Venture capital with impact

Nancy Pfund is Founder and Managing Partner of DBL Partners, a double bottom line venture capital firm, which strives to combine top- tier financial returns with meaningful social and environmental returns. She is an early investor in Tesla, SpaceX and SolarCity.

What inspired you to found DBL Partners?

My first major sustainability investing effort took place back in 2004 when I was a Managing Director in J.P. Morgan’s San Francisco office. It was a small regional fund with outside LPs. We later spun out of J.P. Morgan in 2008 to create DBL Investors and took this fund with us. I did not consider myself the entrepreneur type. I had worked at J.P. Morgan and its predecessor firm Hambrecht & Quist for nearly 25 years and was happy to marry my interests of venture capital and sustainability in that first fund. The ambition was to raise a second fund, but 2008 wasn’t the right time. Many portfolios were hurting, including ours at the time, so we postponed our second fund for another year. Having just spun out of J.P. Morgan in January of 2008, it was not exactly smooth sailing because of all of the fallout from the financial crisis. But we hung in there and never looked back! DBL Partners was founded in 2015, through the combination of DBL Investors and the cleantech practice of Technology Partners. We saw increased momentum in cleantech, and in some aspects it was a dream come true – the firm’s identity was 100% aligned with impact and sustainability, we had more horsepower combining the two practices, and we had the ability to help move the world forward in a positive way, more quickly with a larger platform.

Can you share some insights on DBL’s investment in Tesla? What was your thinking around EVs back then?

It was one of the earlier investments of the 2004-vintage fund; we invested in early 2006. But it wasn’t our first sustainability investment. PowerLight was the first, which soon began preparing for an IPO after our investment but got acquired by SunPower and is now the installation side of SunPower.

As a “double bottom line” fund, one of our scoring metrics was whether or not we could help to create quality jobs in the Bay Area.

The Tesla investment reflected the mission of our fund – to promote sustainability. But it did more. As a “double bottom line” fund, one of our scoring metrics was whether or not we could help to create quality jobs in the Bay Area. Not just jobs for tech engineers and coders, but for a diverse hiring base, including lower-income earners. We were introduced to JB Straubel (Tesla CTO and co-founder) through a professor at Stanford, and were impressed by the Tesla vision and team. We had just started to think about electric vehicles ourselves and how they could transform the automotive industry. And with the Toyota NUUMI plant (now the Tesla plant) in Fremont struggling at the time, we felt there was a big gap for Tesla to fill, both on a climate and jobs level. VantagePoint ultimately led the first institutional round, and DBL joined it. We had no prior experience with investing in car companies (who did?!), but we could bring our sustainability understanding and job orientation to the investment approach.

Did you ever imagine back then that Tesla could become this successful?

When you enter into an investment, you always think it will be successful. However, Tesla, like so many other companies, had many neardeath experiences on its way to success, and so there were moments of doubt. It’s not easy to have to rebuild the automobile and the automotive supply chain from fossil to electric. We felt our investment had some downside protection even if the Roadster (the two-seater sports car) ended up being the only car built. We modeled that if that happened, we could sell the company to a luxury sports car manufacturer. Still, we never let go of the “big idea” that Tesla would redefine transportation to meet 21st century needs and become a hugely successful investment. We also thought it could create a ton of jobs, so we kept the faith!

Looking back on the cleantech and sustainable investing boom-bust cycle over the past 10 years, what observations can you share as an investor?

It has almost been a perfect storm in the past 10 years, starting with strong momentum in 2004-2006, and then the big crash in 2008. In its aftermath, we saw unstable financial markets, technology delays, and the politicization of renewable energy that weighed on the sector and lasted for years, with federal inquiries and bad press. At DBL, the bumps were not as severe and the sale of Powerlight to SunPower got us off to a good start. The momentum continued in 2010 with the IPO of Tesla and in 2012 with the IPO of SolarCity. We saw that the negativity had changed. While it never completely disappeared, we knew sustainability would begin to dominate popular opinion. We started to see growth in renewables generation capacity. U.S. job creation from the rooftop and commercial solar industry was just what the doctor ordered in terms of recovery from 2008, when many jobs were lost. There were headwinds, but the tailwinds were far stronger. Public understanding and acceptance grew, and we now started to really see that these businesses could achieve scale.

What sectors in sustainability are hot? What should we look out for?

DBL takes a very broad view on sustainability – we follow the carbon, and that takes us to many different places. We focus on areas where carbon generation is high, and where there is a problem that is not being solved by incumbents. The era of cheap, stationary energy storage changes everything: It makes energy efficiency better, allows for monetization of assets, and makes renewables more useful. Customers can optimize their load for a variety of purposes, in real time with real information, in a way that supports the utility’s goals as well, as never before. Integrators like Advanced Microgrid Solutions are accelerating growth and carving out a strong place in the electricity ecosystem. It’s revolutionary. We also see massive opportunity for storage in the developing world, including Africa. With over 600 million people lacking access to electricity there, Africa is a wide-open playing field. We can allow residents to skip traditional generation adoption and go straight to renewable power through distributed generation and energy storage – this is a trillion-dollar opportunity for the continent. We see increased collaboration, from Silicon Valley tech companies to local installation and marketing teams, and now also local VCs and other investors from Africa, helping these companies grow. It is an African business revolution, rather than one being imported from abroad. In an interesting twist, we may see some of the more advanced solar-and-storage advances succeed in Senegal first, rather than Sacramento. The shift will happen faster there since no incumbents are in place, and the technologies are cheaper to deploy. We’ll see new advanced grid technologies and rooftop structures, with high functionality, scaling rapidly in these regions, regions where for many, they least expect it. People will respond with a “Wow!” Agriculture is another hot sector. It creates over 30% of the world’s carbon. Leaders such as Cargill, Monsanto, John Deere, Syngenta, are the iconic names, but there is a real opportunity to bring new companies into this multi-trillion dollar market and create an agricultural system that meets 21st century sustainability needs as well as farmers’ needs. We see increased focus on farmer empowerment – for example, Farmers Business Network, one of our portfolio companies, allows farmers to make better decisions relying on Big Data for inputs such as weather, seed, and soil type. As Earth’s population is expected to reach 9bn, we need a healthy agricultural and farmer compensation system to feed everyone. Big Data levels the playing field for farmers visà-vis their vendors driving more resource efficiency. This is not just good news for the farmers, but also for our planet. Other areas of interest include space tools that help us understand our planet. Before you follow the carbon, you have to find it! Technology companies that use analytics, images, intelligent mapping, nanosatellites, etc. are making a tremendous difference in how we interact with space to make life better here on earth – look at natural resource tracking and autonomous driving, for example. We also focus on the circular economy. For example, we invested in The RealReal, a company which authenticates luxury goods sales online. It provides access to used luxury goods at a lower price for consumers, but also provides multiple lifecycles of a product for the designers. This is a huge problem for the fashion industry today that The RealReal helps to solve. We also like companies that find a way to monetize conservation: today, most of the big names in conservation today are non-profits. We aim to balance that with for-profit companies entering the picture. We’ve got to do this because conservation has a huge role to play in storing carbon and keeping it in the ground.

What are the biggest hurdles that early cleantech companies must overcome to be successful?

When investing in embryonic companies, it is more about the tenacity, the leadership of management teams and the team’s ability to inspire. It is all about the people and the culture. I am often asked, “Would you rather have an A+ management team with a B+ product or vice versa? Obviously I would rather have both be an A+, but I would pick the A+ management team if I only had one option – this is what gets you through the difficult times of an early-stage company. Technology always evolves anyway, especially as you continue to scale, so the product you first invest in morphs many times along the way. It is the strength of management teams that allows this to happen in a constructive manner. For sustainable companies, we need to add another layer of assessment when we invest: We need to understand the regulatory mix, and determine a strategy where you win more than you lose. It’s part of the process, not something to run away from. This is what makes this sector so much fun

For sustainable companies, we need to add another layer of assessment when we invest: We need to understand the regulatory mix, and determine a strategy where you win more than you lose.

How has the investor landscape changed? Is a lot of competition making it harder to get into rounds?

The cleantech investing syndicate has changed in the past couple of years, which is very exciting. Post dot.com bust, 2003-2006, we saw a lot of “tech investor tourists” who were looking for other hot sectors to invest in. This had positive effects in growing the field, but also negative ones because once the tech sector rebounded many of those investors left. Today, we have a healthy ecosystem of investors:

• Utility funds, utilities, international energy companies have started to come in, recognizing that they can help shape the future rather than just react to it;

• Foundations, family offices, and impact investors who are really out to reorient business activity toward a more sustainable future, looking to both private and public equities as well as debt markets; and,

• New cleantech funds whose founders have been through the early days and have a seasoned perspective.

All of these are very encouraging developments to see.

If you had a crystal ball, what would you expect to see 10 years from now?

We’ll see a big push towards a cleaner energy system and a move toward the electrification of everything. More renewables and use of storage will be the rule, not the exception. Electrical vehicles will become omnipresent. Countries with no grid or unreliable electricity will go straight to clean distributed energy and derive significant economic and social benefits.

We’ll see a big push towards a cleaner energy system and a move toward the electrification of everything. More renewables and use of storage will be the rule, not the exception.

Overall, I am very bullish on clean energy across all sectors. In the past, even in the recent past, we did not always see where the “cost” met the “cause.” Today costs are coming down and clean solutions are becoming more competitive; everything is coming into alignment. The public wants clean energy – this is not a partisan issue, people are voting with their investment portfolios and with their utility bills regardless of their political persuasion. We have needs we never could have predicted in the 20th century, and we will now start to reward companies that solve for these needs. These companies will create jobs for the next generation that go beyond providing paycheck to providing purpose and the peace of mind that comes from leaving the world a better place than you found it.

What about women in energy?

One of the things I get asked a lot is, “What is the role of women in clean energy?” As a clean energy professional, I am heartened by the increase in participation of women over the past 10 years. It’s been very visible across the board, including public advocates, government, public companies, funds, investors, utilities, start-ups, etc. We need everyone to work together to build a clean energy future. And that future will be brighter with a more diverse and representative workforce building it.

Who is your sustainable hero and why?

I have thousands of sustainable heroes. They are women and men who get up every morning and work to create a future that we all can thrive in and that nurtures our planet. They do this sometimes in the face of opposition, criticism, and the entrenchment of the status quo. And yet, they keep going, envisioning a better future and making it happen. These are my heroes. Some of them are famous. All of them are fierce!