Schneider Electric is proud to present a new podcast series, Innovation at the Edge, where Chief Innovation Officer Emmanuel Lagarrigue interviews global leaders on topics related to innovation and the new electric world.
This episode features Emily Kirsch, CEO of Powerhouse and Managing Director of Powerhouse Ventures. Emmanuel and Emily discuss how entrepreneurs and corporations are adapting in today’s upended environment to stay focused on growing their business, what cleantech investment looks like right now, and why venture capital needs to embrace impact investing and greater diversity.
I’m very pleased today to have on the show Emily Kirsch, founder and CEO of Powerhouse, an innovation center, an incubator in the Silicon Valley in Oakland, and she’s also the managing director of Powerhouse Ventures, which is a fund investing in startups, very focused on clean tech and how we make the world more sustainable. We are living in unprecedented times with COVID and social tensions rising. The world feels very different from what it was six months ago. What is your advice to your founders, to your entrepreneurs? What has changed? How should they navigate these times?
According to Crunchbase, there was a 27% drop in dollars invested in seed stage deals in Q1 of this year. And CB Insights reported that this decline in seed stage deals accounts for about 80% of the overall decline this quarter compared to Q4 of last year. So, it is a difficult time. However, at Powerhouse Ventures, I want founders and entrepreneurs to know that we are not slowing down our investments. We’re going to continue to identify and support founding teams that are building innovative technology to change the way we power our world, and we believe that addressing the climate crisis requires that we deploy our best and most innovative market-based solutions today. I think for funds that are newer to energy and more energy curious, which we were seeing a lot of that interest at the beginning of this year, before the coronavirus shut down a lot of the economy, they are more likely to take a step back and not make as many investments as they may have in our industry, but that’s not us. Powerhouse Ventures and our partners like Schneider Electric Ventures and others are here to stay.
As far as advice to entrepreneurs, I think there’s two main pieces of advice. One is seeking investment from energy experts and leaders in the industry makes a lot of sense right now, because when you’re pitching your company and trying to raise capital, the last thing you need is to spend an hour explaining the market opportunity to somebody who just doesn’t believe it or doesn’t get it. So, I would say focus on investors who are already industry experts and get the foundation of what you’re trying to do.
Second, I would say thinking critically about what value do you add in this current environment. So, how is this upended environment impacting your current customers, your potential customers? How can your product directly help them? And one example of that from our portfolio is a company called Ensemble Energy, and Ensemble leverages maintenance and sensor data to provide operation and maintenance for wind and solar assets, and Ensemble’s product enables asset owners and operators to both increase efficiency and monitor assets remotely. And these are two really important value-adds in this shutdown.
California’s Bay Area VC’s focus on software companies, but often shy away from clean tech because it was seen as capital intensive. Is there a path to connect the software strength and the capital of the Bay Area with clean tech to make the world a better place?
There was all of this excitement from big name venture funds in January and February, before the coronavirus hit, around starting climate funds, investing in energy and mobility and technology, and then coronavirus hit, and everyone went quiet. I don’t know how long they’ll be quiet for, but I understand, if it’s not your area of expertise, it’s harder to take a leap into a new industry.
There are a couple of big name VCs that are starting to become pioneers in our industry. This year, we made a follow-on investment in a Series A round for a startup that we participated in their seed round on called Leap, and their Series A was led by one of the biggest names in venture, Union Square Ventures out of New York. They invested in companies like Twitter and Lending Club and Etsy and Twilio and Cloud Flare, so a really phenomenal portfolio. And Union Square Ventures now wants to invest in what they call climate technology, and Leap was their very first investment in the clean energy space. And Union Square Ventures is looking to Powerhouse now to bring them more deal flow.
We see that as part of our role. We know that as much as we believe having an expertise in energy is important as an investor, we also know that we want traditional mainstream capital to recognize the opportunity that is not limited to hardware that is, as you said, so capital intensive, and there are so many opportunities now in software, that have applications in the energy and mobility space. We’re just one example of investors that are investing in that space, but it’s no longer just niche investors like us. It’s entities as big as Union Square Ventures.
Earlier this year there was huge momentum on the climate emergency. So, where are we now? What has changed?
Corporate budgets have been especially scrutinized during the pandemic, and some have stopped investing in this space entirely, but others are full steam ahead, and some are reckoning with what they’ve been and who they need to be in order to survive and continue. As far as our own partnerships, one example is Schneider Electric. You’re one of our closest partners, and we know that your senior leadership has said that your investment strategy remains unchanged, that you will continue to have this long-term outlook on our portfolio, and that commitment can be seen in the relationships that you have with startups.
The other one worth noting, and this is even more recent, according to BP, they said the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy, and this means more oil left in the ground, and more investment in renewables. So, there is a change happening, and the macro economics of renewables don’t change as a result of the coronavirus. Wind and solar still the cheapest forms of electricity almost everywhere globally today, and that’s only going to continue.
So, there is some change that’s happening with corporate. Some of it is a continuation in the beliefs and investments that were already being made, but some are really reevaluating who they are and who they want to be, and who they need to be in the world to continue to be relevant and to continue to be leaders.
Do you think this is also an opportunity to go to a more diverse base of entrepreneurship? Because it has always been one of the issues of this ecosystem of VC, especially in the Silicon Valley. Is clean tech also an accelerator of diversity?
I think it can be, but it won’t be by default, and in part, that’s because of the demographics of who controls capital. I think we won’t truly see a shift in the demographics of founders, and we won’t see more underrepresented founders until we see those underrepresented leaders in venture making the investment decisions. I think one of the most important things that we can do, and you did it just now, is to spotlight and uplift the voices and the leadership of underrepresented founders, whether it’s women or black people or Latino people or indigenous people. We think that this is something that we all have a responsibility to talk about, but we also have a responsibility to highlight the voices of people who have that lived experience.
So, for example, we had Gia Schneider, the co-founder and CEO of Natel Energy, on our podcast, What It Takes, that we do in partnership with Green Tech Media, and that was right after she had closed her round that Schneider Electric participated in, along with Breakthrough Energy Ventures. And so, highlighting people like her who are remarkable leaders in this space, and it’s so important for other women and women of color to see people like her and say, “Oh, I do see myself as a founder, as a leader of a company, as a leader of a hardware and software company.” So, I think you’re absolutely right to bring it up, especially given everything that is at the surface right now in the United States and around the world. This is where actual commitments and tracking of metrics is so important.
And so, at Powerhouse Ventures, at the beginning of the year, we made the commitment that a quarter of the investments we make this year, at least a quarter, a minimum, will be in companies with underrepresented founders. And so, that’s where we’re starting. We have a long way to go to get where we need to be, but we think that having the conversation is such an important place to start, so I’m really happy that you brought it up.
Some people in venture capital are calling for a reset, maybe it’s time to really do things differently. What is your take on this?
As far as our values go, how many investors in Silicon Valley have put money into stuff that just doesn’t matter? We need a values reset in venture where investors feel obligated to invest in technology that can truly make a meaningful difference in things that matter, like how all of us power our lives. And Powerhouse Ventures, we don’t call ourselves an impact investor, because every single investor, we all have an impact. It can be a positive impact or a negative impact, but it’s not neutral.
And so, I think the reset that needs to happen, one, is around our own values, and if you are in venture or are in a position to be investing, then think about yourself as an impact investor or think of the impact that you are having, because you are having one. And so, that’s one. And then two is this question of leadership and a reset of leadership.
The vast majority of founders who get backed are financially privileged, are white, are male, and the vast majority of investors who back these founders are the same thing. And so, we know that companies with diverse leadership, and we know that funds with diverse leadership, have better returns. And so, if nothing else, from a fiduciary responsibility standpoint, we all need to be thinking about the leadership of the teams we invest in, our own teams, our own boards, and we need to prioritize building a more equitable and just society, because that will lead to better outcomes for everyone. So, that is informing our investment decisions, and I hope it’s a call to other investors to look internally, not just make the statements of support, but who is our board, who are the founders that we invest in, who’s on our own team, because this all has implications in terms of what the world looks like, and we have a long way to go, but I’m really happy that we’re starting to have a conversation.
That’s a great point. So, if you’re an investor, think of yourself as an impact investor, as you said, because you have an impact. And you have a responsibility in how teams, whether they be bold investment teams or simply the teams that are working to build those new ventures, have to be diverse. What is your secret to success?
Well, I guess the secret is I think sometimes people say you have to be fearless, and I don’t think that’s right. I don’t think anyone’s fearless. I have fear. The entrepreneurs we back have fears. I think maybe the secret is we have those fears, but if we have conviction on something, if you have conviction on something, do it anyway. The world needs solutions. The world needs risk takers.
And so, if you feel called to attempt something, then entities like Powerhouse and people like me are here to back you, and I took that risk in starting Powerhouse seven years ago. I took that risk two years ago in starting Powerhouse Ventures. And both were two of the best decisions I’ve ever made. Being able to set the values and build cultures and bring people in who may not otherwise find a place for themselves in the industry, and knowing that that actually makes you better and more successful, those are some of the things that I would encourage people to do, because it is scary, there is no guarantee of success, but the country and the world is calling us to play big and to take risks, and I think we all need to do that in our own way.
Thank you. Great advice. Well, Emily thank you very, very much for being part of this first podcast of our Schneider Electric Innovation At The Edge. Thanks again for your time today.
Thank you so much, Emmanuel.
The Innovation at the Edge podcast showcases bold ideas for a more sustainable and resilient world. Discussions with global thought leaders highlight what’s new in innovation and provide insights for both entrepreneurs and corporations to build more agile and resilient business.