefully we'll meet in person next time you're in London or I'm on these. Perfect. Thank you. Bye.
Cody Simms (01:06:04):
Thanks again for joining us on the My Climate Journey podcast. At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity. If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com and if you have a guest suggestion, let us know that via Twitter @mcjpod.
Yin Lu (01:06:31):
For weekly climate op-eds jobs, community events, and investment announcements from our MCJ venture funds, be sure to subscribe to our newsletter on our website.
Cody Simms (01:06:40):
Thanks, and see you next episode.
